Judge: Elaine Lu, Case: 21STCV42094, Date: 2024-01-12 Tentative Ruling

Case Number: 21STCV42094    Hearing Date: January 12, 2024    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

            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 September 15, 2023, Plaintiff filed the instant motion for summary judgment.  On December 29, 2023, Defendant filed an opposition.  On January 4, 2024, Plaintiff filed a reply.

Allegations of the Operative Complaints

            The complaint alleges that:

            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.)

Undisputed Material Facts

            “In or about December 5, 2016, Steven Goldstein (‘Goldstein’ or ‘Plaintiff’) and Raymond Magana (‘Magana’ or ‘Defendant’) (collectively, the ‘Parties’) entered into an agreement (the ‘LLC Agreement’) to form Antelope Valley Residential Development, LLC in the State of California, registration number 201634410019 (hereafter referred to as ‘LLC’).”  (Undisputed Material Fact “UMF” 1.)  “The purpose of the LLC was to purchase homes, perform rehab and remodeling and then re-sell the homes.”  (UMF 2.)  “The LLC agreement provided that Goldstein and Magana would serve as coequal managing members and that each member thereof would divide profits, losses, capital contributions and expenses on an equal, 50 / 50 basis.”  (UMF 3.)

            “On or about October 28, 2020, plaintiff was federally charged in the Central District of California for PPP loan fraud in case no. 20-CR00597-SB.”  (UMF 8.)  “On or about September 14, 2021, plaintiff was sentenced for his role in the aforementioned scheme to one year + one day in federal custody, including the sum of $300,000 for the fraudulent loan proceeds that Antelope Valley Residential Development, LLC, received. Plaintiff completed his sentence in September 2022.”  (UMF 11.)  “Prior to sentencing, plaintiff repaid THE LOAN in full by depositing the sum of $300,000 in criminal restitution with the Clerk of the Court, Central District of California.”  (UMF 12.) 

            “On or about September 28, 2021, Plaintiff instructed his attorney, Dana M. Cole, to make demand to Defendant by and through Defendant's criminal defense counsel, William Pitman for repayment of one-half of the $300,000 restitution paid by Plaintiff, or the sum of $150,000.”  (UMF 15.) 

Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code of Civil Procedure Section 437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

“On a motion for summary judgment, the initial burden is always on the moving party to make a prima facia showing that there are no triable issues of material fact.”  (Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal. App. 4th 1510, 1519.)  A plaintiff or cross-complainant moving for summary judgment or summary adjudication “has met his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on the cause of action. Once the plaintiff or cross-complainant has met that burden, the burden shifts to the defendant or cross-defendant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.”  (CCP § 437(p)(1).)

Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.”  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Discussion

            Plaintiff contends that he is entitled to summary judgment on his single claim for indemnity for the $300,000.00 that Plaintiff paid as criminal restitution.

            “[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].) 

            “ ‘At the heart of the doctrine [of equitable indemnity] is apportionment based on fault. At a minimum equitable indemnity “requires a determination of fault on the part of the alleged indemnitor....” ’ [Citations.]”  (Heritage Oaks Partners v. First American Title Ins. Co. (2007) 155 Cal.App.4th 339, 348.)  Thus, “‘unless the prospective indemnitor and indemnitee are jointly and severally liable to the plaintiff there is no basis for indemnity.’ [Citations.]”  (Ibid.)  “Thus, no indemnity may be obtained from an entity that has no pertinent duty to the injured third party [Citation], that is immune from liability [Citation], or that has been found not to be responsible for the injury [Citation.]”  (Jocer Enterprises, Inc., supra, 183 Cal.App.4th at pp.573–574.)

            Here, it is undisputed that on December 5, 2016, Plaintiff and Defendant entered into the LLC Agreement to form Antelope Valley Residential Development, LLC (“LLC”).  (UMF 1; Goldstein Decl. ¶ 2, Exh. 1 [Statement of Information and LLC Agreement]; Magana Decl. ¶ 2.)  The purpose of the LLC was to purchase homes, remodel said homes, and then sell for a profit.  (UMF 2; Goldstein Decl. ¶ 3; Magana Decl. ¶ 3.)  Pursuant to the LLC agreement, the parties would divide profits, losses, and expenses equally – i.e., 50/50.  (UMF 3; Goldstein Decl. ¶ 4; Magana Decl. ¶ 4.) 

            Plaintiff claims that due to the COVID-19 pandemic, Plaintiff and Defendant entered into an agreement to jointly submit a Paycheck Protection Program (“PPP”) loan application under the CARES Act to obtain PPP funds from the U.S. government (“The PPP Loan”).  (Goldstein Decl. ¶ 5.)  “[The PPP Loan] application contained false and fraudulent information, including that the LLC employed various workers.”  (Goldstein Decl. ¶ 5.)  “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.”  (Goldstein Decl. ¶ 5, Exh. 2 [Bank of America Resolution for LLC].)

            On May 11, 2020, the LLC received the PPP Loan of $300,000 that was deposited into the LLC’s Bank of America account.  (Goldstein Decl. ¶ 6, Exh. 3 [LLC Bank Statement for 5/1/20 through 5/13/20]; Magana Decl. ¶ 6.)  Plaintiff claims that the funds from the PPP Loan were spent for various business and operating expenses for the LLC.  (Goldstein Decl. ¶ 7.)

            On October 28, 2020, Plaintiff was federally charged in the Central District of California for PPP loan fraud in case no. 20-CR-00597-SB.  (UMF 8; Goldstein Decl. ¶ 8; Magana Decl. ¶ 8.)  In 2021, in a separate case, Defendant was charged for PPP Loan fraud for a loan for Forward Builders, LLC in Case no. 21-CR-00007-SB.  (Goldstein Decl. ¶ 9; Magana Decl. ¶ 9.)  The parties pled guilty to 18 U.S.C. 1040(a)(2) for false statement in connection with a U.S. backed bank loan.  (Goldstein Decl. ¶ 10; Magana Decl. ¶ 11.)

            On September 14, 2021, Plaintiff was sentenced to one year and a day in federal custody and ordered to pay victim restitution of $655,000.00 of which $300,000.00 was for the PPP Loan made to the LLC, which Plaintiff repaid before sentencing.  (UMFs 11-12; Goldstein Decl. ¶ 11; Magana Decl. ¶ 10, Exh. A [Goldstein Sentencing Transcript].)  On April 18, 2022, Defendant was sentenced to 41 months in federal custody and ordered to pay victim restitution of $360,415.00, which Defendant paid before sentencing.  (Magana Decl. ¶ 11, Exh. B [Magana Sentencing Transcript].)  On September 28, 2021, Plaintiff’s Counsel made a demand to Defendant for half of the $300,000.00.  (UMF 15; Goldstein Decl. ¶ 14, Exh. 5 [Demand for Repayment].)  Defendant has not paid Plaintiff the requested $150,000.00.  (Goldstein Decl. ¶ 15.)

            In opposition, Defendant does not dispute many of these facts.  However, Defendant does dispute Plaintiff’s claim that the parties jointly applied for and obtained a PPP Loan of $300,000 for the LLC.  Rather, Defendants asserts that solely Plaintiff applied for and obtained the PPP Loan of $300,000 for the LLC.  (Magana Decl. ¶¶ 5-13.)  Defendant claims that he “had no personal knowledge of the details contained within this $300,000 PPP loan application.”  (Magana Decl. ¶ 7.)  Defendant highlights that only Plaintiff pled guilty to the $300,000 PPP Loan to the LLC, and Defendant pled guilty to a different loan – the $360,415 PPP Loan to Forward Builders, LLC.  (Magana Decl. ¶¶ 10-11.)  Defendant further asserts under penalty of perjury that he “was not involved in the application for, nor the submission of, a PPP loan application for $300,000 on behalf of [the LLC]. [Plaintiff] acted alone and was criminally charged accordingly.”  (Magana Decl. ¶ 13.)  Defendant states that “[t]he first time [Defendant] saw a copy of the $300,000 PPP loan application and documents submitted on behalf of [the LLC] by Plaintiff Goldstein was when they were shown to [Defendant]  by the federal government in relation to the criminal charges.”  (Magana Decl. ¶ 14.)

Defendant’s opposition clearly raises a triable issue of fact.  Courts must “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.”  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)  Here, Plaintiff’s claim for equitable indemnity requires a showing that the parties were jointly liable for the fraudulent $300,000 PPP Loan.  (AmeriGas Propane, L.P., supra, 184 Cal.App.4th at p.989, [“The test for indemnity is thus whether the indemnitor and indemnitee jointly caused the [victim]'s injury.”], [italics added].)  Plaintiff’s sole evidence that the parties are jointly liable for the fraudulent $300,000 PPP Loan is Plaintiff’s declaration claiming as such.  Defendant’s declaration denying involvement is substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Moreover, Plaintiff provides no evidence that Defendant pled guilty to being involved with the fraudulent $300,000 PPP Loan.  The only evidence implicating Defendant in the fraudulent $300,000 PPP Loan is that during Plaintiff’s sentencing, the district court ordered Plaintiff “to pay $655,000 to the Bank of America joint and severally with Mr. Magaña.”  (Magana Decl., Exh. A [Goldstein Sentencing Transaction] at p.26:17-18.)  However, even Plaintiff concedes that this statement by the court was – at least in part – erroneous.  (Reply. at p.2:19-21, [“Note: the $655,000 refers to $300,000 for the [LLC] loan and $355,000 for another loan that Goldstein obtained, which had nothing to do with Magana and which Judge Blumenfeld mistakenly included.”].)  Regardless, this isolated remark at Plaintiff’s sentencing hearing is irrelevant because Defendant was not a party to that proceeding or sentencing.  Notably, Defendant’s sentencing did not even mention the fraudulent $300,000 PPP Loan at issue here.  (Magana Decl., Exh. B [Magana Sentencing Transcript].) 

In opposition, Defendant further contends that California Public Policy as reflected in Civil Code sections 2773 and 2774 bars Plaintiff’s claim for restitution.  Under Civil Code section 2773, “[a]n agreement to indemnify a person against an act thereafter to be done, is void, if the act be known by such person at the time of doing it to be unlawful.”  (Civ. Code, § 2773.)  Under Civil Code section 2774, “[a]n agreement to indemnify a person against an act already done, is valid, even though the act was known to be wrongful, unless it was a felony.”  (Civ. Code, § 2774.)  Here, it is undisputed that the alleged PPP Loans resulted in felony convictions.  Thus, the cited statutes could potentially bar the instant action.  However, by their express words, these statutes apply to agreements to indemnify – such as an insurance policy.  It is unclear whether either statute would apply to equitable indemnity claims such as the one here.  The parties fail to provide any authority indicating whether these statutes apply to equitable indemnity claims.  Nor has the Court’s own research uncovered any cases shedding light on this issue.  Regardless, as there is a clear triable issue of fact requiring denial of the instant motion, the Court declines to opine as to the applicability of Civil Code section 2773 and 2774 to the instant action.  However, this is a legal issue that both parties must address in a trial brief prior to the commencement of trial.

            As there is a triable issue of fact, Plaintiff’s motion for summary judgment is DENIED,

Conclusion and Order

Based on the foregoing, Plaintiff Steven R. Goldstein’s motion for summary judgment is DENIED. 

No later than three court days prior to the final status conference, each party must file and serve a trial brief addressing the applicability of Civil Code section 2773 and 2774 to equitable indemnity claims such as are at issue in the instant action, with citation to any applicable authority.  Each trial brief must not exceed 10 pages.

            Moving Party is to give notice and file proof of service of such.

DATED: January ___, 2024                                                   ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court