Judge: Theresa M. Traber, Case: BC715362, Date: 2023-04-28 Tentative Ruling

Case Number: BC715362    Hearing Date: April 28, 2023    Dept: 47

Minute Order in Vichit Tilakamonkul v. Vichai Tilakamonkul, et al., Case No. BC715362         

On April 10, 2023, the Court issued a ruling, inter alia, on the viability of the affirmative defense of offset that Defendants Virut, Sumeth, Virai, and Narlong Tilakamonkul have asserted against the monetary recovery awarded to Plaintiff Vichit Tilakamonkul.  In that ruling, the Court held that Defendants had not waived their offset defense by failing to litigate it during the first phase of trial.  The Court also addressed the viability of the offset defense under Code of Civil Procedure § 431.70, ruling that it depended on whether the underlying collection action on Vichit’s 2007 loan existed as a viable cause of action during any period after Plaintiffs’ claims against Defendants accrued on April 5, 2018. 

Vichit argued that the oral loan is governed by Code of Civil Procedure § 339, which provides that actions on oral contracts must be brought within two years.  (Code Civ. Proc. § 339.1.)  Vichit also contended that, because the loan was payable on demand rather than being subject to a particular term, the claim for collection of the loan accrued at the time the agreement was made, that is, when the loan was paid to Vichit in 2007, so the two-year limitations period ran sometime in 2009.  In contrast, Defendants argued that their loan collection claims did not accrue until July 25, 2018, when Vichit filed the Complaint in this action and “Defendants learned their actions to terminate Vichit’s ownership in T-Team and the other businesses were being challenged.” (Defendants’ Brief, p. 5.)  Thus, it was argued that the limitations period on Defendants’ claim against Vichit had not expired as of the filing of his Complaint so the setoff defense was properly asserted under Code of Civil Procedure § 431.70. 

The Court held that the loan collection action accrued when the loan was made in 2007, so the statute of limitations ran in June 2009, pursuant to Code of Civil Procedure § 339.1.  It rejected Defendants’ contention that their claim to recover on the loan arose upon the filing of Plaintiffs’ action as being unsupported by any legal authority, contrary to the language and thrust of Code of Civil Procedure § 431.70, undermined by prior rulings of this Court, and unsupported by any allegations in Defendants’ answer. 

Recognizing Defendants’ contention that the limitations period on any loan collection might be extended by equitable tolling or equitable estoppel because of Vichit’s actions (or inactions), the Court ordered Defendants to submit a brief outlining their factual allegations in support of their equitable defenses and listing the witnesses and/or new exhibits they would offer to support their contentions.  The Court also granted Vichit leave to file a responsive brief. The Court’s review of those briefs has revealed that it requires additional briefing on several issues raised but not fully explored in the papers.  The Court discusses the issues to be briefed below.

A.  Loan Due Upon Vichit’s Access to Funds

In their brief, Defendants argue, based on Vichit’s trial testimony, that he agreed to repay the loan he received in 2007 when he had the money to make a material repayment, so the limitations period did not begin to run until Vichit received a distribution of funds arising from the sale of the Melrose property in 2018.  In the Court’s view, this contention is undermined by the evidence and factual findings made during the first phase of trial.  There is no evidence, for example, that any defendant agreed to these loan terms for himself or on behalf of his brothers.  While it may be that Vichit “agreed” to repay the money when he had funds available, the formation of a contract requires mutual consent.  (Binder v. Aetna Life Ins. Co. (1999) 75 Cal. App. 4th 832, 850.)  Further, the Court questions whether the repayment term described by Defendants is sufficiently definite to create an enforceable contract. 

The Court directs Defendants to file a brief describing what legal authority supports this theory of recovery on the loan and what evidence they would offer at a subsequent phase of trial to establish that Defendants and Vichit entered into an enforceable loan agreement such that a collection action on the agreement would accrue only when Vichit had funds sufficient to make a material payment.  The Court also solicits a responsive brief from Vichit addressing the applicable law and available facts. 

B.  Termination or Cancellation of the Loan    

Even assuming there is evidence to prove that the 2007 loan agreement required repayment only if and when Vichit received sufficient money to offer a material repayment, the evidence presented during the first phase of trial appears to establish that Defendants terminated or canceled that loan.  As Defendants’ recent brief emphasizes, “[i]n its State and Federal tax returns for the year 2010, T-Team reported a payment of $212,374.00 to Vichit as a sale of his 14.28% interest in T-Team. (Trial Exhibit 306 p. 26.)” (Defendants’ Brief, p. 2.)  The Court views the notations on these tax returns as strong evidence that, even if there was an agreement that required Vichit to repay the loan when funds were available, that loan agreement and the opportunity to repay it were terminated or cancelled with the submission of these tax returns in 2011.  This impression is bolstered by the evidence at trial that, because of his dire financial situation, Vichit sent a letter to his brothers in September 2011 asking that no additional K-1s be sent to him because he lacked funds to pay the taxes.  (TT 12-21-21, pp. 48-50; Exh. 333.)

The Court orders Defendants to brief the law applicable to the termination or cancellation of a loan and to explain in their briefing why the submission of the 2010 tax returns by T-Team did not result in the termination or cancellation of the loan to repay whenever Vichit acquired the funds to do so.  Again, Vichit is directed to address these issues in his responsive briefing. 

C.        Accounts Stated Basis for Offset Defense

Defendants also assert in their recent briefing a claim for accounts stated based on Vichit’s 2019 deposition testimony that he borrowed $200,000 in 2007, the loan was still outstanding, and he intended to pay it back.  (Defendants’ Brief, p. 6). 

“The essential elements of an account stated are: (1) previous transactions between the parties establishing the relationship of debtor and creditor; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; (3) a promise by the debtor, express or implied, to pay the amount due.” (Leighton v. Forster (2017) 8 Cal. App. 5th 467, 491.)  Again, Vichit’s testimony that he received a loan of $200,000 addresses only one side of the transaction.  Defendants have repeatedly denied the existence of any loan agreement and seek to recover a different amount than the figure asserted by Vichit at his deposition.  The Court orders Defendants to explain what evidence they will offer to establish “an agreement between the parties, express or implied, on the amount due from the debtor to the creditor” and “a promise by the debtor, express or implied, to pay the amount due.”  The brief should also address when the accounts stated claim arose and whether it has been timely asserted in this action.  As with the other questions raised by the Court, Vichit will be given leave to file a responsive brief addressing Defendants’ arguments on the issues and briefing the applicable law and facts. 

D.        Equitable Tolling and/or Estoppel 

Finally, the Court turns to any equitable defenses Defendants may assert to salvage their offset defense from Vichit’s statute of limitations argument.  The Court agrees with the parties that the proper inquiry here is whether Vichit should be estopped as a matter of equity from opposing the offset defense as untimely, and not whether equitable tolling applies.  Equitable tolling extends the limitations period during the plaintiff’s reasonable and good faith pursuit of alternative remedies so long as defendant is given timely notice of the claim and suffers no legal prejudice.  (Mojica v. 4311 Wilshire, LLC (2005) 131 Cal. App. 4th 1069, 1073.)  Such a defense is not available under the factual circumstances in this action. 

In contrast, equitable estoppel is a recognized rejoinder to the assertion of a limitations defense.  (Spray, Gould & Bowers v. Associated International Ins. Co. (1999) 71 Cal. App. 4th 1260, 1267-1268.)  “An estoppel against a limitations defense usually ‘”arises as a result of some conduct by the defendant, relied on by the plaintiff, which induces the belated filing of the action.”’ (Prudential–LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at pp. 689–690, 274 Cal.Rptr. 387, 798 P.2d 1230; Velasquez v. Truck Ins. Exchange (1991) 1 Cal.App.4th 712, 723, 5 Cal.Rptr.2d 1; 3 Witkin, Cal. Procedure (3d ed.1985), Actions, § 523, p. 550.)” (Spray, Gould, supra, at pp. 1268-1269.  “[E]quitable estoppel against the assertion of a limitations defense typically arises through some misleading affirmative conduct on the part of” the party to be estopped.  (Id., at p. 1268.)  The elements of equitable estoppel include “(a) a representation or concealment of material facts (b) made with knowledge, actual or virtual, of the facts (c) to a party ignorant, actually and permissibly, of the truth (d) with the intention, actual or virtual, that the ignorant party act on it, and (e) that party was induced to act on it.” (Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal. App. 5th 982, 998 [Citation and internal quotations omitted].)  “The essence of an estoppel is that the party to be estopped has by false language or conduct led another to do that which he [or she] would not otherwise have done and as a result thereof that he [or she] has suffered injury.” (D'Egidio v. City of Santa Clarita (2016) 4 Cal. App. 5th 515, 533.)  Defendants must establish all elements of equitable estoppel to bar Vichit from asserting a limitations defense to offset. 

Without citing to the witnesses or other evidence that will prove these elements, Defendants accuse Vichit of “affirmatively mislead[ing]” them in many ways, but most of them do not amount to the kind of “misleading affirmative conduct” that will support a finding of equitable estoppel.  Indeed, most of Defendants’ complaints are about Vichit’s alleged failures to do something, rather than affirmative misconduct or even active efforts to conceal facts.  In the Court’s view, equitable estoppel may not be proven by evidence, if it exists, of Vichit’s failure to document the payment he received as a loan, acknowledge the existence of a loan prior to the filing of this action, claim the 2007 payment was a loan until his 2019 deposition, disclose the loan when he was paid his share of the sales proceeds for the Melrose property, complain about not receiving K-1 forms after the payment to him in 2007, and/or dispute his removal from T-Team’s tax returns.  Similarly, the allegation that Vichit did not participate in T-Team’s management also falls short of any affirmative misleading conduct by Vichit. 

While it may be that Vichit’s request not to be issued K-1 tax forms and to be removed from the T-Team tax returns constitutes affirmative conduct rather than mere failures to act, the Court has already found, based on the evidence submitted at trial, that these requests were motivated by Vichit’s interest in tax relief, rather than by any interest in misleading his brothers.  Thus, the Court found “Vichit sent a letter to his brothers in September 2011 asking that no additional K-1s be sent to him because he lacked funds to pay the taxes” on the phantom income reflected in those K-1s. (Final Statement of Decision, p. 8.)  Further, it is unclear what in the September 2011 letter Defendants would point to as a misrepresentation about the existence of the loan as opposed to a buyout, since the letter mentions neither.

Setting aside the allegations above, which do not appear to support a claim for affirmative misleading conduct, what remains is Defendants’ contention that Vichit told his brothers “that he wanted to be bought out of the family businesses and use the money to open a restaurant in Northern California.”  (Defendants’ Brief, p. 6.)  If proven, this would constitute an affirmative misrepresentation of the character of the payment made in 2007, if it can be shown that Vichit harbored the knowledge that the payment was in fact a loan from his brothers, who were actually ignorant of the true nature of the payment, and that Vichit’s statements were intended to mislead Defendants about their need to collect on the loan in a timely manner and that they reasonably relied on Vichit’s statements by delaying any effort at loan collection. 

The first phase of trial involved testimony from virtually all parties about their understandings of the nature of the 2007 payment to Vichit.  (See Statement of Decision, pp. 22-26.)  Much of it undercuts Defendants’ current stance that Vichit made affirmative misrepresentations on which they relied to delay filing an action to recover the loan proceeds.  Narlong did not know for certain whether Vichit wanted to withdraw from the family businesses and appears to have had no discussions with Vichit about the matter.  (Id., p. 22.)  Sumeth was aware of Vichit’s request for funds to open his own restaurant but did not talk to Vichit directly about the matter.  (Id.)  Vichai denied any formal meeting between the brothers about whether to purchase Vichit’s shares. “Instead, Vichit simply asked for $200,000 and the brothers figured out a way to get the money for him.”  (Id.)  The absence of any testimony about affirmative misrepresentations made by Vichit undermines Defendants’ ability to prove equitable estoppel. 

Further, there was substantial evidence during the first phase of trial that Defendants knew the payment to Vichit was a loan, rather than a buyout.  As the Court held: “Of particular significance to the Court is the fact that there was no attempt by any of the brothers to calculate the actual value of Vichit’s share in connection with the purported buyout of his ownership interest.  Instead, Vichit asked for a specific amount, which was provided to him.  This smacks of a loan transaction, not a payment reflecting a shareholder’s one-seventh percentage share of a list of restaurants and properties.  Further, such loans to individual brothers were not unusual.  Vichai admitted that RT II loaned money to many of the brothers, including about $240,000 provided to Vichai himself.  (TT 12-21-21, pp. 18-20.)”  The Court also credited Mary Tilakamonkul’s testimony that, in 2007, “Vichit asked for a loan and that she obtained the other brothers’ approval to give him a loan out of the equity of the property.  (TT 12-16-21, pp. 10-14; Exh. 90.)”  Without detailing the remaining evidence or factual findings from the first phase of trial, the Court has grave doubts about whether Defendants will be able to prove that they were “actually and permissibly” ignorant that the payment was a loan.  This is particularly true since they made little to no effort to document the buyout of Vichit’s property rights or to cancel his ownership interests.

Before the Court schedules another bench trial on Defendants’ equitable estoppel contention, the parties should brief the legal standards, apply them to the specific evidence and factual findings from the first phase of trial, and describe in some detail what evidence will be offered by both sides to prove or dispute the elements of equitable estoppel that Defendants would have the Court apply. 

The Court directs Defendants to file and serve a brief of up to 15 pages addressing all the issues described above on or before May 8, 2023.  Plaintiff Vichit is directed to file a responsive brief of up to 15 pages on the same issues on or before May 18, 2023.  The Court continues the trial setting conference to May 24, 2023 at 9:00 a.m.