filed: ( 2013 )

Filed: 7/31/13 Koshak v. Malek CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
MICHAEL KOSHAK et al., B242137
Plaintiffs and Respondents, (Los Angeles County
Super. Ct. No. LC083095)
v.
HANY MALEK,
Defendant and Appellant.
APPEAL from an order of the Superior Court of the County of Los Angeles,
Frank Johnson, Judge. Affirmed.
Law Office of Edward J. Blum and Edward J. Blum, attorney for Defendant and
Appellant.
Johnson & Higgin, Jeffery W. Johnson for Plaintiffs and Respondents.
INTRODUCTION
Defendant and appellant Hany Malek (Malek) appeals from a trial court order
requiring him to make restitution in the amount of $1.9 million to a receivership estate.
According to Malek, the trial court violated his due process rights when it entered the
restitution order based solely on the evidence submitted and findings made at a prior
contempt hearing.
We hold that because the trial court afforded Malek a full and fair opportunity to
cross-examine witnesses who testified at the contempt hearing, examine any other
witnesses he wished to call, introduce any other evidence, and make any further
arguments in opposition to the restitution request, Malek’s due process rights were not
violated. We therefore affirm the restitution order.
FACTUAL BACKGROUND1
A. The Litigation
In 2005, plaintiff and respondent Michael M. Koshak (Koshak) formed a business
venture with Malek that operated through a medical corporation, Choice Providers
Medical Group, also known as Noble Community Medical Associates, Inc., of Los
Angeles (Choice Providers). In 2008, Koshak sued Malek asserting 12 causes of action
and alleging generally that Malek “developed a sophisticated scheme over an extended
period of time using at least 18 different bank accounts with 5 federal tax identification
numbers under at least 12 different names to accomplish, [and] then disguised and hid
this massive fraud from [Koshak].” United Managed Health Care Center (United), a
corporation in which Malek held a substantial interest, cross-complained against Koshak
1
Certain of the general background facts relating to the filing of the litigation, the
appointment of the receiver, the contempt proceeding, and the original restitution order are
taken from our published opinion in a prior appeal in this case, Koshak v. Malek (2011) 200
Cal.App.4th 1540.
2
and Choice Providers alleging that Koshak was attempting to force Malek out of Choice
Providers's business “so that [Koshak] would be able to steal the medical practice which
[United and Malek had] supported through a difficult start-up period, just as [Choice
Providers] turned a corner and [became] self-sustaining.”
B. The Receivership and the Contempt Proceeding
In December 2008, with the acquiescence of Malek and Koshak, the trial court
entered an order appointing David Pasternak as receiver (the receiver) to take possession,
custody, and control over Choice Providers. In December 2009, the receiver filed an ex
parte application for the issuance of an amended order to show cause regarding contempt
against Malek.2 The proposed amended order to show cause listed 29 different acts that
allegedly violated the trial court's receivership order. In the ex parte application, the
receiver requested, “in addition to any fines or imprisonment imposed upon [Malek], that
he be ordered to pay the Receiver's reasonable attorneys' fees incurred in bringing this
contempt proceeding.” Neither the ex parte application nor the proposed order made any
reference to a request for an order requiring Malek to pay any other monies—much less
$1.7 million in restitution that the trial court later ordered.
Following a three-week bench trial, the trial court found Malek guilty of 10 of the
29 contempt charges alleged in the amended order to show cause. At the subsequent
sentencing hearing, the trial court sentenced Malek on the 10 contempt convictions to
five days in jail for each conviction, for a total of 50 days, and fined Malek $1,000 for
each conviction, for a total fine of $10,000—i.e., the maximum amount of jail time and
fines the trial court could impose under Code of Civil Procedure section 1218,
subdivision (a), the section under which the receiver brought the contempt charges. The
trial court also ordered Malek to pay the receiver’s attorney fees incurred in pursuing the
contempt proceedings.
2
In June 2009, the receiver filed the original ex parte application for issuance of an
order to show cause regarding contempt against Malek alleging that Malek was interfering
with the receiver’s administration of the receivership estate and the receiver’s exercise of
management and control over Choice Providers.
3
At the close of the sentencing hearing, the receiver requested that the trial court
“consider any other available sanctions or punishments” to cause Malek to return the
money he diverted from the receivership. Referring to its purported “independent
authority to make sure that its orders are enforced,” the trial court responded that it would
“make a separate order . . . that [Malek] reimburse the receivership.” The trial court then
ordered as follows: “The court does however order that you pay or that you pay into the
receiver estate the following sums: $650,000 which represents the amount the receiver
showed was diverted from—into Care Point, in other words, that contract that you had
with Care Point where you sold the receivables, plus interest in the amount of
$84,767.12. [¶] $364,900–$364,948 plus $31,644.80 in interest according to the
schedule that was introduced in the hearing by Mr. Lobuglio. [¶] And in addition,
$580,281.67 was the amount shown to have been diverted by your own exhibits, plus
interest in the amount of $64,517.34. [¶] The court orders that each of those sums be
paid into the receivership estate. I’m not ordering that all that money doesn’t belong to
you. I'm simply ordering that you pay it into the receivership estate so that the
receivership will have control of the money and they make disbursements back to you as
that money is owed back to you. [¶] So some of it may come back, all of it may come
back, that’s going to be up to the receiver. That’s what the receiver is there for. [¶] That
money is due to the receiver on or before May 27, 2010.” The trial court added, “In the
event the money is not paid, we will hold an ability to pay hearing on the 28th [of
May] . . . .” The trial court’s restitution order was reflected in a minute order dated April
30, 2010. Malek filed a timely notice of appeal from the restitution order.
C. Appeal From the Restitution Order
On appeal, Malek argued, inter alia, that the entry of the restitution order without
prior adequate notice and a fair opportunity to be heard violated his due process rights.
In a published opinion, Koshak v. Malek , supra, 200 Cal.App.4th 1540, we agreed with
Malek, reasoning as follows: “Under the due process clauses of the federal and state
Constitutions, Malek was entitled to reasonable notice that, in addition to holding a
4
contempt proceeding, the trial court intended to rely on the evidence from that proceeding
to also consider entering a restitution order in excess of $1 million. Malek, because he
did not receive any such notice prior to the sentencing hearing, had no time to prepare a
defense on the restitution issue, both as to entitlement and amount. Instead, Malek was
required to address the restitution order for the first time as it was being made and
without briefing or a separate hearing. Because the record does not demonstrate any
extraordinary circumstances that would justify an exception to the requirements of due
process, and the receiver does not assert any such circumstance, Malek was entitled to
notice and a hearing. Accordingly, the trial court’s failure to afford Malek those basic
procedural rights prior to entering the restitution order—i.e., “the rudiments of fair play”
(In re Marriage of Flaherty (1982) 31 Cal.3d 637, 654 [183 Cal.Rptr. 508, 646 P.2d
179])—violated his due process rights and requires us to reverse that order. (See In re
Marriage of Carlsson (2008) 163 Cal.App.4th 281, 293 [77 Cal.Rptr.3d 305] [“[t]he
failure to accord a party litigant his constitutional right to due process is reversible per se,
and not subject to the harmless error doctrine”]; see also Kelly v. New West Federal
Savings (1996) 49 Cal.App.4th 659, 677 [56 Cal.Rptr.2d 803] [“where the error results in
denial of a fair hearing, the error is reversible per se”].) [¶] . . .[¶] In making this
determination, we do not decide whether Malek is obligated to make restitution based on
the evidence adduced during the contempt proceeding, nor do we decide the amount of
any such restitution obligation. Those are matters for the trial court to determine in the
first instance at a duly noticed hearing scheduled for that specific purpose and following
an adequate time period for briefing on those issues. [¶] . . . [¶] The restitution order is
reversed, and the matter is remanded for further proceedings consistent with this
opinion.” (Id. at pp. 1549-1550, 1551.)
D. Further Proceedings in the Trial Court
Following remand, the receiver filed a motion for an order requiring Malek to pay
to the receivership estate funds he had diverted from the estate, plus interest, and for an
order requiring Malek to pay the receiver’s attorney fees and costs incurred in connection
5
with the contempt proceeding. Relying on the evidence introduced at the contempt
proceeding concerning Malek’s diversion of funds from the receivership estate, the
receiver argued that the trial court had the inherent authority to enforce its own orders,
including the receivership order requiring Malek to pay certain monies to the receivership
estate.
At a January 2012, hearing on the motion, the trial court and Malek’s counsel
engaged in the following exchange: “The Court: . . . I don’t see that the Court of
Appeal was too concerned with the underlying proceeding other than the notice issue that
has been mentioned by all counsel, and I don’t take the Court of Appeal’s decision to
mean that we have to start over again from square one. That’s my take on it. [¶]
[Defense Counsel]: So that’s what the Court of Appeal said. It said [Malek] didn’t know
about that, so how can that finding be? So then we jump forward to this hearing, your
Honor, and what [the Receiver and Koshak] want to rely on is the findings made at the
contempt hearing and the evidence presented at the contempt hearing, but that evidence,
first, is not properly before this court because the only way that they’re getting it here, it
makes it hearsay and inadmissible, and the Evidence Code applies to every court
proceeding, your Honor, not just trials, not just, you know, motions for summary
judgment, but this hearing too. [¶] The Court: Well, if we had been ordered to retry the
contempt hearing, then your argument might have some validity, but [the Court of
Appeal] did not order that. [The Court of Appeal] just said that that portion of the
hearing which requires your client to make this restitution was done without proper
notice to your client sufficient[] to enable him to defend against the charge. That’s all
[the Court of Appeal] said. So that strikes me as being a far different thing than retrying
the entire contempt matter. [¶] [Defense Counsel]: Nobody is asking the court to retry
the—that’s not what we’re asking. What we’re saying, even in any criminal proceeding,
there is a restitution. It’s a restitution matter. [¶] The Court: Yes. But the evidence that
was adduced during the underlying contempt matter is admissible for that purpose. There
is no rule that says that that which was admitted during the contempt proceeding cannot
be admitted in the related restitution hearing. There is no such rule. [¶] . . . [¶] The
6
Court: Okay. Well, if you need the opportunity to cross-examine any witness, then I
intend to give you that opportunity, and if there is any other evidence that you feel that
you need to present that you haven’t already presented, then I intend to let you do that,
and it’s not going to happen this morning, but I am going to set this matter for further
hearing, and I am going to give you the opportunity to introduce whatever evidence you
wish, up to and including witnesses who have already testified to—on this issue of the
restitution, and that’s I believe what the Court of Appeal is requiring me to do.” (Italics
added.)
In February 2012, Malek made an ex parte application for an order requiring the
receiver to identify the evidence in the record of the contempt proceeding on which the
receiver would rely at the evidentiary hearing on the restitution issue. At the hearing on
Malek’s ex parte application, the trial court ruled that “counsel for [the] receiver [is] to
reduce to letter form the portions of the transcript [of the contempt proceeding] they will
be using.” The trial court then continued the scheduled hearing on the restitution motion
for approximately three weeks.
At the continued hearing on the restitution motion in April 2012, the trial court
observed: “The Court: Well, the court—Judge Gutman, I believe—ordered the creation
of this receivership, and Judge Latin found that [Malek] was in contempt of that order by
diverting and withholding funds from the receivership. I believe that, whichever Judge
had jurisdiction at the time, be it Judge Gutman, Judge Latin, or myself, whoever has the
file has the inherent authority to order that funds wrongfully taken from the possession
and control of the receiver be returned to the receiver. [¶] I believe the court has the
inherent power to do that, and that would be how I would be prepared to act in this
matter. I would be using the figures that Judge Latin derived during the contempt
proceeding which were, apparently in large part, the basis for his finding of contempt.”
In response to the trial court’s inquiry as to how Malek’s counsel would like to
proceed, Malek’s counsel stated: “[Defense Counsel]: As I understand it, the scope of
this hearing is to prove up the amount of restitution because, as the Court of Appeal said,
that was not an issue that was noticed for the contempt hearing. [¶] As I’ve requested,
7
they’ve given me a list of the parts of the transcript that they wish to introduce to prove
that. Based on this, I’m willing to argue, based on this as admissible evidence for the
amount of the restitution, I’m ready to go forward. [¶] Again, I have made previously an
objection, and I will continue to make that objection that this is not the proper case for the
prior testimony to be used. The prior testimony is inadmissible hearsay, and I’ve made
that issue before. If you want me to make it again, I will, but I’d just as soon save my
breath.”
The trial court and Malek’s counsel then had the following exchange: “The Court:
All right. The court will take at face value Judge Latin’s findings without prejudice,
[defense counsel], to your ability to offer evidence to the contrary. [¶] [Defense
Counsel]: Well, your Honor, that’s not what we were going to do today. What we were
going [to do] today is they’re going to admit the testimony as their evidence. [¶] I don’t
think you can rely on what Judge Latin said. This is a separate proceeding. You are
giving me a hearing in name only. They don’t have to prove anything at this hearing. [¶]
I think what they have to prove is very limited. What they have to prove is the amount of
the restitution, that should be the restitution under, at least, the theory that’s the amount
of their actual loss, of Choice Providers’ actual loss. And to just go back and do what
Judge Latin says is really just giving me a hearing in name only.”
The receiver’s counsel stated his position concerning the restitution hearing as
follows: “[Receiver’s Counsel]: I said this before, and I wasn’t trying to be funny, if
[defense counsel] wants to know what the evidence is going to be that’s relied upon by
the receiver, I say we rest. [¶] We put it in. They didn’t put anything in. They didn’t
have a brief today, and apparently, they don’t have anything else to put in today either.
This is all in argument.”
Malek’s counsel responded, “[Defense Counsel]: Your Honor, it misunderstands
what the Court of Appeal is saying. . . . [¶] The Court of Appeal is saying that none of
the issues before the court at the contempt [proceeding] had to do with the amount of
damages. None of the remedies that the court could have awarded at the end of the
contempt [proceeding] had to do with the award of the restitution or any kind of damages.
8
[¶] Therefore, my client did not have to either, A, put on a defense to those amounts or,
B, object to things that were, in essence, irrelevant to the four issues before the court
during the contempt hearing.”
When the trial court reiterated that the hearing was Malek’s opportunity to present
evidence in opposition to the restitution motion, Malek’s counsel stated: “[Defense
Counsel]: I would go right to argument then, your Honor. And again, I object to any
kind of former testimony being used.”
Following argument, the trial court pronounced its ruling: “The Court: . . . So
I’m going to adopt, in the absence of any math-based objection, [receiver’s counsel]’s
figure of $1,912,559.77 as being today’s iteration of the total specified by Judge Latin
back in 2010. [¶] . . . [¶] The court finds that the restitution is set in the amount of
$1,912,559.77 as of today; that from this day forth, interest will accrue on that sum in the
amount of $437.35 per day. [¶] Malek is ordered to make restitution to the receiver in
the amount previously specified, the 1.9 million dollar figure that I just specified, and he
is ordered to do that forthwith. And he’s had at least two years to come up with that
money which, in essence, was stolen from the receivership. [¶] And the court intends to
enforce that order with its powers of contempt as necessary.”
Following the hearing on the restitution issue, the trial court issued a minute order
based on the oral pronouncement of its ruling on the restitution motion. Malek filed a
timely notice of appeal from that order.
DISCUSSION
A. Standard of Review
Malek’s procedural due process challenge to the trial court’s order requiring him
to make restitution to the receivership estate is reviewed de novo. “‘Appellate courts
conduct an independent review of questions of law; they decide them without deference
to the decision made below.’ (Coburn v. Sievert (2005) 133 Cal.App.4th 1483, 1492 [35
Cal.Rptr.3d 596].) Determining if the trial court adhered to a constitutional principle is
9
solely a question of law. (California Assn. of Dispensing Opticians v. Pearle Vision
Center, Inc. (1983) 143 Cal.App.3d 419, 426 [191 Cal.Rptr. 762].) The issue of whether
[a trial court complied with the mandates of] procedural due process . . . is a question of
law. Therefore, we review this issue de novo.” (Conservatorship of Christopher A.
(2006) 139 Cal.App.4th 604, 609-610)
B. Analysis
1. Trial Court’s Reliance on Findings Made
at the Contempt Hearing
Malek contends that his due process rights were violated when the trial court
relied on certain findings made at the contempt hearing. According to Malek, because he
had no reason to cross-examine witnesses at the contempt hearing concerning the
restitution issue, the findings made at the contempt hearing should not have been relied
upon by the trial court in adjudicating the issues relevant to restitution.
Reduced to its essence, Malek’s argument on appeal is that he was entitled to a
new hearing on the restitution issue at which the receiver was required to call the same
witnesses that he called at the contempt hearing and to reintroduce the same exhibits that
he introduced at the contempt hearing. Malek misperceives our opinion in Koshak v.
Malek, supra, 200 Cal.App.4th 1540 and the mandates of due process. Our concern on
the appeal from the original restitution order was not that the trial court, in making the
restitution order, relied on testimony and documents introduced at the contempt hearing.
Our concern was that Malek had been given insufficient notice and denied a fair
opportunity to be heard on the separate issue of restitution. We did not state or imply that
it was improper for the trial court to rely on evidence from the contempt proceeding in
making its restitution order. Instead, we explained that Malek had a right to challenge
that evidence at a duly noticed hearing conducted for that specific purpose. Because the
trial court afforded Malek a full and fair opportunity to call witnesses, cross-examine the
receiver’s witnesses, and to submit any other evidence that he wished to submit, it
10
complied with the directions in our opinion and the mandates of due process. Nothing
further was required.
2. Evidence Code Section 1291, Subdivision (a)(2)
In a related contention, Malek argues that testimony from the contempt hearing
was inadmissible at the restitution hearing as hearsay under Evidence Code section 1291,
subdivision (a)(2) (section 1291, subdivision (a)(2)).3 Malek argues that because he had
no reason to cross-examine witnesses at the contempt hearing on the issue of restitution,
section 1291, subdivision (a)(2) barred introduction of such prior testimony at the
restitution hearing.
Malek’s reliance on section 1291, subdivision (a)(2) is misplaced. The
proceedings concerning the restitution issue were related to and an outgrowth of the
contempt proceeding. Thus, the testimony from the contempt proceeding cannot be fairly
characterized as “prior” testimony. Rather, that testimony served a dual purpose—it was
the factual predicate for the requested contempt order and the restitution order. Because,
as noted, the trial court afforded Malek a full and fair opportunity to cross-examine any
of the receiver’s witnesses concerning their direct testimony and the exhibits upon which
such testimony was based, the rationale underlying section 1291, subdivision (a)(2) and
the hearsay rule in general did not apply to the testimony of the receiver’s witnesses.
Thus, the trial court did not err in considering the testimony of the receiver’s witnesses at
the restitution hearing.
3
Section 1291, subdivision (a)(2) provides: “(a) Evidence of former testimony is not
made inadmissible by the hearsay rule if the declarant is unavailable as a witness and:
[¶] . . . [¶] (2) The party against whom the former testimony is offered was a party to the
action or proceeding in which the testimony was given and had the right and opportunity to
cross-examine the declarant with an interest and motive similar to that which he has at the
hearing.”
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3. Restitution—the Penal Code
Malek contends that because the contempt proceeding was “criminal in nature,”
(see Ross v. Superior Court (1977) 19 Cal.3d 899, 913 [“contempt proceedings are quasi-
criminal in nature”]) any restitution order based on the contempt proceeding should be
governed by the mandates of the Penal Code. From Malek’s perspective, because the
proceedings on the restitution issue following remand did not comply with the procedural
and evidentiary requirements for restitution in the criminal context, the restitution order
must be reversed.
Following the sentencing in the contempt proceeding, the trial court considered the
receiver’s separate request for a restitution order, not under the Penal Code, but rather
under the trial court’s inherent power to issue orders to enforce its prior rulings. In
making the original restitution order, the trial court specifically referred to and relied
upon its inherent power to make such orders. Similarly, in the restitution proceedings
following remand, the trial court also made reference to its inherent power to make such
orders as are necessary to enforce prior orders. Therefore, neither court considered the
restitution issue in the criminal context, nor were they required to.
“The [trial] court . . . has the inherent authority to order compliance with its
rulings. ‘“The power to enforce their decrees is necessarily incident to the jurisdiction of
courts. Without such power, a decree would, in many cases, be useless. ‘All courts have
this power, and must necessarily have it; otherwise they could not protect themselves
from insult, or enforce obedience to their process. Without it, they would be utterly
powerless.’”’ (Security T. & S. Bk. v. S. P. R. R. Co. (1935) 6 Cal.App.2d 585, 589 [45
P.2d 268]; see Code Civ. Proc., § 128, subd. (a)(4) [codification of inherent power].)”
(Branson v. Sharp Healthcare, Inc. (2011) 193 Cal.App.4th 1467, 1476, fn. 4.) The
Supreme Court has said that “a court of equity may exercise the full range of its inherent
powers in order to accomplish complete justice between the parties, restoring if necessary
the status quo ante as nearly as may be achieved.” (People v. Superior Court (Jayhill)
(1973) 9 Cal.3d 283, 286 [restitution].)
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Here, the trial court in the contempt proceeding made specific findings that Malek
had violated its orders under the receivership to pay certain funds to the receivership
estate. Thus, the trial court had the inherent authority to make such further orders as were
necessary to compel Malek to comply with those prior receivership orders. Because, as
discussed, the trial court on remand afforded Malek a full and fair opportunity to
challenge the receiver’s request for a restitution order, the subsequent entry of the
restitution order was well within the court’s inherent power to compel Malek’s
compliance with its prior receivership orders. Under these circumstances, the mandates
of the Penal Code concerning restitution in the criminal context were not applicable.4
DISPOSITON
The trial court’s restitution order is affirmed. Koshak is awarded costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
MOSK, J.
We concur:
TURNER, P. J.
KRIEGLER, J.
4
In his reply brief, Malek asserts for the first time that Koshak and Choice Providers
lack standing to respond to this appeal. We do not consider arguments raised for the first
time in a reply brief. (See Estate of Bonzi (2013) 216 Cal.App.4th 1085, 1106, fn. 6.) In any
event, Koshak and Choice Providers have a direct interest in the funds subject to the
restitution order and therefore have standing on appeal to respond to Malek’s challenges to
that order. (See Vitug v. Griffin (1989) 214 Cal.App.3d 488, 496.)
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