Judge Bruce G. Iwasaki, Case BC711642 2023-04-03 Tentative Ruling

Case Name: Dean C. Delis, et al. v. Montecito Financial Services, dba Robert Hall & Associates, et al.

Motion: Motion for Order Permitting Pretrial Discovery of Financial Condition and Profits of Defendants Stephen Hall, Brad Wiedmann, Robert Wendell Hall and Related Entity Defendants Pursuant to Civil Code Section 3295, Subdivision (c)

Moving Party: Plaintiffs Dean Delis; Margaret Delis; Delakis LP; and DMD Investments, LLC

Plaintiffs Dean C. Delis, Margaret A. Delis, Delakis LP and DMD Investments, LLC (collectively, “Plaintiffs”) allege that they were defrauded out of millions of dollars in connection with certain real estate investments. On June 27, 2018, Plaintiffs[1] filed this lawsuit. After multiple demurrers, motions to strike, and amended pleadings, the current operative complaint is the Third Amended Complaint (“TAC”) filed on November 8, 2021, alleging causes of action for Conspiracy to Defraud, Fraud, Securities Fraud: The Real Estate Loans/Investments, Securities Fraud: The OROCK Investments, Civil Theft in Violation of Penal Code section 496, Conversion, Fraudulent Conveyance and Aiding and Abetting Fraudulent Conveyance (x 3), Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, Constructive Fraud, Breach of Written Contract: The Bellevue Note, Breach of Written Contract: The Madre Notes, Breach of Written Contract: The Alegria Notes, Breach of Written Contract: The Irvington Note, Breach of Written Contract: The Portola Note, Breach of Written Contract: The Hunter Notes, Breach of Written Contract: The Ashe Notes, Breach of Written Contract: The Evergreen Note, Elder Financial Abuse, Professional Negligence, and an Accounting. The current Defendants are Stephen Hall, individually and as Trustee of SB Trust, Brad Wiedmann, Robert Wendell Hall, Montecito Financial Services, Inc. dba Robert Hall & Associates, ABS LA Group, LLC, ATB2 Group, LLC, BVS Partners Realty, LLC, GOBI, LLC, MTB1 Group, LLC, Nashville West, LLC, 1 Valley View Group, LLC, Blue Syrah, LLC, Keswick Consulting, LLC, 1001 McDonald Way, LLC, Padaro Holdings, LLC, Padaro Trails, LLC, Coral Keswick, LLC, Cordova Investments, Inc., a Nevada corporation, Cordova Investments, Inc., a California corporation, 300 W. Glenoaks, LLC, Pacific Auto Recycling Center, Inc., and ORock Technologies, Inc. (collectively, “Defendants”.)

On December 9, 2021, the Defendants demurred to and moved to strike the TAC. The Court sustained in part the demurrer of Defendant Pacific Auto Recycling Center, Inc. as to the sixth cause of action without leave to amend, denied in part as the seventh cause of action, and denied the motion to strike. The Court sustained in part the demurrer of Defendants Montecito Financial Services, Inc., Robert Hall, Cordova Investments, Inc., Coral Keswick, LLC, 300 W. Glenoaks, LLC’s Demurrer as to the sixth cause of action and as to Drew Delis’ lack of standing without leave to amend, denied in part as to the seventh, ninth, eleventh, and twelfth causes of action, and denied the motion to strike. The Court sustained the demurrer of Defendants Stephen E. Hall, individual and as Trustee of SB Trust, 1 Valley View Group, LLC, ABS Group LLC, ATB2 Group, LLC, BVS Partners Realty, LLC, Gobi, LLC, MTB1 Group, LLC, Nashville West, LLC, Padaro Holdings, LLC, Padaro Trails, LLC, Keswick Consulting, LLC, Blue Syrah, LLC, and McDonald Way, LLC in its entirety without leave to amend, and denied the motion to strike. None of the Defendants were dismissed from this action as a result of the Court’s rulings on these demurrers and motions to strike. Defendants subsequently filed answers to the TAC.

In May and June 2022, the Defendants filed multiple motions for summary adjudication, all of which the Court denied.

On March 7, 2023, Plaintiffs filed the instant Motion for Order Permitting Pretrial Discovery of Financial Condition and Profits of Defendants Stephen Hall, Brad Wiedmann, Robert Wendell Hall and Related Entity Defendants Pursuant to Civil Code section 3295, subdivision (c). On March 20, 2023, Defendants Montecito Financial Services, Inc. dba Robert Hall & Associates, Robert Hall, Cordova Investments, Inc., a Nevada Corporation, Cordova Investments, Inc., a California Corporation, Coral Keswick, LLC, 300 W. Glenoaks, LLC, and Pacific Auto Recycling Center, Inc. (collectively, the “RH&A Defendants”) filed an opposition. On March 20, 2023, Defendant ORock Technologies, Inc. (“ORock”) filed an opposition. On March 20, 2023, Defendants Stephen E. Hall, MTB1 Group, LLC, 1 Valley View Group, LLC, ABS LA Group, LLC, GOBI, LLC, Nashville West, LLC, BVS Partners Realty, LLC, ATB2 Group, LLC, 1001 McDonald Way, LLC, Blue Syrah, LLC, Keswick Consulting, LLC, Padaro Trails, LLC, and Padaro Holdings, LLC filed an opposition (collectively, the “SH Defendants”). On March 24, 2023, Plaintiffs replied to the Defendants’ oppositions, except that Defendant Brad Wiedmann did not file an opposition.

“No pretrial discovery by the plaintiff shall be permitted with respect to the evidence referred to in paragraphs (1) and (2) of subdivision (a) unless the court enters an order permitting such discovery pursuant to this subdivision…. Upon motion by the plaintiff supported by appropriate affidavits and after a hearing, if the court deems a hearing to be necessary, the court may at any time enter an order permitting the discovery otherwise prohibited by this subdivision if the court finds, on the basis of the supporting and opposing affidavits presented, that the plaintiff has established that there is a substantial probability that the plaintiff will prevail on the claim pursuant to Section 3294. Such order shall not be considered to be a determination on the merits of the claim or any defense thereto and shall not be given in evidence or referred to at the trial.” (Civ. Code, § 3295(c).)

“We hold here that before a trial court may enter an order allowing discovery of financial condition information under Civil Code section 3295, subdivision (c)… it must (1) weigh the evidence presented by both sides, and (2) make a finding that it is very likely the plaintiff will prevail on his claim for punitive damages.” (Jabro v. Superior Ct. (2002) 95 Cal. App. 4th 754, 755.) “[W]e interpret the words ‘substantial probability’ to mean ‘very likely’ or ‘a strong likelihood’ just as their plain meaning suggests. We note that the Legislature did not use the term ‘reasonable probability’ or simply ‘probability,’ which would imply a lower threshold of ‘more likely than not.’” (Id. at p. 758.)

The parties have submitted voluminous evidentiary objections. The Court rules on such evidentiary objections as follows:

o The Court also overrules the RH&A Defendants’ objection to Plaintiffs’ proposed order.

The Court grants the RH&A Defendants’ March 20, 2023 request for judicial notice in its entirety.

Plaintiffs submitted an additional declaration from their attorney, Paul Murtagh, on March 24, 2023. The Court declines to consider the evidence presented in these declarations to the extent they constitute new evidence and do not address issues raised in the Defendants’ oppositions. (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537 [“The general rule of motion practice, which applies here, is that new evidence is not permitted with reply papers.”])

Having weighed the evidence, the Court finds that there is a strong likelihood Plaintiffs will prevail on their claims for purposes of Civil Code section 3294. Plaintiffs have presented extensive evidence to show that the Defendants solicited investments from Plaintiffs and then used such investment funds for matters unrelated to those investments, such as personal expenditures, or otherwise funneled such funds to themselves through the various Defendant entities in this action controlled, operated by, or otherwise connected to the individual Defendants, i.e., Stephen Hall, Brad Wiedmann, and Robert Wendell Hall.

The evidence sufficiently shows that Defendants Stephen Hall and Brad Wiedmann knew Plaintiffs’ funds were siphoned to numerous other entities that Defendants controlled, and that Plaintiffs’ funds would be used for purposes unrelated to their investments. Stephen Hall and Brad Wiedmann controlled the various bank accounts connected to the disputed transactions. (Plaintiffs’ AMF 451 (Coral Keswick-Glenoaks MSA) (11/2/2022).)[3] The evidence further shows that Stephen Hall commingled and used Plaintiffs’ investment funds for his own personal expenditures, such as stays in Las Vegas hotels, construction work on his personal residence, and personal distributions. (Decl. Dean Delis, ¶¶ 155-158, 160-163.) Defendant Stephen Hall does not dispute that these charges occurred, but instead argues that Plaintiffs have not shown such charges were purely personal or unrelated to business expenses. (SH Defendants Opp. 9:1-6.) However, Stephen Hall does not cite to any evidence to the contrary to show what these charges were actually for. Additionally, his argument only focuses on the credit card charges aspect of these expenditures and does not present any evidence to controvert whether he spent such funds on his personal residence or made distributions to himself.

Plaintiffs have also presented sufficient evidence of ill intent on the Defendants’ part through a series of rapid transfers to and from various entity Defendants’ bank accounts. For example, with respect to the Hunter Property, Drew Delis deposited $168,000 into the account on February 9, while the account already had $39,112.76. (Comp. Ex. 377.) A series of transfers from that account took place, namely $49,425 on February 10 and $50,000 on February 12, and a total of $238,203.93 between February 17 and 29. Within a span of 21 days, the Nashville West account, which managed the Hunter Property and for whom Stephen Hall is a manager, depleted all of Plaintiffs’ funds. (Comp. Ex. 377.) Plaintiffs have also presented evidence that after Delakis invested its funds, the money was quickly transferred to other accounts between various entity Defendants. (Plaintiffs’ AMF 503-15 (Coral Keswick-Glenoaks MSA) (11/2/2022).) Additionally, $18,850 of the Delakis funds were improperly diverted to W. Glenoaks, which is owned by Cordova (CA) and Coral Keswick. (Plaintiffs’ AMF 144 (Coral Keswick-Glenoaks MSA) (11/2/2022).) The evidence indicates an elaborate and concerted scheme to deceive Plaintiffs. The Court considers it very likely that the Plaintiffs will prevail on their claims for punitive damages.

The Court rejects the Defendants’ arguments about varying levels of culpability between the Defendants as excluding such Defendants from an order permitting pretrial discovery of financial condition and profits. Plaintiffs have presented sufficient evidence of a web of interactions between the Defendants here. The overlap between the officers and directors or members and managers of each of the entity Defendants is substantial, given that these entities are all controlled by members of the same family, with Stephen Hall himself being a managing agent of many of these entities. (See, e.g., Plaintiffs’ AMF 934 (Coral Keswick-Glenoaks MSA) (11/2/2022); PARC SUF 1-6, 10, 11 (11/2/2022); Cordova SUF 1, 2, 4-7, 9-11 (11/2/2022); Coral Keswick SUF 1, 2, 4-7, 9-11 (11/2/2022).) There is also sufficient evidence of monies passing through the entity Defendants to the individual Defendants. (See, e.g., Comp. Exs. 278, 466-480; Plaintiffs’ AMF 30, 59, 451-453 (Coral Keswick-Glenoaks MSA) (11/2/2022).)

The Court further declines to wait until the liability phase of the trial in this action is complete before permitting any discovery of Defendants’ financial condition and profits. (See § 43:11. Timing, Ca. Law and Motion Authorities § 43:11 [“[I]t is left to the court's discretion whether to delay the proceedings by ordering the defendant to produce information that could have been obtained earlier or to proceed upon concluding that such an order is inappropriate under the circumstances of the case. Although the trial court is authorized to order discovery at the close of the liability phase, the conclusion that a trial court had the authority to order discovery at the eleventh hour does not preclude a trial court from determining, in its discretion, that such an order is inappropriate.”] [citing Soto v. BorgWarner Morse TEC Inc., 239 Cal. App. 4th 165, 191 Cal. Rptr. 3d 263 (2d Dist. 2015), as modified, (Aug. 20, 2015) and review denied, (Oct. 28, 2015)].”

This lawsuit has numerous parties and voluminous evidence. The amount of evidence Plaintiffs would need to review to prepare for the punitive damages phase could not be completed during a short break between the two phases of the trial. Plaintiffs would likely need weeks, if not months, adequately to review the evidence and prepare for the punitive damages phase. This would further create the risk of violating subdivision (d) of Civil Code section 3295, which requires that the liability phase and punitive damages phase be tried by the same trier of fact, i.e., the same jury. (Civ. Code § 3295(d).) It would also create an administrative burden for the Court to ensure that the same jury hears the punitive damages phase of the trial.

Accordingly, the Court grants Plaintiffs’ motion to permit pretrial discovery of financial condition and profits. The Court grants Plaintiffs’ motion subject to a protective order that limits the use of such discovery to the punitive damages phase of the trial, and that such discovery can only be viewed by Plaintiffs’ counsel and Plaintiffs’ forensic accountant expert, Gary Krausz, before the punitive damages phase of the trial.

The Court further notes that this ruling does not constitute a determination on the merits of Plaintiffs’ claims or any of Defendants’ possible defenses, and this ruling may not be given in evidence or referred to at trial. (Civ. Code, § 3295(c).)

The Court grants Plaintiffs’ motion to permit pretrial discovery of Defendants’ financial condition and profits, subject to a protective order that limits the use of such discovery to the punitive damages phase of the trial, and that such discovery can only be viewed by Plaintiffs’ counsel and Plaintiffs’ forensic accountant expert, Gary Krausz, before the punitive damages phase of the trial.

[1] Plaintiffs originally consisted of additional other plaintiffs but the current plaintiffs are Dean C. Delis, Margaret A. Delis, Delakis LP and DMD Investments, LLC.

[2] Objection No. 123 references a document that is not attached as an exhibit to Plaintiffs’ motion. Objection Nos. 124 through 126 appear to have their Exhibit Numbers confused, as the three mid-May 2018 letters described therein begin with Exhibit 725 rather than Exhibit 726. Nevertheless, the Court agrees that to the extent Plaintiffs are attempting to introduce those three letters to prove liability, they are inadmissible for that purpose.

[3] Although Plaintiffs did not provide copies of some of the evidence referenced in their moving papers, the Court may take judicial notice of its own records. (Evid. Code § 452.) The Court cites to Plaintiffs’ prior separate statements in an effort to make the citations more concise considering the extensive amount of documentary evidence to which they cite.

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