Judge: Stephen I. Goorvitch, Case: 19STCV43653, Date: 2023-01-20 Tentative Ruling

Case Number: 19STCV43653    Hearing Date: January 20, 2023    Dept: 39

JTX Group, Inc. v. Global Meat Federation, Inc., et al.

Case No. 19STCV43653

[TENTATIVE] ORDERS

Order #1 of 3

Colony’s Motion for Summary Judgment

BACKGROUND

Plaintiff JTX Group, Inc. (“Plaintiff” or “JTX”) filed this action against numerous defendants.  In brief, Plaintiff alleges that it entered into a nonbinding agreement by which Plaintiff planned to purchase a 55% stake in Global Meat Federation, Inc. (“Global Meat Federation”) for $52,800,000.  (Third Amended Complaint, ¶ 74.)  Plaintiff further alleges that Plaintiff would provide $1,500,000 to Global Meat Federation as working capital while the parties completed the proposed transaction.  (Third Amended Complaint, ¶¶ 77-78.)  Plaintiff alleges that he terminated the proposed purchase, and requested the return of the $1,500,000.  (Third Amended Complaint, ¶ 86.)  Plaintiff alleges that Global Meat Federation refused to return the $1,500,000, and distributed it between Defendant, Jamal Dawood (“Dawood”), and related entities.  (Third Amended Complaint, ¶ 91.)  Plaintiff asserts the following causes of action against one such entity, Colony Capital, LLC (“Colony”):

Fourth – Unjust enrichment

Eleventh – Unfair competition under Business and Professions Code section 17200

Twelfth – Conversion

Thirteenth – Violation of Penal Code section 496 

Now, Colony moves for summary judgment or, in the alternative, summary adjudication of each cause of action.  Plaintiff opposes the motion. 

            Originally, the motion was set for hearing on November 18, 2022, and the Court posted a tentative order in advance granting the motion.  Following the hearing, the Court took the motion under submission.  The Court then removed the motion for being under submission and re-set the hearing.  The Court posted a new tentative order denying the motion.  Following the hearing, the Court adopted that tentative order.    

LEGAL STANDARD

“[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law[.] There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.”  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)  “[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.”  (Ibid.)  

DISCUSSION

            A.        Colony’s Liability for Jamal Dawood’s Alleged Activities     

As an initial matter, in the operative third amended complaint, Plaintiff alleges that Colony and other such entities “are alter egos and mere instrumentalities used by Dawood to conduct financial schemes, money laundering and to transfer and divert funds for use by Dawood in other schemes.”  (Third Amended Complaint, ¶ 14.)  Plaintiff alleges that “Colony is liable for the acts of Dawood as one of the instrumentalities he used to commit the torts and acts alleged herein.”  (Ibid.)  Similarly, Plaintiff alleges that Dawood used Colony as a “lender” of Plaintiff’s funds.  (Third Amended Complaint, ¶ 91.)  “Plaintiff is informed and believes that Dawood used TD and Colony to access and loan JTX’s money to third parties, and in this instance, used Colony to lend JTX’s money to others for Dawood’s benefit rather than the intended purpose of the working capital deposit for GMF’s Beef Business.”  (Ibid.)

Based upon the foregoing allegations, Plaintiff seeks to hold Colony liable for Dawood’s alleged activities.  A corporate entity is presumed to have a separate existence, and the corporate form will be disregarded only when the ends of justice so require.  (Mesler v. Bragg Management Company (1985) 39 Cal.3d 290, 300.)  Plaintiff relies on the alter ego theory, which prevents an individual from “hiding behind” a corporate entity in order to escape liability.  “A corporate entity may be disregarded—the ‘corporate veil’ pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.”  (Sonora Diamond Corp. v. Superior Court (2008) 83 Cal.App.4th 523, 538.)  Two conditions must be satisfied.  “First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist.”  (Id., p. 538.)  “Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.”  (Ibid.) 

The instant case is distinct, however, because Plaintiff does not seek to hold Jamal Dawood liable as an alter ego of Colony.  Rather, Plaintiff seeks to hold Colony liable for Dawood’s activities.  This is “reverse veil piercing.”  “Rather than seeking to hold an individual responsible for the acts of an entity, reverse veil piercing seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider.”  (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221.)  “Outside reverse veil piercing arises when the request for piercing comes from a third party outside the targeted business entity.”  (Ibid., citation omitted.)  Alter ego liability is an extreme remedy and should be used “sparingly.”  (Sonora, supra, 83 Cal.App.4th at p. 539.) 

As a general matter, California does not recognize “reverse piercing, [which] occurs when a third party outsider seeks to reach corporate assets to satisfy claims against an individual shareholder.”  (Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, 1518.)  However, there is a limited exception in the context of post-judgment collection against an individual who is the primary member (owner) of a limited liability corporation.  (See Curci, supra, 14 Cal.App.5th at pp. 222-223; see also Blizzard Energy, Inc. v. Schaeffers (2021) 71 Cal.App.5th 832, 846-848.)

Plaintiff does not have a judgment against Jamal Dawood.  Nor has Plaintiff demonstrated that there would be an “inequitable result” at this stage.  For example, Plaintiff has not demonstrated that a judgment against Dawood would be uncollectible or unenforceable.  Nor has Plaintiff demonstrated that a judgment against Dawood could not be amended to include entities like Colony or United Properties, Inc. through traditional post-judgment means. Therefore, to the extent Plaintiff seeks to hold Colony liable as an alter ego of Dawood, this should be resolved through traditional debt collection procedures, i.e., obtaining a judgment against Dawood and then amending the judgment to include any alter egos.  (See, e.g., Misik v. D’Arco (2011) 197 Cal.App.4th 1065.)    

B.        Colony’s Liability for its Own Alleged Activities  

Plaintiff’s counsel appears to concede that his reverse alter ego theory is untenable at this stage.  (See Plaintiff’s Memorandum of Points & Authorities in Opposition to Motion for Summary Judgment, pp. 2:8-10, 11:26-27.)  Instead, Plaintiff argues that Colony is liable for its own actions: “Even if the Court were to find that reverse alter ego piercing is not available, that does not absolve Colony Capital for its involvement in Dr. Dawood’s grift.”  (Plaintiff’s Memorandum of Points and Authorities in Opposition to Colony’s Motion for Summary Judgment, p. 11:26-12:1.)  The cases on reverse piercing contemplate that a plaintiff would pursue causes of action for conversion and/or fraudulent transfer.  (See Postal Instant Press, supra, 162 Cal.App.4th at p. 1523.)  “Although legal remedies—e.g., conversion, fraudulent transfer—may be available in many cases, thereby precluding reverse veil piercing, it is precisely the rare situations in which they are not that reverse piercing should deliver justice.”  (Curci, supra, 14 Cal.App.5th at p. 223.) 

In the instant case, Plaintiff asserts causes of action against Colony for conversion and violation of Penal Code section 496, commonly known as receiving stolen property.  Specifically, Plaintiff alleges that Jamal Dawood transferred funds into Colony’s account and then transferred funds out of Colony’s account:   

Plaintiff is informed and believes and based thereon alleges that multiple Defendants claimed a right to the $1.5 million in funds provided by JTX and that multiple Defendants including but not limited to, TD, Colony, United, McSen Entities, the DiMaria Entities Dawood, Lo, DiMaria, Cai and David actually received a portion of the $1.5 million which JTX transferred to TD for GMF.  Discovery and further investigation in this case reveals that Dawood caused TD to convert the funds and transfer it to Colony, United, Lo/Harbor Green Grain (who then paid David his share), and the DiMaria entities (principally ADD). . . .  Plaintiff is informed and believes that Dawood used TD and Colony to access and loan JTX’s money to third parties, and in this instance, used Colony to lend JTX’s money to others for Dawood’s benefit . . . .” 

(Third Amended Complaint, ¶¶ 81, 91.)  Similarly, Plaintiff’s separate statement focuses on Jamal Dawood’s actions.  (See Plaintiff’s Separate Statement of Material Facts, ¶¶ 2, 3, 4, 8, 9, 10, 19, 20, 32.)  Plaintiff’s separate statements references funds being deposited into, and transferred out of, Colony’s bank account.  (Id., ¶¶ 28, 36, 38, 45.)  Plaintiff is bound by these allegations.  A motion for summary judgment addresses the “material facts” of the complaint.  (See Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 161, citing Code Civ. Proc., § 437c(b)(1).)  Therefore, the operative complaint sets the outer limits of materiality in a summary judgment proceeding.  (FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 382.)

            These allegations, if true, may give rise to Plaintiff’s causes of action.  In order to assert a cause of action for conversion, Plaintiff must establish that Colony knowingly or intentionally took possession of its personal property.  (See CACI 2100: Conversion—Essential Factual Elements.)  A plaintiff can state a cause of action for conversion based on the theft of money if based upon “an amount of cash capable of identification.”  (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395-397, internal quotations and citation omitted.)  Similarly, in order to assert a violation of Penal Code section 496, Plaintiff establish that property was stolen; the defendant knew the property was stolen; and the defendant received or had possession of the stolen property.  (Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.)    

            Colony moves for summary judgment by arguing there is no evidence Colony received any of Plaintiff’s funds.  Colony relies on the declaration of Jamal Dawood, which states in relevant part: 

I am the manager of Defendants Colony Capital, LLC and TD Capital, LLC.  Between 2018 and 2019, Colony Capital raised funds from third-party investors to make loans to third-party borrowers.  At various times, Colony Capital has loaned monies to Defendants Harbor Green Grain, ADD Enterprises, Inc., and United Properties.  In May 2019, TD Capital received three wires totaling $1.5M which Plaintiff JTX Group, Inc. contends it wired or caused to be to TD Capital, LLC’s account at Bank of America.  Defendant Colony Capital never received any of the funds that Plaintiff wired to TD Capital’s account.

(Declaration of Jamal Dawood, ¶¶ 2-4.)  This evidence is sufficient to shift the burden to Plaintiff to advance evidence giving rise to a triable issue.

            Plaintiff relies on tracing evidence.  Plaintiff wired funds to TD Capital, LLC’s bank account.  (See Declaration of Felix Woo, Exh. #2.)  On May 6, 2019, the balance on that bank account was $15,188.85.  Plaintiff’s three wires—on May 7, May 14, and May 22, 2022—totaled $1.5 million, and the only other deposit was one for $8,000 on May 13, 2019.  Therefore, the bulk of the beginning balance on June 1, 2019—which was $820,888.85—came from Plaintiff’s money.  There were no deposits between June 1 and June 3, 2019, but there was a withdrawal of $470,155 on June 3, 2019.  The bank record is redacted so it is unclear what happened to these funds.  But the tracing evidence suggests this amount came from Plaintiff’s funds, since the withdrawal is (much) larger than the funds on deposit before Plaintiff’s wires.

            On June 4, 2019, there was a “counter credit”—a deposit at the counter—of $470,155 to a bank account controlled by United Properties, Inc.  (See Declaration of Felix Woo, Exh. #3, p. 26.)  Christine Armani-Dawood testified that this amount was withdrawn from TD Capital’s bank account in the form of cashier’s checks paid to the order of United Properties totaling $470,155.  (Id., Exh. #3, p. 27.)

            Q:        And from my review it appears that each of these cashier’s checks in different amounts is from TD Capital; right?

            A:        Yes.

            Q:        They are paid to the order of United Properties?

            A:        Yes.

            Q:        The total of all these checks is $470,000?

            A:        Yes.

(Ibid.)  Thus, it appears that Plaintiff’s money went from TD Capital to United Properties.  Then, United Properties transferred $500,000 to Colony’s bank account.  (Id., Exh. #3, p. 26.)  Christine Armani-Dawood testified that she borrowed the approximately $470,000 from Colony, and that TD Capital merely was a loan servicer for Colony.  (Id., Exh. #3, pp. 26, 30.)  Christine Armani-Dawood testified that these funds were “returned” to Colony.  (Id., Exh. #3, pp. 28, 29.)  In other words, Plaintiff’s funds went from TD Capital’s account—purportedly on behalf of Colony—to United Properties and then back to Colony.  Jamal Dawood is the sole signatory on this bank account, suggesting that he is the only one who could have made this transfer.  (Declaration of Felix Woo, Exh. #6, p. 130 & Exh. #8.)  There is no dispute that there is a personal relationship between Christine Armani-Dawood and Jamal Dawood, and United Properties uses the same mailing address as Jamal Dawood’s entities.  Because Dawood is the manager of Colony, his knowledge is imputed to Colony. 

            Based upon the foregoing, there is a triable issue whether Colony knowingly and/or intentionally took possession of a specific sum of money belonging to Plaintiff.  Moreover, there is sufficient evidence that Dawood acted with fraudulent intent.  According to Qingfu “Frank” Xu, the funds were supposed to be used for GMF’s beef business, and Jamal Dawood never disputed that fact.  (Declaration of Qingfu “Frank” Xu, ¶¶ 18, 21.)  The funds were wired to TD Capital, which is controlled by Dawood.   (See Declaration of Felix Woo, Exh. #2; Declaration of Jamal Dawood, ¶ 2.)  The funds were wired between May 7 and May 22, 2019, and they were withdrawn on June 3, 2019, and given to United Properties the next day to purchase a property.  (See Declaration of Felix Woo, Exh. #2 & Exh. #3, p. 26.)  Christine Armani-Dawood’s testimony suggests that the funds were then transferred to Colony.  Given the short time period between Plaintiff’s deposit and Jamal Dawood’s withdrawal and transfer to United Properties, i.e., the misuse of the funds, the jury may reasonably conclude that Dawood acted with fraudulent intent when he solicited the funds.  “[N]ot all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft.” (Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 361.)  However, this evidence suggests more than a breach of contract or default.  Therefore, the Court denies Colony’s motion for summary judgment.

CONCLUSION AND ORDER

            Based upon the foregoing, Colony’s motion for summary judgment is denied.  Counsel for Colony shall provide notice and file proof of such with the Court.

Order #2 of 3

Court’s Own Motion for Reconsideration of

United Properties’ Motion for Summary Judgment

            The Court previously granted United Properties’ motion for summary judgment.  (See Court’s Minute Order, dated October 5, 2022.)  The Court notices its own motion for reconsideration.  The Court has inherent authority to reconsider its prior rulings in the absence of a motion by the one of the parties.  (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1103.)

            The Court previously held that there was insufficient evidence that the funds at issue belonged to Plaintiff and were obtained through theft, recognizing that “not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft.” (Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 361.)  The Court may have erred in this regard.

            Even if so, the dispositive issue is whether United Properties had knowledge that the funds rightfully belonged to Plaintiff and had been stolen by Jamal Dawood.  Christine Armani-Dawood is the president and sole shareholder of United Properties.  (See Declaration of Christine Armani-Dawood, ¶ 2.)  Christine Armani-Dawood is not a defendant.  (See Third Amended Complaint, ¶¶ 1-36.)  Plaintiff did not dispute that Christine “had never heard of Plaintiff JTX Group, Inc. (‘JTX’) or Qingfu Xu a/k/a Frank Xu” prior to this litigation and “ha[d] never spoken with Mr. Xu or any other agent of JTX.”  (Plaintiff’s Response to United Properties’ Separate Statement, ¶ 1.)

            Nevertheless, there may be sufficient evidence for the jury to find knowledge on the part of United Properties.  First, there is undisputedly a relationship between Jamal Dawood and Christine Armani-Dawood.  Second, Jamal Dawood is the signatory on the bank account for United Properties and therefore would have been the one to transfer funds from United Properties to Colony.  Third, Plaintiff’s evidence suggests that all of these entities have a relationship, e.g., based upon the common mailing address, etc. 

            The Court intends to reconsider whether there is sufficient evidence to give rise to a triable issue that United Properties had knowledge of the nature of the funds it received from TD Capital.  The Court notices its own motion for reconsideration for hearing on February 24, 2023, at 9:00 a.m.  United Properties may file a supplemental opposition, and Plaintiff may file a supplemental reply brief based upon statutory deadlines.  Plaintiff’s counsel shall provide notice and file proof of such with the Court. 

Order #3 of 3

Plaintiff’s Motion to Compel

            The Court grants Plaintiff’s motion to compel a second deposition of Jamal Dawood.  The record suggests that Jamal Dawood has not been forthcoming with his discovery obligations, and the Court is concerned by the redacted bank records in this case.  Therefore, the motion is granted.  Plaintiff shall serve a new deposition notice of a date/time within thirty (30) days and shall request any necessary documents.  Plaintiff’s counsel shall provide notice and file proof of such with the Court.