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: 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.