Judge: Mark H. Epstein, Case: SC123117, Date: 2024-03-29 Tentative Ruling

Case Number: SC123117    Hearing Date: March 29, 2024    Dept: I

The court has reviewed the objections.  The court is inclined to OVERRULE them.  

One principal objection (that runs through 2-8) is that the court’s comments regarding the legality or appropriateness of the charitable contribution is not truly something that needs to be addressed.  The court disagrees.  Sitting as a court of equity as it involves the alleged breach of fiduciary duty and the secret profits, the court must determine whether in justice Rav-Noy should be able to recover the $1 million aspect of higher price that related to the reduction of the purchase price in return for the charitable contribution.  Rav-Noy contends that he is entitled to recover that money; Illulian disagrees.  Thus, Rav-Noy has put the propriety of the $1 million “donation” at issue.  Rav-Noy agreed during the trial that the technical purchase price of the property was inflated by only $1 million above the Bral option price, but he contended that he paid an additional $1 million in the form of a contribution to Illulian’s charity in return for a $1 million reduction because the original agreed-upon price was $2 million over the Bral option price and he wants that $1 million back as well.  The question is whether the court will look behind the formality to conclude that the charitable contribution was part of the consideration or whether the court will look to the form such that the contribution is a contribution.  Because of that, the court needed to deal with the purportedly charitable payment and whether there was consideration for it.  The court has concluded that there was: the price of the property was reduced dollar-for-dollar by the amount of the contribution.  It could well be that Rav-Noy never attempted to deduct that money from his taxes (although the timing of the contributions would suggest otherwise) and that he made sure that the LA County Assessor assessed the property using the full $2 million above the Bral option price that was really paid.  But no suggestion of that was made at the trial.  The only reasonable inference from this record is that Rav-Noy did what the transaction suggests: he took the $1 million as a charitable contribution (actually, two contributions of $500,000 each spread over two tax years) and did not tell the Assessor to use the higher price for the assessed value.  It could be that the court’s view as to whether this is truly a violation of federal or state tax law is in error, and certainly the court has no intention of binding either the IRS or the FTB or anyone else on the technical tax law point.  To be clear, if the taxing authorities come after Rav-Noy, this court does not intend its order to be collateral estoppel or res judicata to the extent he is facing criminal or civil charges from those authorities.  But as a matter of equity, the court concludes that Rav-Noy got the benefit of the form of the payment and thus must bear the burden as well.  The remaining aspects of objections 2-8 are not convincing to the court.  Accordingly, those objections are OVERRULED.

Objection 1 is OVERRULED.  The court’s statement is based on the notion that a willing buyer (Rav-Noy) agreed to pay a particular price for the building and that there were no false statements about the building itself or the building’s condition.  While it is true that Bral was willing to option the property for less, it was at an earlier time.  The court will stand by its statement, although, for clarity’s sake, the court understands that an argument could be made that the FMV ought to be set at the Bral option price rather than the actual price.  The court is only saying that the matter is hardly a slam dunk for Rav-Noy.

Objection 9 is OVERRULED.  The court agrees that the split in the Geulah operating agreement was a 26/74 split of the gains after the return of Rav-Noy’s $4,926,000 capital contribution and preferred return.  But that does not, in the court’s view, change the math in a material way.

The time for objections has now passed.  Because Rav-Noy’s objections were overruled and Illulian elected not to object, the proposed statement of decision is now FINAL.  The parties are directed to meet and confer on the form of judgment.  The judgment should advert to the jury verdict and statement of decision, but should not discuss them or attempt to summarize them.  The parties are to lodge a proposed judgment, approved by both as to form only, no later than 20 court days from today.  If they cannot agree, they are to submit a red-line, with Illulian’s proposal red-lined against Rav-Noy’s proposal.  For avoidance of doubt, agreement to the form of the judgment is not a waiver of any substantive arguments otherwise made and preserved.