Sallah v. Ujas Barstow, LLC CA4/1 ( 2020 )

Filed 11/17/20 Sallah v. Ujas Barstow, LLC CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
JAMES D. SALLAH, D075874
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2016-00020073-
CU-BC-CTL)
UJAS BARSTOW, LLC et al.,
Defendants and Appellants.
APPEAL from an order of the Superior Court of San Diego County,
Katherine A. Bacal, Judge. Affirmed.
Vivoli Saccuzzo, Michael W. Vivoli and Jason Paul Saccuzzo for
Defendant and Appellant Ujas Barstow, LLC.
Gregor Law Offices and Theodore Steven Gregor for Defendant and
Appellant Columbia Downtown, LLC.
Law Offices of Joseph A. Lara and Joseph Alan Lara for Defendant and
Appellant Chhatrala Investments, LLC.
O’Hagan Meyer, Theodore Clarke Peters and Sanay B. Panchal for
Plaintiff and Respondent James D. Sallah.
Court-appointed monitor James D. Sallah sued three corporate entities
to recover funds allegedly due to defrauded investors. Claiming promissory
fraud, Sallah alleged that the alter-ego entities executed a $930,000
promissory note having no intention to repay the loan. Defendants moved to
strike the complaint under the anti-SLAPP statute (Code Civ. Proc.,
§ 425.16), arguing the fraud claim arose out of protected postexecution
settlement discussions that Sallah referenced in his operative complaint.1
The trial court disagreed and denied the motions, concluding the fraud claim
instead turned on defendants’ false promise to repay the note at the time it
was executed. Defendants challenge that ruling on appeal, but we agree with
the trial court’s sound reasoning.
The basis of Sallah’s fraud claim is defendants’ execution of a
promissory note they allegedly had no intention of repaying. Although the
complaint references later false assurances made during settlement talks,
these merely provide evidence of defendant’s earlier fraudulent intent. In the
first prong of the anti-SLAPP inquiry, defendants must show that the cause
of action arises out of protected activity. The Supreme Court cautions that
courts must “respect the distinction between activities that form the basis for
a claim and those that merely . . . provide evidentiary support for the claim.”
(Park v. Board of Trustees of California State University (2017) 2 Cal.5th
1057, 1064 (Park).) We conclude defendants did not meet their moving
burden and accordingly affirm the order denying their anti-SLAPP motions.
1 Further undesignated statutory references are to the Code of Civil
Procedure.
2
FACTUAL AND PROCEDURAL BACKGROUND
Florida-based hedge fund OM Global Investment Fund, LLC (OM
Global) and its portfolio manager Gignesh Movalia allegedly misrepresented
to investors that their funds would be placed solely in pre-IPO Facebook
stock. With that money, OM Global instead extended unauthorized loans
totaling $3.2 million to various companies. These loans formed the basis for
an enforcement action by the Securities and Exchange Commission. Sallah
was appointed by a Florida court as a corporate monitor to marshal OM
Global’s assets for the benefit of defrauded investors.2
This action arises out of a $930,000 promissory note executed by a
California-based corporate entity on January 4, 2013, committing to repay
OM Global $930,000 in principal plus a $27,900 origination fee by February
28, 2013. The note was issued by “Columbia Downtown, LLC (Chhatrala
Group),” and signed by Hemant Chhatrala for the borrower and Jenish Patel
as a witness.3 Patel, a relative of Hemant, served as Chief Investment
Officer of the “Chhatrala Group,” an informal trade name used by associated
entities. Hemant and Patel allegedly signed the note to secure funds to
assume a leasehold interest in a Ramada Inn located in Barstow, California.
No payment was ever made on the note.
In the operative Second Amended Complaint (SAC), Sallah alleges that
Chhatrala Barstow, LLC (Barstow) and Chhatrala Investments, LLC
(Chhatrala Investments) are alter egos of Columbia Downtown, LLC
2 Additional background is provided in our resolution of the parties’ prior
nonpublished opinion, Sallah v. Chhatrala Barstow, LLC, D072326 (Mar. 26,
2018).
3 To avoid confusion with the various Chhatrala entities involved in this
appeal, we refer to Hemant Chhatrala by his first name and intend no
disrespect.
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(Columbia), the entity that issued the note.4 Sallah seeks to hold all three
entities jointly liable for breach of contract, restoration of a lost instrument,
and fraud.
Only the fraud cause of action is before us. Sallah alleges that
Columbia, acting through its agent Hemant, promised on January 4 to repay
the loan and origination fee. Before signing the note, Patel assured Movalia
that he would send OM Global an executed copy of the note at a later date.
Relying on these representations, OM Global lent Columbia $930,000, and at
Patel’s written request wired the funds to Barstow (for Barstow to acquire
the hotel). Patel sent Movalia an executed copy of the note on February 13.
According to Sallah, defendants never had any intention of repaying
the loan. Instead the entities agreed to: “(a) have Columbia execute the Note
as the borrower, as evidenced by the signatures of Hemant Chhatrala and
Jenish Patel; (b) have a related entity ([Barstow]) receive the funds pursuant
to the Note; but then (c) assert that Hemant Chhatrala’s signature on the
Note was forged and that Jenish Patel was not authorized to enter the loan
transaction on behalf of Columbia; and (d) then claim that Columba never
received any of the loaned funds, all in order to facilitate the argument that
the Note cannot be enforced.” The fraud cause of action also includes
allegations that defendants made false promises to repay the loan during
subsequent settlement talks in connection with Florida litigation. According
to Sallah, these false assurances “were nothing more than a rouse [sic]
designed solely for the purpose of prolonging the time that they could keep
[Sallah] ignorant of the true facts.” In truth, “neither Columbia, nor the
4 After the lawsuit was filed, Chhatrala Barstow, LLC changed its name
to Ujas Barstow, LLC. We use the name “Barstow” as shorthand for both
entities.
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Alter Ego Defendants had any intention of repaying the moneys loaned
pursuant to the Note.” But for this fraud, Sallah avers that OM Global never
would have loaned Columbia nor wired Barstow the $930,000.
Defendants moved to strike the fraud cause of action under the anti-
SLAPP statute (§ 425.16). They presented a diametrically different view of
what occurred, claiming the “Note is a fake and a forgery manufactured by
OM Global’s former manager and convicted felon, Gignesh Movalia, in
apparent collusion with Jenish Patel . . . , Hemant Chhatrala’s estranged
nephew who has long-since fled to India.” In three substantively identical
briefs, defendants argued the fraud claim was premised on statements
allegedly made during settlement negotiations and, thus, arose out of
protected activity. Defendants further argued that Sallah could not show the
minimal merit of his fraud claim because any statements they made during
settlement discussions were covered by the litigation privilege (Civ. Code,
§ 47, subd. (b)).
In opposition, Sallah argued that his promissory fraud claim rested on
the false promise to repay at the time the note was executed, not on any false
assurances made during later settlement discussions. As Sallah explained,
he included allegations regarding later false assurances merely to “illustrate
a pattern of misbehavior and deception by Defendants”—i.e., to “show a
course of conduct whereby Defendants continued to make false assurances
after the fact,” which ultimately delayed Sallah’s discovery of the fraud.
The trial court agreed with Sallah on this threshold matter and denied
the anti-SLAPP motions. As the court explained, Sallah alleged promissory
fraud, “which requires proof that defendants had no intention of performing
when the promise was made.” This fraud allegedly occurred on January 4,
2013, when the note was executed and OM Global wired the funds to
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Barstow. Although later statements made by Hemant and Patel and
information obtained in discovery could provide evidence that defendants
never intended to repay, these allegations were not the basis for the
promissory fraud claim. As such, defendants did not meet their moving
burden to demonstrate that the fraud claim was based on protected activity.
DISCUSSION
Challenging the trial court’s ruling, defendants contend that alleged
statements they made during settlement discussions in the Florida action
were essential, and not merely incidental, to Sallah’s fraud claim. As such,
defendants maintain they met their moving burden to show that the fraud
claim arose out of their protected activity. Defendants further argue that
Sallah offered no admissible evidence to show that the fraud claim had
minimal merit. Our conclusion on the first issue avoids the need to reach the
second. As we explain, the trial court correctly determined that Sallah’s
promissory fraud cause of action did not arise out of protected activity to
trigger application of the anti-SLAPP statute.5
Enacted in 1992, section 425.16 seeks to protect defendants from
meritless lawsuits that chill their exercise of constitutional rights to speech
5 Sallah seeks judicial notice of Columbia’s Articles of Organization and
seeks to supplement the record with new evidence, the “Second Amended
Operating Agreement for Chhatrala Investments, LLC.” As Sallah explains,
both documents were inadvertently omitted from his “Compendium of
Evidence” filed before the trial court; he asserts that they demonstrate
defendants’ “interrelatedness” and Patel’s apparent authority to bind
Columbia. Both requests are denied. We find no exceptional circumstances
to deviate from the usual rule limiting appellate inquiry to matters that were
part of the record at the time the trial court ruled. (Vons Companies, Inc. v.
Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3.) Moreover, the
corporate documents Sallah proffers are irrelevant to our consideration of the
narrow anti-SLAPP issue addressed on appeal. (See San Diegans for Open
Government v. City of San Diego (2015) 242 Cal.App.4th 416, 432, fn. 6.)
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and petition. (Wilson v. Cable News Network, Inc. (2019) 7 Cal.5th 871, 883–
884 (Wilson); § 425.16, subd. (a).) It does so by authorizing defendants to file
a special motion to strike any claims “arising from any act of that person in
furtherance of the person’s right of petition or free speech under the United
States or California Constitution in connection with a public issue . . . , unless
the court determines that the plaintiff has established that there is a
probability that the plaintiff will prevail on the claim.” (§ 425.16, subd.
(b)(1).) By creating a summary-judgment-like procedure at the outset of the
case, the anti-SLAPP statute provides for early dismissal of actions deemed
to be “strategic lawsuits against public participation,” or SLAPP suits. (See
Baral v. Schnitt (2016) 1 Cal.5th 376, 384 (Baral); Navellier v. Sletten (2002)
29 Cal.4th 82, 85 (Navellier).)
A defendant filing an anti-SLAPP motion bears the initial burden to
establish that the challenged claim arises from the defendant’s protected
activity. (Wilson, supra, 7 Cal.5th at p. 884; Baral, supra, 1 Cal.5th at
p. 396.) This requires a prima facie showing that activity underlying a
plaintiff’s causes of action is statutorily protected. (Wilson, at pp. 887−888.)
If the defendant makes the required showing, the burden then shifts to the
plaintiff to demonstrate that its claim has minimal merit. (Id. at p. 884.)
“The court, without resolving evidentiary conflicts, must determine whether
the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to
sustain a favorable judgment.” (Baral, at p. 396.) If the plaintiff cannot
make that showing, the court will strike the claim. (Ibid.; Wilson, at p. 884.)
Focusing our attention on the first prong of the anti-SLAPP inquiry, we
review de novo whether Sallah’s fraud claim arises from protected activity.
(Wilson, supra, 7 Cal.5th at p. 884.) At this stage, defendants “must make
two related showings.” (Id. at p. 887.) “Comparing its statements and
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conduct against the statute, [they] must demonstrate activity qualifying for
protection. (See § 425.16, subd. (e).) And comparing that protected activity
against the complaint, [they] must also demonstrate that the activity
supplies one or more elements of a plaintiff’s claims.” (Wilson, at p. 887.)
Section 425.16 protects “any written or oral statement or writing made
before a legislative, executive, or judicial proceeding” (§ 425.16, subd. (e)(1))
or any such statement made “in connection with an issue under consideration
or review” in such proceedings (id., subd. (e)(2)). If a statement falls into one
of these categories, a defendant does not separately need to show that his or
her statement was made in connection with a “public issue.” (Briggs v. Eden
Council for Hope and Opportunity (1999) 19 Cal.4th 1106, 1122‒1123.)
Statements made during settlement talks are statutorily protected as
statements made in connection with an underlying lawsuit. (Optional
Capital, Inc. v. Akin Gump Strauss, Hauer & Feld LLP (2017) 18 Cal.App.5th
95, 114.) The anti-SLAPP statute even protects allegations of fraudulent
promises made during the settlement process. (Ibid.) It is undisputed that
Sallah’s fraud cause of action references protected activity, by including
allegations that false assurances were made by Columbia, Hemant, and Patel
during settlement negotiations that the earlier-executed note would be
repaid.
But the question becomes whether the fraud claim is based on that
protected activity—the anti-SLAPP statute only covers claims “ ‘arising from
any act of [the defendant] in furtherance of the [defendant’s] right of petition
or free speech.’ ” (Park, supra, 2 Cal.5th at p. 1062.) “[T]he mere fact that an
action was filed after protected activity took place does not mean the action
arose from that activity for the purposes of the anti-SLAPP statute.”
(Navellier, supra, 29 Cal.4th at p. 89.) “In the anti-SLAPP context, the
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critical consideration is whether the cause of action is based on the
defendant's protected free speech or petitioning activity.” (Ibid.) “A claim
arises from protected activity when that activity underlies or forms the basis
for the claim.” (Park, at p. 1062.) In making this inquiry, courts “have taken
care to respect the distinction between activities that form the basis for a
claim and those that merely lead to the liability-creating activity or provide
evidentiary support for the claim.” (Id. at p. 1064, italics added; see Graffiti
Protective Coatings, Inc. v. City of Pico Rivera (2010) 181 Cal.App.4th 1207,
1214−1215 [“In deciding whether an action is a SLAPP, the trial court should
distinguish between (1) speech or petitioning activity that is mere evidence
related to liability and (2) liability that is based on speech or petitioning
activity.”].) Thus, to meet their moving burden, defendants needed to show
that one or more elements of the promissory fraud claim rests on the false
assurances allegedly made during settlement talks. (Park, at p. 1063;
Wilson, supra, 7 Cal.5th at p. 887.)
Defendants did not carry that burden. Fraud requires a
misrepresentation, knowledge of falsity (scienter), intent to induce reliance,
justifiable reliance, and damages. (Lazar v. Superior Court (1996) 12 Cal.4th
631, 638 (Lazar).) “ ‘Promissory fraud’ is a subspecies of the action for fraud
and deceit. A promise to do something necessarily implies the intention to
perform; hence, where a promise is made without such intention, there is an
implied misrepresentation of fact that may be actionable fraud.” (Ibid; see
Civ. Code, § 1710, subd. (4) [defining deceit as the making of a promise
“without any intention of performing it”].) None of the essential elements of
Sallah’s claim for promissory fraud rest on statements made during
settlement discussions after the execution of the note. Instead, the claim is
based on proof that defendants did not intend to repay at the time they
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executed the note. Later statements merely provide evidentiary support for
defendants’ intent at the time the note issued. (See Park, supra, 2 Cal.5th at
p. 1068 [where the elements of plaintiff’s claims did not depend on proof of
the protected activity alleged in the complaint, that activity did not form the
basis of the challenged claim]; Gaynor v. Bulen (2018) 19 Cal.App.5th 864,
880 (Gaynor) [anti-SLAPP statute did not apply where allegations of
protected activity would merely provide evidence of liability rather than form
the basis for it].)
A careful reading of the SAC supports this inescapable conclusion. The
fraud claim turns on defendants’ promises in executing the note. Sallah
alleges that defendants “expressly promised” to repay the loan and
origination fee in signing the note on January 4. OM Global relied on this
representation in extending the loan. The representations “were in fact
false.” In truth, defendants never intended to repay and planned to avoid
liability by claiming Hemant’s signature was forged and that Patel lacked
authority to bind Columbia, while denying that Columbia ever received the
funds. Evidence of this intent was apparent in later settlement talks—
Hemant and Patel made false assurances that the note would be repaid, only
to later claim “that the Note had been forged and that Jenish Patel had no
authority.” Given discovery revelations of links between the defendants,
Sallah inferred that “Defendants never intended to repay any portion of the
Note.” OM Global would never have loaned Columbia or its alleged alter egos
money, had it known they had no intention of repaying. As we read it, the
fraud claim turns on a false promise to repay at the time the note was signed,
inducing OM Global to loan defendants money in reasonable reliance of that
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promise and incur damages. It does not turn on any false assurances made
thereafter—as to which Sallah does not allege any action taken in reliance.6
Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18 (Tenzer) does not suggest
otherwise. It merely holds that promissory fraud cannot be proven by mere
evidence that a promise was made and not fulfilled. (Id. at p. 30.) “Rather,
‘something more than nonperformance is required to prove the defendant’s
intent not to perform his promise.’ ” (Ibid.; accord Riverisland Cold Storage,
Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1183
[“the intent element of promissory fraud entails more than proof of an unkept
promise or mere failure of performance”].) Relying on Tenzer, defendants
contend that allegations regarding the parties’ settlement discussions were
essential, and not merely incidental, to the fraud claim. Without those
allegations, Sallah merely alleged that Columbia executed the note and did
not intend to repay. Indeed, so. But these are the essential elements of a
promissory fraud claim. Although Tenzer requires more to prove defendants’
intent not to perform beyond mere nonperformance, such evidence is not
itself a required element of the claim.
Because a defendant’s fraudulent intent can rarely be shown by direct
evidence, it “must often be established by circumstantial evidence”—
6 Defendants suggest the SAC alleges a “fantastic” theory premised on
abuse of process—i.e., “that Defendants planned from the very start to induce
OM Global into lending the sum of $930,000 with the intent to claim in
litigation the Note was forged, to claim in litigation JP was not authorized to
enter the loan transaction on behalf of Columbia, to claim in litigation
Columbia never received the money, and then to use and abuse settlement
discussions and discovery to prevent the Monitor from learning the truth
about the fraud.” (Italics added.) But the claim as pleaded is premised on
something more basic—a false promise to repay at the time the note was
signed. It does not depend on any abuse of process by defendants during
subsequent litigation, discovery, or settlement discussions.
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including “from such circumstances as defendant’s insolvency, his hasty
repudiation of the promise, his failure even to attempt performance, or his
continued assurances after it was clear he would not perform.” (Tenzer,
supra, 39 Cal.3d at p. 30, italics added; see Las Palmas Associates v. Las
Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1239 [because there is
“rarely” direct evidence of a defendant’s fraudulent intent, a plaintiff may
rely on a defendant’s subsequent conduct as circumstantial evidence “to show
that a defendant made the promise without the intent to keep the
obligation”]; 5 Witkin, Summary of Cal. Law (11th ed. 2020), Torts, § 900
[“It is a difficult matter to prove the original lack of intention by direct
evidence. But circumstantial evidence of subsequent conduct is admissible
and may be sufficient.”].) Simply put, that Sallah endeavors to prove
defendants’ fraudulent intent by pointing to false assurances made after the
fact does not mean that his promissory fraud claim is based on those later
assurances.7
The question on prong one is whether a plaintiff’s cause of action arises
out of the defendant’s protected activity. Here it plainly does not—the basis
for the promissory fraud claim is that defendants executed the note on
January 4, 2013 having no intention to repay. That their contemporaneous
intention may be proven at trial by false assurances made later during
settlement discussions does not change the analysis. (See Park, supra,
2 Cal.5th at p. 1068; Gaynor, supra, 19 Cal.App.5th at p. 880.) As the trial
7 Defendants question why the allegations are included in the SAC if
they do not underlie the fraud action. Although we cannot be certain, claims
of fraud and deceit require particularized pleading. (Lazar, supra, 12 Cal.4th
at p. 645; Committee on Children’s Television, Inc. v. General Foods Corp.
(1983) 35 Cal.3d 197, 216−217.) Mindful of these requirements, Sallah may
have felt the need to plead facts supporting his allegation that defendants
had no intent to repay the note at the time the note was signed.
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court correctly determined, the promissory fraud cause of action does not
arise out of defendant’s protected activity. Because defendants did not meet
their moving burden, their anti-SLAPP motions were properly denied.
DISPOSITION
The order denying defendants’ special motions to strike the SAC is
affirmed. Sallah is entitled to recover his costs on appeal.
DATO, J.
WE CONCUR:
O’ROURKE, Acting P. J.
GUERRERO, J.
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