Opinion
B311036
11-22-2021
JORJIK NAZARIYAN et al., Plaintiffs and Appellants, v. ARMOND ROSTAMI, Defendant and Respondent.
KP Law and Zareh A. Jaltorossian for Plaintiffs and Appellants. Armond Rostami, in pro. per.; Yarian & Associates and Levik Yarian for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. EC067759, Curtis A. Kin, Judge. Affirmed.
KP Law and Zareh A. Jaltorossian for Plaintiffs and Appellants.
Armond Rostami, in pro. per.; Yarian & Associates and Levik Yarian for Defendant and Respondent.
CRANDALL, J. [*]
This case involves a commercial transaction between merchants who for over a decade engaged in the unauthorized sale of commercial air conditioning equipment in Iran. Jorjik Nazariyan, Anahid Rostami, and Number 1 Electric, Inc. (collectively, Nazariyan) appeal from the trial court's entry of judgment in favor of Armond Rostami (Rostami) following his motion for summary judgment.
In his initial complaint (first complaint), Nazariyan alleged that Rostami had cheated him out of his share of the proceeds of an oral contract to sell the equipment in Iran. After voluntarily dismissing the first complaint, Nazariyan filed another complaint (second complaint) making fundamentally the same allegations, but this time omitting the allegation that the goods were to be exported to and sold in Iran.
After taking judicial notice of the factual allegations from the first complaint under the sham pleading doctrine, the trial court refused to enforce the contract because exporting goods for sale in Iran has been against federal law for over two decades and because the extant factors did not warrant fashioning an equitable exception to this federal law on Nazariyan's behalf.
The trial court properly took notice of Nazariyan's first complaint under the sham pleading doctrine and correctly concluded that enforcing this unlawful oral contract would undermine national security interests, would be inconsistent with the rationale for the doctrine of unenforceability of illegal contracts, and would not deter similar unlawful ventures. It also properly declined to fashion an equitable exception because doing so under the circumstances would countenance the precise conduct made unlawful under the applicable federal regulations.
The second complaint's remaining allegations are either insufficiently supported and/or derivative of this illegal contract, and therefore fail.
Accordingly, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Nazariyan's First and Second Complaints
On August 11, 2017, in a verified pleading, Nazariyan alleged he and Rostami had an oral contract involving shipment of commercial air conditioning parts to Tehran, Iran. Under this oral contract, Rostami, in Iran, would take control of the goods shipped by Nazariyan, and then sell those goods at a markup. Rostami would thereafter remit "Nazariyan's share of the profit from this business venture" to Nazariyan.
Because we hold the sham pleading doctrine applies, we summarize the facts as stated in both the first and second complaints.
According to the first complaint, their business venture "worked as agreed from 2002 to 2010," "[b]ut from 2011 to 2016[, ] the results changed." From that point forward, Rostami allegedly told Nazariyan he had been unable to sell the items as he had done during the earlier time frame, whereas, in reality, Rostami had been selling far more units "and pocket[ing] . . . Nazariyan's share of the profits of their business venture."
The verified first complaint avers that Nazariyan "flew from the U[nited] S[tates] to Tehran to inspect the inventory," and thereupon discovered Rostami had "hid[en the] inventory and denied [Nazariyan] access to [a] storage facility." Nazariyan claimed Rostami's secret dealings cost him "losses in the amount of $500,000."
On October 23, 2017, Nazariyan voluntarily dismissed the first complaint without prejudice. On March 5, 2018, Nazariyan filed a second, unverified, complaint, now alleging eight causes of action, all premised upon the same business transaction underlying the first complaint.
The second complaint pleads the following causes of action: (1) breach of oral contract; (2) fraud; (3) conversion; (4) breach of implied covenant of good faith and fair dealing; (5) common count-goods provided; (6) intentional infliction of emotional distress (IIED); (7) negligent infliction of emotional distress (NIED); (8) loss of consortium.
Unlike the first complaint, the second complaint omits the allegation made in the first complaint that the goods were to be sold in Iran, and instead alleges that the air conditioning units were to be shipped to Dubai in the United Arab Emirates, where they were "to be held in [Rostami's] trust."
B. Rostami's Motion for Summary Judgment and the Trial Court's Ruling
On September 25, 2020, Rostami moved for summary judgment, or in the alternative, summary adjudication.
On December 11, 2020, the trial court granted summary judgment on all causes of action, ruling that the second complaint was a sham pleading because Nazariyan deliberately omitted the critical allegation that the units were to be sold in Iran in an effort to avoid dismissal, and it took judicial notice of the allegations made in the first complaint for purposes of ruling on Rostami's motion.
With respect to the first cause of action for breach of contract, the trial court held that the oral contract was void and unenforceable because its subject matter was illegal under federal law and because the statute of limitations on the oral contract had expired. The court entered judgment on the remaining causes of action because they were derivative of this illegal contract.
Nazariyan timely appealed.
DISCUSSION
A. Standard of Review and Governing Law
A" 'motion for summary judgment [should] be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" (Brundage v. Hahn (1997) 57 Cal.App.4th 228, 234.) The moving party bears the initial burden of production to make a prima facie showing that there are no triable issues of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) If the moving party carries this burden, the burden shifts to the non-moving party to make a prima facie showing that a triable issue of material fact exists. (Ibid.)
" '[U]nder the sham pleading doctrine, [the] plaintiffs are precluded from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment.'" (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 412.) "[T]he plaintiff may not plead facts that contradict the facts or positions that the plaintiff pleaded in earlier actions or suppress facts that prove the pleaded facts false. [Citation.] [¶] . . . When the plaintiff pleads inconsistently in separate actions, the plaintiffs complaint is nothing more than a sham that seeks to avoid the effect of a demurrer. [Citations.]" (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877-878, italics omitted.) "This exception applies not only to an amended pleading filed in the same action, but also to the first pleading filed in a separate action." (Larson v. UHS of Rancho Springs, Inc. (2014) 230 Cal.App.4th 336, 344.)
A contract that contravenes public policy is illegal and void and will not be enforced by the courts either by decreeing specific performance or by awarding damages for breach. (Kashani v. Tsann Kuen China Enterprise Co. (2004) 118 Cal.App.4th 531, 541 (Kashani).) By refusing to entertain the enforcement of illegal contracts, courts maintain their integrity while at the same time deterring the formation of such contracts. (Tri-Q, Inc. v. Sta-Hi Corp. (1965) 63 Cal.2d 199, 218; Tiedje v. Aluminum Taper Milling Co. (1956) 46 Cal.2d 450, 454; Yoo v. Jho (2007) 147 Cal.App.4th 1249, 1255; see also Civ. Code, § 1608 ["If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void"].) Such a rule also "prevent[s] the guilty party from reaping the benefit of his wrongful conduct," and "protect[s] the public from the future consequences of an illegal contract." (Tri-Q, supra, at p. 218.)
B. The Trial Court Properly Granted Summary Judgment
Executive Order No. 13059, 62 Federal Register 44531 (Aug. 19, 1997), Executive Order No. 12959, 60 Federal Register 24757 (May 6, 1995), and the implementing Iranian Transactions Regulations (31 C.F.R. §§ 560.101-560.418 (2021)) (collectively, the Iranian Transactions Regulations) provide that it is unlawful for United States persons to export, sell, or supply, directly or indirectly, any goods, technology, or services from the United States to Iran (31 C.F.R. § 560 et seq. (2021)). The orders were authorized by, inter alia, the International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.), which provides for civil and criminal penalties for violations of orders promulgated pursuant to that statute (50 U.S.C. § 1705).
Nazariyan's counsel confirmed at oral argument that his client does not fault the trial court's summary judgment ruling that Nazariyan's oral contract with Rostami is contrary to public policy of the United States as reflected in the Iranian Transactions Regulations and therefore unenforceable because the subject matter is illegal. Instead, he urges that the trial court should have nevertheless granted him equitable relief in order to avoid unduly harsh results.
As discussed in Kashani, supra, 118 Cal.App.4th at page 541, and more recently by our Division Eight colleagues in Aghaian v. Minassian (2021) 64 Cal.App.5th 603, 626 (Aghaian), courts will not apply the general rule refusing to enforce an illegal contract where: (1) no public protection is necessary because the illegal transaction has been completed; (2) no serious moral turpitude is involved; (3) the other party bears the greatest moral fault; and, (4) to apply the rule would permit the party most at fault to be unjustly enriched. Neither of these cases is of assistance to Nazariyan nor warrants an equitable exception to application of the Iranian Transactions Regulations in this instance because these factors do not weigh in Nazariyan's favor.
In Kashani, the Court of Appeal concluded that the plaintiffs' contract with the defendants to create a corporation in Iran and manufacture and sell notebook computers in that country was illegal because it violated the Iranian Transactions Regulations. (Kashani, supra, 118 Cal.App.4th at p. 547.) While acknowledging the existence of equitable exceptions, the court concluded no exception applied under the circumstances of that case. (Id. at pp. 557-558.)
Stating that the "[d]efendants are no more at fault in entering into the transaction than [the] plaintiffs," the Kashani court held that "[e]ffective deterrence of violations of the [Iranian Transactions Regulations] will result from the refusal to enforce the agreement-not from enforcing the plaintiffs' claim." (Kashani, supra, 118 Cal.App.4th at p. 558.) Further, it found that the underlying contract "involves such serious ramifications, including national security, that allowing [the] plaintiffs damages for a breach of an illegal contract would be inconsistent with the rationale for the doctrine of unenforceability of illegal contracts." (Ibid. [" 'Knowing that they will receive no help from the courts and must trust completely to each other's good faith, the parties are less likely to enter an illegal arrangement in the first place' "], quoting Lewis & Queen v. N.M. Ball Sons (1957) 48 Cal.2d 141, 150.)
In Aghaian, the plaintiffs attempted to recover their real property that had been seized by the Iranian government following the Iranian revolution. After hiring their friend (the defendant) as their power of attorney and broker, he used the records and authorizations they had supplied to obtain and sell the seized property for his own personal gain. (Aghaian, supra, 64 Cal.App.5th at pp. 616-618.) Later, during discovery, the defendant repeatedly abused the discovery process, which brought significant evidentiary sanctions upon him. (Id. at pp. 619-620.)
In upholding a $34 million award of unjust enrichment, the Court of Appeal in Aghaian emphasized that the plaintiffs' efforts to recover their lost property were not necessarily in contravention to the Iranian Transactions Regulations because they could have obtained licenses to do so from the United States, Office of Foreign Assets Control. Indeed, in October 2012, the office "issued a general license . . . authorizing the sort of real estate transactions contemplated by the contract in this case." (Aghaian, supra, 64 Cal.App.5th at p. 623.) Thus, the public policy/deterrent effect of invalidating the transaction was greatly diminished. (Id. at pp. 623-624.) The court additionally found that no serious moral turpitude was involved, and that the defendant bore the greatest moral fault by completely abusing his fiduciary obligations to the plaintiffs. (Id. at pp. 624-625.) As the trial court aptly summarized, the defendant" 'took [the p]laintiff's assets and now, having been caught, defends his actions on the ground that what he has done is illegal, but he should have the benefit thereof.'" (Id. at p. 626.)
This case parallels Kashani and bears little resemblance to Aghaian. We have before us a straightforward commercial transaction involving an illegal contract between merchants who engaged in the knowing, unauthorized sale of commercial air conditioning equipment in Iran for over a decade. Both parties flouted the Iranian Transactions Regulations and share equal blame.
As was true in Kashani, the alleged unjust enrichment is insufficient to outweigh the public policy concerns behind these regulations. (See Kashani, supra, 118 Cal.App.4th at p. 550.) Enforcing the oral contract would only reward Nazariyan for executing a contract with an unlawful purpose and would be detrimental to the national security interests underlying the Iranian Transactions Regulations. (See Bassidji v. Goe (9th Cir. 2005) 413 F.3d 928, 936, 938 [applying California law and refusing to permit enforcement of a contract "that is in direct violation of a positive law directive," i.e., the Iranian Transactions Regulations, because "California courts will not 'fashion an equitable remedy' where doing so involves 'enforcing the precise conduct made unlawful . . . in contravention of the legislative purpose' "].)
Notwithstanding the illegality of his contract and unavailability of equitable relief, Nazariyan contends that his tort claims for IIED, NIED, and loss of consortium should survive summary judgment because they are "freestanding" and unconnected to his illegal contract. However, these tort claims are not "freestanding." Paragraph 20 of the second complaint specifically connects Nazariyan's tort claims with his contractual "payment demands" and "collection efforts." Moreover, in Waisbren v. Peppercorn Productions, Inc. (1995) 41 Cal.App.4th 246, the Court of Appeal concluded that any claims closely connected with the illegal transaction are also barred, including tort claims: "[I]t does not matter that some of [the plaintiff's] causes of action sounded in tort rather than contract. . . . Because all of [the plaintiff's] causes of action are based upon his illegal agreement or business arrangement with [the defendant], . . . the trial court properly disposed of the complaint in its entirety." (Id. at p. 262, fn. omitted.)
The trial court's statement of decision explicitly relies upon Waisbren, but Nazariyan's appellate briefing did not discuss or attempt to distinguish that case. The failure to discuss Waisbren is a failure to rebut the presumption of correctness of a judgment as well as a forfeiture. (See Furlough v. Transamerica Ins. Co. (1988) 203 Cal.App.3d 40, 46 [" 'A judgment of the lower court is presumed correct, . . . and error must be affirmatively shown' "]; Cal. Rules of Court, rule 8.204(a)(1)(B)-(C) [the appellants must identify points of law and error to rebut this presumption of correctness, and support them by argument, including citation of legal authority]; see also Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956.)
DISPOSITION
The judgment is affirmed. The parties shall bear their own costs on appeal.
We concur: ROTHSCHILD, P. J., CHANEY, J.
[*] Judge of the San Luis Obispo County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.