Judge Elaine Lu, Case 21STCV42094 2022-12-23 Tentative Ruling

On November 12, 2022, Plaintiff Steven R. Goldstein (“Plaintiff”) filed the instant indemnity action against Defendant Raymond M. Magana (“Defendant”). The complaint asserts a single claim for Indemnity.

On July 15, 2022, Defendant filed the instant demurrer to the complaint. On December 1, 2022, Plaintiff filed an opposition. No reply has been filed.

On December 5, 2016, Plaintiff and Defendant formed Antelope Valley Residential Development, LLC (“LLC”) as equal 50/50 members to purchase homes, preform rehab/remodeling and then re-sell the homes. (Complaint ¶¶ 6-7.)

“As a result of the COVID-19 pandemic, the parties hereto entered into an agreement jointly to submit a Paycheck Protection Program (hereafter ‘PPP’) loan application pursuant to the CARES Act to obtain PPP funds from the U.S. government (hereafter referred to as ‘THE LOAN.’ Said loan application was submitted to Bank of America, where the LLC maintained a joint business account, for processing on or about April 2020 in the amount of $300,000.” (Id. ¶ 8.)

“THE LOAN application contained false and fraudulent information, including that the LLC employed various workers. In requesting THE LOAN, the parties hereto submitted false 941 tax form which falsely represented that the LLC paid a certain amount of wages to workers, whereas no such workers existed.” (Id. ¶ 9.) On May 5, 2020, the parties received the requested funds of $300,000 and spent the Loan proceeds on various business expenses for the LLC. (Id. ¶¶ 10-11.)

“On or about October 28, 2020, plaintiff was federally charged in the Central District of California for PPP loan fraud in case no. 20-CR-00597-SB. Subsequently, defendant was similarly charged in case no. 21-CR-00007-SB. The parties were arrested pursuant to the respective federal charges.” (Id. ¶ 12.)

“On or about December 7, 2020, plaintiff pled guilty to one count of false statement in connection with THE LOAN in violation of 18 U.S.C. 1040(a)(2).” (Id. ¶ 13.) “On or about January 26, 2021, defendant pled guilty to a false statement in connection with THE LOAN in violation of 18 U.S.C. 1040(a)(2).” (Id. ¶ 15.)

“On or about September 14, 2021, plaintiff was sentenced for his role in the aforementioned scheme to one year in federal custody. Prior to sentencing, plaintiff repaid THE LOAN in full by depositing the sum of $300,000 in criminal restitution to the Clerk of the Court, Central District of California. Said payment was based on the allegation of joint and several liability of the parties for the jointly filed fraudulent loan application and the subsequent receipt of THE LOAN proceeds deposited in a jointly held bank account and used for jointly owed LLC business expenses and mortgage payments.” (Id. ¶ 14.)

On September 28, 2021, Plaintiff made a demand to Defendant for repayment of one-half of the $300,000 criminal restitution paid by Plaintiff. (Id. ¶ 16.)

B. U.S. District Court Central District of California Judgment and Probation Commitment Order dated April 18, 2022, indicating that Defendant Magana was ordered to pay restitution to Bank of America, NA in the amount of $360, 415.

C. US. District Court Central District of California Judgment and Probation Commitment Order dated September 14, 2021, indicating that Plaintiff Goldstein was ordered to pay restitution in the amount of $655,000.

As the Court may take judicial notice of court records and actions of the State, (See Evid. Code, § 452(c)(d)), the parties unopposed requests for judicial notice are GRANTED.[1] However, the Court does not take judicial notice of the truth of assertions within. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal 3d 311, 318.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.) When considering demurrers, courts “give the complaint a reasonable interpretation, and read it in context.” (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App. 4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Ct. (1984) 153 Cal. App. 3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, 147 Cal.App.4th at 747.)

Code of Civil Procedure § 430.41, subdivision (a) requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer¿in person or by telephone¿with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” The parties are to meet and confer at least five days before the date the responsive pleading is due and if they are unable to meet the demurring party shall be granted an automatic 30-day extension. (CCP § 430.41(a)(2).) The demurring party must also file and serve a declaration detailing the meet and confer efforts. (Id.¿at (a)(3).)¿ If an amended pleading is filed, the parties must meet and confer again before a demurrer may be filed to the amended pleading. (Id.¿at (a).)

Here, Defendant has fulfilled the meet and confer requirements. (Trivino-Perez Decl. ¶¶ 2-3.)

Defendant contends that the first cause of action for indemnity fails because the Federal Court did not issue a joint and several obligation order.

“[I]ndemnity refers to ‘the obligation resting on one party to make good a loss or damage another party has incurred.’ ” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.) “There are two basic types of indemnity: express indemnity, which relies on an express contract term providing for indemnification, and equitable indemnity, which embraces ‘traditional equitable indemnity’ and implied contractual indemnity.” (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 573.) “ ‘ “The elements of a cause of action for [equitable] indemnity are (1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is ... equitably responsible.” ’ [Citation.] ” (C.W. Howe Partners Inc. v. Mooradian (2019) 43 Cal.App.5th 688, 700.)

“ ‘The basis for the remedy of equitable indemnity is restitution. “ ‘ “[O]ne person is unjustly enriched at the expense of another when the other discharges liability that it should be his responsibility to pay.” ’ ” [Citations.] [¶] California common law recognizes a right of partial indemnity under which liability among multiple tortfeasors may be apportioned according to the comparative negligence of each.’ [Citation.] The test for indemnity is thus whether the indemnitor and indemnitee jointly caused the plaintiff's injury.” (AmeriGas Propane, L.P. v. Landstar Ranger, Inc. (2010) 184 Cal.App.4th 981, 989, [italics added].)

Here, the complaint alleges that Plaintiff and Defendant created an LLC together and together took out a fraudulent loan of $300,000 for the LLC that was used for the LLC. (Complaint ¶¶ 6-11.) After Plaintiff and Defendant were both charged for the fraud with the Loan and pled guilty, Plaintiff repaid the Loan in full as Criminal restitution. (Id. ¶¶ 12-15.) As there is no basis for an express contractual indemnity only equitable indemnity could apply. These allegations are sufficient for equitable indemnity. The complaint alleges that Plaintiff and Defendant both fraudulently applied for the Loan for the LLC that they equally owned and used the Loan Proceeds for the LLC. Thus, Plaintiff and Defendant would be jointly liable for the $300,000 in restitution.

The judicially noticed documents are not inconsistent with the allegations of Plaintiff’s complaint. The judicially noticed documents attached by Defendant show that the District Court did indeed order Plaintiff to pay mandatory restitution to the victim(s) of $655,000 under 18 U.S.C. § 3663A and that that the District Court recognized that Plaintiff had already paid this restitution prior to the time of Plaintiff’s sentencing on September 14, 2021. (Request for Judicial Notice “RJN” Exh. C [Plaintiff’s Judgment and Probation Commitment Order] [“The Court recognizes that there has been proof of payment.”].) Plaintiff’s Judgment and Probation Commitment Order do not indicate to whom the restitution was to be paid. (RJN Exh. C [Plaintiff’s Judgment and Probation Commitment Order].) Defendant’s Judgment and Probation Commitment Order entered on April 18, 2022 indicates that Defendant was to pay $360,415.00 in restitution to Bank of America, NA pursuant to 18 U.S.C. § 3663 which provides that the Court may order restitution to the victim or to a person designated by a plea agreement. (RJN Exh. B, [Defendant’s Judgment and Probation Commitment Order].) Both orders are signed by the same judge – the Honorable Stanley Blumenfeld. (RJN Exhs. B-C.) While these Judgment and Probate Commitment Orders do not specify that Plaintiff and Defendant are jointly liable for any of the restitution orders, these orders do not preclude either party from seeking indemnity from joint tortfeasors. Defendant fails to cite any authority for the proposition that indemnity from a joint tortfeasor cannot be sought for payments of restitution made to the victim. Nor has the Court’s own research revealed any such authority.

Moreover, the judicially noticed sentencing transcript indicates that the Federal Court – presided by the Honorable Stanley Blumenfeld – concluded that Defendant was jointly liable for the Loan to the LLC and used such information for Defendant’s sentencing. The Federal Court stated in relevant part:

This matter is here for sentencing, and the defendant, Mr. Magana, did enter a plea on January 27 of 2021 for a count of causing fraud in connection with a major disaster or emergency benefits in violation of 18 USC 1040(a)(2) (2)(b). The Court has reviewed the pre-sentence report, as revised, along with the addendum. I have reviewed the recommendation.

It is the Court's understanding that there is one principal dispute with regard to the guideline calculation, specifically with regard to whether the Court should calculate the intended loss as falling in excess of $1.5 million. The Court is inclined, subject to hearing further from the parties if they wish to be heard, to calculate the intended loss as was done by the Probation Department. It appears to the Court that it is appropriate to include the $940,416, which was the amount that was approved, or frozen or the $937,000, but not to include both of those numbers. It appears, though, that it is appropriate to include the $360,415 loan, which is undisputed, I think, in that regard. And then the Court believes it is appropriate to include the $252,917 which was the loan that was pursued on behalf of the borrower AV, or Antelope Valley Residential Development, in which Mr. Magana is a 50 percent owner. And as I understand it, Mr. Magana admitted during his interview that he and Mr. Goldstein used slightly inflated numbers, and in all events the Court finds persuasive the analysis by the probation officer as to why, under the sentencing guidelines, including the notes with respect to joint action, this amount should be included. My understanding is the Government has not included it in their calculations, simply based upon a position that it took, and perhaps even an agreement, that it would only calculate the amounts that were associated with the co-schemer who actually signed the loan documents.

So I will hear from the parties if you wish to be heard, but my tentative is to find precisely as the probation officer has described it, that the loss exceeded $1.5 million …

After oral argument by the parties, the Federal Court overruled Defendant’s objection and concluded that:

I think there is ample evidence that Mr. Magana was involved in connection with that scheme as well. First, the Court looks at the totality of the circumstances. This wasn't one loan in isolation. This was part of an overall scheme as between these two individuals. And the company itself was 50/50, so Mr. Magana owned half of Antelope Valley Residential Development, and so in my view, the evidence amply supports that Mr. Magana was jointly involved in that scheme as well.

This transcript clearly indicates that the Federal Court did find and use for sentencing the Loan proceed amount for the Loan to the LLC. Thus, the judicially noticed record does not indicate that Defendant was not liable for loan proceeds but rather indicates to the contrary that Defendant was liable for the fraudulent Loan to the LLC. The fact that the there was no joint and several liability order for the restitution payments is irrelevant. Nor does it appear that such an order would make sense. Plaintiff and Defendant were charged separately, and Plaintiff had fully paid this restitution before Defendant was sentenced, thus there would be no restitution left to pay to the victim at the time Defendant was sentenced.

Therefore, the complaint sufficiently alleges a basis for indemnity. Accordingly, Defendant’s demurrer to the complaint is OVERRULED.

[1] Defendant also requests judicial notice of the Sentencing Transcript in USA v. Magana, case no. 21-CR-00007-SB conducted on April 18, 2022 but failed to attach the transcript. However, Plaintiff has attached the full transcript of Defendant’s sentencing on April 18, 2022. Thus, Defendant’s request for judicial notice of his April 18, 2022 sentencing is also granted.

County of Los Angeles

Department 26