Sabadia v. Holland & Knight LLP
| Decision Date | 02 April 2018 |
| Docket Number | B242773 |
| Court | California Court of Appeals Court of Appeals |
| Parties | RAHIM SABADIA et al., Plaintiffs and Respondents, v. HOLLAND & KNIGHT LLP, Defendant and Appellant. |
RAHIM SABADIA et al., Plaintiffs and Respondents,
v.
HOLLAND & KNIGHT LLP, Defendant and Appellant.
B242773
COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR
April 2, 2018
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC438701)
APPEAL from a judgment of the Superior Court of Los Angeles County, Susan Bryant-Deason, Judge. Reversed and remanded with directions.
Page 2
Horvitz & Levy, David M. Axelrad and Frederic D. Cohen; Klinedinst, John D. Klinedinst and Carey L. Cooper; Gibson, Dunn & Crutcher, Daniel M. Kolkey, Kevin S. Rosen and Bradley J. Hamburger for Defendant and Appellant.
Enenstein & Ribakoff, Ribakoff Law Firm and David Z. Ribakoff; Law Offices of Michelle J. Correll and Michelle J. Correll; Law Office of Bruce Adelstein and Bruce Adelstein for Plaintiffs and Respondents.
In the underlying action, respondents Rahim Sabadia, Nafees El Batool, and Dr. Ishtiaq Khan asserted claims for legal malpractice, breach of fiduciary duty, and fraud against appellant Holland & Knight, LLP (H&K). Respondents alleged the claims as trustees of the Sabadia Family Trust and the Sabadia Family Irrevocable Trust, and Sabadia also alleged the claims as an individual. The claims arose from respondents' participation in real estate investment projects created and managed by M. Shi Shailendra. At trial, respondents offered evidence that respondents made cash investments in the projects, that Sabadia executed personal loan guarantees relating to the projects, and that Shailendra improperly disbursed project funds. Respondents also offered evidence that attorney Reeder Glass, an H&K partner who provided legal services to Shailendra-related entities involved in the projects, also
Page 3
represented respondents in the course of the projects. Respondents alleged that they incurred damages due to misconduct by H&K, including the concealment of Shailendra's improper disbursements. They sought as damages their net cash investments, the value of Sabadia's outstanding personal loan guarantees, and certain mitigation costs.
Although Glass denied that he acted as counsel for respondents, the jury found that Glass represented them, and that in such capacity he violated professional duties owed them and concealed information from them. The jury returned special verdicts in favor of respondents on their claims, and awarded damages totaling approximately $34.5 million. The verdict reflects that the jury largely accepted respondents' theory of damages.
H&K challenges the judgment on several grounds, including Sabadia's standing, insufficiency of the evidence regarding causation and the existence of damages, instructional error, and defects in the special verdicts. To the extent respondents sought recovery of their net cash investments, we conclude that the award of damages fails for want of an adequate showing of causation, with the exception of one item of claimed damage. Specifically, we conclude that respondents did not show that H&K's conduct -- whether characterized as malpractice, breach of fiduciary duty, constructive fraud, or fraudulent concealment
Page 4
-- proximately caused them to lose the value of their investments. Furthermore, to the extent Sabadia sought a recovery for the value of his outstanding personal loan guarantees, we conclude that the award fails for want of an adequate showing that he had suffered actual damage. We also conclude that the jury's special verdicts regarding damages reflect errors regarding respondents' theory of recovery.
In view of these determinations, we reverse the judgment. As further explained below, we direct the entry of judgment against respondents on their claims on behalf of the Sabadia Family Irrevocable Trust, and remand the matter for a new trial on Sabadia's claims as an individual and the claims on behalf of the Sabadia Family Trust.
A. Complaint
The underlying action commenced in May 2010. In June 2011, respondent Sabadia, together with his wife Batool, and his brother-in-law, Dr. Khan, filed a second amended complaint containing claims against H&K for fraudulent concealment, constructive fraud, breach of fiduciary duty, legal malpractice, and breach of the implied covenant of good faith and fair dealing. Sabadia and Batool asserted the claims as trustees of the Sabadia Family Trust, and Khan asserted the claims as trustee of the Sabadia
Page 5
Family Irrevocable Trust; Sabadia also asserted the claims as an individual.
The complaint alleged that in 2002, Sabadia met M. Shi Shailendra, a real estate promoter, who later retained H&K to act as counsel regarding several real estate transactions. H&K allegedly also represented respondents with respect to those transactions. From February 2002 to August 2009, respondents participated in the transactions by investing more than $16 million and guaranteeing loans totaling more than $18 million. During that period, the complaint alleged, Reeder Glass, an H&K partner, engaged in misconduct toward respondents, including failing to protect their interests and facilitating Shailendra's misuse of funds.1
B. Trial
1. Respondents' Evidence
a. Background
In 1985, Sabadia founded Sabtech Industries (Sabtech), which operated as a defense contractor. In the 1990's, he established the Sabadia Family Trust and Sabadia Irrevocable Family Trust in order to provide for his wife and children in the case of his death. During the
Page 6
relevant period, Sabadia and his wife, Nafees Batool, were the trustees of the former, and Batool's brother Khan was the trustee of the latter.
In 1992 or 1993, Khan met Shailendra, a real estate promoter in Atlanta, and made some successful investments through him. In the early 2000's, when Sabadia was looking for investment opportunities in real estate, Khan introduced Sabadia to Shailendra. Thereafter, Sabadia and his family trusts participated in investments with Shailendra involving the purchase of real property. Khan was involved in the investments as an individual and as trustee of the Sabadia Irrevocable Family Trust. As trustees, Khan and Batool executed Sabadia's decisions.
H&K, a law firm active in Georgia and Florida, provided legal services for some of the investments in which Sabadia and his family trusts participated. Attorney Reeder Glass was the principal H&K attorney responsible for those services.
Respondents' claims focus on ten investments. Before the trial court and on appeal, the parties have generally referred to the investments as "transactions," as they involved the purchase of specific parcels of real property. Shailendra recruited investors to fund the purchase of the real property, and arranged for attorneys -- including H&K -- to implement the transactions. Each transaction involved a structure of entities, including an entity intended to hold the purchased property. The structure also included entities
Page 7
controlled by the investor-participants funding the purchase. Shailendra oversaw the transactions as developer, manager, or general partner. Respondents made cash investments in the transactions, and Sabadia co-signed promissory notes and executed personal guarantees regarding the notes. Some of the transactions involved participants other than Shailendra and respondents, such as Joel Cowan, Sr., and his entities.
b. Pertinent Transactions
Respondents sought damages allegedly arising from ten transactions initiated from 2004 to 2008 for which H&K provided legal services. Of these transactions, four involved property in East Bay, Florida, and six involved property located in Georgia. At trial and on appeal, the parties have identified each transaction by using the name of the principal entity involved in the transaction.
In each transaction, a Sabadia family trust, or some other entity closely related to them, owned an interest in the principal entity. In some transactions, the key Sabadia-related entity was 21 14th Street One-Third, LLC (in which the Sabadia Family Irrevocable Trust was the sole interest owner), or 1400 Sabadia, LLC (in which the Sabadia Family Trust was the sole interest owner). In other transactions, the key Sabadia-related entity was the Sabadia Family Limited Partnership or PCB East Bay 1130, LLC (in which
Page 8
the Sabadia Family Limited Partnership owned an interest).2
As the details of the ten transactions are material to respondents' claims, we set forth the following facts regarding each transaction, namely, the identity of the principal entity, the location of the relevant property, the formation date of the principal entity, the Sabadia-related entity owning an interest in the principal entity, and the total fees H&K received in the course of the transaction.
| Principal Entity In Transaction | Location of Property | Formation Date | Key Sabadia- Related Entity | H&K's Fees |
| PCB Four, LLC | East Bay, Florida | 3/9/04 | Sabadia Family Irrevocable Trust | $158,165 |
Page 9
| PCB East Bay 1130, LLC3 | East Bay, Florida | 3/10/04 | Sabadia Family Limited Partnership | $32,074 |
| EBD Company of Florida, LLC4 | East Bay, Florida | 3/18/04 | Sabadia Family Limited Partnership | $384,031 |
| 21 14th Street, LLC5 | Atlanta, Georgia | 6/30/05 | Sabadia Family Irrevocable Trust | $3,765 |
| Shi Investments One, LLC | Henry County, Georgia | 12/8/05 | Sabadia Family Trust | $51 |
| Callaway 2297, LLC | East Bay, Florida | 4/30/06 | Sabadia Family Irrevocable Trust | $161,954 |
Page 10
| 1400 Peachtree, L.P. | Atlanta, Georgia | 10/19/06 | 1400 Sabadia, LLC | $170,815 |
| 1400 West Peachtree, L.P. | Atlanta, Georgia | 12/13/06 | 21 14th Street One-Third, LLC | $91,432 |
| 1010 West Peachtree, L.P. | A |
To continue reading
Request your trial