Hourany v. Paliwal
| Decision Date | 02 November 2022 |
| Docket Number | B307422 |
| Parties | JOSEPH HOURANY et al., Plaintiffs and Appellants, v. RAHUL PALIWAL et al., Defendants and Appellants; MUCH SHELIST P.C. et al., Defendants and Respondents. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED
APPEALS from a judgment of the Superior Court of Los Angeles County, No. KC068076 Peter A. Hernandez, Judge. Affirmed in part, reversed in part and remanded.
Chang & Cote, Steven J. Cote, Rodney W. Bell, Audrey L. Khoo Lewis Brisbois Bisgaard & Smith and Roy G. Weatherup for Plaintiffs and Appellants Joseph Hourany, Veronique Hourany and Urvashi Sura.
AlvaradoSmith, W. Michael Hensley and Marc D. Alexander for Defendants and Appellants Rahul Paliwal and Yogesh Paliwal Rahul Paliwal, in pro. per., and Yogesh Paliwal, in pro. per.
Much Shelist, Isaac R. Zfaty and Kaeleen E. N. Korenaga for Defendants and Appellants Indus Manager Corp. and Indus-Chino Hills, L.P.
Jeffer Mangels Butler & Mitchell, Mark S. Adams, Joseph J. Mellema and Susan Allison for Defendants and Respondents Much Shelist P.C. and Glenn Taxman.
PUBLIC-REDACTED VERSION OF OPINION
Redacts material from sealed record.[*](Civ. Code, § 3426.5; Cal. Rules of Court, Rules 8.45, 8.46(f)(1) & (2).)
Dr. Joseph Hourany, Dr. Veronique Hourany and Dr. Urvashi Sura sued Indus Manager Corp., Indus-Chino Hills, L.P. (collectively entity defendants), Rahul Paliwal and Dr. Yogesh Paliwal for fraud in connection with the Houranys' and Sura's investments in a failed real estate venture. The Houranys and Sura also sued the Paliwals and entity defendants' attorneys, Much Shelist P.C. and Glenn Taxman (collectively attorney defendants), for conspiracy. Following a 24-day jury trial and posttrial motions, the trial court entered an amended judgment against, in varying amounts, the entity defendants and Rahul[1] and in favor of the Houranys for a total of $875,000, including prejudgment interest and punitive damages; in favor of Sura for a total of $200,000, including punitive damages; and in favor of the attorney defendants based on the court's earlier grant of their motion for a directed verdict. The court concurrently granted, in part, the Houranys and Sura's motion for a new trial on several causes of action against certain defendants.
All parties except the attorney defendants filed notices of appeal from the judgment, amended judgment and/or the order partially granting a new trial. We affirm the amended judgment as to the Houranys and Sura, as well as the order granting a new trial. We reverse the amended judgment as to Much Shelist and Taxman and remand for further proceedings.
Indus-Chino Hills was formed as a limited partnership in 2005 for the purpose of developing a 13.8-acre parcel of land in Chino Hills. Rahul is the president of the limited partnership's sole general partner, Indus Manager Corp. (IMC). Rahul is also a principal of Indus Investment Group, which is the sole shareholder of IMC. When the 13.8-acre parcel was initially purchased in 2005, the intent was to build a large retail shopping center. At some point the goal became the construction of two medical office buildings, a retail complex, a hotel and an industrial area.
Between 2005 and 2008 Indus-Chino Hills sold Class A, Class B and Class E limited partnership interests for which it received $8.3 million.[2] Sura invested a total of $1 million in Class B and Class E interests. Of that amount, Sura invested $200,000 in her individual capacity, $500,000 as trustee of the Urvashi Sura, Inc. Defined Benefit Plan and $300,000 as trustee of the Urvashi Sura, M.D., Inc. Retirement Plan.
By 2010 the land was still undeveloped, and Indus-Chino Hills had run out of money. Facing foreclosure, the partnership initiated a Class F offering to raise the approximately $4 million needed to pay off the loan secured by the property. The Houranys invested a total of $500,000 during the Class F offering, and Sura invested a total of $120,000 in her individual capacity during the Class F offering.
In late 2013 no progress had been made on the development, and Rahul informed the investors the partnership would be selling the land. The 13.8 acres were divided into two parcels. The partnership entered an agreement in October 2013 to sell nine acres for $4 million. After loans, taxes and fees were paid, Indus-Chino Hills received proceeds of $1.3 million when the transaction closed in June 2014. The partnership entered a contract in April 2014 to sell the remaining property for $2.4 million. That transaction closed in November 2016, with Indus-Chino Hills receiving $1.9 million in proceeds. The $3.2 million in total proceeds was not distributed to investors. At least $1.4 million was invested or loaned in 2016 to another limited partnership controlled by Rahul.
The Houranys and Sura[3] filed their complaint on December 2, 2015, first amended complaint on March 22, 2016 and second amended complaint on October 1, 2018.[4] The second amended complaint alleged causes of action against Indus-Chino Hills, IMC and the Paliwals for fraud (intentional misrepresentation), fraudulent concealment, violation of state corporate securities laws and negligent misrepresentation, and against Taxman and Much Shelist for conspiring with their clients to fraudulently induce investments.[5]
The Houranys and Sura's theory at trial was that, while soliciting the Class F investments, Yogesh, Rahul and the entity defendants knowingly made a series of material misrepresentations to, and concealed material information from, investors. They contended the fraudulent conduct included valuing the property at $8 million despite having reason to believe it was worth less than half that amount; stating Class F investors would receive priority payment before other investors; representing no loans would be secured by the property, thus guaranteeing recovery of the $4.1 million of Class F investments if the property were sold, despite negotiating for a new $2 million loan in the midst of solicitations; and promising Joseph and Sura seats on the IMC board of directors with voting rights regarding financing or sale of the property but then borrowing money secured by the property and selling the property without any notice to Joseph and Sura.
Sura testified she had known Yogesh professionally since 1984 when they were on staff at the same hospital. In 2005 Yogesh told Sura that his son was developing land in Chino Hills and she should consider investing. After discussing it with Yogesh briefly, Sura agreed to invest $50,000 in the Indus-Chino Hills partnership. Over the next few years Yogesh repeatedly encouraged Sura to invest additional funds, even suggesting she use her retirement funds. He told her it was "a really good project . . . and there's no way of losing any money on this project." By July 2008 Sura had invested a total of $1 million in the partnership. When Sura would see Yogesh at the hospital, she would ask him how the project was proceeding. He always told her, Sura believed him because he was a member of the Brahmin caste, which she believed meant he was honest and would not cheat.
In February 2010 Yogesh approached Sura in the hospital hallway and told her the partnership was soliciting investments for Class F. He said the partnership owed $5.3 million on a loan secured by the property, but Rahul was negotiating with the bank to pay off the loan for $4.1 million. The partnership planned to raise $4.1 million in Class F, which would be used to pay off the loan. Yogesh explained that Class F investments would receive priority payment over earlier investments when there was a cash distribution or when the property was sold. In addition, if Sura invested $120,000 in Class F, her earlier investments would receive the same priority payout. If she did not invest in Class F, she would not be "first in line to get the money." Yogesh told Sura the property was worth $8 million and, once the current loan balance was paid, the property would be owned "free and clear" of any debt. Accordingly, Sura understood that, if the development failed and the property had to be sold, there would be sufficient proceeds to reimburse the $4.1 million Class F investments in addition to her prior $1 million investment.
Before agreeing to invest in Class F, Sura invited Yogesh and Rahul to her home to discuss the project further. Both Yogesh and Rahul told her, Rahul and Yogesh also told Sura she would be on the board of directors of IMC so that she could have some control over the project.
Sura agreed to invest $120,000 in Class F: $100,000 in March 2010, and the remaining $20,000 at a later date. She testified she made the additional investment because she was concerned that she had not received any return on her earlier investment and she wanted to ensure she would be first in line to receive any payouts in the future.
On April 28, 2010 Sura received an email from Rahul, which appeared to have been sent to all Indus-Chino Hills investors. The email stated IMC had decided to establish a board of directors comprised of the top four shareholders which would hold monthly calls to discuss the status of the project. The email...
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