On 12/18/2009 ROSTACK INVESTMENTS INC filed a Contract - Debt Collection lawsuit against ANGELA C SABELLA. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judges overseeing this case are JOSEPH R. KALIN, LUIS A. LAVIN, BARBARA A. MEIERS and DANIEL J. BUCKLEY. The case status is Pending - Other Pending.
Pending - Other Pending
Los Angeles County Superior Courts
Stanley Mosk Courthouse
Los Angeles, California
JOSEPH R. KALIN
LUIS A. LAVIN
BARBARA A. MEIERS
DANIEL J. BUCKLEY
ROSTACK INVESTMENTS INC.
SABELLA ANGELA C.
SABELLA ANGELA C. AKA ANGELA CHEN
NADOLENCO JOHN ESQ.
SOLTMAN NEIL M.
GRAHAM JOHN A.
MILLER BARONDESS LLP
DOREN RICHARD J. ESQ.
LOOSE TIMOTHY WILLIAM
JEFFER MANGELS BUTLER & MARMARO LLP
DOREN RICHARD J.
MILLER LOUIS R.
MILLER LOUIS R
5/15/2019: Motion in Limine - MOTION IN LIMINE NO. 2 - DISCOVERY SANCTIONS
5/15/2019: Motion in Limine - MOTION IN LIMINE NO. 3 - TO EXCLUDE HEARSAY AND CERTAIN OTHER STATEMENTS
5/15/2019: Declaration - DECLARATION OF MATTHEW H. MARMOLEJO IN SUPPORT OF MOTION IN LIMINE NO. 3 - TO EXCLUDE HEARSAY AND CERTAIN OTHER STATEMENTS
5/15/2019: Proof of Service (not Summons and Complaint)
5/16/2019: Notice - NOTICE OF ERRATA RE DECLARATION OF MATTHEW H. MARMOLEJO IN SUPPORT OF PLAINTIFF ROSTACK INVESTMENTS INC.S MOTION IN LIMINE NO. 3 TO EXCLUDE HEARSAY AND CERTAIN OTHER STATEMENTS BY OR ABOUT M
5/3/2019: Motion re: - MOTION RE: TO APPLY HONG KONG LAW TO DEFENDANT'S GIFT DEFENSE; AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
5/3/2019: Declaration - DECLARATION OF MATTHEW H. MARMOLEJO IN SUPPORT OF PLAINTIFF ROSTACK INVESTMENTS INC.'S MOTION TO APPLY HONG KONG LAW TO DEFENDANT'S GIFT DEFENSE
4/9/2019: Appeal - Remittitur - Affirmed - APPEAL - REMITTITUR - AFFIRMED B286069
4/3/2019: Stipulation and Order - STIPULATION AND ORDER STIPULATION AND [PROPOSED] ORDER REGARDING DATE OF FINAL STATUS CONFERENCE
5/15/2019: Declaration - DECLARATION OF MATTHEW H. MARMOLEJO IN SUPPORT OF MOTION IN LIMINE NO. 1 - DETERMINATION OF INTEREST
5/15/2019: Motion in Limine - MOTION IN LIMINE NO. 1 - DETERMINATION OF INTEREST
10/14/2011: PLAINTIFFS NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENI OR IN THF ALTERNATIVE SUMMARY ADJUDICATION; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
4/15/2013: DECLARAFION OF YU KIM P0 AKA PATRICK YU AU EN SUPPORT OF ROSTACK?S OPPOSITION TO SABELLA?S MOTION FOR SANCTIONS
11/12/2013: Minute Order -
2/24/2014: Minute Order -
5/6/2014: ORDER APPOINTING COURT APPROVED REPORTER AS OFFICIAL REPORTER PRO TEMPORE
9/4/2014: RULING ON DEFENDANT SABELLA?S MOTION TO STRIKE PLAINTIFF?S SUMMARY JUDGMENT MOTION
8/14/2017: REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEFENDANT'S MOTION FOR A BOND PURSUANT TO C.C.P. SECTION 1030
Hearing01/14/2021 at 09:30 AM in Department 56 at 111 North Hill Street, Los Angeles, CA 90012; Hearing - Oral ArgumentRead MoreRead Less
DocketProof of Service (not Summons and Complaint); Filed by Angela C. Sabella (Defendant)Read MoreRead Less
DocketDeclaration (OF A. SASHA FRID IN SUPPORT OF DEFENDANT?S REPLY IN SUPPORT OF THE NECESSITY OF PHASE TWO OF TRIAL); Filed by Angela C. Sabella (Defendant)Read MoreRead Less
DocketDeclaration (OF ANGELA C. SABELLA); Filed by Angela C. Sabella (Defendant)Read MoreRead Less
DocketReply (IN SUPPORT OF THE NECESSITY OF PHASE TWO OF TRIAL); Filed by Angela C. Sabella (Defendant)Read MoreRead Less
Docketat 09:30 AM in Department 56; Hearing - Oral Argument (reFinal Argument on Proposed Statement of Decision) - Not Held - Advanced and Continued - by CourtRead MoreRead Less
Docketat 09:00 AM in Department 56; Hearing on Ex Parte Application (to Extend Deadline to File Reply and to Continue Hearing Concerning the Necessity of a Second Phase of Trial) - HeldRead MoreRead Less
DocketNotice (of Ruling on Defendant's Ex Parte Application); Filed by Angela C. Sabella (Defendant)Read MoreRead Less
DocketMinute Order ( (Hearing on Ex Parte Application to Extend Deadline to File Re...)); Filed by ClerkRead MoreRead Less
Docketat 08:30 AM in Department 56; Hearing on Ex Parte Application (to Extend Deadline to File Reply and to Continue Hearing Concerning the Necessity of a Second Phase of Trial) - Held - ContinuedRead MoreRead Less
DocketPROOF OF SERVICERead MoreRead Less
DocketPROOF OF SERVICE OF SUMMONS, COMPLAINT, ADR PACKAGE AND NOTICE OF CASE ASSIGNMENTRead MoreRead Less
DocketProof of Service (not Summons and Complaint); Filed by Rostack Investments, Inc. (Plaintiff)Read MoreRead Less
DocketNOTICE OF CASE MANAGEMENT CONFERENCERead MoreRead Less
DocketNotice of Case Management Conference; Filed by ClerkRead MoreRead Less
DocketOSC-Failure to File Proof of Serv; Filed by ClerkRead MoreRead Less
DocketORDER TO SHOW CAUSE HEARINGRead MoreRead Less
DocketComplaint; Filed by Rostack Investments, Inc. (Plaintiff)Read MoreRead Less
DocketSUMMONSRead MoreRead Less
DocketCOMPLAINT FOR BREACH OF CONTRACT, BOOK ACCOUNT AND MONEY LENTRead MoreRead Less
Case Number: BC428298 Hearing Date: January 14, 2021 Dept: 56
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT
ROSTACK INVESTMENTS, INC., etc.,
ANGELA C. SABELLA aka ANGELA CHEN, etc.,
CASE NO.: BC428298
[TENTATIVE] ORDER RE: NECESSITY OF A SECOND PHASE OF TRIAL
Date: January 14, 2021
Time: 8:30 a.m.
MOVING PARTY: Defendant Angela Chen Sabella
RESPONDING PARTY: Plaintiff Rostack Investments, Inc.
The Court has considered the moving, opposition, and reply papers.
The operative first-amended complaint (“FAC”) alleges causes of action for: (1) breach of contract; (2) book account; and (3) money lent. All of Plaintiff’s claims arise from Defendant’s alleged failure to pay money owed pursuant to a promissory note (the “Note”) relating to the purchase of an undeveloped parcel of property called Two Bear Ranch.
Defendant filed a Second Amended Answer (“SAA”) to the FAC, which generally and specifically denied each allegation in the FAC, and also asserted the following affirmative defenses: (1) lack of consideration; (2) gift under Civ. Code § 1146; (3) failure to state a cause of action; (4) unjust enrichment; (5) discharge; (6) estoppel; and (7) no damages.
The Sixth Affirmative Defense was the subject of the trial held by this Court and is labelled simply “Estoppel.” In this affirmative defense, Defendant asserts that Plaintiff is estopped from enforcing the Note on the following grounds:
(1) The Note “did not evidence any indebtedness by Defendant in favor of Plaintiff. All of the funds used to acquire Two Bear Ranch were given to Defendant by her father [Mr. Chen]. Mr. Chen gave the funds to Defendant through a series of his wholly owned companies which acted as his agent in transferring the funds” (SAA ¶33);
(2) “Rostack did not provide any of the funds to acquire Two Bear Ranch. Following the acquisition of Two Bear Ranch, a deed to the Two Bear Ranch property was delivered to and accepted by Defendant, through a wholly owned subchapter S corporation that she formed for that purpose.” (SAA, ¶ 34.);
(3) “Mr. Chen intended to eventually gift the Two Bear Ranch to Defendant. But Mr. Chen was a careful man and did not give [Defendant] the gift outright. As such, he loaned the money to [Defendant] for the purchase, planning to forgive the loan at an appropriate time in the future. Tax advice for this structure was obtained from the international accounting firm KPMG/Peat Marwick (“KPMG”) and prominent law firm Gibson Dunn & Crutcher, LLP (“Gibson Dunn”). Mr. Chen wanted to structure the transaction in a tax beneficial manner, so that [Defendant] could get a deduction for interest payments, and [Mr. Chen] would not have to pay withholding tax thereon. Relying on the advice of her tax professionals, [Defendant] executed the promissory note in favor of Rostack.” (SAA, ¶ 35.);
(4) “There was also an understanding and agreement that interest on the note would be gifted to Defendant by Mr. Chen. For 10 years thereafter, in accordance with this understanding and agreement, Mr. Chen made annual gifts to Defendant to enable her to pay the interest that became due on the [N]ote. (SAA, ¶ 36.);
(5) “Mr. Chen knew that unless Defendant received these annual gifts from him, Defendant would not have signed the [N]ote or assumed a liability in excess of $30 million, especially when the large, undeveloped and non-income producing Two Bear Ranch property could not reasonably be expected to generate sufficient revenue to service such a significant debt obligation during the stated period of the [N]ote, if at all. Rostack knew that Mr. Chen was the source of the funds that Defendant used to pay interest due on the note; and it consented to the arrangement by excepting those funds without protest or objection.” (SAA, ¶ 37.);
(6) “Mr. Chen intended to, and did, gift Two Bear Ranch to Defendant, thereby forgiving, canceling and/or discharging the Promissory Note. The purpose of this understanding and agreement was to make certain that Defendant would not be held financially responsible in any way for paying any amounts due under the [N]ote.” (SAA, ¶ 38.);
(7) “In reliance on the understandings and agreements referred to above, including [Mr. Chen’s] statements that the Two Bear Ranch property would be gifted and that Defendant would not be held financially responsible for paying any amounts due under the [N]ote, Defendant proceeded with the Two Bear transaction. Defendant altered her position in other respects, including, but not limited to, devoting her time and resources to develop and improve the Two Bear Ranch property, all to her substantial detriment.” (SAA, ¶ 39.);
(8) “Had Mr. Chen and Defendant not reached the understandings and agreements referred to above, under which Defendant was not to be held financially responsible for paying any amounts under the [N]ote, Defendant would not have signed the [N]ote or accepted the deed to the Two Bear Ranch. Under the circumstances it would be inequitable to require Defendant to pay Rostack any amounts allegedly due on the [N]ote.” (SAA, ¶ 40.);
(9) “Rostack is seeking to enforce the Promissory Note even though it is aware that Mr. Chen gifted the Two Bear Ranch loan to Defendant.” (SAA, ¶ 41.); (
9) “Rostack, which acted solely as Mr. Chen’s agent in the Two Bear Ranch purchase, has wrongfully repudiated Mr. Chen’s donative intent to make a gift to Defendant. As a result of this wrongful conduct, Rostack is estopped from enforcing the [N]ote.” (SAA, ¶ 42.);
(10) “Because Mr. Chen and therefore Rostack as his agent understood and agreed that Defendant was dependent upon the gift arrangement to fund the interest payments as evidenced by his annual gifts to Defendant from 1995 to 2006, and that Defendant would otherwise never have agreed to sign the [N]ote, Rostack is now estopped from claiming that the [N]ote is in default or seeking to recover any amounts claimed due under the [N]ote. Rostack is further estopped from enforcing the [N]ote since Defendant understood that the Two Bear Ranch loan was gifted to her by Mr. Chen and did not take any steps to refinance or obtain other sources of funding to repay the loan.” (SAA, ¶ 43.)
Therefore, in order to decide the validity of the broadly-titled “Estoppel” affirmative defense, the Court was required to determine whether: 1) the Note did not evidence a debt from Defendant to Plaintiff because Plaintiff itself did not provide funds to Defendant; 2) Mr. Chen intended to eventually gift and did in fact gift Two Bear Ranch to Defendant and thus forgave, cancelled and/or discharged the Note; 3) Defendant relied upon the gifting of the Note in signing a promissory note for which she believed she would have no financial responsibility; and 4) for all the reasons stated, Plaintiff is estopped from enforcing the Note.
All of the other affirmative defenses asserted by Defendant in the SAAA are based on all or some of the matters alleged by Defendant in the Sixth Affirmative Defense.
Relevant Procedural History
Because this matter has been pending for over eleven years, the Court finds it necessary to set forth the relevant procedural history of this action here.
Judge Lavin’s Ruling and Relevant History
This lawsuit was commenced on December 18, 2009 as a three count complaint for breach of contract, money had and received and money lent. The complaint prayed for damages consisting of principal on the Note of $28,273,000, with interest accrued as of November 30, 2009 in the amount of $9,636,058.08, accruing at a rate of $7,746.02 per day. Interest on the Note is ten percent (10%) per annum, simple interest.
Rostack filed the FAC on December 4, 2011, and on April 5, 2012, the Honorable Luis A. Lavin ruled on Plaintiff’s motion for summary judgment or, in the alternative, summary adjudication, as to the three causes of action in the FAC as well as the first, second, and third affirmative defenses advanced in her January 13, 2012 answer to the FAC. The Court’s April 5, 2012 order stated that “Defendant submitted evidence raising a triable issue of fact as to whether [Chen] intended to gift . . . the Two Bear Loan” and that a triable issue of fact existed as to whether Chen intended to gift Defendant “the funds which are the subject of the loan from [Plaintiff].” (Order at p.2.) The Court’s order also stated that there was a triable issue of fact whether or not delivery had been accomplished. The Court denied the entirety of Plaintiff’s motion.
On May 8, 2012, however, this action was reassigned from Judge Lavin to the Honorable Barbara A. Meiers, and a notice of case reassignment was filed on May 11, 2012.
On May 10, 2012, Plaintiff filed a motion for summary adjudication as to the first, second, seventh, and eighth affirmative defenses asserted in Defendant’s First Amended Answer. On August 10, 2012, the Court took the motion for summary adjudication under submission; however, on August 17, 2012, the Court issued a minute order stating that the SAA had been filed and all pending motions for summary judgment or summary adjudication had been withdrawn.
On July 5, 2013, Judge Meiers issued an order stating that, regardless of prior rulings on summary judgment and/or summary adjudication, both parties were invited to file or refile such motions augmented, if appropriate, with additional material developed since earlier filings. The Court’s order stated that “Plaintiff in this case has twice moved for summary judgment/adjudication. The first time the court decided against it concluding that there were issues of material fact and the second time the motion having been withdrawn before decision.” (Order at 2:3-5.) The order also stated that “the judge who originally denied plaintiff’s summary judgment ruling is no longer assigned to the case, but it does not seem to this court that a party should be denied the opportunity to have legal error corrected, if there be one, by virtue of a ‘changing of the guards’ over which the party had no control due to courtroom assignment.” (Id. at 2:7-10.)
Rostack’s Motion for Summary Judgment and Judge Meiers’ Ruling on the Motion for Summary Judgment
On June 6, 2014, Plaintiff filed a motion to enter summary judgment on the FAC in its favor and, in the alternative, summary adjudication in its favor as to: (1) the first through third causes of action of the FAC; and (2) the first through seventh affirmative defenses asserted by Defendant in the SAA.
On October 30, 2014, Judge Meiers issued a ruling on the motion. The Court’s ruling gave some background on this action and stated that Defendant “has contended from the outset that because [Chen] allegedly promised that she would never have to repay [the] loan, that he would make a gift to her of the money necessary to pay off the note, . . . [and] that [Chen] not only made her a gift of this money but that [Plaintiff] is not the real party in interest entitled to recover.” (Ruling at 5:17-22.) The Court found that “[t]here was not only a monetary consideration from [Plaintiff] to [Defendant] in connection with the loan in issue, but there were also other forms of consideration.” (Id. at 11:14-16.) The Court stated that “Defendant’s Opposition to Plaintiff’s Motion for Summary Judgment” had “set forth all the claims made in her affirmative defenses which” were deemed by the Court to be “inadequate to prevent the summary judgment sought by [Plaintiff].” (Id. at 17:5-7.) The Court held that Defendant’s gift defense was insufficient to defeat Plaintiff’s motion for summary judgment and that “[t]riable issues of fact with regard to whether or not a gift was made are immaterial.” (Id. at 17:10-12.) The Court granted Plaintiff’s motion for summary judgment.
On November 4, 2014, the Court entered judgment in favor of Plaintiff and against Defendant in the principal sum of $28,273,000.00 plus interest at the rate of 10% per annum from July 5, 2006 to the date thereof in the sum of $23,633,128.62, for a total sum of $51,906,128.62.
The Appeal and Related Procedural History
On December 17, 2014, Defendant filed a notice of appeal in which she appealed, without limitation, the entirety of the trial court’s judgment entered after the order granting summary judgment.
On December 15, 2016 the Second District Court of Appeal issued an unpublished decision on Defendant’s appeal as Rostack Investments, Inc. v. Sabella (2016) 2016 WL 7243524. The appellate decision stated that Judge Meier’s ruling on the reopening of summary judgment prevented “the parties from briefing gift on summary judgment” and “was the end of [Defendant’s] case. The parties did end up briefing gift anyway, but, at the hearing on the motion, the court was unwavering in its belief that gift was no longer in the case.” (Rostack Investments, Inc., supra, 2016 WL 7243524 at *6.) The appellate opinion stated that the trial court’s summary judgment order began with finding that Plaintiff had standing and was, in fact, the entity that loaned Defendant the funds. (Id.) The Court of Appeal held that as to summary judgment, Defendant’s only real defense was gift, stating that to the extent the trial court believed the record did not support a gift by Plaintiff to Defendant, the issue should have been resolved by trial or, if feasible, summary judgment. (Id. at *6 and 7.)
The appellate court held that if the gift affirmative defense had been resolved through summary judgment, instead of in the context of whether the estate of Mr. Chen was an indispensable party, Defendant would have had the opportunity to seek to defeat Plaintiff’s motion by raising a triable issue of fact that Mr. Chen had forgiven the loan on behalf of Plaintiff. (Id.) The appellate court found that a triable issue of fact existed as to whether Mr. Chen forgave the loan on behalf of Plaintiff which encompassed two issues: (1) whether Mr. Chen forgave the loan and whether he actually delivered the gift of loan forgiveness; and (2) whether Mr. Chen acted lawfully on Plaintiff’s behalf. (Id. at *9.) The main issue on appeal was if a triable issue of fact existed as to whether Mr. Chen actually completed the gift of loan forgiveness prior to his death. (Id. at *1.) The Court of Appeal found that a triable issue of fact did exist, concluding that there was evidence of a completed gift that could have been presented to defeat summary judgment. (Id.) The appellate court reversed the judgment and ordered that further proceedings be conducted before a different judicial officer. (Id. at *11.) Notably, the appellate decision stated that Defendant’s estoppel affirmative defense relies upon, and appeared to be a restatement of the gift defense. (Id. at *10, fn.9.)
The Motion to Sever Legal and Equitable Issues at Trial
On remand, Plaintiff filed a motion to sever the presentation of evidence in the trial of this action into two phases: (1) evidence on Defendant’s affirmative defense of estoppel and Plaintiff’s rebuttal thereto to be tried and decided by the Court; and (2) evidence on any remaining legal issues, to be tried and decided by a jury (the “Severance Motion”). In the Severance Motion, Plaintiff asserted that: (1) it was entitled to have the estoppel defense decided by the Court; and (2) an initial bench trial on Defendant’s estoppel defense would either streamline or avoid a jury trial. In opposition to the Severance Motion, Defendant argued that: (1) any first-phase promissory estoppel findings the Court made could not bind the jury or streamline any second-phase gift trial; and (2) bifurcation would be grossly inefficient and unduly consume the time and resources of the Court and the parties.
On August 27, 2019, the Court granted the Severance Motion, finding that despite Defendant’s position in her opposition that she was asserting a promissory estoppel and not an equitable estoppel defense, her SAA stated otherwise. (Order at 8:1-2.) Moreover, the Court stated that Defendant even acknowledged in her opposition to the Severance Motion that “all or nearly all of the same evidence would have to be presented for the factfinder to properly adjudicate each defense.” (Id. at 8:3-4.) The Court’s order stated that Defendant’s acknowledgement provided support to the proposition that “the Court’s findings on the equitable estoppel defense may obviate the need for a jury trial on her legal gift defense.” (Id. at 8:5-7.) Specifically, the Court: (1) found that there were common factual issues as to the equitable estoppel defense and the legal gift defense; and (2) the Court cited Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 156 for the principle that the first factfinder may bind the second when determining factual issues common to the equitable and legal issues. (Id. at 8:10-18.)
Phase One of the Trial and the Accompanying Order Thereto
Phase One of Trial was conducted over nine days and after post-trial briefing, the Court issued an order as to Phase One of Trial on July 23, 2020.
The Court’s order stated the following: (1) Phase One of the trial in this case was held on October 1-4 and November 20-22, and 25-26, 2019 as a bench trial in Department 56 before the Honorable Holly J. Fujie on the issue of the Sixth Affirmative Defense for Estoppel in the SAA; (2) while the second affirmative defense of “Gift under Cal. Civ. Code § 1146” was a legal defense, the findings in the Court’s order as to the Sixth Affirmative Defense overlap substantially and possibly subsumed any findings required under the second affirmative defense; (3) in order to decide the validity of the Sixth Affirmative Defense for Estoppel, the Court was required to determine both whether Chen had the intent to gift Defendant with the Note at any time and whether he actually gifted the Note to her; (4) Phase One of the Trial was held to resolve the equitable defense set forth in the Sixth Affirmative Defense; (5) the evidence reviewed by the Court of Appeal on the appeal is not the same evidence that was admitted during Phase One of the trial; and (6) Defendant was not a credible witness at trial based in large part to her drastic and contradictory changes in testimony when she was confronted with evidence that apparently contradicted her prior testimony.
Further, the Court’s order stated that: (1) the sole issue before the Court in Phase One was if Plaintiff was equitably estopped from enforcing the Note against Defendant based upon a promise or a gift made to her by Chen; (2) the Sixth Affirmative Defense is stated only as an “Estoppel” defense without specifying whether it was for promissory or equitable estoppel so the Court analyzed the elements of both types of estoppel in ruling on the issue before the Court; (3) as to promissory estoppel, the Court found that Chen did not promise he would forgive, cancel or not enforce the repayment of the principal of the Note, nor did he promise to gift Defendant the money to pay off the remaining principal on that loan, nor did he actually gift Defendant with forgiveness of the Note; (4) no valid ground existed for Defendant’s affirmative defense of estoppel as to the enforcement of the Note based upon promissory estoppel; (5) Defendant did not provide evidence to support the applicability of equitable estoppel so as to avoid enforcement of the Note; and (6) the Court found in favor of Plaintiff and against Defendant on the Sixth Affirmative Defense to the FAC.
The Current Briefs
Defendant filed a brief concerning the necessity of a second phase of trial, asserting the following: (1) there must be a proper trial on Plaintiff’s claims; (2) Defendant has a constitutional right to a jury trial on her remaining gift defense; (3) the Court’s decision in the first phase of trial does not foreclose a second phase on Defendant’s gift defense; and (4) Defendant’s other affirmative defenses have not yet been resolved.
In opposing the necessity of a second phase of trial, Plaintiff raises the following arguments: (1) the Court properly decided the gift defense in Phase One and there is no longer any dispute about the supposed gift; (2) Plaintiff’s affirmative case and Defendant’s other defenses were decided in Plaintiff’s favor years ago, Defendant waived any objection to those decisions, and they were proven in any event.
Code of Civil Procedure, § 420 provides that the pleadings are the formal allegations by the parties of their respective claims and defenses, for the judgment of the Court. The plain language of Code Civ. Proc. § 1048(b) requires a court to preserve a party’s right to a jury trial when ordering separate trials, but it does not itself define a party’s jury trial right or what preservation it requires. (Orange County Water Dist. v. Alcoa Global Fasteners, Inc. (2017) 12 Cal.App.5th 252, 353-354.) A jury trial, as a general proposition, is a matter of right in a civil action at law, but not in equity. (Id. at 354.) Where legal and equitable issues are joined in the same action, the parties are entitled to a jury trial on the legal issues. (Id.)
There are, however, instances where there is no need for a jury trial. (Id.) Where a mixed bag of legal and equitable claims is presented in a case, a court trial of the equitable claims first may obviate the necessity of a jury trial on the legal claims, but otherwise the plaintiff cannot be denied the right to a jury trial on the legal causes of action. (Id.) A party is entitled to have a jury determine the legal issues unless the trial court’s initial determination of the equitable issues is also dispositive of the legal issues, leaving nothing to be tried by a jury. (Id. at 354-355.) Trial courts are encouraged to apply this equity first rule because it promotes judicial economy by potentially obviating the need for a jury trial. (Id. at 355.)
Issue No.1: The Gift and Estoppel Defenses
Initially, Defendant contends that the Court has found that her gift defense is legal rather than equitable in nature and therefore she has a right to a jury trial on her gift defense. (Loose Decl., Exhibit D at p.3.) The Court, however, stated in its order on Phase One of Trial that the gift and estoppel defenses substantially overlapped and that the estoppel defense relied in part upon a finding that a gift existed. (Id.) Therefore, depending on the Court’s analysis in this ruling, Defendant’s argument that she has a constitutional right to a jury trial is unsupported under the language in Orange County.
Issue No.2: Whether Phase One of Trial Foreclosed a Second Phase on the Gift Defense
Defendant argues that the need for a second phase of trial is not eliminated for five distinct reasons.
The Allegedly Distinct Nature of the Estoppel and Gift Defenses
Defendant contends that because her gift defense and estoppel defenses are distinct, the Cour’st findings cannot bind a jury. Initially, the Court finds that a reading of the plain language pleaded by Defendant herself in these two affirmative defenses refutes the argument that they are distinct. Defendant’s citations to: (1) Bank of America Nat. Trust & Sav. Ass’n v. Lamb Finance Co. (1956) 145 Cal.App.2d 702; (2) Byrne v. Laura (1997) 52 Cal.App.4th 1054; (3) Monarco v. Lo Greco (1950) 35 Cal.2d 621; (4) Redke v. Silvertrust (1971) 6 Cal.3d 94; (5) Mintz v. Rowitz (1970) 13 Cal.App.3d 216; (6) People v. Lee (2005) 131 Cal.App.4th 1413; and (7) Zevnik v. Superior Court (2008) 159 Cal.App.4th 76 are inapposite.
A party must make a showing of the following elements for promissory estoppel: (1) a promise in clear and unambiguous terms; (2) reliance by the party to whom the promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by her reliance. (Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218, 225.) Case law has defined the elements of a gift as follows: (1) competency of the donor to contract; (2) a voluntary intent on the part of the donor to make a gift; (3) delivery, either actual or symbolic; (4) acceptance, actual or imputed; (5) complete divestment of all control by the donor; and (6) lack of consideration for the gift. (Jaffe v. Carroll (1973) 35 Cal.App.3d 53, 59.)
The Court rejects Defendant’s argument that the Court’s findings in Phase One cannot bind a jury because the gift defense is allegedly distinct from the estoppel defense. Defendant raised this argument in opposition to the Severance Motion and the Court already has rejected it. Additionally, the first factfinder may bind the second when determining factual issues common to the equitable and legal issues under Hoopes, supra, 168 Cal.App.4th 146, 156. While the elements of a gift and promissory estoppel are distinct as shown by Jaffe and Aceves, such distinction do not impact the ability of the Court’s findings in Phase One from binding a jury. Because the Court found that there was neither an intended nor a completed gift in determining the merits of the Sixth Affirmative Defense, the second affirmative defense of gift under the test stated above cannot be established.
Defendant’s own pleading of the Sixth Affirmative Defense for “Estoppel” specifically based this defense on Defendant’s claim that Mr. Chen intended to and did in fact gift her with the Two Bear Ranch and consequently the Note. This Court has determined that the estoppel and gift defense have common factual bases, and the appellate court has already determined that the estoppel defense relied on and was a restatement of the gift defense. Under Hoopes and Orange County, the Court’s findings in Phase One could bind a jury.
Different Legal Standards
Defendant contends that the legal standard applied by the Court in Phase One is also meaningfully different from the standard that would be applied in a gift trial. Defendant asserts that: (1) in the trial on the issue of estoppel, Defendant had the burden of proving that she relied to her detriment on a promise made by Chen; and (2) in a trial on the issue of gift, by contrast, Plaintiff must overcome a presumption that Defendant received a gift from Chen.
Evidence Code § 500 provides that except as otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that she is asserting. A party asserting a gift has the burden to establish the existence of a gift by clear and convincing evidence. (Bank of America N.T. & S.A. v. Cottrell (1962) 201 Cal.App.2d 361, 363-364.)
Defendant’s argument that the legal standards are different as to showing estoppel and a gift does not affect the Court’s analysis. Initially, the Court finds that Defendant’s citations to: (1) Quinn v. Reilly (1926) 198 Cal.465; (2) Altramano v. Swan (1942) 20 Cal.2d 622; (3) Lloyds Bank California v. Wells Fargo Bank (1986) 187 Cal.App.3d 1038; and (4) In re Schechtman’s Estate (1958) 162 Cal.App.2d 365 are inapposite. In fact, under Evid. Code § 500 and Cottrell, Defendant would have the burden in a gift trial. Moreover, courts have rejected a similar line of argument, such as in Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1244. Also, Defendant’s argument that Plaintiff must overcome a presumption that Defendant received a gift from her father is misplaced as well as inaccurate. (Ceguerra v. Secretary of Health & Human Services (9th Cir. 1991) 933 F.2d 735 (applying California law and stating that the presumption of a gift when a donee of property is the natural object of the grantor’s affection does not apply in cases where there is affirmative evidence that the donor did not intend a gift).)
Failure to Actually Litigate the Gift Defense
Defendant contends that the gift defense remains open because it was not actually litigated in the first phase of trial.
In a bifurcated trial consisting of legal and equitable claims, findings in an equitable phase of trial are binding only where they have been actually litigated by the parties. (Nwosu, supra, 122 Cal.App.4th 1229, 1244.) An issue is actually litigated when it is properly raised—by the pleadings or otherwise—and is submitted for determination and its determined, and a determination may be based on a failure of proof. (Murray v. Alaska Airlines, Inc. (2010) 50 Cal.4th 860, 871.)
Defendant cites to the following evidence to support her contention that the gift defense was not actually litigated in Phase One: (1) in her September 27, 2019 brief, Defendant’s counsel wrote that the Court was not deciding whether a gift was completed in Phase One but whether promises and conduct directed at Defendant equitably estopped Plaintiff from collecting on the loan (Loose Decl., Exhibit H at 20:22-21:5); (2) in her September 27, 2019 brief, Defendant’s counsel wrote that Plaintiff’s arguments and evidence about Chen’s supposed failure to complete the gift were irrelevant to Phase One of the trial (Id.); (3) during Phase One, on October 1, 2019, the Court asked whether there was delivery of the gift and Defendant’s counsel responded that delivery of the gift was present “but that’s for the jury, if there’s a Phase 2, if this Court does not find the estoppel defense to be controlling” (Frid. Decl., Exhibit A at 6:10-25); (4) Defendant’s counsel, in Defendant’s October 22, 2019 brief in response to an OSC re: jury trial, wrote that a completed gift is not an element of estoppel and that Defendant has proven, and will continue to adduce more evidence of, all of the elements of the estoppel defense independent of a completed gift (Loose Decl., Exhibit I at 3:18-4:9); and (5) Defendant’s counsel reiterated in her January 31, 2020 final argument reply brief for Phase One of Trial that the estoppel defense in the SAA does not depend on proving a completed gift and, during Phase One, Defendant proceeded on that same theory and proved estoppel (Frid Decl., Exhibit J at 7:20-8:1.).
Plaintiff, however, cites to evidence to show that Defendant willingly presented evidence of a gift in Phase One to support her estoppel defense. (Opp. At 8:1-26.) Moreover, the plain language of the allegations of the Sixth Affirmative Defense states that one of the grounds for Defendant’s defense of estoppel is an intended and delivered gift. To the extent that Defendant now claims, after a lengthy trial on the Sixth Affirmative Defense, that she did not present evidence of a gift even though it was an integral element of this defense, this claim is baseless. Not only did Defendant have the obligation to present any evidence she had in support of this defense but she had the opportunity to do so and in fact presented such evidence at trial.
The Court finds that despite Defendant’s assertion that she intended to confine Phase One to the issue of estoppel and not the gift defense, the estoppel defense which was being litigated in Phase One was reliant on the gift defense. The estoppel defense as alleged by Defendant expressly incorporated the allegations of gift into that affirmative defense. Even the Court’s order as to Phase One stated that in order to resolve the sixth affirmative defense, the Court was required to address the issue of gift. Given that the gift defense: (1) was raised by the SAA and incorporated into the estoppel affirmative defense; (2) was litigated and testimony was adduced as to the issue of gift during Phase One; and (2) the Court has found that the issue of a gift was essential to resolving the Sixth Affirmative Defense, the Court finds that under Murray the gift defense was actually litigated during Phase One. While Defendant cites to Darbun Enterprises, Inc. v. San Fernando Community Hospital (2015) 239 Cal.App.4th 399 for the proposition that the Court cannot use its decision on the equitable defense to prevent her from trying her legal defense, the Court finds that Defendant’s reliance on Darbun is misplaced. If Defendant wanted to ensure that a jury decided her gift defense then Defendant could have dropped her equitable defense under Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (2019) 43 Cal.App.5th 988, 1000.
Failure to Present Evidence
Defendant contends that because her gift defense has different elements and requires different evidence, she did not present all of her evidence supporting her gift defense during Phase One of trial. The Court rejects this argument because the fact that a party contends it can present additional evidence does not compel a trial court to hold an otherwise unnecessary second phase trial. (Orange County, supra, 12 Cal.App.5th 252, 361.)
Having found that there was no gift by Mr. Chen based on the Court’s order as to Phase One of trial, these findings are binding on the legal claims under Orange County. The Court will now address Defendant’s arguments that: (1) a reasonable jury could find a gift; (2) Plaintiff has not proven its affirmative case; and (3) Defendant’s other affirmative defenses are still at issue.
Issue No.3: A Jury Finding the Existence of a Gift
Defendant contends that although the Court found during Phase One of trial that Defendant failed to prove that Chen’s promises estopped Plaintiff from enforcing the Note, such fact does not prevent a jury from finding that Chen delivered a gift of the Note to Defendant.
Issues decided by the court in the equitable phase of trial become conclusive on issues actually litigated between the parties. (Hoopes, supra, 168 Cal.App.4th 146, 158.) Sound policy reasons exist for giving one factfinder’s determination binding effect in a mixed trial of legal and equitable issues. (Id.) The rule minimizes inconsistencies and avoids giving one side ‘two bites at the apple.’ (Id.) The equity-first rule also prevents duplication of effort. (Id.)
Initially, the Court finds that Defendant’s citations to: (1) Neary v. Regents of University of California (1992) 3 Cal.4th 273; and (2) Neel v. Mannings (1942) 19 Cal.2d 647 are inapposite. The fact that a reasonable jury could perhaps find that Chen delivered a gift of the Note to Defendant runs counter to the fact that: (1) the Court has already determined that there was no evidence that a gift was either intended or made by Chen at any time; and (2) under Hoopes, the policy reasons of avoiding inconsistencies and giving Defendant “two bites of the apple” warrant against allowing the issue of gift to go to a jury.
In sum, there is no basis for the “gift defense” to be presented to a jury during a second phase of trial and the Court finds that Defendant lacks a right to present such defense to a jury under Hoopes and Orange County based on the Court’s decision in Phase One of trial.
The Court will now address the tertiary arguments presented by the parties.
Issue No.4: Waiver
Plaintiff contends that Defendant has waived any objections to whether Plaintiff had proved all the elements of its affirmative breach of contract claim because when Defendant appealed Judge Meiers’ order granting summary judgment in full, she only argued that there was disputed issue of material fact as to the gift and estoppel defenses. Initially, the Court finds that the appellate court reversed the summary judgment in its entirety against Defendant.
A summary judgment motion is an all or nothing motion. (Antonovich v. Superior Court (1991) 234 Cal.App.3d 1041, 1050.) A party can make a decision to not contest facts at the summary judgment stage without being estopped from presenting contrary evidence at trial. (Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 748.)
The Court rejects Plaintiff’s argument of waiver and finds that it is unsupported. Summary judgment was reversed in full and, as such, so was the trial court’s decision on the sufficiency of Plaintiff’s claim for breach of contract. Plaintiff’s citations to: (1) Arnold v. Dignity Health (2020) 53 Cal.App.5th 412; and (2) Schmidt v. Bank of America, N.A. (2014) 223 Cal.App.4th 1489 are inapposite.
Issue No.5: Defendant’s Other Affirmative Defenses
Plaintiff contends that there is no reason for a second phase of trial based on Defendant’s affirmative defenses of: (1) discharge; (2) unjust enrichment; or (3) lack of consideration. As to the affirmative defenses of discharge and unjust enrichment, Plaintiff contends that both affirmative defenses repeat the substance of Defendant’s gift defense.
Discharge and Unjust Enrichment
The Court finds that as to the fourth affirmative defense of unjust enrichment, the Court has already determined in its Phase One order that injustice would not occur if the Note were enforced, which is determinative of this affirmative defense. (SAA at ¶ 27.) Moreover, the unjust enrichment affirmative defense is premised on the gift from Mr. Chen to Defendant. (Id. at ¶ 28.) As to the fifth affirmative defense of discharge, the Court finds that it is essentially a repetition of the gift defense in the SAA. (Id. at ¶¶ 30-31.) Given that the Court determined that there was no gift, such affirmative defenses are without merit.
Lack of Consideration
Defendant’s first affirmative defense asserts that: (1) the Note alleged in the FAC is unenforceable because Rostack never provided any consideration to Defendant; (2) Plaintiff was one-hundred percent controlled by Mr. Chen, had and has no capital of its own, and was and is entirely dependent on funds given to it by Mr. Chen; and (3) all of the funds used to acquire Two Bear Ranch were given to Defendant by Mr. Chen, through a series of his wholly owned companies other than Plaintiff, and that Plaintiff gave no consideration whatsoever for the Note. (Id. at ¶¶ 17-19.)
The absence of consideration is always a defense to a suit on a promissory note and since an instrument lacking in consideration is invalid, this fact may be shown by extrinsic evidence. (Meyer v. Glenmoor Homes, Inc. (1966) 246 Cal.App.2d 242, 259.) Consideration can be an act, forbearance, change in legal relations, or a promise. (Rest. 2d Contr. §71(3).)
The Court finds that Defendant’s first affirmative defense is contrary to the Court’s finding in Phase One that Defendant and Chen both “considered the Note to be fully enforceable at all times.” (Phase One Order at p.11.) Moreover, Defendant testified at trial that the Note was a valid loan. (Marmolejo Decl., Exhibit R at 22:10-21.) The joint stipulations of fact entered into between the parties states that: (1) Defendant drew down monies on the Note; and (2) as to the Note, Defendant was identified as the borrower and Plaintiff was identified as the lender. (Marmolejo Decl. at Exhibit O.) The evidence presented at trial also shows that Defendant promised to pay Plaintiff the outstanding balance on the Note. (Marmolejo Decl. at TX 2.) Also, the first affirmative defense—like all the affirmative defenses in the SAA—is premised on a gift being given to Defendant by Mr. Chen.
Therefore, the lack of consideration affirmative defense being premised on the existence of the gift warrants a finding that a second phase of trial is not needed to address such affirmative defense under Hoopes.
Failure to State a Cause of Action
While not specifically addressed in Defendant’s moving or reply papers, the third affirmative defense is captioned “Failure to State Cause of Action” and the Court finds that such cause of action is premised on: (1) the Note being unenforceable because Plaintiff never provided any consideration to Defendant; and (2) the Note was forgiven, canceled, and/or discharged by Mr. Chen. This affirmative defense, based on the Court’s reading, is in substance an assertion that the Note was gifted. As stated above, the affirmative defense of lack of consideration has been refuted by the findings made at trial, and therefore it does not need to be addressed in a second phase of trial.
Issue No.6: The Issue of Damages and The Seventh Affirmative Defense
Defendant contends that a jury: (1) must be allowed to consider the evidence to determine whether Plaintiff can prove the necessary element of damages; and (2) the seventh affirmative defense is still at issue. The seventh affirmative defense in the SAA is entitled “No Damages” and states that Plaintiff sustained no damage because the funds given to Defendant were in effect paid by Mr. Chen and not by Rostack. This affirmative defense, however, is based on the allegation that the Note was not enforceable by Plaintiff against Defendant and on the existence of a gift. The Court in its order on the first phase of trial, was required to make a finding as to each of these issues and rejected both of Defendant’s contentions in this regard. Therefore, the Court has already made a finding that refutes the seventh affirmative defense of No Damages.
To state a cause of action for breach of contract, a plaintiff must prove the following elements: (1) the existence of the contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) the resulting damages to plaintiff. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) Code of Civil Procedure, §592 provides that in an action for money claimed due upon contract, or as damages for breach of contract, an issue of fact must be tried by a jury, unless a jury trial is waived. Defendant admitted at trial having drawn down funds paid by Plaintiff on the Note.
Dispute as to Plaintiff’s Damages
In her reply brief, Defendant contends that there are open factual questions as to: (1) whether she breached her obligations under the Note; and (2) whether, and to what extent, Plaintiff suffered any damage.
The Court finds that Defendant’s contention is unsupported by the record in Phase One of trial. Testimony and evidence was elicited during Phase One of trial that: (1) the money at issue went through Plaintiff; (2) Defendant agreed to be bound by the Note; (3) the Note was between Plaintiff and Defendant; (4) the Note was a valid loan and is enforceable; and (5) Defendant repaid Plaintiff— not Mr. Chen—interest on the Note. Moreover, Defendant testified during Phase One of trial that the unpaid principal balance on the Note is $28,273,000.00. (Marmolejo Decl., Exhibit R at 19:7-11; 97:15-18; Marmolejo Decl. at TX 213-152.) Plaintiff also elicited testimony from Defendant that Defendant did not pay interest on the Note in 2006 or 2007. (Id., Exhibit R at 96:3-99:3.) Defendant also testified during Phase One as to the last time she made a payment on the Note. (Id. at TX 555; Id. at Exhibit Q at 88:20-89:4.)
The Court therefore finds that there is no factual dispute as to whether Defendant breached her obligations under the Note. Given that her affirmative defenses were all premised on the existence of a gift, which the Court has already found was neither intended nor given, and the existence of a valid and enforceable loan as between Plaintiff and Defendant, which the Court has found existed, Defendant breached her obligations under the Note because she has failed to pay the amount due on the Note, and has failed to make the required interest payments thereon. (Id. at TX-2.) Given Defendant’s failure to comply with her obligations under the Note, the Court finds that Plaintiff has been damaged by Defendant. Thus, there is no dispute as to how much principal is owed to Plaintiff under the Note despite Defendant’s contentions to the contrary. The Court has ascertained the principal balance due to Plaintiff under the Note.
Issue No.7: Standing
Code of Civil Procedure, §367 provides that every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute. To have standing to sue, a plaintiff must have suffered injury-in-fact. (Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560.)
The Court references its discussion as to damages from above. The Court finds that Plaintiff has standing given Defendant’s admissions during Phase One as to the Note. The Court therefore finds Defendant’s standing argument is unsupported.
Issue No.8: Interest
Because the Court has found that Plaintiff has been damaged and the principal amount owed on the Note is known, the Court will address the issue of whether a jury trial is needed for the sole purpose of interest calculations.
A court can take judicial notice of mathematical calculations. (Arden Carmichael, Inc. v. County of Sacramento (2001) 93 Cal.App.4th 507, 513, fn.9.)
The amount of principal unpaid under the Note has been established by admitted evidence, and the Note itself states that interest thereon shall be fixed at 10 percent per annum. (Marmolejo Decl. at TX-2) The Court’s order as to Phase One found that interest on the Note was payable annually each July 5, beginning on July 5, 1996. (Phase One Order at p.2.) The Court also found that at least as of the July 5, 2007 interest date, Defendant stopped paying interest on the Note. (Id.) Plaintiff presented interest calculations during Phase One of trial as a trial exhibit, which were not disputed. (Id. at TX-11.) These interest calculations show that from July 5, 2007 to July 5, 2008, interest accrued at the rate of $7,746.06 per day for a yearly interest total of $2,835,046.03. (Id.) Based on the date that the Court found Defendant stopped paying interest on the Note—July 5, 2007— through the current date, the Court finds that the interest owed as to the Note is in the amount of $38,358,334.00. This amount represents: (1) $36,855,598.40 in interest from July 5, 2007 to July 5, 2020; and (2) interest in the amount of $1,502,735.64 from July 5, 2020 to January 14, 2021, which is 194 days at the pro-rated amount of $7,746.06 in accrued interest per day. Under Orange County and Hoopes, the evidence presented during Phase One of trial is dispositive on the issue of interest. Allowing a jury trial on the issue of interest would give Defendant a ‘second bite at the apple,’ open up the possibility of inconsistent findings of fact and result in a duplication of effort, which is not proper under Hoopes.
The Court therefore finds that a jury trial is not needed or required solely for the purpose of calculating interest.
In sum, the Court finds that a second phase of trial is not warranted under Orange County and Hoopes.
Moving party is ordered to give notice of this ruling.
In consideration of the current COVID-19 pandemic situation, the Court strongly encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative. If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to SMC_DEPT56@lacourt.org
Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.
Dated this 14th day of January 2021
Hon. Holly J. Fujie
Judge of the Superior Court
 Defendant’s answer to the FAC asserted the following affirmative defenses: (1) estoppel; (2) laches; (3) discharge; and (4) rescission.
 The Court’s order stated that at the time Plaintiff filed its motion, Defendant had not yet answered the operative FAC and Defendant answered such pleading on January 13, 2012. The Court stated that since Plaintiff demurred to this answer, Defendant filed a First Amended Answer on March 2, 2012, which was the operative answer and governed Defendant’s affirmative defenses for purposes of Plaintiff’s summary judgment motion. The First Amended Answer asserted the following affirmative defenses: (1) unclean hands; (2) fraud; (3) lack of consideration; (4) gift under Civ. Code § 1146; (5) failure to state a cause of action; (6) unjust enrichment; (7) discharge; (8) estoppel; and (9) no damages.
 Defendant asserts the following four reasons why a second phase of trial is not foreclosed: (1) the gift defense is distinct from the estoppel defense and deciding one does not decide the other; (2) the gift defense was not actually litigated in the first phase of trial and remains open; (3) she tried her gift defense on the express reservation that she was not trying her estoppel defense; and (4) the jury’s role as to the gift defense cannot be taken away by the Court’s ruling.
 In her reply brief, Defendant contends that Plaintiff has not proven standing to sue. This argument was not raised in her moving papers, however, the Court will address such argument.
 For conciseness and to avoid redundancy, the Court has reviewed the cited testimony and finds that evidence of a gift was adduced during Phase One of the trial.
 This amount is based on interest accruing in the amount of $2,835,046.03 per year. That amount multiplied by 13 years (which is the time elapsed from July 5, 2007 to July 5, 2020) is $36,855,598.40.
Case Number: BC428298 Hearing Date: March 27, 2020 Dept: 56
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT
ANGELA C. SABELLA aka ANGELA CHEN, etc.,
CASE NO.: BC428298
REVISED PROPOSED STATEMENT OF DECISION ON PHASE ONE OF TRIAL
Hearing Date (By Court Call): 3/27/20
Time: 10 a.m.
Plaintiff: Rostack Investments, Inc. (“Rostack”)
Defendant: Angela C. Sabella aka Angela Chen (“Defendant” or “Angela”).
Phase One of the trial in this case was held on October 1, 2, 3 and 4, and November 20, 21, 22, 25 and 26, 2019 in Department 56 of the above-referenced Court as a bench trial before Judge Holly J. Fujie. Rostack was represented by its counsel, Mayer Brown, LLP and Defendant was represented by her counsel, Gibson, Dunn & Crutcher, LLP. The following witnesses testified: (live) Defendant Angela, Lynda Fetter, Dr. Franklin David Rudnick, Leung Wei Ping aka Ronald Leung, Vasant Tangkanangnukul aka Wilson Chen, Grace Hung Yu, Steven Hazel and Kate Li; and (videotaped) Gladys Au, Patrick Yu, Frank Seto, Vivien Chen (“Vivien”), Alan Chan, Tiffany Hung, Grace Lam and John Lam. Exhibits were accepted into evidence as set forth in the Parties’ Stipulation re Admitted Evidence and as otherwise reflected in the record.
The Court takes judicial notice of the matters filed in the within case, pursuant to California Evidence Code, Section 452(d)(1), without accepting the truth of the matters set forth therein. (Steed v. Dept. of Consumer Affairs (2012) 204 Cal.App.4th 112, 121.)
The Court declines to take judicial notice of the Judgment of the High Court of the Hong Kong Special Administrative Region, Court of First Instance, in Yang Foo-oi by Leung Ping Chiu, Roy v. Wai Wai Chen and Timford Resources Limited, Action No. 1739 of 2010, dated November 29, 2016. The California Evidence Code does not provide authority for the records or judgments of the courts of other countries to be given judicial notice, and judicial notice may only be taken as authorized or required by law. (California Evidence Code, Section 450.)
The original Complaint in this case was filed on December 18, 2009. The current operative pleadings are the First Amended Complaint (the “FAC”) and the Second Amended Answer to the FAC (the “SAA”). The FAC asserts causes of action for breach of contract and common counts of Book Account and Money Lent. All counts of the FAC arise out of a promissory note (the “Note”) signed by Defendant in favor of Rostack which evidenced a line of credit of up to US$30 million. The Note was related to the purchase of Two Bear Ranch, an undeveloped 36,000 acre parcel of real property which straddles the border between Utah and Wyoming (“Two Bear Ranch” or the “Property”) by Defendant’s wholly-owned entity, Two Bear Land & Grazing Corp. (“Two Bear Land”). The purchase of the Property and the execution of the Note in connection therewith is referred to as the “Two Bear Transaction” or the “Transaction.”
The Note bears ten percent (10%) simple interest, payable annually each July 5, beginning July 5, 1996. On the face of the Note, any unpaid principal and interest were due to be repaid on July 5, 2010, and failure to make any payment when due constituted an event of default. The total amount which Angela drew on the Note was $28,273,000. The last date on which she drew on the Note was December 18, 2003, when she drew $4 million. Although the parties disagree on when Defendant last paid interest on the Note, the Court finds that at least as of the July 5, 2007 interest date, Defendant had stopped paying interest on the Note.
The SAA asserts a general denial and various affirmative defenses to the FAC, including the Sixth Affirmative Defense for “Estoppel.” The Sixth Affirmative Defense alleges the following: 1) the Note did not evidence any indebtedness by Defendant to Rostack, as Mr. Chen gave the funds to her; 2) Mr. Chen “intended to eventually gift the Two Bear Ranch to Defendant,” but because he was a “careful man” he loaned the money to her “planning to forgive the loan at an appropriate time in the future”; 3) Angela executed the Note “[r]elying on the advice of her tax professionals,” including her current law firm; 4) there was an agreement that Mr. Chen would gift Defendant the amount of interest due on the Note, and he did so for ten years; 5) Mr. Chen knew that “unless Defendant received these annual gifts from him” Defendant would not have signed the Note “or assumed a liability in excess of $30 million”; 6) Mr. Chen “intended to, and did, gift Two Bear Ranch to Defendant, thereby forgiving, canceling and/or discharging” the Note”; 7) Mr. Chen and Defendant had an understanding that “Defendant was not to be held financially responsible for paying any amounts under the [N]ote”; and 8) Rostack “wrongfully repudiated Mr. Chen’s donative intent to make a gift to Defendant” and therefore “is estopped from enforcing the Note.” In allegations incorporated by reference into this Affirmative Defense, Angela alleged that: 1) Mr. Chen “confirmed his gift” to Defendant “in 2005”; 2) on February 7, 2005, Vivien signed and dated a writing that confirmed the gift; and 3) on February 8, 2005, “Mr. Chen, Defendant and Vivien had another meeting,” at which time Mr. Chen handwrote that “Wai Fong [Defendant] got US$34 million” (the “Annotation”) on a document the original of which had been handwritten by Vivien on July 18, 2003 (the “Family Table”), and by doing so “confirmed his gift of Two Bear [Ranch] to Defendant”; and 4) both Vivien and Angela “agreed, acknowledged and signed off on the gift” at that meeting.
The Court notes that the pleading of this Affirmative Defense relies upon both the allegation of an actual delivered gift as well as a mere “donative intent to make a gift to Defendant.” As such, to decide the validity of the Sixth Affirmative Defense for Estoppel, the Court must determine both whether Mr. Chen had the intent to gift Defendant Angela with the Note at any time and whether he actually gifted the Note to her.
Phase One of the Trial was held to resolve this equitable defense.
The Court of Appeal Decision
The decision of the 2d District Court of Appeal (the “DCA”) in Rostack v. Sabella (2018) Ct. of Appeal Case No. B260844 (unpublished) is based upon the motion for summary judgment (the “MSJ”) granted in favor of Plaintiff by Judge Barbara Meiers of this Court. It relied only upon the declarations and other evidence submitted by the parties in connection with the MSJ and considered that evidence in the light most favorable to appellant Angela, in accordance with the standard of review for summary judgment motions. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.App.4th 826, 843.) Therefore, the evidence reviewed by the DCA is not the same as that admitted at this trial, which serves as the basis for this decision.
In reversing the decision on the MSJ, the DCA found that certain factual determinations made by the trial court were unsupported by the evidence, most prominently the finding that Mr. Chen was not the owner of Rostack. The DCA found that Mr. Chen, and not his related entity Sai Wo, was in fact the owner of Rostack, which in turn owns the Note. The parties did not dispute this fact at trial and this decision assumes this is so. Based upon that finding and upon the operative complaint itself, the DCA also found that Judge Meiers’ decision incorrectly found that Angela had not alleged in her pleading that Mr. Chen had bound Rostack as well as himself individually to act in connection with the Note, and the parties do not dispute the DCA’s finding in that regard.
The DCA further found that there existed material disputed issues of fact such that summary judgment in favor of Plaintiff was improper on the record before it. On that basis, the DCA reversed the granting of summary judgment.
The Court notes that there are major discrepancies between the facts as recited by the DCA in its decision and the evidence presented at trial in this case. As noted above, the DCA opinion was based solely upon declarations submitted in connection with the MSJ and not upon live testimony, whereas live and videotaped testimony and documents were presented at trial, and key evidence presented in connection with the MSJ was not presented at trial. This Court considers and weighs only the evidence admitted at trial in making its determination of both the witnesses’ credibility and the merits of the issues before it. The Court therefore does not consider the “facts” stated in the DCA decision as establishing those facts but instead makes an independent determination of the facts of this case based upon the admitted evidence presented at trial.
Because Angela’s contentions regarding certain of the promises allegedly made to her by Mr. Chen were evidenced solely by her uncorroborated testimony, her credibility is of key importance in weighing that evidence and reaching a conclusion as to what promises, if any, were made by Mr. Chen to her. As a note, Defendant Angela contends that other evidence was presented as to the alleged promise to forgive or gift Angela the remaining principal and interest on the Note. The Court finds to the contrary, as the other evidence to which Defendant has directed the Court supports only the promise which the Court finds was made, and not the additional alleged promise or promises claimed by Defendant.
The Court finds that Angela was not a credible witness at trial. This assessment was based in large part upon her drastic and contradictory changes in testimony at trial when she was confronted by evidence that her prior testimony had apparently been refuted. Angela’s testimony at trial also directly contradicted her many prior declarations which she filed with this Court under penalty of perjury. In particular, the Court finds there were major contradictions in Angela’s testimony regarding the circumstances in which Mr. Chen wrote the Annotation on the Family Table. As this issue was a significant part of her entire case, her contradictory testimony thereon revealed serious problems with her entire version of the facts as well as with her prior sworn statements in this Court. As such, the Court finds that Angela lacks credibility as a witness overall.
Findings of Fact
The Court makes the following findings of fact in connection with Phase One of this trial:
The Annotation was written by Mr. Chen on the Family Table at least by November 4, 2003, when witness Kate Li received it from Vivien;
There was no competent and convincing evidence at trial as to the meaning of the Annotation, regardless of whether it is properly translated as: “Wai Fong [Angela] [took/got/gets] USD 34 million,” as there was no competent evidence of statements or other indications made by Mr. Chen himself, either written or oral, explaining his meaning;
The evidence did not establish that Mr. Chen even understood what he was writing in making the Annotation, as the medical testimony on his mental condition was not clear as to time and was not supported by evidence of the circumstances of Mr. Chen’s writing of the Annotation;
Without credible evidence of Mr. Chen’s intent in writing the Annotation, it becomes nothing but a meaningless note on a draft document, since the ultimate inter vivos distribution of Mr. Chen’s assets did not even use the formula proposed in the Family Table;
The Note and the entire Two Bear Transaction were part of a completely tax-driven plan to allow Angela to acquire (through her wholly-owned entity) the Two Bear Property free and clear of encumbrances, for her to receive tens of millions of dollars in U.S. tax deductions and for Mr. Chen/Rostack to avoid paying a 30% withholding tax;
In order for the Transaction to fulfill its intended tax consequences, it needed to be and was a legitimate loan from Rostack to Angela, enforceable against her if she missed any payments thereon, whether of interest or principal;
If the Note were not a legitimately enforceable loan, Rostack was subject to a 30% withholding tax and Angela could not deduct interest payments thereon from her investment income;
Rostack did not pay a 30% withholding tax on the Transaction and Angela deducted interest payments on the Note from her investment income;
Mr. Chen made a gift to Angela of $5 million which she applied to outstanding principal on the Note for a down payment on the $25.5 million purchase price of the Property, thus bringing her effective cost down to $20.5 million;
Each year from 1996 through 2006, Angela requested and Mr. Chen made gifts to Angela to pay the interest on the Note – almost always representing that the amount of the gift was the amount due on the Note when in fact it was more than the interest due;
From 1996 through 2006, Angela used money received from Mr. Chen to make payments of interest on the Note to Rostack;
After Mr. Chen made the Annotation in 2003, Angela made her second-largest and final draw on the Note in the amount of $4 million on December 18, 2003;
As of the time the Annotation was made in at least November 2003, Angela had not yet made the final $4 million draw on the Note, and the amount of principal outstanding was therefore only $24,273,000 at that time;
If, as Angela contends, the Annotation was meant to deliver a gift of the Note, the total amount being gifted as of November 2003 would have been less than $30 million, not $34 million as she interprets the Annotation, since the Note’s outstanding principal was then only $24,273, 000 and the value of the three Orlando Street houses was only approximately $5 million;
After the time Angela contends the Annotation reflected the cancelation of the Note, Angela continued to make requests for her father to make gifts to her to pay the entire year’s interest for 2003-04, 2004-05 and 2005-06, thus affirming that the Note was still in effect;
In each of these years, Mr. Chen made those gifts as requested (the gift which the Court finds that Angela caused to be requested on August 3, 2005 to cover “estimated accrued interest for the period from July 5, 2005 to July 4, 2006” of $2.83 million was paid on June 7, 2007) and she used money from those gifts to pay the entire amount of interest owed to Rostack;
Angela took tax deductions each year from 1996 through 2006 for the entire amount of interest she paid to Rostack;
The three Orlando Street houses were gifted to Angela by Mr. Chen through gifts of money to Angela’s trust to be used to pay for the purchase of Dynamic Corporation, which owned the houses, by Angela) by formal written Proposals after the Annotation was made;
The parties knew that a gift of the Note to Angela would require Mr. Chen to sign a formal written Proposal either to forgive the Note or to pay it off, as otherwise the $30 million Note would remain on the books and records of Rostack as an asset, and the value of Rostack’s assets would be overstated;
Angela never submitted a written Proposal for the cancellation of the Note, and she did not submit a written Proposal for Mr. Chen to gift her with money to repay the principal on the Note until at least sixteen months after the Annotation was made; and
Mr. Chen never signed his approval of a written Proposal for the cancellation of the Note or the gifting of funds to repay the Note.
The Estoppel Issue
The only issue before the Court in Phase One of this trial is whether Plaintiff is equitably estopped from enforcing the Note against Defendant based upon a promise or a gift made to her by her father, Mr. Chen -- Rostack’s ultimate owner at the time the Note was made.
The Court notes that the Sixth Affirmative Defense is stated only as an “Estoppel” defense, without specifying whether it is for Promissory Estoppel or Equitable Estoppel. The Court therefore analyzes the elements of both Promissory Estoppel and Equitable Estoppel in ruling on this issue.
In order to establish the elements of a defense of Promissory Estoppel, Defendant must prove the following: 1) Mr. Chen made a promise to her; 2) Mr. Chen reasonably expected the promise to induce reliance in Defendant; 3) the promise induced action or forbearance by Defendant (detrimental reliance); and 4) injustice can only be avoided by enforcing the promise. (Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation Authority (2000) 23 Cal.4th 305, 310.) The Court will analyze each of these elements separately below:
Did Mr. Chen make a promise to Defendant in connection with the Note and the Two Bear Transaction?
The Court finds that Mr. Chen did make a promise to Defendant in connection with the Note and the Two Bear Transaction; however, that promise was only that Defendant would not be “out of pocket” in entering into the Transaction. The Court finds that Mr. Chen did not promise either that he would forgive, cancel or not enforce the repayment of the principal of the Two Bear Note, nor did he promise to gift Defendant the money to pay off the remaining principal on that loan, nor did he actually gift her with forgiveness of the Note.
The Court finds that Mr. Chen’s promise to Angela that she would not be “out of pocket” on the Two Bear Transaction was made in the context of Defendant’s receiving the following: 1) through her wholly-owned company Two Bear Land, Defendant became the sole owner in fee simple of Two Bear Ranch, which was purchased for and represented by Angela to Mr. Chen to be worth at least $25.5 million in 1995; 2) she received a $5 million gift from Mr. Chen to apply to the down payment on the Two Bear Ranch, thus lowering the cost to her of the Property and the principal amount of the Note to $20.5 million; 3) Defendant received available funds from Rostack of up to an additional $9.5 million (the $30 Note amount minus the $20.5 million net cost of the Property) to pay for entitlements and other costs of development of Two Bear Ranch, so she could prepare it for sale and/or development; 4) she asked for and received cash gifts from her father which she represented would be used to pay the interest on the Note, so that she was never “out of pocket” on interest payments on the Property until she intentionally stopped requesting those gifts; 5) Defendant represented to Mr. Chen only three years after acquiring Two Bear Ranch that it was then worth $40 million, as evidenced by a verbal cash offer to purchase the entire Property, which she chose to decline.
Had Defendant sold Two Bear Ranch for that $40 million cash offer in 1998 – which Mr. Chen did not oppose – she would have been able to pay off the Note in its entirety with a profit of about $16,270,000 over and above the $23,720,000 then outstanding on the Note, while also having benefitted from over $3.6 million in income tax deductions, which she took without paying any such interest payments from her own funds. She certainly would not have been “out of pocket” on the Transaction.
It is notable that there was no credible evidence as to any efforts made by Defendant to improve, develop or sell the Property, other than her unsupported, vague testimony – which the Court did not find credible -- that Defendant at some point in time was working on entitling the Property for subdivision into ranches, which was apparently never done. Moreover, other than similarly vague and unsupported testimony from Defendant, there was no evidence that the amount drawn from the additional $9.5 million available on the Note after the original acquisition was actually used to develop the Property in any way. Instead, the Court finds that Defendant has held that Property almost a quarter of a century and has yet to develop or sell a single part of it.
The evidence shows that from the very beginning of the Transaction – before Rostack was even established as the lender on the Note – it was the parties’ intent that Angela be obligated to pay off the Note when due from the proceeds of the development and/or sale of the Property. For example, Exh. 238, which was written by Angela’s own employee, Wilson Chen, and copied to Angela, states that:
“As to the benefit for Angela from this transaction. Angela will have the benefit as any property owner and will be entitled to any profits in excess of the interest paid to Mr. Chen…. But at the same time Angela has the risk of any ordinary property owner. If the property should result in a loss, she has the risk of having inadequate funds to repay the loan. Even if the project prove to be a loss, Angela should be able to deduct the loss on her personal U.S. tax return. Angela may choose like any owner to have the lender foreclose on the loan.”
The evidence does not support Angela’s position that Mr. Chen forgave or agreed not to enforce the Note at any time, much less at the time he made the Annotation to the Family Table.
On January 29, 2003, Angela submitted a Proposal for a gift from Mr. Chen to pay the interest on the Note due July 5, 2003 and she received that sum by transfers made on February 4, February 20 and March 14, 2003. Although she had received this money for the expressed purpose of using it to pay the interest on the Note due July 5, 2003, she failed to do so that calendar year.
Instead, on April 15, 2004, Angela submitted a Proposal for another gift from Mr. Chen so she could pay interest on the Note. This was after the Family Table with the Annotation had been sent to Ms. Li’s office, even though Defendant Angela now claims that the Annotation extinguished the Note. In that Proposal, she stated that the gift was to cover the entire amount of interest for the period from July 5, 2003 through July 5, 2004, at least some of which would not have been owed if Mr. Chen’s Annotation had cancelled the Note, as Angela now contends. In fact, if the Annotation had been written at the time the Family Table was originally prepared, i.e., July 18, 2003, virtually no interest would have accrued from July 5, 2003 until that date.
The response to this Proposal was: “The present sum of US$2.66 million can only be transferred out after Chen Wai Fong has repaid to our side the US$2.41 million approved in the proposal (A55843)[signature] dated January 29, 2003 [covering interest for 7/5/02-03]. Chan Cheuk Yin April 20, 2004 [signature].” This payment of the previous year’s interest – due July 5, 2003 -- was not received by Rostack until May 5, 2004 – ten months late.
The Court finds that if Mr. Chen had considered the Note to have been forgiven or otherwise unenforceable by November of 2003, he would not have approved a gift in April of 2004 for the full amount of interest covering the entire year through July 5, 2004, and Angela would not have paid the full amount of interest for that year, which she did.
The same issue arises as to the interest for the 7/5/04-05 year. Angela requested a gift for the full amount of interest for that year by Proposal dated November 18, 2004, and the response thereto similarly states: “Our side will only transfer out the above sum after we have received repayment from Chen Wai Fong the sum of US$2.66 million approved in proposal A58841 dated April 15, 2004.” If, as Angela contends, both parties understood when the Annotation was made that the Note had been somehow forgiven, then they would not have had this exchange. Even if Mr. Chen’s Annotation had been made, and the Two Bear Loan similarly forgiven, on February 8, 2005, as one of the versions of Angela’s testimony posits, she would not have paid interest through July 5, 2005 on August 4, 2005, as she did.
Defendant testified that she would not have entered into the Two Bear Transaction and the Note on her own unless she believed that she would never have to pay off the principal because she did not have enough income to make payments on the Note. In fact as stated above, at all times Defendant had sufficient collateral to support the Loan through her ownership of the Two Bear Ranch. Defendant only owed $20.5 million on the Loan for the purchase of Two Bear Ranch, and any additional outlay on the Property made by draws on the Note would presumably have increased the value of Two Bear Ranch commensurately.
Defendant also testified that she believed she was holding the Property for Mr. Chen and could not sell it for her own account. First, there is no evidence in support of this position other than Defendant’s testimony which, as stated above, is not credible. In fact, Defendant was aware that if this Transaction were only a means by which Mr. Chen would purchase Two Bear Ranch for himself, the tax advantages of the Transaction would be eliminated. It is notable that none of the documents generated before the Transaction was consummated referred to any agreement to forgive the Note – not surprisingly, as any such admission would be evidence that the Transaction was an elaborate tax fraud.
Defendant’s position is also not credible in light of Mr. Chen’s response to her inquiry about the $40 million cash offer. Mr. Chen left it entirely up to her to accept or decline the offer. It was Angela herself who decided not to accept the offer, and Mr. Chen did not place any restrictions on her ability to do so.
The Court further finds that Defendant’s reported inability to pay even annual interest on the Note without an agreement not to enforce it was unsupported by any corroborating evidence of her actual net worth and income throughout the term of the Note. In fact, Defendant’s vague testimony to that effect was contradicted by evidence that over the term of the Note, she apparently had sufficient investment income to allow full use of all of the tens of millions of dollars in interest deductions thrown off by the Note to reduce her income tax on investment income.
The Court finds that both Angela and Mr. Chen considered the Note to be fully enforceable at all times. Specifically, the Court finds that if they had intended from the beginning of the Transaction that the Note would be either unenforceable ab initio, or cancelled or forgiven at some time in the future, neither of them would have been able to take advantage of the carefully-planned tax advantages that were the reason for the Transaction. Moreover, if Mr. Chen were to forgive or cancel the Note in the future, such an action would generate a huge tax bill for Defendant, as well as possibly endanger the tens of millions of dollars in interest deductions she had already taken based thereon if the I.R.S. were to scrutinize the entire Transaction for tax evasion.
There was also no competent evidence at trial that Mr. Chen ever promised that he would at some unspecified point in the future gift Defendant the amount necessary to repay the entire principal on the Loan. When presented with this option on three occasions, Mr. Chen did not sign any of the Proposals presented by Defendant. The Court finds that his failure to sign those Proposals is evidence that he did not intend at any time to gift her $30 million to repay the Note to Rostack.
In summary, the Court finds that there was no competent and credible evidence that Mr. Chen made a promise to Angela that he would gift her with either forgiveness of the Note or the money to pay it off, and there is no evidence that such a gift was made by Mr. Chen at any time.
Did Mr. Chen reasonably expect the promise to induce reliance in Defendant?
Mr. Chen reasonably expected Defendant to rely upon his promise that Angela would not be “out of pocket” on the Two Bear Transaction. He reasonably expected that Angela would rely on his promise to gift her with amounts sufficient to pay interest on the Two Bear Note upon receipt of written Proposals therefor, that she would develop the Two Bear Property with up to the remaining $9.5 million in the Two Bear Note, and that she would use the funds from the sale of the Property to pay off the Two Bear Note so she would not to be “out of pocket” from the Two Bear Transaction.
Did the promise induce action or forbearance by Defendant?
Defendant claims that she did the following in detrimental reliance on the promise by Mr. Chen: 1) she did not sell the Two Bear Property when offered $40 million in cash for it; 2) she did not seek to refinance the Note to lower its interest payments when she refinanced other loans from Rostack; and 3) she devoted her “time and resources to develop and improve the Two Bear Ranch property, all to her substantial detriment.”
The Court finds that none of these actions constitutes detrimental reliance. When Defendant reported to Mr. Chen that she had received a $40 million all-cash offer to purchase Two Bear, his response was that if she could, she should try to get the proposed buyer to increase the offer, but if that was not possible, to do whatever she thought was best. In other words, this was her decision.
In fact, there was no evidence that Mr. Chen interfered in any way with Defendant’s decision, or even attempted to influence it in any way. It was Defendant alone who decided not to sell, stating that she had unsuccessfully attempted to get the prospective buyer to develop Two Bear Ranch together with her, and to pay her half the proposed purchase price for a half interest in the project. According to Defendant, the prospective purchaser only wanted to own the Property in its current state and not to develop it, and declined her partnership proposal.
It was her decision, not Mr. Chen’s, to insist on developing rather than selling the Property at the time. Defendant’s decision not to sell Two Bear Ranch was not made in reliance on Mr. Chen’s promise regarding the Transaction.
Defendant’s failure to seek a reduction in the interest rate on the Note was also not an act of detrimental reliance on any promise by Mr. Chen. The evidence showed that the interest on all of Defendant’s other loans with Rostack was paid with Defendant’s own money. Therefore, she had an incentive to negotiate the reduction of those interest payments. Only the Two Bear Note interest had the dual incentive of increased gifts from Mr. Chen (as there was almost always a surplus gifted over and above the amount of interest due, which she retained), and annual multi-million dollar interest deductions to offset her own investment income. The higher the interest, the higher the deduction, with no out-of-pocket payment by her.
Finally, there was no credible evidence that Defendant devoted any of her time and resources to develop or improve the Property.
In summary, Defendant took no action and did not forebear from any action in reliance upon any promise by Mr. Chen that was not actually fulfilled.
Would injustice result from not enforcing the promise?
The promise that was made, i.e., that Defendant would not be “out of pocket” as a result of this Transaction -- was kept by Mr. Chen until Defendant chose to stop requesting the interest gifts and paying interest. Had Defendant continued to request the interest gifts and to pay interest on the Two Bear Loan through the term of the Note, and had she acted as Mr. Chen had intended her to do and developed Two Bear Ranch, or if she had accepted the oral offer to purchase Two Bear Ranch for $40 million in 1998, she would not have been “out of pocket” on the Transaction. Injustice would not result from not enforcing the alleged promise made, since the actual promise made was actually performed.
Conclusion Re Promissory Estoppel
The Court finds that there is no valid ground for Defendant’s affirmative defense of estoppel as to the enforcement of the Note based upon promissory estoppel.
The doctrine of equitable estoppel is codified in California Evidence Code, Section 623, which states:
“When a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it.”
“Generally speaking, the doctrine of equitable estoppel is a rule of fundamental fairness whereby a party is precluded from benefiting from his inconsistent conduct which has induced reliance to the detriment of another.” (Machavia, Inc. v. County of Los Angeles (2017) 19 Cal.App.5th 1050, 1054-55.) The doctrine of equitable estoppel is “defensive only,” insofar as it “prevent[s] one from taking an unfair advantage of another but not to give an unfair advantage of one seeking to invoke the doctrine.” (Peskin v. Phinney (1960) 182 Cal.App. 2d 632, 636.) “In other words, ‘the theory of estoppel is invoked as a defensive matter to prevent the party estopped from alleging or relying upon some fact or theory that would otherwise permit him to recover something from the party asserting estoppel.’” (Ryder v. Lightstorm Entertainment, Inc. (2016) 246 Cal.App.4th 1064, 1075, review denied (July 13, 2016), citing Green v. Travelers Indemnity Co. (1986) 185 Cal.App.3d 544, 555 and In re Marriage of Umphrey (1990) 218 Cal.App.3d 647, 658.)
Four elements must ordinarily be proven to establish equitable estoppel: (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act in such a way that the party asserting the estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of the facts; and (4) she must rely upon the conduct to her injury. (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Café and Take Out III, Ltd. (1994) 30 Cal. App. 4th 54, 59.)
The Court will analyze each of these elements separately below.
Mr. Chen must have known the true facts.
The first issue in analyzing the affirmative defense of equitable estoppel is what “facts” are involved in the defense as alleged. The only “fact” that Angela apparently asserts was misrepresented to her – as opposed to an alleged promise to act in the future -- is that the Note would be enforced if Angela did not pay interest and principal as provided therein. The Court finds that this was a “true fact” that Mr. Chen, as well as Angela, knew at all times.
Mr. Chen must have intended that his conduct be acted upon by Angela, or must have so acted in such a way that Angela had the right to believe it was so intended.
As set forth above, the evidence did not support Angela’s claim that Mr. Chen’s promised her anything other than that she would not be “out of pocket” on the Two Bear Transaction. The Court finds that Mr. Chen did intend for Angela to act as if the Note was valid and legally enforceable, as it indeed was. In fact, Angela was encouraged to, and did act in a manner consistent with the Note being a valid and legally binding obligation, such that she was entitled to claim interest deductions on her U.S. income tax returns and to sell Two Bear Ranch if she chose to do so and pay off the Note with the proceeds.
Angela must have been ignorant of the true state of the facts.
The Court finds that Angela understood that the Note was a valid and legally binding obligation at all times, and that it needed to be so in order to support the tens of millions of dollars in interest deductions she took from her 1996 income tax return through and including her original 2006 income tax return. The Court finds that Angela was never ignorant of the true state of the facts. The further Court finds that Angela’s filing of amended tax returns for 2005 and 2006 in 2019 – long after the running of the statute of limitations on collecting back taxes, interest and penalties -- is immaterial to this analysis.
Angela must have relied upon Mr. Chen’s conduct to her injury.
As discussed above, Angela did not rely upon Mr. Chen’s conduct to her injury. She acted as if the Note was a valid and legally enforceable obligation at all times until long after the point she now contends the Note was forgiven, and she received the benefit of those actions.
Conclusion Re Equitable Estoppel
The Court finds that Angela has not proven the applicability of Equitable Estoppel so as to avoid the enforcement of the Note.
Conclusion on Phase One of the Trial
The Court finds that Angela has not proven the applicability of either Promissory or Equitable Estoppel as an affirmative defense to the enforcement of the Note by Plaintiff Rostack. The Court therefore finds in favor of Plaintiff Rostack and against Defendant Angela Chen Sabella on the Sixth Affirmative Defense to the FAC.
Dated this ___ day of March, 2020
Hon. Holly J. Fujie
Judge of the Superior Court
 The Court refers to Defendant Angela Chen aka Angela C. Sabella and non-party Vivien Chen by their first names on occasion, solely to avoid confusion because they share a last name, which is the same as that of their father and mother, who are also involved in this case, and not from any intended disrespect.
 The Court finds that the Second Affirmative Defense of “Gift Under Cal. Civ. Code § 1146” is a legal defense; however, the findings made in this decision overlap substantially and possibly entirely with those required under the Second Affirmative Defense. After this Statement of Decision is final, the Court will set a briefing schedule as to the scope and necessity of Phase Two of trial in this matter.
 The tax return pages produced by Defendant were heavily redacted by her, so that it was not always possible to determine what deductions related to the Transaction or the amount of investment income which they offset; however, it appears from the evidence that Defendant was able to use all interest payments to offset investment income each year. The Court finds that Angela’s actions in amending her tax returns for 2005 and 2006 does not affect this analysis.
 The Court finds that at the time the alleged promise was allegedly made, Mr. Chen had the authority by virtue of his indirect ownership of Rostack to bind Rostack with regard to any actions in connection with the Note, and the funds disbursed thereunder were disbursed at Mr. Chen’s direction on behalf of Rostack.
 In fact, the amounts set forth in the Proposals as the actual accrued interest for the years ending July 5, 1998, 2001 and 2002 significantly overstate the actual amount of accrued interest ultimately paid for those years.
 The Court finds that Angela was aware of and authorized all Proposals for gifts from Mr. Chen, was aware of the receipt of all gifts from him related to the Note and was aware of and authorized all payments made to Rostack on the Note.
 The Transaction itself already contained problematic elements as far as tax treatment is concerned. The elaborate transfers of funds to conceal Mr. Chen’s involvement in the Transaction, as well as the subterfuges instituted to break up Mr. Chen’s gifts over the year, in total amounts in excess of the interest due, while concealing the purpose of the gifts creates a potential for invalidating its intended tax consequences, as well as generating potential penalties and interest charges.
 The evidence admitted did not support a finding as to who made the three slashes on the third version of this Proposal, or what they meant. It is uncontested, however, that Mr. Chen did not sign any of the three Proposals for the gifting of $30 million to Angela to pay off the principal on the Note.
 Although Defendant referred vaguely to investment income allegedly attributable to Two Bear Ranch, no other evidence was before the Court that the investment income being offset by the interest deduction was from Two Bear Ranch as opposed to from other sources. Because of Defendant’s credibility issues, her testimony alone did not suffice to convince the Court that such deductions were used to offset Two Bear Ranch income.
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