Koshakv. Malek
Filed 1/11/13
Koshakv. Malek CA2/5
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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115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
SECOND APPELLATE DISTRICT
DIVISION FIVE
MICHAEL M.
KOSHAK, M.D. et al.,
Plaintiff and Respondent,
v.
HANEY MALEK,
Defendant and Appellant,
B236148
(Los Angeles County
Super. Ct. No.
LC083095)
APPEAL
from orders of the Superior Court of the County of
Frank J. Johnson, Judge. Affirmed.
Law
Office of Edward J. Blum, Edward J. Blum for Defendant and Appellant.
Johnson
& Higgin, Jeffery W. Johnson for Plaintiff and Respondent.
INTRODUCTION
Defendant and appellant Hany Malek
(Malek) appeals from two orders of the trial court: (i) an order adopting the findings of a
referee concerning the validity of claims of third-party creditors against the
assets of the receivership estate; and (ii) an order denying Malek’s motion to
disqualify plaintiff and respondent Michael Koshak’s (Koshak) attorney, the
receiver, and their respective law firms.
According to Malek, certain findings of the referee were made without
proper notice in violation of his due process rights and the trial court’s
order denying his disqualification motion was an abuse of discretion.
We hold that
Malek forfeited his due process
challenge because he failed to raise that issue in the trial court. We further hold that the trial court did not
abuse its discretion in denying Malek’s motion to disqualify because that
motion was not supported by competent evidence showing unauthorized disclosure
and use of privileged documents.
Therefore, we affirm the two orders from which Malek appeals.
FACTUAL AND PROCEDURAL BACKGROUND
A. The
Litigation and Receivership
name="_ftnref1" title="">[1]
In
2005, Koshak formed a business venture with Malek that operated through a
medical corporation, Choice Providers Medical Group, also known as Noble
Community Medical Associates, Inc. of Los Angeles (Choice
Providers). In 2008, Koshak sued Malek
asserting 12 causes of action and alleging generally that Malek “developed a
sophisticated scheme over an extended period of time using at least 18
different bank accounts with 5 federal tax identification numbers under at
least 12 different names to accomplish, [and] then disguised and hid this
massive fraud from [Koshak].†United Managed
Health Care Center (United), a corporation in which Malek held a substantial
interest, cross-complained against Koshak and Choice Providers alleging that
Koshak was attempting to force Malek out of Choice Providers business “so that
[Koshak] would be able to steal the medical practice which [United and Malek
had] supported through a difficult start-up period, just as [Choice Providers]
turned a corner and [became] self-sustaining.â€
In December 2008, with the acquiescence of Malek and Koshak, the trial
court entered an order appointing David Pasternak as receiver (the receiver) to
take possession, custody, and control over Choice Providers.
B. Order
Appointing Referee
The
receivership evolved into “a complex matter and involve[d] many parties and
entities.†In August 2010, the receivership
was again expanded to include Ocean Blue Investments, Inc. dba Basque Night
Club (Ocean Blue). By February 2011,
“the only monies left in the Receivership account [were] what . . . remained
from the proceeds from a lawsuit entitled Certain
Underwriters at Lloyd’s of London Subscribing to Policy Number BG25190 v. Ocean
Blue Investments, Inc. . . . [Ocean Blue fire insurance proceeds][.]†On February 2, 2011,
the trial court entered an order appointing a referee and ordering the receiver
to maintain the balance of the Ocean Blue fire insurance proceeds, in the
amount of $2,145,386.35, in a segregated interest bearing account. The order further specified that the trial
court was appointing the referee “pursuant to California Code of Civil
Procedure (C.C.P.) section 639(5) to determine the specific issues of the
validity and priority of each amount claimed (each, a ‘Claim’; collectively,
the ‘Claims’) to be presently due and owing by any and all creditors of Ocean
Blue (each, a ‘Creditor’; collectively, the ‘Creditors’) for a proposed
disbursement of the [Ocean Blue fire insurance proceeds] in satisfaction of
those Creditors’ Claims, as have been submitted to the Referee as set forth
below.†The order empowered the referee
“to review Creditors’ Claims, determine each Claim’s validity and priority,
utilizing such methodology of establishing such priority and amount, as is
customarily utilized in determining the validity and priority of claims
submitted to a bankruptcy court pursuant to the provisions of the Bankruptcy
Act and the laws of the State of California and report a Statement of Decision
to this Court within ninety (90) days of the Referee’s appointment.†The order required the referee to submit a
statement of decision to the trial court within 90 days of the referee’s
appointment and allowed any interested party to file objections to the
statement within 10 days of the service and filing of the statement.
Report and Recommendations
Following
his appointment, the referee gave notice of hearings to be held on creditors’
claims “to all self-represented parties and to the attorneys for represented
parties.†Pursuant to that notice, two
hearings were held on May 27, 2011, and June 3, 2011, respectively. After the
hearings, the parties and their attorneys were allowed to submit written
arguments in support of their claims.
Based on “the written documents, the transcripts, the testimony, the law
and the arguments of various parties,†the referee filed his findings and
recommendations with the trial court.
The referee awarded the receivership $1,128,299.85 and found that the
receivership’s “portion shall have the first and highest priority.†The referee next awarded to claimant Corby
Drapkin an unspecified amount that had been previously agreed to in a
conditional settlement. Any remaining
funds were awarded to claimant Mercury Casualty Company.
As
to Malek, the referee found that “[t]here was no evidence submitted to the
Referee that [Ocean Blue] was owned by anyone other than Malek. There was no evidence presented that any
person actually had shares of stock or any other written proof of ownership in
Ocean Blue. The Referee [was] aware that
certain parties to this litigation claim[ed] partial ownership of Ocean Blue
and/or the proceeds from the [Ocean Blue fire insurance proceeds]. There was no evidence presented to the
Referee that Ocean Blue was anything other the alter ego of Malek.â€
As
to Koshak, the referee declined to make any findings or recommendations.
And the referee denied the claims of all
remaining claimants.
D. Order Adopting Findings of Referee
On
July 22, 2011, the trial court held a hearing on whether to adopt the referee’s
report and recommendations concerning the claims asserted against the Ocean
Blue fire insurance proceeds. Following
the hearing, the trial court ruled as follows:
“After considering the Referee’s Report and Recommendations, the
extensive documentation submitted by the interested parties, transcripts of the
evidentiary proceedings before the Referee, all documents in the Court’s file
for this matter, and all other oral and documentary evidence submitted at the
hearing, the Court ordered that effective forthwith: The Court adopts all of the Referee’s findings
and report regarding the validity or invalidity of the various claims submitted
with respect to the Ocean Blue funds; [¶]
$500,000 of the remaining funds shall be disbursed for payment of
receivership costs of administration; [¶]
$160,000 shall be disbursed to or for the benefit of Third Party
Claimant Corby Drapkin; [¶] The balance
of the Ocean Blue funds held by the receivership shall be disbursed to or for
the benefit of Judgment Creditor/Lien Holder Mercury Casualty Company; and [¶] Any funds the Receiver obtains from a sale of
Ocean Blue’s liquor license shall be disbursed for the payment of the balance
of the claim of Mercury Casualty Company and the Receiver shall not enter into
any additional settlement agreements until and unless the claim of Mercury
Casualty Company is paid in full utilizing the funds generated from the
operation of the receivership business.â€
Denying Motion to Disqualify
On
June 22, 2011, Malek moved to disqualify Koshak’s attorney, the receiver, and
their respective law firms. According to
Malek, the attorneys and the receiver had “excessively reviewed documents that
were attorney-client privileged communications; they did not immediately return
the documents; and they have and will continue to affirmatively employ the
documents against [Malek].†The notice
of motion referenced a declaration from Malek’s attorney, Edward Blum, but no
such declaration was attached to the motion.
Instead, Malek merely attached as exhibit A to his motion four pages of
what appeared to be heavily redacted attorney invoices for services
rendered. The receiver and Koshak
opposed the motion and Malek filed a reply brief that did not attach any
evidence.
Following a
hearing on August 17, 2011, the trial court denied the motion. In ruling on the motion, the trial court
explained its reasoning as follows:
“I’ve read and considered the motion and the responses and oppositions
thereto. The first problem with the
motion is that the documents which are attached as exhibits lack the
evidentiary foundation which would allow the court to consider them. [¶]
There was no declaration by anybody from either the law firm in question
or from the defendant himself that these documents accurately reflect the
transaction at issue. [¶] But getting beyond that issue, it seems as if
the moving party had, at all times, the ability to object to the production of
these documents, to the seizure of these documents if you want to call it that;
that he did not do so. And frankly, as
far as the court is concerned, the issue has been waived both by Mr. Malek and
his attorneys. [¶] And these documents were referred to in the
referee’s proceeding that we just concluded a while back, and so far as I know,
it’s happened without objection; so I think this issue has been waived. [¶]
Even without a waiver, it seems like there’s really—there has not really
been any prejudice shown by moving party here.
It’s entirely speculative how any advantage was derived or any effect at
all on the future of this case, or anything that happened before for that matter,
has been suffered by the moving parties.â€
DISCUSSION
A. Standards
of Review
Malek’s
procedural due process challenge to the trial court’s order adopting the
findings of the referee is reviewed de novo.
“‘Appellate courts conduct an independent review of questions of law;
they decide them without deference to the decision made below.’ (Coburn v. Sievert (2005) 133
Cal.App.4th 1483, 1492 [35 Cal.Rptr.3d 596].) Determining if the trial court adhered to a
constitutional principle is solely a question of law. (California Assn. of Dispensing Opticians
v. Pearle Vision Center, Inc. (1983) 143 Cal.App3d 419, 426 [191 Cal.Rptr.
762].) The issue of
whether [a trial court complied with the mandates of] procedural due process .
. . is a question of law. Therefore, we
review this issue de novo.†(
139 Cal.App.4th 604, 609-610)
Malek’s
challenge to the trial court’s denial of his motion to disqualify counsel and
the receiver is governed by an abuse of discretion standard of review. “‘Generally, a trial court’s decision on a
disqualification motion is reviewed for abuse of discretion. [Citations.]
If the trial court resolved disputed factual issues, the reviewing court
should not substitute its judgment for the trial court’s express or implied
findings supported by substantial evidence.
[Citations.] When substantial
evidence supports the trial court’s factual findings, the appellate court
reviews the conclusions based on those findings for abuse of discretion. [Citation.]
However, the trial court’s discretion is limited by the applicable legal
principles. [Citation.] Thus, where there are no material disputed
factual issues, the appellate court reviews the trial court’s determination as
a question of law. [Citation.] In any event, a disqualification motion
involves concerns that justify careful review of the trial court’s exercise of
discretion.’ ([People ex rel. Dept.
of Corporations v.] SpeeDee Oil
[Change Systems, Inc. (1999)] 20 Cal.4th [1135,] at pp.
1143-1144.)†(Kirk v. First American Title Ins. Co. (2010) 183 Cal.App.4th 776,
791-792.)
Adopting Referee’s Findings
Malek
contends that the referee made findings at the claims hearings concerning Malek
being the alter ego of Ocean Blue without providing Malek with notice and an
opportunity to be heard on the issue.
According to Malek, the referee’s failure to provide adequate notice
that the alter ego issue would be litigated at the claims hearings violated
Malek’s right to procedural due process.
Koshak counters that Malek “waivedâ€
in the trial court. As discussed below,
we conclude that Malek forfeited the due process claim on appeal by failing to
raise that issue with the trial court.
“The
forfeiture rule generally applies in all civil and criminal proceedings. (9 Witkin, Cal. Procedure (5th ed. 2008)
Appeal, § 400, pp. 458-459; 6 Witkin & Epstein, Cal. Criminal Law (3d ed.
2000) Reversible Error, § 37, pp. 497-500.)
The rule is designed to advance efficiency and deter gamesmanship. As we explained in People v. Simon, [supra], 25 Cal.4th 1082 . .
. : ‘“‘“The purpose of the general
doctrine of waiver [or forfeiture] is to encourage a defendant to bring errors
to the attention of the trial court, so that they may be corrected or avoided
and a fair trial had . . . .â€â€™
[Citation.] ‘“No procedural
principle is more familiar to this Court than that a constitutional
right,†or a right of any other sort, “may be forfeited in criminal as well as
civil cases by the failure to make timely assertion of the right before a
tribunal having jurisdiction to determine it.â€
. . .’ [Citation.] [¶]
‘The rationale for this rule was aptly explained in Sommer
at page 610 [204 P. 33] . . . : “‘In the
hurry of the trial many things may be, and are, overlooked which would readily
have been rectified had attention been called to them. The law casts upon the party the duty of
looking after his legal rights and of calling the judge’s attention to any
infringement of them. If any other rule
were to obtain, the party would in most cases be careful to be silent as to his
objections until it would be too late to obviate them, and the result would be
that few judgments would stand the test of an appeal.’â€â€™ [Citation.]â€
(Fn. omitted; [citations].)’ (Simon,
supra, 25 Cal.4th at p. 1103, italics added.)†(Keener
v. Jeld-Wen, Inc. (2009) 46 Cal.4th 247, 264-265.)
The
record shows that the referee gave notice to all parties of the claims
hearings. It is unclear from the record,
however, whether the notice Malek received included information sufficient to
apprise him of the referee’s intention to adjudicate the alter ego issue at the
claims hearings. But even if we assume
that Malek did not receive notice regarding the alter ego issue, it is
undisputed that Malek’s counsel appeared at the hearings, albeit solely on
behalf of Malek’s mother. Thus, Malek
knew or should have known that alter ego was an issue at the hearings; yet he
failed to address the issue or object to its adjudication.
Moreover, Malek
received the referee’s report and his counsel appeared in the trial court for
the hearing on whether to approve and adopt the findings of the referee,
although his counsel again purported to appear and argue solely on behalf of
Malek’s mother.
title="">[4] Despite having notice of the referee’s
findings, including the finding on the alter ego issue, as well as notice of
the hearing on whether to approve and adopt those findings, Malek failed to
raise the due process issue with the trial court. Had Malek done so, Koshak and the receiver
could have addressed Malek’s due process contention, and the trial court could
have then considered the issue and taken corrective action, if warranted. By failing to afford the parties and the
trial court a fair opportunity to consider and cure the due process claim,
Malek forfeited it on appeal. (See
758, 801.)
C. Order
Denying Disqualification Motion
Malek
argues that the trial court abused its discretion when it denied his motion to
disqualify Koshak’s counsel, the receiver, and their respective law firms. According to Malek, there was no dispute that
the attorney invoices in issue were privileged or that the attorneys for Koshak
and the receiver were ethically bound to return those invoices without
reviewing them for substance.
As
the trial court noted, Malek’s motion was submitted without any competent
supporting evidence. Thus, on that
evidentiary basis alone, it was not an abuse of discretion to deny the motion
based on a complete failure of proof.
The
two orders from which Malek appeals are affirmed.
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS
MOSK,
J.
We concur:
TURNER, P. J.
KRIEGLER, J.
name="_ftn1" title="">[1] Certain
of the general background facts relating to the filing of the litigation and
the appointment of the receiver are taken from our published opinion in a prior
appeal in this case, Koshak v. Malek (2011)
200 Cal.App.4th 1540.
name="_ftn2" title="">[2] We
assume that this means, in effect, that Malek and Ocean Blue should be treated
as being one and the same for purposes of the creditors’ claims
proceeding.
