Judge: Michael E. Whitaker, Case: 22SMCV01121, Date: 2025-05-21 Tentative Ruling

Case Number: 22SMCV01121    Hearing Date: May 21, 2025    Dept: 207

TENTATIVE RULING

BACKGROUND

On February 10, 2023, real estate investors Plaintiffs Brittany Perrineau, Harold Perrineau, and Joon Productions, Inc. (“Plaintiffs”) filed the operative second amended complaint (“SAC”) against Defendants Patrick McKenna; Leslie Gornik; Palisades Funding, Inc.; Palisades Capital Management LLC; Palisades Development Company, Inc.; Pali Cap Management 9, LLC; Palisades Capital Fund 4, LLC; Palisades Capital Fund 8, LLC; and Palisades Capital Fund 7, LLC (“Defendants”), alleging eleven causes of action for (1) material misrepresentations and misleading statements in the sale of a security; (2) sale of unqualified securities; (3) joint and several liability pursuant to Corporations Code § 25504; (4) joint and several liability pursuant to Corporations Code § 25504.1; (5) breach of fiduciary duty; (6) violation of California Business and Professions Code §§ 17200; (7) constructive fraud; (8) breach of written contract; (9) breach of written contract; (10) common counts; and (11) declaratory relief.  On April 12, 2024, Defendant Palisades Capital Fund Management, LLC was substituted as Doe 1. 

In summary, this action stems from a dispute concerning Plaintiffs’ investment in Defendants’ allegedly fraudulent real estate investment securities. 

Plaintiffs now move for terminating, or in the alternative, evidentiary, issue or monetary sanctions against Defendants Patrick McKenna; Leslie Gornik; Palisades Funding, Inc.; Palisades Capital Fund 7, LLC; and Pali Cap Management 9, LLC (the “McKenna Defendants”) and their counsel of record, Douglas Galanter, for disobeying the Court’s January 28 and March 7 Orders. 

The motion is unopposed.

LEGAL STANDARD

When a party misuses the discovery process by disobeying a court order to provide discovery, the court in its discretion may impose monetary sanctions to pay the reasonable expenses and attorneys’ fees incurred as a result of the conduct, issue sanctions by prohibiting a party from supporting or opposing designated claims or defenses, and/or terminating sanctions by striking a party’s pleading or dismissing the action of the party. (Code Civ. Proc., §§ 2023.010, subd. (g), 2023.030, subds. (d)(1) & (d)(3); 2025.450, subd. (h), 2030.290, subd. (c), 2031.300, subd. (c).)

California discovery law authorizes a range of penalties for a party's refusal to obey a discovery order, including monetary sanctions, evidentiary sanctions, issue sanctions, and terminating sanctions. A court has broad discretion in selecting the appropriate penalty, . . . . Despite this broad discretion, the courts have long recognized that the terminating sanction is a drastic penalty and should be used sparingly. A trial court must be cautious when imposing a terminating sanction because the sanction eliminates a party's fundamental right to a trial, thus implicating due process rights. The trial court should select a sanction that is tailored to the harm caused by the withheld discovery. Sanctions should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery.

(Lopez v. Watchtower Bible & Tract Society of New York, Inc. (2016) 246 Cal.App.4th 566, 604 [cleaned up].)

When a party fails to respond to the opposing party's interrogatories, the court should begin by imposing monetary sanctions and ordering the party to respond. If a party then fails to obey an order compelling answers, the court may make those orders that are just, including the imposition of an issue sanction, an evidence sanction, or a terminating sanction.  In general, a court may not impose issue, evidence, or terminating sanctions unless a party disobeys a court order. 

(Moofly Productions, LLC v. Favila (2020) 46 CalApp.5th 1, 11 [cleaned up] [citing Code Civ. Proc., § 2030.290, subd. (c)].)  However, “a terminating sanction issued solely because of a failure to pay a monetary discovery sanction is never justified.” (Newland v. Superior Court (1995) 40 Cal.App.4th 608, 615.)

ANALYSIS

            On January 28, 2025, the Court ordered the McKenna Defendants to serve further verified responses and produce responsive documents as to the RFP I Re: Bell Property; RFP II Nos. 1-10 and 12-20; RFP III (all, with caveats outlined in the order); RFP IV; SROG V and for McKenna, Gornik, and Counsel to pay monetary sanctions in the amount of $5112.60 within 20 days of notice of the Court’s orders, with Plaintiff to prepare and lodge a proposed order by February 3, 2025.  (Minute Order, Jan. 28, 2025.)

            On February 26, 2025, the Court ordered Plaintiff to submit a proposed order by March 3, 2025.  Plaintiff filed the proposed order on March 7, 2025, which the Court granted the same day.  Plaintiff personally served the order on the McKenna Defendants’ counsel on March 11, 2025.  (Stein Decl. ¶ 2.)

            In support of the motion, Plaintiffs advanced the Declaration of Jay R. Stein, which provides:

3. Attached hereto as Exhibit 2 is a true and correct copy of the two Stipulations and Orders of the Court continuing the trials scheduled for this matter. As trial was scheduled for September, 2024 and later for May, 2025, the parties twice sought court relief as substantial discovery remained due to the failure of the McKenna Defendants to respond pursuant to Code requirements which directly interfered with the taking of the depositions necessary for trial.

4. In or about mid- March, counsel for the respective parties concerning the Stipulation and Order effecting the change of the trial date scheduled for May 5, 2025 conducted a telephone call and discussed the proposed Stipulation and Order in a meet and confer manner prior to submission to the Court occurred. At that time, I made inquiry when the responses ordered by the Court and payment of sanctions would be made by the McKenna Defendants and Counsel. I was told by Mr. Galanter that the Order provided for a response time and that they were not due yet as the Orders had just been entered and served.

5. Attached hereto as Exhibit 3 is a true and correct copy of the Property Settlement Statement and balance sheets provided to Plaintiff regarding the Bella Oceana Vista (Pratt House) property in discovery. These documents do not reflect the additional revenue of $2.5 Million generated by the 105 Change Orders entered into by Borgese Construction but do seem to reflect the expenses incurred by the Change Orders in the Balance Sheet breakdown. The McKenna Defendants failure to provide the documentation concerning the Pratt House project directly frustrates the ability of Plaintiffs to prosecute their claims and prepare for trial. This has been ongoing since April, 2023 when written discovery commenced.

6. Attached hereto as Exhibit 4 is a true and correct copy of the original Purchase Agreement executed by Chris Pratt which delineates the additional construction required of the McKenna Defendants pursuant to the contract. Only a limited amount of construction was provided for or otherwise required by this purchase agreement.

7. Attached hereto as Exhibit 5 is a true and correct coy (sic) of the Settlement Agreement between the McKenna entities and Chris Pratt and his representatives. At no time was Borgese Construction included as part of the settlement agreement other than to reserve litigation rights against Borgese Construction.

8. Since April, 2023 when Plaintiffs initiated written discovery, Mr. Chodos and I have had to deal with three law firms, Carlton Fields, Negrin, LLP, and Douglas Galanter. We have conducted extensive meet and confers with each of the three law firms seeking in essence the documentation and information that the Court Ordered on January 28, 2025. At least 11 different Meet and Confer Letters were sent by Plaintiffs’ Counsel as well as follow-up telephone conferences occurred. Carlton Fields received discovery meet and confer letters on June 23, 2023 and September 28, 2023. Matthew Negrin of Negrin, LLP received discovery meet and confer letters on November 9, 2023, January 24, 2024, March 5, 2024, and April 8, 2024. Mr. Galanter received discovery meet and confer letters on May 11, 2024, June 25, 2024, July 8, 2024, July 29, 2024, and September 18, 2024. Similarly, the Plaintiffs have further attempted through the Status Conferences and IDC’s conducted by the Court to resolve the discovery disputes. IDCs were held regarding these same disputes subject to the Orders of the Court on April 11, 2024 with Matthew Negin, and October 23, 2024 with Mr. Galanter. Status Conferences were held to monitor these matters on July 2, 2024 and February 26, 2025. These meet and confer efforts have been frustrated by the continuous intentional delay and obfuscation conducted by the McKenna Defendants and their Counsel. Bottom line, key documents and information are intentionally being withheld and the only effective recourse is to grant terminating sanctions in this action against the McKenna Defendants. Notwithstanding, on April 8, 2025, I sent Mr. Galanter another email seeking resolution of and compliance with the discovery ordered by the Court. In particular, Plaintiffs extended the date of response and production to April 14, 2025 to resolve the nonproduction and failure to comply with the Court’s order issues. Attached hereto as Exhibit 6 is a true and correct copy of the email sent to Mr. Galanter on April 8, 2025. At no time has Mr. Galanter or any of the McKenna Defendants responded to the April 8, 2025 email, or the Order of the Court which was due to be complied with by March 31, 2025.

(Stein Decl. ¶¶ 3-8.)

As of the filing date of the motion, Defendants have not complied with the subject Discovery Order, failing to serve further responses to the subject discovery requests or to pay  the monetary sanctions.  The Court notes that non-compliance with the subject order follows a long history of discovery issues stemming primarily from Defendants’ failure to comply with their obligations under the Discovery Act.  As such, the Court finds that Defendants have engaged in a pattern of discovery abuses and delays to the prejudice of Plaintiffs’, and have disobeyed this Court’s order of March 7, 2025. 

Equally important, Defendants have not opposed the motion, and have thus waived their right to argue that terminating sanctions are unwarranted.  (Sexton v. Superior Court (1997) 58 Cal.App.4th 1403, 1410.) 

CONCLUSION AND ORDER

Consequently, the Court grants Plaintiffs’ motion for terminating sanctions, and orders Defendants’ answers stricken.  With Defendants’ answers stricken, the Court enters default as to the following Defendants:

·       Patrick McKenna

·       Leslie Gornik

·       Palisades Funding, Inc.

·       Palisades Capital Fund 7, LLC

·       Pali Cap Management 9, LLC

Further, with terminating sanctions being imposed on Defendants, the Court finds the imposition of evidentiary, issue or monetary sanctions to be moot. 

Further, on the Court’s own motion, the Court sets a Status Conference re Discovery, ADR and Motion Practice on January 7, 2026 at 8:30 A.M. in Department 207.  Parties shall meet and confer, and cooperate in the preparation of a Joint Report which shall be filed no later than 5 court days before the Status Conference.  The Joint Report shall provide detailed information regarding the following:  Discovery, ADR and Motion Practice.  For information regarding the Joint Report’s contents, the parties should refer to the January 30, 2024 Minute Order. 

Plaintiffs shall provide notice of the Court’s ruling and file the notice with a proof of service forthwith.

DATED:  May 21, 2025                                  ________________________________

                                                                        Michael E. Whitaker

                                                                        Judge of the Superior Court