Judge: Jon R. Takasugi, Case: BC696133, Date: 2022-12-08 Tentative Ruling

Case Number: BC696133    Hearing Date: December 8, 2022    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

The Court’s ruling on the parties’ motions to enforce settlement are set forth in each sub-section below.

On 7/3/2018, Plaintiffs Govind Vaghashia (Govind) as an individual and on behalf of Graphic Research, Inc. dba Gtek/Bycan Systems filed a second amended complaint (SAC) against Prashant Vaghashia (Prashant), Graphic Research, Inc. dba Gtek/Bycan Systems (GRI), alleging: (1) involuntary dissolution; (2) breach of fiduciary duty; (3) accounting; and (4) violation of Corporations Code sections 1601 and 1602.

            Now, the parties move to enforce the terms of the settlement. For ease, the Court has consolidated its analysis of the two motions into a single ruling.

Evidentiary Objections

            As a preliminary matter, the Court notes that California Rules of Court 3.1352 and 3.1354 concerns motions for summary judgment and adjudication, which this motion is not.

            Moreover, CCP 437c, subdivision (q) provides:

In granting or denying a motion for summary judgment or summary adjudication, the court need rule only on those objections to evidence that it deems material to its disposition of the motion. Objections to evidence that are not ruled on for purposes of the motion shall be preserved for appellate review.

            In light of CCP 437c, Govind’s objections are overruled.

Discussion

I.                   Default

One of the disputes presented by the parties is whether or not an immediate interest payment is due, and if so, what amount.

            As a preliminary matter, the Court notes that in referencing the same provision from the settlement agreement, the parties offer different versions.

Prashant and Mita recite the default rate provision as:

5. Default Rate. “Default Rate” means ten percent (10%) per annum. In the event that any amount of principal or interest is not paid when due, the principal will be interest on the date of default at a rate per annum equal to the “Default Rate.”

            By contrast, Govind recites the same provision as:

5. Default Rate. "Default Rate" means ten percent (10%) per annum. In the event that any amount of principal or interest is not paid when due, the principal will bear interest on the date of the event of default at a rate per annum equal to the Default Rate.

            The undisputed facts here are that the Settlement Agreement provided that the first payment of $3.5 million was due on 7/11/2022. The payment was not issued until 7/19/2022. Govind argues that interest is not owed for the late payment because “as per Section 4 the 10% interest rate on $3,500,00 does not occur until July 20th , 2022,” (Motion 4: 19-20.) By contrast, Prashant and Mita argue that incurred interest begins to commence on 7/11/2022 when payment was due.

            The Court disagrees with both parties.  

Section 4 of the settlement agreement clearly states:

4. Default. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement:

a.      The Govind Parties fail to pay when any payment is due in accordance with the terms of this Agreement that is not cured within seven (7) days pursuant to notice pursuant to Sections 2 and 36.

Given that Govind issued payment 8 days late, and the cure period was 7 days, Govind was clearly in default on 7/19/2022. The Court agrees with Prashant on this point.

While Prashant interprets section 4 to provide interest from 7/11/2022, focusing on the phrase “in the event that any amount of principal or interest is not paid when due,” the following phrase provides that the interest will accrue “on the date of the default.” Given that the date of default is defined as a failure to cure after seven days (i.e., 7/19), interest would begin to accrue on that day (i.e., 7/19), not 7/11. For this same reason, Govind’s contention that interest only begins to accrue on 7/20/2022—the day after default—is incorrect.

            In sum, the Court concludes that section 4 provides that interest begins to accrue on the date of the event of default, which occurs on the 7^th day that a failure to pay is not cured.  As applied here, 7/19 was the latest day Govind could pay without being in default. After he failed to pay on the 7^th day, he was in default. Accordingly, interest is owed by Govind for the one day of default that took place between the date of default (7/19) and the date of payment (7/20).   

II.               Deeds

Another dispute between the parties is the adequacy of the security offered to secure Govind’s obligations under the Settlement Agreement.

In particular, the parties dispute whether or not the property list provided by Govind on June 28 (Govind’s June 28 Property List)—which identified 13 properties, and listed on a pdf document the property address, estimated market values per Govind, the claimed mortgage balance, and as calculation of equity—provides a fair estimated value of market value.

To show that Govind’s June 28 Property List intentionally overvalues the properties, Prashant and Mita point to Govind’s June 10 Property List[1] which includes much lower estimated values for the same properties. (See Prashant and Mita’s Motion, 10: 1-19.) Prashant and Mita note that both valuations were made by Govind, and no reasonable explanation has been provided for the dramatic increase in some valuations.

Section 3 of the Settlement Agreement provides:

3. Security for Settlement Payment. The obligations of the Govind Parties for making the Settlement Payment shall be secured by a number of deeds of trust, recorded on the Govind Parties’ California properties as collateral. The Govind Parties will first select the properties, which should have at least a total of twenty six million US dollars ($26,000,000) of equity. Equity is defined as the value of the property less any secured debt. The Govind Parties will provide this list to Prashant Vaghashia within fourteen (14) calendar days of the Effective Date, disclosing the property value and the existence of any secured debt on each selected property, and the disbursement of the amount of the deeds of trusts among the properties. Prashant Vaghashia will consent to the selections, but his consent will not be unreasonably withheld, and shall be entitled to withhold consent should the property have a loan or debt to value ratio exceeding seventy-five percent (75%). The Govind Parties will pay for title insurance policies.

The Court agrees with Prashant and Mita that Govind’s June 28 Property List appears to intentionally overvalue the properties, such that there is reasonable doubt that Govind has complied with his obligation to select properties with “at least a total of twenty six million US dollars ($26,000,000) of equity.” For the same reason, the Court concludes that Prashant’s refusal to consent to the selections has not been unreasonably withheld.

III.            Durham Property

Another dispute is that Prashant argues that Govind and Sonal agreed to provide a Quitclaim Deed for Prashant and Mita’s personal residence, 3339 Durham Court, Burbank California, in a manner that would have minimized Prashant and Mita’s tax liability, and now wish to improperly “insert a ‘consideration’ amount of $2.4M in the quitclaim deed, essentially changing the nature of the agreement and creating an additional tax liability for Prashant and Mita.” (Motion, 14: 11-13.)

In opposition, Govind contends that pursuant to the agreement, Govind has tendered the Quit Claim Deed (QCD) to Prashant and Prashant has acted in bad faith by refusing to accept the QCD.  Moreover, Govind contends that “Prashant proceeded to prepare his own QCD with additional terms and conditions separate and contrary to the SA. [LAL DECL; Ex J]. In return Prashant demanded that Govind insure the property for $5m dollars and change the format to a Grand Deed. Prashant confused over the difference between a QCD and GRAND DEED proceed to present multiple confusing documents including Buyers Escrow Instructions and Sellers Escrow Instructions- a totally unwarranted document which created a purchase and sale agreement between the parties, again contrary to the agreement.” (Govind’s Motion to Enforce, 9: 18-27.)

The settlement agreement provides:

8. 3339 Durham. Ten (10) calendar days following the Effective Date, Govind Vaghashia and Sonal Vaghashia will execute a quit-claim deed for their jointly owned seventy percent interest in 3339 Durham Court, Burbank, California 91504. The quitclaim deed will be in favor of Prashant Vaghashia and Mita Vaghashia, a married couple.

By adding in the $2.4M consideration amount, Govind is transforming the execution of a quit-claim deed into a transaction of a different nature which creates an additional tax liability for Prashant and Mita. Govind is directed to execute a quitclaim deed without the $2.4M consideration amount in accordance with the settlement agreement.

It is so ordered.

Dated:  December    , 2022

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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