SolMark International Inc. v. Abel Galvez ( 2021 )

1 UNITED STATES DISTRICT COURT 2 CENTRAL DISTRICT OF CALIFORNIA 3 Case No. 2:20-cv-04437-SB-PLA 4 SOLMARK INTERNATIONAL INC., FINDINGS OF FACT AND CONCLUSIONS OF LAW 5 Plaintiff, 6 Trial: October 21, 2021 7 v. 8 ABEL GALVEZ et al., 9 Defendants. 10 11 12 13 14 Following the Court’s summary judgment ruling and the default or dismissal of 15 nearly all Defendants, the only claims remaining for trial were Plaintiff SolMark 16 International Inc.’s claims against Defendant Frank Delgadillo and Defendant 17 Delgadillo’s counterclaims against SolMark. The Court held a bench trial on October 18 21 and 26, 2021. All witnesses submitted their direct testimony primarily through 19 declarations,1 although the Court gave the parties the opportunity to conduct 20 supplemental direct examination as well as cross-examination at trial. After 21 evaluating the evidence at trial, the Court issues the findings of fact and conclusions 22 of law as set forth below.2 The Court’s findings of fact are from a preponderance of 23 the evidence except where otherwise indicated. 24 25 26 1 Plaintiff’s objections to Defendant Delgadillo’s trial declaration are OVERRULED. 27 2 The characterization of a finding as one of “fact” or “law” is not controlling. To the extent that a finding is characterized as one of “law” but is more properly 28 characterized as one of “fact” (or vice versa), substance shall prevail over form. 1 FINDINGS OF FACT 2 1. Plaintiff SolMark International Inc. (SolMark) supplies products to 3 national auto parts chains, including Advance Auto Parts. 4 2. SolMark’s CEO, Michael Scott, met Defendant Frank Delgadillo through 5 business dealings that took place before the events at issue in this suit. Scott knew 6 that Delgadillo worked for a chemical company. 7 3. At the outset of the COVID-19 pandemic in March 2020, Scott 8 contacted Delgadillo about obtaining hand sanitizer to supply to SolMark’s customers. 9 Delgadillo responded by sending Scott a spreadsheet with various products, including 10 personal protective equipment (PPE), such as masks and gloves, that Delgadillo 11 purported to be offering for sale. 12 4. Delgadillo represented in a WhatsApp text message to Scott on March 13 20, 2020, that he had 100,000 boxes of gloves. 14 5. Three days later, when Scott asked Delgadillo if the gloves were gone, 15 Delgadillo replied that the federal government would soon be coming to Delgadillo’s 16 office to pick up gloves. When Scott asked if the government had taken all the gloves, 17 Delgadillo responded, “We ended up getting more of the same today.” 18 6. On April 9, 2020, after Scott informed Delgadillo that SolMark had a 19 client who needed 25,000 cases of gloves, Delgadillo told Scott that he had the gloves 20 and represented in a WhatsApp message that the gloves were “in LA at our 21 warehouse.” 22 7. Delgadillo never possessed any boxes of gloves. Delgadillo did not have 23 gloves in a warehouse in Los Angeles. Delgadillo never sold gloves to the federal 24 government, nor did he receive additional gloves after such a sale. Delgadillo’s 25 statements about these matters were false. 26 8. The Court finds by clear and convincing evidence that Delgadillo knew 27 that his representations about the gloves were false. 28 1 9. The Court finds by clear and convincing evidence that Delgadillo made 2 knowingly false representations to Scott in order to induce SolMark to purchase the 3 gloves that Delgadillo claimed to have in his possession. 4 10. The Court finds Delgadillo’s testimony on this and other matters to be 5 not credible. 6 11. On April 9, 2020, Scott emailed Delgadillo stating that SolMark was 7 prepared to purchase “100,000 boxes of 100pcs Blue Nitrile glove[s]” and requesting 8 proof of inventory and additional information required for picking up the gloves. 9 12. Following additional email discussions between Scott, Delgadillo, and 10 others, SolMark on April 14, 2020 issued a purchase order for 10 million gloves at a 11 total cost of $795,000. 12 13. On April 15, 2020, SolMark received an invoice for the gloves on 13 letterhead from G7 Environment LLC (G7 Environment). 14 14. On the morning of April 16, 2020, SolMark wired to G7 Environment the 15 sum of $599,994.45, representing an advance payment of approximately 75% of the 16 amount owed for the gloves. 17 15. Scott and Chris Auerbach, SolMark’s president, repeatedly asked 18 Delgadillo and his associates for information on where to pick up the gloves. On the 19 afternoon of April 16, 2020, after Delgadillo and his associates refused to provide a 20 pickup location, Auerbach requested the return of the wired money. 21 16. After repeated demands from SolMark, Delgadillo on April 21, 2020 22 accompanied his associate Abel Galvez to a Wells Fargo bank, where Galvez wired 23 $500,099.94 from the account of G7 Luxury Shuttle LLC back to SolMark. 24 17. Also on April 21, 2020, $25,000 was wired from the same Wells Fargo 25 account to Delgadillo. The following day, another $30,000 was wired from the same 26 Wells Fargo account to Dessau86 Lab, LLC, Delgadillo’s business. 27 28 1 18. From a preponderance of the evidence, the Court finds that the $55,000 2 wired to Delgadillo and his business on April 21 and April 22, 2020, was a portion of 3 the money received from SolMark.3 4 19. Despite repeated demands from SolMark, Delgadillo and his associates 5 have not returned the remaining $99,894.51 to SolMark, nor have they provided any 6 gloves to SolMark. 7 CONCLUSIONS OF LAW 8 9 20. SolMark alleged five causes of action against Delgadillo: (1) breach of 10 contract, (2) money had and received, (3) unjust enrichment, (4) fraud, and 11 (5) violation of the California Unfair Competition Law (UCL). Dkt. No. 1 (Compl.). 12 Solmark affirmatively abandoned its cause of action for violation of the UCL before 13 trial. Dkt. No. 123 at 8 of 19. 14 21. Delgadillo voluntarily dismissed his remaining counterclaims during 15 trial. 16 Breach of Contract 17 22. To prevail on a claim for breach of contract under California law, the 18 plaintiff must prove (1) the existence of the contract, (2) plaintiff’s performance or 19 excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to 20 the plaintiff. Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011). 21 23. SolMark never formed a contract with Delgadillo individually. Instead, 22 SolMark received an invoice from G7 Environment and wired money to a bank 23 account controlled by G7 Luxury Shuttle LLC. SolMark’s counsel contended at trial 24 that G7 Environment was the contracting party, but urged that Delgadillo can be held 25 individually liable for G7 Environment’s contract on any of four theories: 26 27 3 Although there was no direct evidence presented on this matter at trial, defense 28 counsel conceded that it was reasonable to infer the money came from the same pool. 1 (1) Delgadillo is a partner in G7 Environment, (2) G7 Environment was a joint 2 venture in which Delgadillo participated, (3) G7 Environment is Delgadillo’s alter 3 ego, or (4) Delgadillo is subject to coconspirator liability. 4 24. SolMark did not produce evidence to support a finding that Delgadillo is 5 individually liable for G7 Environment’s breach of contract on any of the theories 6 presented.4 7 25. SolMark therefore is not entitled to recover from Delgadillo on its breach 8 of contract claim. 9 Money Had and Received 10 26. To prevail on a claim for money had and received under California law, 11 the plaintiff must prove (1) that the defendant received money intended to be used for 12 the benefit of the plaintiff, (2) that the money was not used for the plaintiff’s benefit, 13 and (3) that the defendant has not given the money to the plaintiff. Avidor v. Sutter’s 14 Place, Inc., 212 Cal. App. 4th 1439, 1454 (2013). “Although such an action is one at 15 law, it is governed by principles of equity.” Eng. & Sons, Inc. v. Straw Hat 16 Restaurants, Inc., 176 F. Supp. 3d 904, 926 (N.D. Cal. 2016) (quoting Mains v. City 17 Title Ins. Co., 34 Cal.2d 580, 586 (1949)). A claim for money had and received is 18 viable wherever one person has received money which belongs to another, and which 19 in equity and good conscience should be paid over to the latter. Avidor, 212 Cal. App. 20 4th at 1454. 21 27. Delgadillo received—individually and through his company Dessau86 22 Lab, LLC—$55,000 of the funds paid by SolMark to purchase gloves for Solmark’s 23 benefit. The $55,000 received by Delgadillo was not used for SolMark’s benefit and 24 Delgadillo has not returned the $55,000 to SolMark. 25 26 27 4 SolMark’s counsel conceded at trial that the breach of contract theory was “a 28 stretch.” 1 28. In equity and good conscience, the $55,000 of SolMark’s funds that are 2 in Delgadillo’s possession should be returned to SolMark. 3 29. SolMark is entitled to recover $55,000 from Delgadillo on its claim for 4 money had and received. 5 Unjust Enrichment 6 30. In California, there is not a standalone cause of action for “unjust 7 enrichment.” Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 2015). 8 SolMark’s claim for unjust enrichment is therefore dismissed. 9 Fraud 10 31. The elements of a claim for fraud by misrepresentation under California 11 law are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, 12 (4) actual and justifiable reliance, and (5) resulting damage. Chapman v. Skype Inc., 13 220 Cal. App. 4th 217, 230–31 (2013). 14 32. On multiple occasions, Delgadillo misrepresented to SolMark that he and 15 his associates had boxes of gloves in their possession (including specifically at their 16 office and at a warehouse in Los Angeles) that were available for sale to SolMark. 17 33. Delgadillo knew that these statements were false because he knew he did 18 not in fact possess the boxes of gloves. 19 34. Delgadillo nevertheless misrepresented that he had gloves available in 20 order to induce SolMark to send money to Delgadillo and his associates as payment 21 for the gloves. 22 35. SolMark relied on Delgadillo’s misrepresentations and wired 23 $599,994.45 to G7 Environment to purchase the nonexistent gloves. SolMark’s 24 reliance on Delgadillo’s representations was reasonable based on Scott’s preexisting 25 business relationship with Delgadillo, particularly given the urgency of SolMark’s 26 clients’ need for gloves and other PPE in the early stages of the COVID-19 pandemic. 27 36. $99,894.51 of the money SolMark sent to G7 Environment in reliance on 28 Delgadillo’s misrepresentations has not been returned to SolMark. SolMark would 1 not have sent this money to G7 Environment without Delgadillo’s misrepresentations 2 that he and his associates possessed boxes of gloves for sale. 3 37. SolMark is entitled to recover $99,894.51 from Delgadillo on its fraud 4 claim. 5 Double Recovery 6 38. “Regardless of the nature or number of legal theories advanced by the 7 plaintiff, he is not entitled to more than a single recovery for each distinct item of 8 compensable damage supported by the evidence.” Tavaglione v. Billings, 4 Cal. 4th 9 1150, 1158 (1993). 10 39. The $55,000 of unreturned funds recoverable from Delgadillo on 11 SolMark’s claim for money had and received is a subset of the $99,894.51 in 12 unreturned funds recoverable from Delgadillo on Solmark’s fraud claim. 13 40. Under the rule against double recovery, SolMark’s total recovery of 14 actual damages on its claims for money had and received and fraud is limited to 15 $99,894.51. 16 Punitive Damages 17 41. “In an action for the breach of an obligation not arising from contract, 18 where it is proven by clear and convincing evidence that the defendant has been guilty 19 of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may 20 recover damages for the sake of example and by way of punishing the defendant.” 21 Cal. Civ. Code § 3294(a). 22 42. The Court finds that its conclusions of law numbered 32 through 36 23 above are supported by clear and convincing evidence. 24 43. Under California law, “an award of punitive damages cannot be sustained 25 . . . unless the trial record contains meaningful evidence of the defendant’s financial 26 condition” and “a plaintiff who seeks to recover punitive damages must bear the 27 burden of establishing the defendant’s financial condition.” Adams v. Murakami, 54 28 Cal. 3d 105, 109, 123 (1991). 1 44. SolMark has not produced, and the record does not contain, any evidence 2 of Delgadillo’s financial condition. Accordingly, the Court is unable to award 3 punitive damages against Delgadillo. 4 Attorney’s Fees 5 45. Under the bedrock principle known as the “American Rule,” each litigant 6 pays its own attorney’s fees, win or lose, unless a statute or contract provides 7 otherwise. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010). 8 46. SolMark has not identified any statute or contract that authorizes a 9 recovery of SolMark’s attorney’s fees from Delgadillo. 10 47. The “tort of another” doctrine, on which SolMark relies, provides a 11 narrow exception to the American Rule: “A person who through the tort of another 12 has been required to act in the protection of his interests by bringing or defending an 13 action against a third person is entitled to recover compensation for the reasonably 14 necessary loss of time, attorney’s fees, and other expenditures thereby suffered or 15 incurred.” Prentice v. N. Am. Title Guar. Corp., 59 Cal. 2d 618, 620 (1963). 16 48. The Supreme Court of California emphasized in Prentice that an award 17 of attorney’s fees is not allowed “in an ordinary two-party lawsuit,” but rather that the 18 exception applies where a defendant has “wrongfully made it necessary for a plaintiff 19 to sue a third person” such that the attorney’s fees incurred in the separate suit are a 20 measure of the plaintiff’s damages rather than a measure of compensation of the 21 plaintiff’s attorneys. Id. at 620–21; see also Sooy v. Peter, 220 Cal. App. 3d 1305, 22 1312 (1990) (“Prentice merely holds that necessary attorney fees incurred in third 23 party litigation which is proximately and foreseeably caused by a tortfeasor are 24 recoverable as damages in an action against the tortfeasor.”). 25 49. The attorney’s fees SolMark seeks to recover are the costs it incurred to 26 pay its attorneys in this suit against Delgadillo and his codefendants, not damages 27 from another suit SolMark was forced to file against a third party. Accordingly, the 28 “tort of another” exception to the American rule is inapplicable. 1 50. SolMark is not entitled to recover attorney’s fees from Delgadillo. 2 DISPOSITION 3 In light of the above-stated findings of fact and conclusions of law, the Court 4 finds that Plaintiff SolMark International Inc. is entitled to recover $99,894.51 in 5 actual damages from Defendant Frank Delgadillo. All other relief sought in 6 SolMark’s claims against Delgadillo and Delgadillo’s counterclaims against SolMark 7 is denied. 8 9 SolMark has obtained clerk’s entries of default against several Defendants and 10 has represented that it intends after trial to move for entry of default judgment as to at 11 least some of the defaulting Defendants. A final judgment cannot be entered until 12 SolMark’s outstanding claims are resolved.5 Accordingly, it is ORDERED that 13 SolMark no later than December 29, 2021, shall file as to each remaining Defendant 14 either a properly supported motion for default judgment or a statement that SolMark 15 no longer intends to prosecute its claims against that Defendant. 16 17 Dated: December 3, 2021 18 19 Stanley Blumenfeld, Jr. 20 United States District Judge 21 22 23 24 5 The other outstanding matter in this case is whether Delgadillo should be sanctioned 25 for submitting false documents and making false representations in connection with his requests to delay trial. The Court held two show cause hearings but deferred 26 ruling on sanctions until after providing the parties a further opportunity to present 27 evidence. The Court now elects as a matter of discretion not to conduct further proceedings and instead to DISCHARGE the show cause order without imposing 28 sanctions.