KATTAN DIAMONDS & JEWELRY, INC. v. SHACHAR No. B222687.
KATTAN DIAMONDS & JEWELRY, INC., Plaintiff and Respondent, v. JOSH SHACHAR, Defendant and Appellant.
Court of Appeals of California, Second District, Division Two.
Filed June 4, 2012.
Law Offices of Douglas S. Honig,
Douglas S. Honig for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
Appellant contends that the trial court's judgment finding him liable on a guaranty agreement for an amount in excess of $3 million is erroneous because (i) the claim on the guaranty agreement was barred by the statute of limitations, (ii) respondent was allowed to assert the claim after improperly splitting a single cause of action, (iii) respondent made judicial admissions that were contrary to the claim, and (iv) the subject guaranty agreement was ineffective. Finding none of these contentions persuasive, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This matter arose as a result of significant debts incurred by David Oren Shachar (David Oren) to plaintiff and respondent Kattan Diamonds & Jewelry, Inc. (Kattan Diamonds). In the late 1990's, David Oren worked for Kattan Diamonds as a sales agent, selling jewelry on a consignment basis. In approximately 2001, David Oren set up his own businesses, using various names including David Oren Inc. and David Oren Mfg. Inc., through which he received jewelry from Kattan Diamonds. David Oren was supposed to pay Kattan Diamonds for the jewelry it provided from receipts of sales that he made. Instead, he kept most of the money for himself. David Oren perpetuated the scheme by repeatedly assuring Kattan Diamonds that he would make good on his debts, and by passing checks that turned out to be bad.
By 2003, David Oren owed several million dollars to Kattan Diamonds. In early October of that year, Nagib Kattan, vice president of Kattan Diamonds, attempted to negotiate a workout of the debt with David Oren. David Oren's brother, defendant and appellant Josh Shachar (Shachar), was involved in the negotiations.
David Oren, Shachar, Nagib Kattan, and others met on the night of October 6, 2003, at the house of Shachar's sister to discuss the matter. At that meeting, various agreements were executed, including a promissory note from David Oren and his companies to Kattan Diamonds. According to Nagib Kattan, prior to signing the note, David Oren owed over $4,400,400 to Kattan Diamonds. However, Kattan Diamonds first agreed to compromise the amount to $3,764,216.26, and then further agreed to compromise the amount to $3,264,216.26, as stated in writing on the signature page of the promissory note, which was signed by David Oren and Nagib Kattan. The promissory note called for David Oren to make monthly payments to Kattan Diamonds. In the event of a missed payment, Kattan Diamonds had the right, within its sole discretion, to declare a default and immediately accelerate the entire unpaid balance. The promissory note further stated that it was secured by a "written Guaranty Agreement . . . executed and delivered concurrently herewith."
The central piece of evidence in this case was another document from the same meeting. It was a one-page document written by Shachar in Hebrew (referred to by the trial court, and, hereinafter, as the Hebrew Guaranty). At trial, Shachar characterized the document as "notes" and "scribbles" from the meeting that were nothing more than an attempt to establish a framework whereby Shachar could guarantee up to $500,000 of David Oren's debt to Kattan Diamonds. In contrast, at trial, Kattan Diamonds presented testimony by a certified Hebrew interpreter, who characterized the Hebrew Guaranty as a "formal writing" containing structurally sound sentences and no notes. Another certified Hebrew interpreter, also called by Kattan Diamonds, translated the document in pertinent part as follows: "To: Kattan Diamonds & Jewelry Inc. [¶] I the undersigned, Joshua Shachar, serve as guarantor for David Oren Shachar [¶] DBA David Oren MFG. [¶] DBA David Oren MFG. Inc. [¶] DBA OREN DAVID MFG. [¶] 1) In the amount of $500,000.00 . . . . [¶] 2) If as of year 2004 and beyond, the companies above mentioned . . . would fail to perform the covenants undertaken by them in their mutual agreements, I shall pay, in addition to the commitment of $500,000.00, a sum not to exceed the amount agreed upon for payment for that particular year. [¶] 3) In the event that Oren David Shachar or the companies above mentioned, fail to perform the covenants undertaken by them (See clause 2), Joshua Shachar commits to pay the amount specified in the contract for that particular year. [¶] 4) In the event that clause (3) above is enforced due to the fact that Mr. Oren Shachar or any of his companies, breached the agreement, Joshua Shachar shall pay the specified amount for that year, and
Another key document in the case was one bearing the date October 14, 2003. This document, which was in English, was titled "Guaranteed Performance for David Oren Shachar Debt Restructuring Agreement" (referred to hereinafter as the English Guaranty). The document purported to supersede "any and all written documents whether written in English or Hebrew." It contained terms providing that, subject to certain conditions, Shachar would guarantee up to $500,000 of David Oren's debt to Kattan Diamonds. Shachar, in response to discovery requests and in deposition, initially denied ever signing the English Guaranty, even though his signature appeared on a signature line in the document. At trial, however, Shachar testified that he drafted and signed the document. The English Guaranty also contained a signature line for "Shlomo Kattan, President," which was never signed.
David Oren did not make any monetary payments on the promissory note to Kattan Diamonds. On June 22, 2006, Kattan Diamonds sued Shachar for "breach of guaranty." Attached to the complaint was a copy of the English Guaranty—not the Hebrew Guaranty. The complaint alleged that the parties entered into the English Guaranty on October 14, 2003, that Shachar failed to perform under the terms of the English Guaranty, and that Shachar owed Kattan Diamonds $500,000 pursuant to the English Guaranty. Nowhere in the complaint was the Hebrew Guaranty mentioned.
On August 5, 2008, Kattan Diamonds sought leave of court to file a first amended complaint in order to assert, among other things, breach of the Hebrew Guaranty. At the hearing, the trial court denied the motion for leave to amend, but stated that Kattan Diamonds was not precluded from filing another lawsuit addressing the Hebrew Guaranty.
On August 29, 2008, Kattan Diamonds filed a new lawsuit in which it alleged that, in the event the English Guaranty was invalid, the Hebrew Guaranty was still a valid and binding obligation that had been breached by Shachar. In response, Shachar filed a demurrer, contending that the new lawsuit was improperly duplicative of the still-pending, original lawsuit, and that the claims in the new lawsuit were barred by the statute of limitations. Prior to hearing on the demurrer, the trial court consolidated the new lawsuit with the original action. Then, again prior to the hearing on the demurrer, Kattan Diamonds filed a first amended complaint in the consolidated action, alleging claims both for breach of the English Guaranty and—in the event the English Guaranty was invalid—for breach of the Hebrew Guaranty. Shachar did not file a demurrer in response to the newly operative first amended complaint. Instead, he filed an answer.
A seven-day bench trial was conducted in November 2009. On January 26, 2010, the trial court entered judgment in the amount of $3,016,152.26 in favor of Kattan Diamonds and against Shachar, as well as a statement of decision.
As reflected in the statement of decision, the trial court found that Shachar prepared and executed the Hebrew Guaranty, which obligated him to make payments that David Oren failed to make under the promissory note. The promissory note (and hence the Hebrew Guaranty) contained a continuing obligation of payment as follows: $90,000 in 2003; $350,000 per year in years 2004-2007; $460,000 per year from 2008 to 2011; and the unpaid balance of principal and accrued interest on December 31, 2011, unless the payments had been accelerated because of default. Prior to the filing of the lawsuit, Kattan Diamonds never declared a default. The court calculated the total amount owing as $3,016,152.26.
Pertinent to its decision, the trial court found that Shachar "testified untruthfully regarding material issues and facts in the case." His testimony regarding the October 6, 2003 meeting contradicted declarations previously submitted by Shachar and David Oren. In addition, Shachar originally denied signing various documents, and then changed his testimony at trial. The court's statement of decision read: "This continual blowing hot and cold on very important facts has impacted Defendant's credibility with this Court. At one time or another, Defendant denied the enforceability of
I. Statute of Limitations
Shachar's first argument on appeal is one that was not made in the trial court. Shachar contends that Kattan Diamond's claim for breach of the Hebrew Guaranty accrued on October 15, 2003, the date that David Oren's company David Oren Inc. filed for bankruptcy. Because the claim for breach of the Hebrew Guaranty was first filed on August 29, 2008, according to Shachar the claim was barred by Code of Civil Procedure section 337, subdivision 1's four-year statutory period.
For obligations payable in installments, the statute of limitations begins to run when each installment is due. (White v. Moriarty (1993)
Citing to cases arising in bankruptcy court, including In re Skyler Ridge (Bankr. C.D.Cal. 1987)
We find no basis for reversal. Although Shachar pleaded a statute of limitations defense in the operative answer, the potential applicability of a statute of limitations defense was hardly mentioned by Shachar's counsel at trial. The statute of limitations is an affirmative defense, and a defendant who asserts its bears the burden of proving all of its elements. (Samuels v. Mix (1999)
Moreover, Shachar never made any sort of argument in the trial court even vaguely similar to the one he is asserting now—that the debts on the promissory note and the Hebrew Guaranty were accelerated under bankruptcy law. "It is well established that a party may not raise new issues on appeal not presented to the trial court." (A Local & Regional Monitor v. City of Los Angeles (1993)
Shachar's statute of limitations argument is one that should have been made to the trial court. The case was tried before the court for seven days, numerous witnesses testified, and a host of fact-intensive issues was raised. Since the issue was not raised below, we decline to address it here.
II. Consolidation and the First Amended Complaint
Shachar's next argument centers around the somewhat unusual procedural circumstances whereby Kattan Diamonds was allowed—eventually—to file a cause of action for breach of the Hebrew Guaranty. After filing its initial lawsuit in June 2006, Kattan Diamonds sought leave to amend in August 2008 to allege a claim for breach of the Hebrew Guaranty. The trial court denied the motion for leave to amend, but stated that Kattan Diamonds was not precluded from filing another lawsuit addressing the Hebrew Guaranty. Kattan Diamonds did file such a lawsuit, and eventually it moved to consolidate the action with the original lawsuit. The trial court found that consolidation was proper. Kattan Diamonds thereafter filed a first amended complaint in the consolidated action, alleging claims both for breach of the English Guaranty and—in the event the English Guaranty was invalid—for breach of the Hebrew Guaranty. Shachar answered this first amended complaint.
Shachar contends that Kattan Diamonds should not have been allowed to pursue its claim on the Hebrew Guaranty because its motion for leave to amend was denied, and any subsequent attempt to assert the claim was barred by the doctrine of res judicata or, in the alternative, by the rule against splitting a cause of action. Shachar's res judicata argument fails. In order for res judicata to apply, the same cause of action must have been previously adjudicated, resulting in a final judgment on the merits. (Ferraro v. Camarlinghi (2008)
Nor do we agree that the trial court should have prohibited Kattan Diamonds from pursuing its claim for breach of the Hebrew Guaranty because it constituted an improper splitting of a cause of action. Shachar's reliance on Ricard v. Grobstein, Goldman, Stevenson, Sigel, LeVine & Mangel (1992)
The circumstances in this case were clearly distinguishable. First, unlike the punitive damages allegations at issue in Ricard, the trial court here never found that the Hebrew Guaranty claim was improper. The trial court did not dismiss the cause of action or its supporting allegations, either through a motion to strike or a demurrer. Second, the trial court here explicitly stated on the record that Kattan Diamonds could pursue its Hebrew Guaranty claim. In contrast, in Ricard, the punitive damages allegations were stricken without leave to amend; no direction was given that plaintiffs could file another lawsuit. Third, Kattan Diamonds did not attempt to covertly file another lawsuit without filing a notice of related case. Rather, Kattan Diamonds moved the trial court to consolidate the cases, and the trial court properly exercised its discretion in doing so. The concerns present in Ricard—that plaintiffs were improperly attempting to circumvent the trial court's ruling—were not present here. Rather, the filing of the second lawsuit, the consolidation with the first lawsuit, and the eventual filing of the first amended complaint were all done at the trial court's direction.
To put it briefly, through a somewhat convoluted procedural process, the end result was that Kattan Diamonds was eventually allowed to file an amended complaint alleging breach of the Hebrew Guaranty. A trial court has broad discretion to allow the amendment of a pleading, even up through the time of trial. (Glaser v. Meyers (1982)
III. Judicial Admissions
Shachar further contends that Kattan Diamonds was bound by judicial admissions in its original complaint that precluded it from seeking recovery on the Hebrew Guaranty. In its original complaint filed in June 2006, Kattan Diamonds alleged "[o]n or about October 14, 2003, at Los Angeles, California, plaintiff and defendants entered into a written Guaranty Agreement. A true copy of that Guaranty Agreement is attached hereto . . . and incorporated herein by this reference." Only the English Guaranty was attached to the complaint. Kattan Diamonds alleged that the sum of $500,000 was owing on the English Guaranty, which amount Shachar had refused to pay.
In its first amended complaint filed in February 2009, Kattan Diamonds alleged that after the filing of the lawsuit, Shachar "repudiated" the English Guaranty. The first amended complaint still contained a cause of action for breach of the English Guaranty. It also included a cause of action on the Hebrew Guaranty alleging that, if the English Guaranty was invalid, then the Hebrew Guaranty was still a valid and binding obligation. The first amended complaint sought "at least $1,776,666.66 and up to $3,764,216.26" on the Hebrew Guaranty.
Shachar argues that since Kattan Diamonds originally alleged that it "entered into" the English Guaranty with Shachar, it should not have later been allowed to seek recovery for breach of the Hebrew Guaranty.
We find no merit to this argument. "[A] mere conclusion, or a `mixed factual-legal conclusion' in a complaint, is not considered a binding judicial admission." (Castillo v. Barrera (2007)
In any event, in an amended complaint, a party is allowed to explain previous inconsistent allegations. (See City of Pleasant Hill v. First Baptist Church (1969)
IV. The Operative Guaranty Agreement
Finally, Shachar contends that there was no evidentiary basis for the trial court's finding that the Hebrew Guaranty was binding, or for the judgment in excess of $3 million. "In general, in reviewing a judgment based upon a statement of decision following a bench trial, `any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision.' [Citations.] In a substantial evidence challenge to a judgment, the appellate court will `consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the [findings].' [Citations.] We may not reweigh the evidence and are bound by the trial court's credibility determinations. [Citations.] Moreover, findings of fact are liberally construed to support the judgment. [Citation.]" (Estate of Young (2008)
We find that substantial evidence supports the trial court's determination that the Hebrew Guaranty was binding. Nagib Kattan testified that the parties agreed at the October 6, 2003 meeting that Shachar would guarantee David Oren's promissory note, and the Hebrew Guaranty was given by Shachar pursuant to this agreement. Nagib Kattan further testified that he agreed to reduce the amount called for in the promissory note by $500,000 in exchange for Shachar's guaranty. The Hebrew Guaranty was signed by Shachar. Furthermore, David Oren's promissory note made multiple references to an accompanying "Guaranty Agreement." Although Shachar characterized the Hebrew Guaranty as just "notes" and "scribbles," the trial court found that he was not a credible witness because, throughout the case, he denied the enforceability of every relevant agreement he signed.
We also find that the trial court did not err in determining the total amount owing under the Hebrew Guaranty to be $3,016,152.26. As translated by Kattan Diamonds' expert certified Hebrew interpreter, and as reflected in the court's statement of decision, the Hebrew Guaranty provided that Shachar would serve as guarantor for David Oren in the amount of $500,000, and for amounts due in 2004 and beyond. It was a matter within the trial court's sound discretion to determine the credibility of this translation and to rely on it in making its decision.
The judgment is affirmed.
DOI TODD, J. and CHAVEZ, J., concurs.
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