Morad Construction & Investment v. Gedelia

Filed 5/19/06  Morad Construction & Investment v. Gedelia CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b).  This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

            APPEAL from a judgment of the Superior Court of Los Angeles County, Richard Kolostian, Judge.  Reversed.

            Law Office of Marjorie  G. Fuller, Marjorie  G. Fuller, Vicki Marolt Buchanan; Dershowitz, Eiger & Adelson, Amy Adelson, Nathan  Z. Dershowitz, and Daniela Elliott for Defendants and Appellants.

            Gerald W. Hessler, in pro. per., for Defendant and Appellant.

            Cohon & Pollak, Jeffrey  M. Cohon, Howard  A. Pollak, and Kristina  S. Keller for Plaintiffs and Respondents.

* * * * * *

            The trial court struck the answer and cross-complaint filed by appellants M. Development, Moshe and Suzie Gedalia, and Gerald W. Hessler,^[1] based on a motion for terminating sanctions brought by respondents Morad Construction & Investments, Inc., and Shlomo and David Morad.  Thereafter, the court entered a default judgment in the amount of $11,637,716.^[2]  We find that the conditions warranting terminating sanctions were not met and reverse the judgment for that reason.

FACTS

            The order striking the answer and the cross-complaint was entered on January  16, 2003.  Respondents requested the entry of a judgment on July  9, 2004.  On August  13, 2004, the trial court entered a default judgment as follows:  $768,000 compensatory damages; $744,745 prejudgment interest; $114,718 attorney's fees; $10,253 costs; and $10,000,000 punitive damages, for a total judgment of $11,637,716.  We state the facts, or the alleged facts, on which the trial court relied in making the awards under the judgment.  Those facts are also relevant to our discussion of the terminating sanctions.  For the most part, the narrative of events set forth in part 1 of our Facts, post, is based on the declaration under penalty of perjury of respondent Shlomo Morad.

1.  Respondents' Allegations Regarding the Underlying Transactions

            In the late 1980's, Shlomo Morad owned a small restaurant in North Hollywood. Moshe Gedalia owned a bakery that supplied the restaurant with pita bread.  Gedalia^[3] represented himself to be a wealthy person with contacts in City Hall, who had been a contractor in Israel.  Gedalia and Morad entered into an agreement to develop and sell single family houses, the profits to be split evenly between them, and formed for this purpose Morad Construction & Investments (MC).  Gedalia changed the name of an existing business entity to M. Development (MD).

            On May  4, 1988, Morad and Gedalia, acting through MC and MD, bought a hillside property on Multiview Drive in Studio City, each contributing one half of the purchase price, and agreed to share on a 50-50 basis the property taxes and other expenses.  After a false start, a contractor was hired to build a 6,000-square-foot house on this property.  Two successive construction loans, the second one from a bank with connections to Gedalia, were obtained, and the house was completed in 1991 at a cost of $600,000 to $700,000.  The house was listed for sale at $1,950,000.

            An offer was received in August  1991 for $1,325,000.  The prospective buyer wanted changes that would have cost $50,000.  Morad wanted to accept the offer, but Gedalia refused to do so.  Morad began paying all the maintenance costs on this house; Gedalia refused to contribute.  Apparently, at some point MC stopped servicing the second construction loan.  According to Morad, Gedalia knew that the bank intended to foreclose, as it eventually did in 1993,^[4] and for this reason failed to contribute toward the maintenance of the house.

            Morad contributed $230,000 toward the purchase of this property.  He was also to be paid $180,000 for the â€