Judge: Maurice A. Leiter, Case: 22STCV20053, Date: 2024-08-02 Tentative Ruling

Case Number: 22STCV20053    Hearing Date: August 2, 2024    Dept: 54

Hearing Date: August 2, 2024

Department 54, Judge Maurice A. Leiter

Motion for Summary Judgment, or in the alternative, Motion for Summary Adjudication

Moving Party: Plaintiffs/Cross-Defendants D.B.S. Diamonds, Inc. and The Luxury

Exchange

Responding Party: Defendant/Cross-Complainant Federal Insurance Company

(erroneously sued as Chubb Group Holding, Inc.)

T/R:

PLAINTIFFS/CROSS-DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AS TO THE COMPLAINT IS DENIED.  THE MOTION FOR SUMMARY ADJUDICATION OF THE COMPLAINT’S CAUSE OF ACTION FOR DECLARATORY RELIEF IS DENIED.

PLAINTIFFS/CROSS-DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AS TO THE CROSS-COMPLAINT IS DENIED.  THE MOTION FOR SUMMARY ADJUDICATION AS TO THE CROSS-COMPLAINT’S DECLARATORY RELIEF CAUSE OF ACTION IS DENIED.

PLAINTIFFS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at¿SMCdept54@lacourt.org¿with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing. 

The Court considers the moving papers, opposition, and reply.

BACKGROUND

            On June 20, 2022, Plaintiffs D.B.S. Diamonds, Inc. (“DBS”) and The Luxury Exchange, LLC (“Exchange”) sued Lisa Babaian, Avakian Geneve (“AG”), and Federal Insurance Company (“FIC”) (erroneously sued as Chubb Group Holdings, Inc.) for (1) declaratory relief, (2) equitable indemnity, (3) contribution, (4) breach of contract, (5) breach of implied contract, (6) fraud, and (7) negligent misrepresentation.  Plaintiffs allege that on March 10, 2022 Exchange entered into an oral agreement to purchase a 11.12 carat diamond (“Diamond”) from Babaian for $170,000. Babaian represented that she was the owner of the Diamond. Babaian had previously purchased a ring with the Diamond from AG.  DBS purchased an ownership interest in the Diamond.  Later that month, DBS submitted the Diamond to the Gemological Institute of America, Inc. (“GIA”) for analysis and learned that the Diamond had been reported stolen by FIC, which claimed to be its rightful owner.  Plaintiffs seek a declaration of the rights and obligations of the parties as well as damages.

            On August 29, 2022, Defendant FIC filed a Cross-Complaint for declaratory relief against DBS, Exchange, Babaian, and AG.

EVIDENTIARY OBJECTIONS

The Court rules only on the objections to evidence that are material to the disposition of the motion. Code of Civil Procedure § 437c(q).

The Court SUSTAINS these objections by Plaintiffs/Cross-Defendants to the Declaration of Golnaz Heidari:

1)      Page 2, Lines 5 through 6: "On December 3, 2009, at approximately 10:30 a.m. Gigi Grant arrived at an appointment at Samir Salon located at 310 South Beverly Drive, Beverly Hills, California 90212.”

2)      Page 2, Lines 7 through 8: "Gigi Grant removed two rings from her fingers to have her nails manicured. She gave them to the Salon owner who placed them into Gigi Grant's purse and zipped it shut."

3)      Page 2, Lines 9 through 10: "Gigi Grant completed her appointment at approximately 12:31 p.m. and could not locate one of her rings."

4)      Page 2, Lines 11 through 12: "On or around December 3, 2009, the Policyholder filed an Incident Report with the City of Beverly Hills Police Department for a missing diamond."

5)      Page 2, Lines 13 through 14: "On or around December 3, 2009, the Policyholder reported the Subject Ring as missing to Chubb.”

6)      Page 2, Lines 15 through 16: "Chubb investigated the claim as required under the insurance policy of its Policyholder and determined that it was a covered claim under said policy."

7)      Page 2, Lines 17 through 20: "On or around December 24, 2009, Chubb sent GIA Trade Laboratory a letter advising that Chubb's Policyholder reported the loss of the Diamond with GIA certificate number 14819066 listed on the appraisal. Chubb instructed GIA Trade Laboratory that, should GIA Trade Laboratory come into possession of the Diamond, it is to notify Chubb.”

8)      Page 2, Lines 21 through 22: "On or around December 29, 2009, as required by the insurance policy, Chubb paid its Policyholder $220,000 the missing Subject Ring."

9)      Page 2, Lines 23 through 24: "After Chubb paid its Policyholder $220,000 for the Diamond, Chubb became the true owner of the Diamond.”

10)  Page 3, Lines 10 through 11: Exhibit C.

ANALYSIS

A party seeking summary judgment has the burden of producing evidentiary facts sufficient to entitle them to judgment as a matter of law.  (Code Civ. Proc., § 437c, subd. (c).)  The moving party must make an affirmative showing that they are entitled to judgment irrespective of whether the opposing party files an opposition.  (Villa v. McFerren (1995) 35 Cal.App.4th 733, 742-743.)  Thus, “the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.”  (Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519 (citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)

The opposing party on a motion for summary judgment is under no evidentiary burden to produce rebuttal evidence until the moving party meets his or her initial movant’s burden.  (Binder v. Aetna Life Insurance Company (1999) 75 Cal.App.4th 832, 840.)  Once the initial movant’s burden is met, the burden shifts to the opposing party to show, with admissible evidence, that there is a triable issue requiring the weighing procedures of trial.  (Code Civ. Proc., § 437c, subd. (p).) 

The only cause of action asserted against FIC in the Complaint is for declaratory relief.  Plaintiffs move for summary judgement as to the Complaint against FIC on the ground that there are no triable issues of material fact and Plaintiffs are entitled to declaratory relief.  Alternatively, Plaintiffs move for summary adjudication of this cause of action.

Similarly, the only cause of action asserted in the Cross-Complaint is for declaratory relief.  Plaintiffs move for summary judgement as to the Cross-Complaint on the ground that there are no triable issues of material fact and Plaintiffs are entitled to declaratory relief.  Alternatively, Plaintiffs move for summary adjudication of this cause of action. 

Plaintiffs argue that FIC’s claim that it owns the Diamond has no merit as Plaintiffs are the bona fide purchasers of the Diamond and did not have any notice of competing ownership.

An action for declaratory relief under Code of Civil Procedure § 1060 requires: “(1) a proper subject of declaratory relief and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party. [Citation.]”  (Lee v. Silveira (2016) 6 Cal.App.5th 527, 546; Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405, 410.)  The requirement that an “actual controversy” exists “concerns the existence of present controversy relating to the legal rights and duties of the respective parties pursuant to contract (Code Civ. Proc. § 1060), statute, or order,” instead of a controversy that is “conjectural, anticipated to occur in the future, or an attempt to obtain an advisory opinion from the court.”  (Brownfield, 208 Cal.App.3d at 410.)  “One test of the right to institute proceedings for declaratory judgment is the necessity of present adjudication as a guide for plaintiff's future conduct in order to preserve his legal rights.”  (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners, LLC (2010) 191 Cal.App.4th 357, 364-365.)  In Osseous, the Court notes that “when there is accrued cause of action for an actual breach of contract or other wrongful act,” the court may exercise its discretion under Code of Civil Procedure § 1061 to deny declaratory relief.”  (Osseous, 191 Cal.App.4th at 366.)  Code of Civil Procedure § 1061 states that “[t]he court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.”  The Court in Osseous found that the demurrer was properly sustained because there were “no allegations of an ongoing contractual relationship” between the parties and “[t]he future impact of any declaratory relief on the parties’ behavior is speculative.”  (Osseous, 191 Cal.App.4th at 376-77.)

            The parties’ rights as to the Diamond are a proper subject of declaratory relief and an actual controversy regarding the ownership rights of the parties exists.

“Conversion is generally described as the wrongful exercise of dominion over the personal property of another.  [Citation.]”  (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  “‘An innocent buyer from one without title or right to sell is ordinarily liable for conversion.’ 5 Witkin, Summary of Cal. Law (10th ed. 2005 Torts, § 716, p. 1039.’”  (Regent Alliance Ltd. v. Rabizadeh (2014) 231 Cal.App.4th 1177, 1182.)  Acquiring possession of converted goods with the intent to gain ownership through sale, pledge, gift, or otherwise is also considered conversion, even if the recipient of the property is acted innocently and in reasonable ignorance regarding the owner’s interest.  (Regent, 231 Cal.App.4th at 1182.)

California law recognizes exceptions to this general rule of strict liability.  (Regent, 231 Cal.App.4th at 1183.)  One such exception is that of the bona fide purchaser–“[i]f the party who committed the fraud then sells the goods to ‘a bona fide purchaser’ who ‘takes for value and without notice of the fraud, then such purchaser gets good title to the chattel and may not be held for conversion (though the original converter may be).’”  (Regent, 231 Cal.App.4th at 1183.)

“A buyer is a bona fide purchaser if it bought property in good faith, for value, and had no knowledge or notice of the asserted rights of another.”  (612 South LLC v. Laconic Limited Partnership (2010) 184 Cal.App.4th 1270, 1278; Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1251.)  “The first element does not require that the buyer's consideration be the fair market value of the property (or anything approaching it).  (Citation.)  Instead, the buyer need only part with something of value in exchange for the property.  (Citation.)”  (Melendrez, supra, 127 Cal.App.4th at p. 1251.)

“The general rule places the burden of proof upon a person claiming bona fide purchaser status to present evidence that he or she acquired interest in the property without notice of the prior interest.  [Citations.]”  (First Fidelity Thrift & Loan Assn. v. Alliance Bank (1998) 60 Cal.App.4th 1433, 1442.)  “A person generally has ‘notice’ of a particular fact if that person has knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact. [Citations.]”  (First Fidelity, 60 Cal.App.4th at 1443.)  “The determination whether a party is a good faith purchaser or encumbrancer for value ordinarily is a question of fact; on appeal, that determination will not be reversed unless it is unsupported by substantial evidence.”  (Triple A Management Co., Inc. v. Frisone (1999) 69 Cal.App.4th 520, 536.)

Plaintiffs present the declaration of Shay Belhassen, the owner and Chief Executive Officer of DBS and owner, manager, and Chief Executive Officer of the Exchange. He has been in the jewelry and diamond business since approximately January 2000 in the downtown Los Angeles Jewelry District.  (Belhassen Decl. ¶¶ 2-4.)  As part of his business, Belhassen buys jewelry and diamonds from other merchants and individuals and sells it for profit.  (Ibid. at ¶ 5.)  Around March 2022, he was introduced to Babaian by a Beverly Hills broker/jeweler, Sahar Shayegh, owner of Iconic Jewels, Inc., who made a diamond ring for Babaian with an 11.12 carat center while working for the international jeweler AG in 2010.  (Ibid. at ¶¶ 6-7, Ex. 1; Shayegh Decl. ¶¶ 2-5, Ex. 1.)  Belhassen met with Babaian, examined the Diamond, and agreed to purchase only the Diamond for $170,000.  (Belhassen Decl. ¶ 8.)  Around March 10, 2022, Babian presented her driver’s license at the time of sale and signed a bill of sale to the Exchange, and Belhassen transferred $170,000 to her from the Exchange’s bank account.  (Ibid. at Decl. ¶ 9, Ex. 2.)  DBS purchased an interest in the Diamond from the Exchange.  (Ibid. at ¶ 9, Ex. 2.)  Belhassen states that he believed the purchase price was a “fair and reasonable wholesale price,” that Babian had the right to sell the diamond, and he had no notice of any claim to the diamond from anyone else.  (Ibid. at ¶ 10.)  With the intention to sell the diamond, Belhassen submitted it to the Gemological Institute of America, Inc. (“GIA”) to obtain a certificate confirming the description of the diamond.  (Ibid. at ¶ 11.)  He was informed by GIA that there was an issue regarding ownership of the Diamond as FIC claimed it was the owner; this was the first time Belhassen received notice of any other claim to the Diamond.  (Ibid. at ¶ 11.)  Based on this evidence, Plaintiffs argue that they are the bona fide purchasers of the diamond without any notice to competing ownership.

Plaintiffs have presented sufficient evidence to meet their initial burden of demonstrating they are bona fide purchasers of the Diamond.

In opposition, FIC submits the declaration of Golnaz Heidari, attorney of record for FIC.  As discussed above, the Court sustains Plaintiffs’ objections to the declaration and only considers admissible evidence.

Around June 26, 2009, FIC issued Donald Grant, Gigi Grant, and the Grant Family Trust dated 8/8/90 ATIMA, an insurance policy that covered an 11.12 carat diamond.  (Heidari Decl. ¶ 2.)  Around June 20, 2022, FIC received a complaint filed by Plaintiffs/Cross-Defendants for Declaratory Relief.  (Ibid. at ¶ 12.)  FIC has presented a Deposition Subpoena for Production of Business Records issued to the Custodian of Records at Beverly Hills Police Department and in response, the declaration of Maritza Guerra, Records Specialist for Sylvia Gelfman, Custodian of Records for the Beverly Hills Police Department, with a police report prepared for Case Number 09-7893 regarding a missing diamond ring.  (Heidari Decl., Exs. A-B.) 

The general rule in California is that an innocent buyer is liable for conversion when acquiring property from one without the right to sell the subject property, unless the bona fide purchaser exception applies.  The burden is on Plaintiffs to show that the bona fide purchaser exception applies to them.  Plaintiffs have presented the declarations of Belhassen and Shayegh showing that they purchased the Diamond in good faith, for $170,000, without any knowledge or notice of any other claims to the Diamond.  As noted, Plaintiffs have met their initial burden.  In response, Defendant has presented a police report which demonstrates that the diamond ring at issue went missing years prior to the transaction.

There is a triable issue of material fact as to whether the Diamond was acquired through theft or fraudulent representation; this must be resolved to decide whether the bona fide purchaser exception applies.  There also is a triable issue of material fact as to whether Plaintiffs conducted a reasonable inquiry prior to the purchase of the Diamond, particularly since they learned of the competing claim through GIA soon after the purchase.  The Court cannot find as a matter of law that Plaintiffs were bona fide purchasers of the Diamond.