Segal v. Shovlin CA4/2

CourtCalifornia Court of Appeal
DecidedApril 12, 2016
DocketE062581
StatusUnpublished

This text of Segal v. Shovlin CA4/2 (Segal v. Shovlin CA4/2) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Segal v. Shovlin CA4/2, (Cal. Ct. App. 2016).

Opinion

Filed 4/12/16 Segal v. Shovlin CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

FRANKLIN J. SEGAL,

Plaintiff and Appellant, E062581

v. (Super.Ct.No. INC1103936)

MICHAEL J. SHOVLIN, Individually and OPINION as Co-Trustee, etc.,

Defendant and Respondent.

APPEAL from the Superior Court of Riverside County. John G. Evans, Judge.

Affirmed.

Law Offices of Gerald Philip Peters and Gerald P. Peters for Plaintiff and

Appellant.

Law Offices of Michael Zitomer, Michael Zitomer, and Christopher R. Green;

Law Offices of Rodney Lee Soda and Rodney Lee Soda for Defendant and Respondent.

Plaintiff Franklin J. Segal lent $1.6 million to defendant Michael J. Shovlin.

Shovlin repaid only $600,000 of the principal, leaving $1 million due and owing.

1 The loan was supposedly secured by Shovlin’s written pledge of his ownership

interest in a limited liability corporation. However, under the corporation’s governing

documents, he could not transfer his interest without the consent of the other owner of the

corporation. It is undisputed that, as a result, the pledge was unenforceable.

In this action, the trial court granted summary adjudication in favor of Segal on his

contract claim for the $1 million. However, the jury found against Segal on his claim for

additional damages on a theory of promissory fraud. Specifically, it found that Shovlin

did make a false promise without the intention to perform, but it further found that Segal

did not reasonably rely on the false promise.

Segal appeals, arguing that the jury’s finding that he did not reasonably rely was

not supported by substantial evidence. He also argues that the trial court erred by

denying his motion for attorney fees. Finding no error, we will affirm.

I

FACTUAL BACKGROUND

Segal is a retired dentist and anesthesiologist. At one time, as a sideline, he also

bought residential properties, rehabilitated them, and then rented them out. In late 2006,

a long-time friend of both Segal and Shovlin put them in touch with each other.

Shovlin was seeking a loan for $1.6 million. According to Segal, Shovlin said that

he wanted the money to buy a majority interest in an entity called Washington Plaza

Associates, LLC (Washington). Shovlin explained that he already owned 50 percent of

Washington; one John Curci owned the other 50 percent. Washington, in turn, owned a

2 shopping center in La Quinta. Curci had just died; as a result, Shovlin had a “window of

opportunity” in which he could buy half of Curci’s interest, which would give him 75

percent of Washington; otherwise, Curci’s entire interest would go to Curci’s family.

Shovlin added that he had always been in charge of managing Washington, and he had

total control of it.

Shovlin, however, denied saying that he wanted the loan so he could buy Curci’s

interest in Washington. Moreover, he testified, he never told Segal what he wanted the

money for. Actually, he wanted it to pay off other loans.

Segal demanded security for the loan. Shovlin suggested using half of his 50

percent of Washington as security. A 25 percent interest in the shopping center was

worth considerably more than the loan amount. Shovlin assured Segal that the security

interest would be enforceable.

During the negotiations, Shovlin gave Segal Washington’s operating agreement

(Operating Agreement).1 Segal read the entire Operating Agreement.

The Operating Agreement provided that Shovlin and the Curci-Turner Company

had “joint control . . . of the company . . . .” Segal was concerned, because this was

inconsistent with what Shovlin had told him.

The Operating Agreement also stated, “A member’s interest in the company shall

not be transferred . . . without the prior written consent of a majority of membership

1 The Operating Agreement was admitted as an exhibit, but the parties have not included it in the joint appendix nor had the original transmitted to this court.

3 interests of the other members.” This made Segal “question” whether Shovlin “could do

what he said he could do in transferring the shares.”

According to Segal, Shovlin assured him that, because he was using the loan to

acquire a majority interest in Washington, the consent provision would not be a problem

and the security interest would be enforceable.

Shovlin testified, however, that he never talked to Segal about the terms of the

Operating Agreement.

Shovlin had attorney Joseph Roman prepare the loan documents. Roman drafted

three separate documents.

First, there was a “Promissory Note Secured by Pledge Agreement” (Note). The

Note, as ultimately executed, provided that Shovlin would make monthly interest

payments of $13,333 (i.e., 10 percent per year) and would repay the principal amount of

$1.6 million on July 1, 2009. The Note included an attorney fee provision.

Second, there was a pledge agreement (Pledge Agreement). The Pledge

Agreement, as ultimately executed, granted Segal a security interest in 50 percent of

Shovlin’s interest in Washington as security for the Note. It also included an attorney fee

provision.

Third, there was an assignment (Assignment). The Assignment, as ultimately

executed, provided that Shovlin assigned to Segal 50 percent of his interest in

Washington. The Assignment was given to Roman, who was to act as escrow holder.

4 Segal had his attorney, Gerald Smith, review the loan documents. However, he

did not have Smith review the Operating Agreement. He claimed that Roman told him it

was not necessary. Roman denied this. He testified that he was not aware of the

To fund the loan, Segal refinanced three rental properties that he owned. As a

result, he incurred costs of $42,824.66.

On or about June 7, 2007, Segal and Shovlin executed the loan documents.

Shovlin admitted knowing that the Pledge Agreement was unenforceable when he signed

it.

On June 18, 2007, Segal wired the $1.6 million to Shovlin. Shovlin used most of

the money to pay off other loans. He made timely interest payments. However, on July

1, 2009, when the principal was due, he paid only $200,000.

In September 2009, Segal and Shovlin entered into a modification agreement. It

provided that Shovlin would pay $400,000 toward the principal and would bring the

interest payments current. Thereafter, Shovlin did bring the interest payments current

and did pay the $400,000. Thus, the unpaid principal balance was $1 million.

Later, Shovlin also started to make interest payments late. This was a problem for

Segal, because he had to pay $12,700 a month on the properties that he had refinanced.

In April 2011, Segal demanded that Roman turn over the Assignment. Roman did

not do so.

5 Segal testified that it was only after this action was filed that he first learned that

Shovlin was contending that the security interest was not enforceable.

II

PROCEDURAL BACKGROUND

Prior to trial, the trial court granted summary adjudication on a cause of action for

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