Meridian Fin. Servs., Inc. v. Phan

Decision Date10 August 2021
Docket NumberD078586, D078589
Citation67 Cal.App.5th 657,282 Cal.Rptr.3d 457
Parties MERIDIAN FINANCIAL SERVICES, INC., et al., Plaintiffs and Appellants, v. Lananh PHAN et al., Defendants and Respondents.
CourtCalifornia Court of Appeals Court of Appeals

Patton Sullivan Brodehl and Kevin R. Brodehl, for Plaintiffs and Appellants.

Fidelity National Law Group, David B. Owen, Encino; Greines, Martin, Stein & Richland and Robin Meadow, Los Angeles, for Defendant and Respondent Chicago Title Company.

No appearances for Defendants and Respondents Jodie Nguyen, Diana Tran, and Jeannie Vuong.

DO, J.


Mark Yazdani, a Stanford-educated economist and licensed real estate broker, is the president and sole owner of Meridian Financial Services, Inc. (Meridian).1 Over the span of a year, Yazdani made a series of investments totaling $5,079,000 in an international gold-trading scheme run by a loan broker, Lananh Phan, who promised him "guaranteed" returns of 5 or 6 percent per month. He conducted no due diligence into the legality or legitimacy of the investment. It turned out to be a Ponzi scheme and when it collapsed, Yazdani lost most of his money.

In exchange for some of his investments, Yazdani demanded "collateral" from Phan. For an initial investment of $500,000, Phan offered a promissory note secured by a deed of trust in Meridian's favor on her personal residence. For a subsequent investment of $900,000, Phan offered two more promissory notes of $650,000 and $250,000 to be secured by deeds of trust in Meridian's favor on the personal residences of unwitting third parties ensnared in Phan's fraudulent scheme (the Meridian deeds of trust).

All of the collateral on Yazdani's investments were set up as "loans" and facilitated through escrow at Chicago Title Company (Chicago Title) by Diane Do, an escrow officer Yazdani met in an unrelated real estate transaction and who invited Yazdani to invest with Phan. Yazdani signed "Lenders Escrow Instructions" for these transactions, identifying Meridian as "the lender" and the various third parties whose homes were encumbered as "the borrowers" of the loan funds, although he admittedly had no expectation these individuals would receive any money. Without communicating with any of the purported borrowers, he caused loan documents to be prepared, gave Phan's personal address as the borrowers' mailing addresses, and gave his own personal email address as the borrowers' email addresses for the loan documents. Although the "lender," Yazdani received all of the borrowers' loan documents. The purported borrowers never knew of these transactions; their signatures on the Meridian deeds of trusts were forged or obtained by Phan under false pretenses. Yazdani had been made aware of "irregularities" with the execution and notarization of the Meridian deeds of trust. After the Ponzi scheme collapsed and unable to recover his investment, he moved to foreclose on the purported borrowers.

From these events, two lawsuits arose. In the first lawsuit, two of the purported borrowers sued Yazdani and Meridian (collectively, Appellants) to prevent foreclosure of their home and to quiet title to their home. After a bench trial, the trial judge cancelled the Meridian deeds of trust, finding that they were "forged" and that Appellants had acted with unclean hands in procuring them (the Orange County decision). However, the parties later settled and, as a condition of settlement, obtained a stipulated order from a different judge vacating most of the trial judge's decision, including the part that contained the finding of Appellants' unclean hands.

The second lawsuit is this one. Appellants sued Chicago Title, among others, alleging they were induced to invest with Phan because Chicago Title's involvement in the transactions reassured them that Phan's investment scheme was "legitimate, sound, approved and entered freely into by all concerned parties." They sought to recover almost $9,000,000—their investment principal plus accrued guaranteed monthly interest—as well as punitive damages. Appellants have also sued more than 50 individuals who allegedly received payments from Phan, asserting that they are Phan's creditors and the transfers of money to the individuals should be set aside.

Chicago Title moved for summary judgment based on its defense of unclean hands, arguing in part that Appellants were collaterally estopped from relitigating the earlier finding of their unclean hands in the Orange County decision. The trial court in this case agreed the prior decision was issue-preclusive and concluded Appellants were barred from any recovery. It granted summary judgment for Chicago Title on this ground without reaching alternative bases for summary judgment or summary adjudication raised in Chicago Title's motion. The individual respondents' virtually identical summary judgment motion was also granted on the basis of their unclean hands defense. After entry of judgment, the court awarded Chicago Title attorney fees of $943,250.

Appellants appeal both judgments and the award of attorney fees. They contend the trial court erred in giving preclusive effect to the Orange County decision because, they argue, none of the elements of issue preclusion were satisfied and that equitable concerns militate against applying issue preclusion in this instance. They argue the award of attorney fees was grossly excessive and an abuse of discretion. Finding no merit to these contentions, we affirm the judgments and the fee award.

I.The Parties

Yazdani, the president and sole owner of Meridian, holds a Ph.D. in economics from Stanford University. He is the principal of FMY Associates, a financial and regulatory consulting firm, and in that capacity conducts due diligence for clients in the electric industry. He is also a licensed real estate broker and has been an active real estate investor, buying and selling properties in over 160 real estate transactions, since the late 1990s.

Chicago Title provides escrow services for real estate transactions. Its corporate sibling, non-party Chicago Title Insurance Company (CTIC), writes title insurance for real property transactions.

Do was a Chicago Title escrow officer from 2009 to 2013. Phan was a loan broker and a friend of Do's who was never employed by Chicago Title.

II.The Ponzi Scheme

Yazdani first met Do in February 2012 during an unrelated real estate transaction in which Chicago Title served as the escrow holder. In March 2012, Do invited Yazdani to invest with Phan. Phan told Yazdani the investment involved "buying gold from a gold mine" at "wholesale" in one country and selling it at "retail" in another country. She said the investment paid her an average return of 12 to 15 percent per month, and that she was "very happy" to give her investors 5 or 6 percent per month, a return she said was "guaranteed."

Phan and Do did not give Yazdani any other information about the nature or mechanics of the investment, or explain how it was possible to pay investors a guaranteed return of 5 to 6 percent each month. Phan told Yazdani the investment "is like an invention that her and her group came up with and it was very successful." She said the mechanics of the investment had to be kept secret because no one else knew how to conduct the transactions, and if she gave Yazdani the details, he "could become a competitor and do the same thing that they were doing." Phan and Do did not tell Yazdani the countries where the gold was being purchased or sold, or how the gold was being transported in and out of the countries.

Between March and April 2012, Yazdani had several meetings with Phan and Do at various restaurants, which were sometimes joined by other participants in Phan's investment. During these meetings, Phan, Do and the other investors touted the benefits of Phan's investment. Do bragged about how she and "everyone around her got rich off of this" investment. The women showed off "[a]ll the cars, the jewelry ... [and] $12,000 [Birkin] bags" they had purchased with their wealth.

Yazdani initially declined to invest with Phan. He "didn't know enough details" and "couldn't really judge whether it was a good investment or not, whether it was safe or not." However, in April 2012, he agreed to invest $500,000 with Phan provided that he receive "real collateral" to secure his investment. "They said, fine, we'll give you Phan's house as collateral." So Phan offered, and Yazdani accepted, a $500,000 promissory note secured by a deed of trust on her personal residence. Title to the property was held in the name of Phan's husband, Hai Nguyen (Hai).

Two weeks before making the first investment with Phan, on March 24, 2012, Yazdani instructed Do to delete all of his emails from her Chicago Title email account and to use a private email address "for their future communications relating to the investment." He felt the correspondence "had become personal, not work related, and it was not appropriate to send personal emails through work related email addresses." In the email, Yazdani told Do: "I wish you would delete the old emails, why risk it. I will email the other address from now on." Yazdani also did not conduct any due diligence to determine the legality or legitimacy of the investment, including researching the "concept of buying at [a] gold mine and transacting it by moving it to another country." He also never received any documentation about the investment from Phan or Do.

To facilitate the investment transaction, Do opened an escrow account with Chicago Title. Initially, Phan and Do "didn't want it to go through escrow" but Yazdani insisted that it go through a title company. In order to complete the transaction, Yazdani executed and submitted to Chicago Title "Lender's Escrow Instructions" that identified Meridian as the "lender" and Hai as the "borrower" of $500,000. Because it was represented to be a loan, CTIC issued a policy of title insurance on...

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    ...on summary judgment].) This is another reason to decline to consider Avon's argument. (See Meridian Financial Services, Inc. v. Phan (2021) 67 Cal.App.5th 657, 704, 282 Cal.Rptr.3d 457 [theories that were not fully developed or factually presented to the trial court cannot create a triable ......

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