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Krechuniak v. Noorzoy

California Court of Appeals, Sixth District

May 12, 2017

AISHA A. KRECHUNIAK, as Trustee, etc., Cross-Complainant and Respondent,
ZIA JAMAL NOORZOY, Cross-Defendant and Appellant.

         Monterey County Superior Court Superior Court No.: M100205 The Honorable Thomas W. Wills.

          Attorneys for Cross-Complainant and Respondent, Aisha A. Krechuniak: Bruce C. Funk LAW OFFICE OF BRUCE FUNK Laura S. Liccardo

          Attorneys for Cross-Defendant and Appellant, Zia Jamal Noorzoy: STRONG APPELLATE LAW Jeanine G. Strong DOUGHERTY & GUENTHER, APC Ralph P. Guenther

          WALSH, J. [*]

         I. Introduction

         This appeal challenges an order enforcing an agreement between two siblings, Aisha A. Krechuniak (“Sister”)[1] and her brother Zia Jamal Noorzoy (“Brother”), settling litigation concerning the failed development of a residential parcel in Pebble Beach. Sister was awarded a stipulated judgment of $850, 000.00 against Brother as provided in their “MEMORANDUM OF SETTLEMENT.” Brother's appeal contends that this amount includes a liquidated damages penalty of $250, 000.00 that is unenforceable under Civil Code section 1671, an argument he did not make in the trial court.[2]

         We will affirm the judgment after concluding that Brother has forfeited his fact-based contention. In doing so we hold that the determination of whether a contract provision is an illegal penalty or an enforceable liquidated damage clause is a question to be determined by the trial court and, on review, appellate deference to the trial court's factual findings is required unless the facts are undisputed and susceptible of only one reasonable conclusion.

         II. The Facts

         A. The Lawsuits

         According to Sister's cross-complaint filed August 31, 2010, Sister owned realty at 952 Sand Dunes Road in Pebble Beach, California (sometimes “the subject property”) in 2005.[3] Brother was a licensed real estate agent working for Alain Pinel and was also a land developer. In July 2005, Brother and Sister entered a written contract under which Brother would develop Sister's property through funding from investors and then sell the developed property, with Brother and Sister to split the profits remaining after paying off investors and after paying $1.5 million to Sister, reflecting her equity in 2005, and $30, 000 to Brother as a management fee.

         In January 2006, Brother entered separate “investor rights agreement” with Andrew Dieden and Jeffrey Dieden. Each agreed to contribute $100, 000.00 towards development of the subject property, estimated to be completed by the end of 2006 at a cost of $700, 000 and with a net profit of $810, 000 after sale of the property.[4]

         In June 2006, Sister obtained a loan of $815, 000.00 from the Bank of America secured by a first deed of trust on the subject property. In December 2006, Sister obtained a loan of $193, 000.00 from Indy Mac Bank secured by a second deed of trust on the property. Brother was to use the proceeds of both loans to develop the property and to make mortgage payments.

         In September 2007, Brother obtained $300, 000 from investors to complete the development and pay off the Indy Mac loan. The money was not used for those purposes.

         In November 2008, Sister agreed to relinquish ownership of another Pebble Beach property at 2889 17 Mile Drive (“the second property”), co-owned with Brother and another relative, so that Brother could obtain a loan of $400, 000.00 secured by that property. Brother was to use the proceeds of that loan to develop the subject property and to make mortgage payments.

         Sister was unaware that Brother had defaulted on the loans and was receiving mortgage default notices. Because he did not make the mortgage payments on the subject property, it was sold at foreclosure. Sister also incurred a $400, 000 debt on the second property.

         The investors sued Brother for loss of their investments through foreclosure on the subject property. In her cross-complaint, Sister sought actual damages in excess of $1.7 million and punitive damages for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, conversion, negligent and intentional misrepresentation, and intentional infliction of emotional distress.

         According to a statement by Brother's attorney in opposition to enforcing the settlement, Brother and his wife filed for bankruptcy on November 10, 2011. On April 4, 2012, the federal bankruptcy court granted Sister relief from the automatic stay to pursue her state causes of action for “Breach of Fiduciary Duty, Conversion, Fraud, and Intentional Infliction of Emotional Distress, ” but not her other causes of action.

         B. The Memorandum of Settlement

         With trial set for November 17, 2014, mediation on November 6, 2014 resulted in a self-titled “memorandum for settlement” signed by each party and by a representative of Brother's employer, Pinel, that stated:

         “1. This MEMORANDUM OF SETTLEMENT is, and is intended to be, fully binding and enforceable as to each party notwithstanding that a more formal agreement is to be prepared. Any disputes in the formal agreement shall be brought to Richard M. Silver, who absent agreement, shall have binding authority to resolve.

         “2. [Brother] shall pay to [Sister] the total sum of $600, 000.00 payable as follows:

         “a. $100, 000.00 no later than December 31, 2014;

         “b. [Brother agreed to pay the balance with 10 percent of his net real estate commissions beginning in April 2015. His employer promised to prepare and forward to Brother's counsel checks reflecting 10 percent of Brother's commission payments to be endorsed by Brother to Sister.]

         “c. The balance of $500, 000.00 shall be paid in no more than five years from January 1, 2015.

         “d. Payment may be made sooner than ...

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