1 2 3 4 5 b 7 I I 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 cCIr*st*rlhttss Gspv ' - ofll$lhlaL rllrp srrDsrl0i 0ollr'i ol Cntllctnta -"'CiiiintY$t i'eg Angrtas l{AR ? $ rlll$ Sherrl R, Oartsr, ExEcutlvo 0lllcsrl0lerk BYI fl, lnr:ctrozg' OsPuty SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES, CENTRAL DISTRICT RAJYSAN, INCORPORATED, a California corporation, Plaintiff, Case No, PC 055253 (Lead Case) lConsolidated with Case Nos. 1C101739 and PC 0560711 VS. GURMEET SAHANI, an individual; JASMINE SAHANI, an individual; HALCY VALENCIA PARTNERS, L.P., a California limited partnership; lNVlNClA, LLC, a Delaware limited liability company; and DOES 1 through 20, inclusive, Defendants. JASMINE SAHANI, Cross-Complainant, vs. AMARJIT SAHANI, an individual; RAJINDER SAHANI, an individual; cURPREET SAHANI, an individual; RAJYSAN, INCORPORATED, a California corporation; and ROES 1 - 50, inclusive, STATEMENT OF DECISION Case No. PC055253 J Cross-Defendants. STATEMENT OF DECISION
Transcript
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cCIr*st*rlhttss Gspv' - ofll$lhlaL rllrp
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Case No, PC 055253 (Lead Case)lConsolidated with Case Nos. 1C101739and PC 0560711
VS.
GURMEET SAHANI, an individual;JASMINE SAHANI, an individual; HALCYVALENCIA PARTNERS, L.P., a Californialimited partnership; lNVlNClA, LLC, aDelaware limited liability company; andDOES 1 through 20, inclusive,
Defendants.
JASMINE SAHANI,
Cross-Complainant,
vs.
AMARJIT SAHANI, an individual;RAJINDER SAHANI, an individual;cURPREET SAHANI, an individual;RAJYSAN, INCORPORATED, a Californiacorporation; and ROES 1 - 50, inclusive,
STATEMENT OF DECISION
Case No. PC055253
J
Cross-Defendants.
STATEMENT OF DECISION
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GURMEET SAHANI, on behalf of himself asan individual and as a shareholder in and onbehalf of RAJYSAN, INCORPOMTED;HALCYON VALENCIA PARTNERS, L.P., ACalilCIrnia limlted partnership; and INVINCIALLC, a Delaware limited liability company,
Cross-Complainants,
VS
Case No. PC055253
Case No. PC 056071
Case No. LC 101739
MJYSAN, INCORPORATED, a Californiacorporation; GURPREET SAHANI, anindividual; RAJINDER SAHANI, anindividual; AMARJIT SAHANI, an individual;and MOES 1 - 25, inclusive,
Cross-Defendants.
RAJYSAN, INCORPORATED, a Galiforniacorporation,
Plaintiff,
vs.
ERUC,E MILLER, individually and doingbusiness as BRUCE MILLER &ASSOCIATES; JODEE OMER MILLER,individually and doing buuiness as BRUCEMILLER & ASSOCIATES; and DOES 1
through 20,
Defendants.
DIGITAL RECORDS MANAGEMENT, INC.,
Plaintiff,
vs.
RAJYSAN, INCORPORATED,
Defendant.
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lntroC,Hgtign
This action involves a dispute between parents and one brother on one hand and
another brother and his wife on the other hand. The parents are husband Amarjit Sahani
and wife Rajinder Sahani. The sons and brothers are Gurmeet Sahani and Gurpreet
Sahani. Jasmine Sahani is Gurmeet Sahani's wife.
The family business is Rajysan lncorporated (Rajysan). Other businesses are
Halcyon Valencia Partners, L.P. (Halcyon), lnvincia, LLC (lnvincia) and Digital Records
Management, lnc. (DRM).
On October 9, 2013, plaintiff Rajysan filed Rajysan lnc. v. Gurmeet Sahani,
Jasmine Sahani, Halcyon Valencia Partners, L.P. and lnvincia, LLC. The operative
complaint is the second amended complaint filed on December 31, 2013.
The causes of action are: The first cause of action for breach of fiduciary duty
against Gurmeet Sahani, the second cause of action for conversion against Gurmeet
Sahani and Jasmine Sahani, the third cause of action for breach of fiduciary duty against
Jasmine Sahani, the fourth cause of action for conversion against Jasmine Sahani, the
sixth cause of action for declaratory relief against Halcyon, the seventh cause of action for
constructive trust against Halcyon, the eighth cause of action for violation of California
Corporation Code S310 against Gurmeet Sahani and Halcyon, and the ninth cause of
action for violation of California Corporation Code $310 against Gurmeet Sahani and
lnvincia, LLC.
The fifth cause of action for accounting was voluntarily dismissed.
Plaintiff seeks punitive damages on the first through fourth causes of action.
On September 2,2A15, Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia
Partners, L,P. and lnvincia, LLC filed an Answer to the Second Amended Complaint,
denying the allegations and asserting affirmative defenses, inbluding the statute of
limitations, laches, consent, unclean hands, estoppel, equitable estoppel and unjust
enrichment.
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Before trial, as required by the Bankruptcy Court's Order in the Rajysan Chapter 11
Bankruptcy, Gurmeet Sahani dismissed the derivative claims without prejudice.
On January 21 ,2014, Jasmine Sahani filed a Cross-complaint against Amarjit
Sahani, Rajinder Sahani, Gurpreet Sahani and Rajysan, lnc. ("Jasmine's Cross-
Complaint")
Only the third cause of action for quasi-contract against Amarjit Sahani, Rajinder
Sahani and Gurpreet Sahani was tried and submitted for decision. See May 14,2A18
request for dismissal.
On February 21,2014, Amarjit Sahani, Rajinder Sahani, Gurpreet Sahani and
Rajysan, lnc. filed an answer to Jasmine's cross-complaint, denying'the allegations and
asserting various affirmative defenses including statute of limitations, equitable estoppel,
Complaint"). The following causes of action were tried, and submitted for decision:
Gurmeet Sahani's fourth cause of action for breach of fiduciary duty against Amarjit
Sahani, Gurmeet Sahani; Gurmeet Sahani's ninth cause of action for intentional
interference with prospective economic advantage against Rajinder Sahani, Amarjit
Sahani, Gurpreet Sahani and Shaheen Sahani and Halcyon's twelfth cause of action
against Rajysan for breach of written contract. Numerous claims were voluntarily dismissed
in two dismissals filed on May 14, 2018.
On May 15,2018, the Court granted cross-defendants' motion for nonsuit as to
Halcyon and lnvincia on the ninth cause of action for intentional interference with
prospective economic advantage and denied the motion as to Gurmeet Sahani.
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On June 5,2018, the Court granted cross-defendant Rajysan's motion for a
judgment pursuant to CCP 5631.S as to cross-complainant, Gurmeet Sahani's ninth cause
of action for intentional interference with prospective economic advantage.
On July 1,2A16, Rajysan, Gurpreet Sahani, Rajinder Sahani and Amarjit Sahani
filed a partially verified Answer to the Gurmeet's Cross-complaint, asserting affirmative
defenses, including unclean hands, laches and equitable estoppel.
On June 4,2014, DRM filed an action against Rajysan to collect $1,420,000
allegedly loaned to Rajysan by DRM. ("DRM Action") The DRM Judicial Councilform
contract complaint contains causes of action for breach of contract and money had and
received,
On October 7 ,2015, Rajysan filed an Answer to the DRM Action generally denying
the allegations and various affirmative defenses, including the defense of unclean hands.
Raiysan" lnc. vp, ErucgMiller. of a/., No. PC056071
On April 1,2015, Rajysan filed an action against Bruce Miller, Jodee Omer-Miller
and Bruce Miller & Associates, a dba of Bruce Miller and Jodee Miller, Case No. PC056071
("the Miller Action"). ln the Miller Action, Rajysan alleged causes of action for breach of
fiduciary duty against Bruce Miller and Jodee Miller (first cause of action) and professional
negligence against Bruce Miller and Jodee Miller (second cause of action). On
June 1,20'15, the Millers answered the complaint generally denying the allegations in the
Miller Action.
The settlement of this action was announced on May 14,2018.
Fg. rnepl$ahani. Jasming$ahani. L-S il)eZqlOn June 1,2016, plaintiffs filed a petition for writ of mandate. On February 8,20'17,
the petition for writ of mandate was granted in part, On July 19,2}'16,the Chatsworth court
consolidated LC1 04247 into PC055253 and deemed it related to PC0i52S3. On
September 2, 2016, the Chatsworth court vacated the July '19,2016 consolidation order.
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On July 2,2018, this Court vacated the July 19, 2016 order deeming L?1}4?47,related to
PC055253 and severed LC104247 lrom PC055253.
PLe-TfipI Procaedin$e
On December 6, 2017 , the Bankruptcy Court granted relief from stay, permitting all
parties to proceed to trial in this case, including complaints and cross-complaints and
including amending complaints and cross-complaints, if permitted under state law. The
bankruptcy court ordered that to the extent that any party seeks a judgment against the
debtor, the party may not collect on the judgment from the debtor or the estate without
further order from the bankruptcy court. ln re Rajysan, lnc. dba MMD Equipment, a
California Coryoration, 9:17-bk-1 1 363-PC
The actions were transferred from the Chatsworth courthouse to the Stanley Mosk
as long cause cases with a 4-month jury trial estimate and the cases were
assigned to Department 25 for trial. ln Department 25, the parties waived jury and the case
was tried in 16 coutt days, from May 14,2018 to June 7,2018. All unnamed and unservedi
Doe, Roe and Moe defendants were dismissed with prejudice on March 13,2019.
The Court requested proposed statements of decision (PSOD) by June ZB, ZAIA
and objections to the opposing PSODs were due on July g, 2A18. The matter was
submitted for decision on July 10, 2018.
On October 9, 2018, counsel for the parties agreed to stay this matter until
October 31,2018. The Court provided a draft proposed statement of decision to counsel,
with each page watermarked "DRAFT," so the parties might determine whether to resolve
this matter. On October 31, 2A18, counsel appeared in Dept. 25 at 4:30 p,m. and advised
the Court that this case had not resolved. Accordingly, the stay was lifted and the matter
was resubmitted.
objections to the Proposed statement of Decision were argued on
December 19,2018. There were subsequent briefs and hearings on pre-judgment interest,
On December 31 ,2018, Halcyon filed Chapter 11 proceedings. The bankruptcy
court granted relief from stay effective on February 19, 2A19. The parties then requested
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that the Court not file the judgment as the parties were in mediation. On February 26,2A19,
the parties reported that the mediation had not resolved the case and Rajysan requested
that the Court enter judgment.'On February 26, 2A19, the stay was lifted, the objections to
the Proposed Statement of Decision were taken under submission.
ln preparing this Statement of Decision, the Court has read the entire trial transcript,
alt 6t the admitted exhibits, the parties' proposed statements of decision, objections to the
Court's Proposed Statement of Decision, briefing and argument on those objections.
Summary
The problems that caused these disputes began in 2012. Rajysan was a family
owned and operated close subchapter S corporation. The family matriarch, Rajinder
Sahani, was the corporate secretary and also a full-time teacher. Her husband, Amarjit
Sahaniwas Rajysan's president and CEO and spent time in lndia doing business for
Rajysan and other companies in which he had an ownership interest. Their two sons,
Gurmeet and Gurpreet Sahaniworked on Rajysan business.
Rajysan was a close corporation in which shareholders repeatedly took money out
of the corporation, for business and nonbusiness purposes, without the formality of minutes
reflecting shareholders' consent. Loans to the corporation were not documented. There
were unexplained distributions from Rajysan to the shareholders.
The Rajysan books and records do not provide an accurate record of Rajysan's
finances. Shareholders used numerous credit card accounts for personalexpenses and
had Rajysan pay the credit card bills. Shareholders were on an honor system to reimburse
Rajysan for personal expenses. There appeared to be a liberal view of what might
constitute a legitimate business expense. For example, Gurmeet Sahani's wife, Jasmine
Sahani was with overseeing credit card reimbursements at Rajysan and took the position
that her skin treatments at a spa were business expenses properly charged to Rajysan, as
her health insurance did not pay for those treatments. She authorized Rajysan to pay for
pet care and her children's'schooltuition.
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The expenses paid by Rajysan for Gurmeet and Jasrnine Sahani went far beyond
those expenses that are properly deductible as business expenses. The lnternal Revenue
Code and tax decisions are set forth in this Statement of Decision to provide a perspective
on the IRS view of what expenses constitute business expenses. Defendants did not
produce evidence that credit card expenses of the scope and scale of those paid for
Gurmeet and Jasmine Sahani were also paid for Amarjit Sahani, Rajinder Sahani or
Gurpreet Sahani. The Rajysan documents were available to all parties during discovery.
Jasmine Sahani was the head of accounting at Rajysan during the relevant period of time
and would know whether documents favorable to defense case existed so her attorney
could request those documents and produce them at trial.
There is no credible evidence that Gurmeet Sahani and Jasmine Sahanidisclosed
to the other shareholders the extent of their family personal expenses paid by Rajysan, no
credible evidence that "everyone did it" and no credible evidence that Amarjit Sahani,
Rajinder Sahani and/or Gurpreet Sahani consented to the payment on personal expenses
with Rajysan funds on the scale undertaken by Gurmeet Sahani and Jasmine Sahani.
Gurmeet Sahani had the Rajysan tax preparer Bruce Miller misstate information on
Rajysan's tax returns to save money on taxes. The Rajysan tax returns do not provide an.
accurate record of Rajysan's finances. ln response to an IRS lDR, Rajysan's accountants
decided to use "historical" shareholder percentages of ownership from prior tax returns
prepared by Miller, not the actual ownership percentages, as using the actual numbers
might trigger an audit.
Gurmeet Sahani saw an opportunity to make large sums of money by selling certain
generators, but wanted to increase his share of the profits, taking the view that he was
doing more work than anyone in the family, certainly more than his brother Gurpreet
Sahani.
Gurmeet Sahani had a Rajysan attorney draft a reorganization plan and presented it
to his family, the other shareholders. His family did not go along with the plan. lnstead of
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working this out with his family, Gurmeet Sahani and his wife Jasmine Sahani embarked on
a course of conduct that resulted in these lawsuits.
Gurmeet Sahani appropriated a Rajysan corporate opportunity when he caused the
$6,8 million Hertz-Rajysan purchase order to be changed to a Hertz-lnvincia purchase
order, assisted by Paul Daly in Rajysan's New Jersey office. Invincia, LLC was a company
Gurmeet Sahaniformed with his wife Jasmine Sahani. Gurmeet Sahani purchased a
condominium with the profits from the Hertz-lnvincia transaction and profited when he sold
the condominium.
Gurmeet Sahani made material misrepresentations on an SBA-backed loan
application to City National Bank for an $8.6 million loan to purchase the Old Road
Property in Valencia, California, a77,064 square foot facility. RT 5-16-18 63:24-26. He
falsely represented that he owned 75% af Rajysan. When the bank asked for proof of
ownership, he e-mailed his family and requested that they sign a backdated (by 8 months)
corporate resolution indicating that Gurmeet Sahani owned 75% of Rajysan. When his
family balked at signing the document, Gurmeet Sahani and Jasmine Sahaniformed
another company, Halcyon Valencia Partners, L.P. to purchase the Old Road property and
lease it back to Rajysan for 20 years at an above-market rental rate and charged Rajysan
duplicate rent for a period of time. Gurmeet Sahani executed the lease on behalf of
Rajysan and Halcyon and did not show the lease to the other Rajysan shareholders or
obtain their approvalto enter into the lease.
Gurmeet Sahani and Jasmine Sahanifailed to disclose to the other shareholders
that Rajysan was guarantor for Halcyon's purchase of the Old Road property. Gurmeet
Sahani signed the loan documents both for Rajysan and Halcyon without a disclosure to or
consent of the other Rajysan shareholders. Gurmeet Sahani and Jasmine Sahani
transferred $630,722from Rajysan into escrow for Halcyon's down payment for the Old
Road property, without disclosure to or consent of the other Rajysan shareholders.
Jasmine Sahani and her father lived with her husband Gurmeet Sahani at his
parent's, Amarjit and Rajinder Sahani's home on 5352 Tampa Avenue. Amarjit Sahani
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:owned that property. RT 5-16-18 53:13-15. While Amarjit Sahaniwas in lndia, Jasmine
Sahani and her father put her mother-in-law Rajinder Sahani out of her own home by taking
Rajinder Sahani's clothes out of her closet, putting her clothes in a car, driving to another
location, telling Rajinder Sahani to follow them in her car. Jasmine Sahani's denials
regarding this incident were not credible.
Jasmine and Gurmeet Sahanithen used Rajysan funds to remodel the Tampa
Avenue residence. The remodel went far beyond the modest rembdel the owner of the
residence, Rajinder Sahani, had agreed to. The Rajysan shareholders did not consent to
this use of corporate funds to remodelthe Tampa property. Rajinder Sahanidid not
nsent to being put out of her own home; her husband Amarjit Sahani, Gurmeet Sahani's
father, in lndia at the time, did not consent to Gurmeet Sahani and Jasmine Sahani taking
his house as their own
Gurmeet Sahani purchased a Maseratiwith $134,000 from Rajysan funds. His
brother Gurpreet Sahani also drove a Maseratiwhen he took over Rajysan after Gurmeet
Sahaniwas fired.
The majority shareholders, Gurmeet's parents and brother, terminated Gurmeet
Sahani and Jasmine Sahani at a September 11,2013 Board meeting and advised Gurmeet
Sahani in writing that he was "not authorized to conduct any business on behalf of the
company or to be in the office premises," and he must hand over his company phone,
credit cards, and bank crypto key.
At 3:14 a.m. pacific time the next morning, September 12,2013, Gurmeet Sahani
initiated and Jasmine Sahani "approved" a wire transfer of $500,000 from Rajysan's pNC
bank account to Gurmeet Sahani's personal account. Exh. 415, p.2. Gurmeet Sahani did
not disclose the wire transfer to the other shareholders or obtain their permission to wire
transfer these funds.
Although Gurmeet Sahanitook the position that there was enough money in
Rajysan's retained earnings account as stated on its federal income tax returns prepared
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by Bruce Miller, there was no corporate resolution permitting deduction or transfer to
Gurmeet Sahanifrom the corporate retained earnings.
For,mation sJ Raiv$qn in.198S and lneofpotation of Rajysan,in-1991
In 1985, Amarjit Sahani began doing business as Rajysan, importing and exporting
parts for vehicles. RT 64-18 113. Rajysan was later incorporated. Amarjit Sahaniwas
president of Rajysan when it was incorporated. RT 6-4-18 114. Although Amarjit Sahani
has always been president of Rajysan (RT 64-18 114) Gurmeet Sahaniasked him if he
could use the title of President and CEO when he was meeting people and used that title.
RT 64-18 114. There was no corporate resolution of other operative corporate document
that caused Gurmeet Sahani to become president of Rajysan.
Mrs. Rajinder Sahanitestified that before Rajysan was incorporated, she and her
husband Amarjit worked together at Rajysan. RT 5-22-18 23. Mrs. Rajinder Sahani was a
schoolteacher, and after school she would help with bills, taxes, insurance, reports, help
with taking orders, shipping, invoicing, delivering packages and anything that needed to be
done. /d" After the Rajysan business grew, Mrs. Rajinder Sahani became more involved
with her teaching career and would spend less time at Rajysan.l /d. ln 2012, Gurmeet
Sahani asked her to work at Rajysan. RT 5-22-18 25
Rajysan was a close corporation and was run informally.
Rajysan, lnc., a Catifornia Corporation, was incorporated in 1991. RT 5-16-1 A 114;
RT 5-17-18 91. Rajinder Sahani was present at the meeting in which Rajysan was formed
as a corporation, along with her husband Amarjit Sahani and her son Gurmeet Sahani and
Ms. Suri. RT 5-22-18 26. Mrs. Rajinder Sahanitestified that she was the Rajysan, lnc.
corporate secretary from the time of incorporation forward, there was never any other
corporate secretary of Rajysan and that Jasmine Sahaniwas never the corporate secretary
1 Mrs. Rajinder Sahanijoined LAUSD in 1989 and worked as an elementary school teacher in Sherman Oaksand Canoga Park until 2001. ln 2001, she became a literacy coach and in 2005 or 2006 she was elected asadvisor to private schools on a reading first initiative. RT 5-22-18 23. She retired from LAUSD in 2009,worked 12 hours a week at a LAUSD limited intervention program and resigned in 2015. /d.
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of Rajysan. RT 5-22-18 25-26. Rajinder Sahani's testimony was credible and Jasmine
Sahani's testimony was not credible.
Rajysan was incorporated by Mrs. Marissa Suri. RT 5-22-18 26. Mrs. Rajinder
Sahani testified that at the formation of Rajysan there were articles of incorporation that
specified the shareholders names and percentages. RT 5-22-1 8 27. She and her husband
Amarjit Sahani each owned 34% percent of Rajysan shares and her sons Gurmeet and
Gurpreet each owned 16% of Rajysan shares, that is, 34-34-16-16. RT 5-22-1827.
ln 2015 or 2016, Mrs. Sahani and her husband Amarjit Sahani each gifted 2.5a/o of
their Rajysan shares to Gurpreet Sahani. Amarjit and Rajinder Sahani then owned 31.5%
each, Gurpreet Sahani owned 21% and Gurmeet Sahani owned 16% of Rajysan shares.
RT 5-22-18 at 31, see a/so, RT 5-17-18 92-93.
lnitially, there were four direetors of Rajysan, lnc. Mrs. Rajinder Sahani, her husband
Mr. Amarjit Sahani and her two sons, Gurmeet Sahani and Gurpreet Sahani. RT 5-22-18
28. The board of directors remained the same from 1991, when Gurmeet Sahani was
removed as a director. RT 5-22-18 28.
The officers of Rajysan, from 1991 until Gurmeet Sahani's removal were:
Amarjit Sahani, president, Rajinder Sahani secretary, Gurmeet Sahani vice president and
Gurpreet Sahani vice president of production. RT 5-22-18 28.
After Rajysan was formed, Mrs. Rajinder Sahani signed corporate minutes that
memorialized board meetings. RT 5-22-18 28.
Jasmine Sahaniwas never an officer, director or shareholder of Rajysan, RT 5-22-
18 32.
Mrs. Rajinder Sahani never told her son, Gurmeet Sahani that Rajysan was his
company and never told any family members that Gurmeet Sahani owned Rajysan. 5-22-
18 33.
Gurmeet Sahani provided the initial capital. RT 5-161-8114. He testified that he
worked at Rajysan full time from 1987 until September 2013. He stated he was initially vice
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president and "late 2008, early'2009" became president. 5-16-18 122:20-21. He testified
that he later became CEO.
Rajysan's articles of incorporation were executed by Amarjit Sahani on
October 1 , 1991 and filed with the Secretary of State on October 8, 1991 . Exh. 404, The
Rajysan articles of incorporation comply with the requirements for a close corporation.
Corporations Code $ 1 58(a).
Rajinder Sahani testified that her sons were both out of the country and she and her
husband obtained permission to sign the 1991 articles of incorporation on behalf of her
sons. RT 5-22-18 80.
The initial corporate documents contained a signature of Gurpreet Sahani, who was
in lndia at the time the documents were executed. Exh. 407 pp 2-21. Gurpreet Sahani
testified that he overstayed his visa in lndia, as his wallet with his green card was stolen, and
had to wait 10 years to return to the United States. RT 5-17-18 101..
Gurpreet Sahani returned to the United States permanently in 2003 and began
working at Rajysan in 2003, RT 5-17-19 109.
Gurpreet Sahani testified that Jasmine Sahani signed his name to the document at
his request as he was living in lndia. RT 5-17-18 9-13, Gurmeet Sahanitestified that Gurpreet
Sahani was in lndia from 1991 through 2003 or 2004. RT 5-16-18 1 18. When one compares
the genuine signature of Gurpreet Sahani on Exh. 4A7 pp.74,75,76,78,79, 81, 87, 89, 98,
101, with the signatures at Exh. 407 pp. 2-21, it is readily apparent that the signature of
Gurpreet Sahani on Exh. 407 pp. 2-21 is not genuine.
Gurpreet Sahani did not provide Jasmine Sahani with any document authorizing her
to sign the corporate documents for him. RT 5-17-18 96-99.
The documents lacking Gurpreet Sahani's genuine signature include the election of
officers, election of directors, approval of acts of directors, approval of a loan, approval of
acts of directors, approval of acts of minutes of organizational meeting of the board of
directors. Exh. 407 pp 2-21.
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"
,an documents specify that the Board of Directors are Amarjit, *.j,rr"r, I
illtll
ll the Rajysan documents specify that the Board of Directors are Amarjit, Rajinc
lleurpr""t and Gurmeet Sahani. Gurmeet Sahani signed numerous documents indicating I
ll,nr, he and the three other members of his family were members of the Board of Directors. Ilt
lIExh. 407 pp.2,4,5,6, 7, 9, 11,12,16, and the Court finds that they were the directors of I
ll*"iur"n. '
I
ll The minutes of the October 1991 organizational meeting of the board of directors of I
f f n";y..n appear complete except for the lack of a signature page. Exh, 407, pp.1a-21
I
llffl"t" does not appearto be a dispute that the October 1991 organizational meeting otthe I
]leoarO of Directors of Rajysan occurred.
I
[l the disappearance of the signature page to the October 1991 organizational
I
llmeetins of the board of directors of Rajysan is suspicious, given the facts of this case.
I
lf exn. 407 p.57,59-60. On September 1 1,2O1g,z2years after Rajysan's 1991
I
llin.otnotation, Gurmeet Sahaniwas fired and his mother, the corporate secretary,
I
lf requested that Gurmeet Sahani bring the corporate records to the Septembe r 11, 2013, I
llO"r* meeting. The records were in Gurmeet Sahani's Rajysan office at770oO"nr*or",
I
IlVan Nuys and later at the Old Road property, the entire time. RT 5-31-18 16-17; RT 5-31- |
ll f e f OS. Gurmeet Sahani went to an attorney's office and had him number the page I
f f
nr*U.tt of the documents to be turned over at the September 11,2013 Board meeting. I
llRT 5-31-18 18-20. After visiting his attorney with the Rajysan corporate records, Gurmeet I
IlS"ntni produced the corporate records with a missing signature page and corporate seal I
f f "t tn" Septembe r 11,2013 Board meeting.
I
ll The entire signature page of the October 1991 organizational meeting of the board I
lIof directors is missing. There is not a blank unsigned page, rather, the entire signature I
llotn" is missing I
ll The Court attributes the missing signature page of the October 1991 organizational I
ll meetinO of the board of directors of Rajysan to Gurmeet Sahani, as he had custody of the
I
f f
records 'for 22 years, he had the opportunity to remove the signature page and he had I
lf motive to remove the signature page, as it documented the Rajysan shares he held, i.e.,
Ill"lll
TATEMENT oF DECrsroN I
t
2
3
4
5
6
7
B
I10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
160/o. Gurmeet Sahani claims he owned more than 16% in this trial. Gurmeet Sahani
directed the Rajysan accountant Bruce Miller to use different percentages of shareholder
ownership of Rajysan, depending on his purpose. None of the other formation documents
are missing a signature page and Rajysan had the assistance of Ms. Marissa Suri in
preparing the organizational documents. RT 5-22-18 26
The Court finds by a preponderance of the evidence that the October 19gl
organizational meeting of the board of directors of Rajysan was executed by the corporate
secretary, Rajinder Sahani.
Minutes of a board of directors mdeting should be signed by the corporate secretary
of the meeting. California Practice Guide, Corporations (Rutter Group Z01Z)\14:47e,
p. 4-1 19.
The corporate secretary's signature on a corporate resolution is binding on the
Sahani 28% (52-7-3-10-28). At the time she signed the certificate of Secretary, Jasmine
Sahani had never seen any corporate minutes transferring any shares of Rajysan to her
and had never seen a corporate document reflecting the percentage of shares outstanding
that she represented in the document. ld. The Court finds that Jasmine Sahani was never
the corporate secretary or director or any other officer of Rajysan and finds that Jasmine
Sahani never owned any shares of Rajysan.
The January 29,2A14, resolution of the Board of Directors of Rajysan provides the
number of shares held by each shareholder:
18
STATEMENT OF DECISION
1
2
3
4
5
6
7
B
I10
11
12
13
14
15
16
17
1B
19
20
21
22
23
24
25
26
27
28
Amarjit Sahani 34o/o
Rajinder Sahani 34%
. Gurmeet Sahani 160/o
Gurpreet Sahani 16%
The Couit finds that plaintiff Rajysan has proven by a preponderance of evidence
that Gurmeet Sahani held 16% of the shares of Rajysan at the time Rajysan was
incorporated, Gurmeet Sahani has held 16% of Rajysan shares at all times and Gurmeet
Sahani currently holds 16% of Rajysan shares. The Court finds that plaintiff has proven by
a preponderance of evidence that at the time Rajysan was incorporated, Gurmeet Sahani
and Gurpreet Sahani each owned 160/o of Rajysan shares and Amarjit Sahani and Rajinder
Sahani each owned 34% of Rajysan shares. The Court finds that plaintiff has proven by a
of evidence that the only change in the number of shares held by those
shareholders up until the time of trial occurred when both of Gurpreet Sahani's parents,
Amarjit Sahani and Rajinder Sahani, gave Gurpreet Sahani 2.5% of their Rajysan shares;
Amarjit Sahani and Rajinder Sahani then each owned 91.5% of Rajysan, Gurpreei Sahani
owned 21o/o and Gurmeet Sahani owned 16% of Rajysan shares. RT 5-i7-18 g2-g3 The
Court finds that plaintiff has proven by a preponderance of evidence that Jasmine Sahani
was never a Rajysan officer, director or shareholder and Jasmine Sahani never owned any
shares of Rajysan.
19-95 Purchase of Tampfl.Ayenue Rrgperilf
Mrs. Rajinder Sahanitestified that she and her huiuand have tived at 53b2 Tampa
Avenue for 22 years. RT 5-22-18 33. They purchased the residence in lggb or 1gg6, She
currently lives there with her husband. /d. She and her husband purchased the property for
$600,000 and title to the property has been held by Amarjit Sahani or both Amarjit and '
Rajinder Sahani from the time of the purchase until it was transferred to a trust. Amarjit
Sahani testified that at the time of the purchase, the other shareholders did not have the
credit to qualify or to help Amarjit and Rajinder Sahani purchase the house. RT 5-22-'lB 34;
RT 6-4-18 115, 117.
19
STATEMENT OF DECISION
1
2
3
4
5
6
7
8
I10
11
12
13
14
15
16
17,
18
19
20
21
22
23
24
25
26.
27
2B
Gurmeet Sahani testified that his parents took $600,000 from Rajysan for the down
payment for both the Tampa Avenue property and the Densmore property, without a
corporate resolution approving the transaction. RT 5-30-18 177.
Amarjit Sahani testified that the source of the funds for the Tampa residence was
Rajysan. RT 64-18 1 15. He does not know how the transaction was booked in the Rajysan
records, as Gurmeet Sahani wrote the Rajysan checks at that time. RT 64-18 117.
Gurmeet Sahani wrote the Rajysan check that was deposited into escrow for the purchase
of the residence. RT 64-18 118-191.
Amarjit Sahani testified :
[W]hether it was a loan that I took, or whether there was an accumulation of funds, I
don't recallthat at all. Because for me, I was the one that brought allthe money. Andif I was using that for purposes of the welfare of the house, meaning my family, I justdid it.
RT 64-18 64-1 8 120.
Sisita| &ssprds*ly!ff au*$snt {D HM}
Digital Records Management was incorporated on June 27 ,2A00. Exh. 24 The
minutes of the initial Board meeting for June 28, 2000 provide that Gurmeet Sahani and
Jasmine Sahani are the members of the Board of Directors and manage the entity. Exh.
21 ; RT 5-22-18 40. ln a November 15,2004 filing with the Secretary of State executed by
Bruce Miller, the directors and officers were identified as Gurmeet, Jasmine and Amarjit
Sahani. Exh.22. The following individuals own 25% of the shares of DRM: Amarjit,
Rajinder, Gurmeet Sahani and Jasmine Sahani. Exh. 25; RT 5-22-18 4A:4-17. Bruce Miller
testified that Gurmeet Sahani advised him that the ownership percentages of DRM were
25-25-25-25. RT 5-30-18 '122. The percentage ownership shares have not changed since
DRM was incorporated.
At trial, Gurmeet Sahani testified that he and his wife Jasmine own 100o/o of the
shares of DRM and that his parents, Rajinder and Amarjit Sahani do not own any shares of
DRM. RT 5-31-18 84. Testimony that Gurmeet Sahani and Jasmine Sahani each own 50%
of DRM Management and that Rajinder Sahani and Amarjit Sahani do not own any shares
20
STATEMENT OF DECISION
1
2
3
4
5
6
7
II
10
11
12
13
14
15
16
17
1B
19
2A
21
22
23
24
25
26
27
28
of DRM Management is not credible and is not supported by any credible documentation.
The Court flnds that, at all times, Amarjit Sahani, Rajinder Sahani, Gurmeet Sahani
and Jasmine Sahani each owned 25o/o of the shares of DRM.
DRM owned the property located al7700 Densmore Ave., Van Nuys, California, a
16,000 square foot industrialwarehouse that Rajysan rented.from DRM and used as its
place of business, RT 5-16-1 8 160:26-161 :16. DRM acquired the property in Janu ary 20AT .
RT 5-16-1 I 161 B-1 0. The Densmore property was paid for with Rajysan funds. RT 64-18
147.
Mrs, Rajinder Sahani, Gurmeet's mother, was emotionally distraught when she
testified that Gurmeet Sahanidenied her request to see DRM refinancing documents and
told her: "Vou have nothing to do with DRM. lt's atl mine." RT 5-22-18 4041. His mother
said: "Gurmeet, I don't want to have this conversation, This is over." Gurmeet Sahani put
his arm out in front of the exit trying to stop his mother from leaving, and his mother said:
"Let me go. I have to go to the dentist."
Mrs. Rajinder Sahani testified that when Gurmeet Sahani sold the DRM property at
77OO Densmore ln 2A13, Gurmeet Sahani did not give his parents, Rajinder and Amarjit
Sahani, access to the escrow papers, despite the fact that they were 50% owners of DRM.
RT 5-25-18 132. After escrow closed and because the building had been sold at a loss,
Gurmeet Sahani requested that his parents send him a check for $100,000. /d. Mrs.
Rajinder Sahani sent the check to her son, through her attorney. /d.
Mrs. Rajinder Sahanitestified that it was necessary to obtain a court order to obtain
the financial records and K-1's for DRM. RT 5-22-18 42.
2_Q98 Purchase qf'MlgD's ns,,sS*q
ln 2008, Rajysan purchased the assets of Mitsui Machinery Distribution (MMD) and
the rights to use that name. RT 5-16-18 141-143, MMD was in New Jersey and Rajysan
remained in California. RT 5-16-1 8 144. MMD is a dba of Rajysan. RT 5-16- 18 2: 1-3.
Gurpreet Sahanitestified that Gurmeet Sahani became CEO of Rajysan in 2008 or
2009. RT 5-17-19 109.
21
STATEMENT OF DECISION
1
2
3
4
5
b
7
II
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
?09-SJransfer of Fpnds
ln 2008, Amarjit Sahani moved Rajysan money lo different banks so the funds would
be covered by FDIC insurance, as he was concerned that banks were failing in the financial
crisis and did not want Rajysan to lose the money it had on deposit in banks. RT 64-18
150. There was no board or shareholder approval for those transactions. /d. He explained:
"[A]t the time, there wasn't any rigidity about the board approving stuff like that." RT 64-18
150-151.
lnvi . LLC
ln2A12, Gurmeet Sahani and Jasmine Sahaniformed the lnvincia limited
partnership. They were the only shareholders of lnvincia. RT 5-15-18 71:17-19;72:11-14.
On April 25,2A12, Gurmeet sent an e-mail to his father, indicating that he started a
new company, lnvincia, LLC a company to provide finance to the general rental industry,
stating that he had secured financing to both purchase and lease equipment, so "l'm
hoping lnvincia will get off the blocksoon". Exh. 1251, p.1; RT 5-21-18 101-105.
HFrtz-l nvincia Tra lsactigns
On September 11,2012, Hertz placed a $6,804,000 purchase order for generators
with New Jersey based MWD Equipment, a Rajysan dba, invoice number 241A656. Exh. 5
The end user of the generators was EOG (Enron Oil and Gas). RT 5-21-18 100.
Gurmeet Sahani directed a Rajysan employee to direct Hertz to issue the Rajysan
$6.8 million purchase order to lnvincia, LLC. RT 5-15-1871.20-27. Before he caused
purchase orders to be changed, he issued to Hertz, on behalf of Rajysan MMD, an MMD
ln September 2012, Gurmeet Sahani signed Rajysan's loan application to City
National Bank (CNB) for a $4.3 million purchase money loan and a $3.44 million bridge
loan to purchase the Old Road property for $8.6 million. Exh. 63; RT 5-15-1879:22-80:16.
Thd borrower's equity would be $860,000. ld. Gurmeet Sahani did not send the October
10,2012 CNB letter outlining the terms of the loan to any members of his family.
Despite appropriating the $6.8 million Hertz transaction from Rajysan and diverting it
to his own company lnvincia, Gurmeet Sahani listed Herlz as 15% of the Rajysan business
on his loan application. Exh 63, p. 6. He understood that by signing the loan document, he
was certifying the matters were true. RT 5-15-18 82:12'21, Exh. 63, p. 6.
27
STATEMENT OF DECISION
1
2
3
4
6
7
8
I10
1',|
'12
13
14
15
16
17
1B
19
20
2',|
22
23
24
25
26
27
28
Gurmeet Sahani and Jasmine Sahani secured a purchase money mortgage"for the
purchase of the Old Road Property by making numerous false representations to CNB.
This was a United States Small Business Admiriistration loan and Gurmeet Sahani and
Jasmine Sahaniwere required to fillout a personalfinancial statement under penalty of
perjury. Exh. 63, p. 13-14. Gurmeet Sahani and Jasmine Sahani signed their personal
financial statement under a paragraph that provided, in part:
. . . I certify the above and the statements contained in the attachments aretrue and accurate as of the stated date(s). These statements are made for thepurposes of either obtaining a loan or guaranteeing a loan. I understand FALSEstatements may result in forfeiture of benefits and possible prosecution by the U.S.Attorney General (reference 18 U.S,C. 1001) 'I
Exh 63, p.14.
18 U.S.C. 51001 provides, in part, that whoever knowingly and willfulty makes any
materially false, fictitious or fraudulent statement or representation, or makes or uses any
false writing or document knowing the same to contain any materially false, fictitious or
fraudulent statement or entry, shall be fined, imprisoned for not more than 5 years, or boJh.
ln the SBA personalfinancialstatement Gurmeet Sahani and Jasmine Sahani
executed, they represented that they owned Gurmeet's parent's property at 5352 Tampa
Avenue in Tazana, This representation was false, as neither Gurmeet Sahani nor Jasmine
Sahani owned that property. They represented that their equity in that property was
$1,585,000. As they never owned the property, they never had any equity in the property.
Gurmeet Sahani and Jasmine Sahani also falsely t"pr"."ni"d that they owned his parents'
Tampa Avenue residence when they applied for a loan on their current residence at 5007
Gurmeet Sahani and Jasmine Sahani represented on the SBA loan application that
they owned 100% of the Rajysan building located at 7700 Densmore Avenue, Van Nuys,
and they did not. DRM owned the property and Gurmeet Sahani and Jasmine Sahani had a
50% interest in DRM.
28
STATEMENT OF DECISION
1
2
3
4
5
6
7
Io
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
ln the accompanying Rajysan, lnc. CNB loan application for $8,600,000, Gurmeet
Sahani represented that he owned 75o/o of Rajysan. He owned 16% of Rajysan. Exh. 63,
p. 5.
Gurmeet Sahani and Jasmine Sahani's statements on these loan documents are
admissible on credibility.
On September 1 ,2012, Gurmeet Sahani forwarded to his family and Jasmine
Sahani an e-mail from his realtor indicating that the seller of the Old Road property might
be willing to split the difference in price and.seeking authority from Gurmeet Sahanito
make a counter offer. Exh. 1254. Gurmeet Sahani asked for feedback from his family,
stating, in part: "bottom line, the property can be ours. I've secured financing and have
been preapproved. . . ." Exh.'1254, p.1.
Gurmeet Sahanitestified his words "the property can be ours" referred to Digital
Records Management. RT 5-21-18 39. Gurmeet's parents, Amarjit and Rajinder, owned
50% of the shares of DRM. Exh. 25.
The same day, Gurmeet Sahani's mother, Rajinder Sahani replied to Gurmeet
Sahani by e-mail, copying the family and Jasmine Sahani. Her e-mail stated, in part:
. . . I stillthink buying should be the last option. After thinking about it at length, aquestion someone else asked 5 years ago echoes repeatedly in my head: 'Are youin the parts business or the real estate business?'The size and amount for this property is daunting for reasons other than financingconsiderations. lf our goalfor increasing and facilitating product output can beachieved by leasing, it would be the better option.
Exh, '1254, p.1
Gurpreet Sahani did not fully agree with his mother's position. RT 5-17-18118-119.
On September 1 1,2012, Gurmeet Sahani sent an e-mail to his parents and his
brother Gurpreet Sahani stating that he would open escrow and asking his mother to pick
an auspicious date. Exh 36, p.1. Attached to that e-mail was an e-mail from a realtor at
CBRE, indicating: "The seller has decided to move foruard with your offer. We will have a
contract for you to review and sign shortly." /d.
29
STATEMENT OF DECISION
1
2
3
4
5
6
7
II
10
11
12
13
14
15
16
17
1B
19
20
21
22
23
24
25
26
27
28
Rajinder Sahani believed that despite her disapproval, Gurmeet Sahani arranged for
Rajysan MMD to purchase the building. She testified:
So, I was discouraging the purchase of the property, but Gurmeet often thought itwise, and we did leave him the discretion of entering financial transactions and realestate deals if he thought it was viable for the business. We have that trust in himimplicitly.
RT 5-25-18 91:23-28
On September 14,2012, Gurmeet Sahani sent an e-mail to his parents and brother
Gurpreet "re: Escrow 29145 The Old Road" which stated in part: "Escrow opened today for
the subject building. New chapter. . . " Exh. 37. ln this e-mbil, Gurmeet Sahani did not
disclose that he was going to transfer $43A,722, or any other amount from Rajysan into
escrow as part of Halcyon's down payment for the Old Road property. RT 5-16-18 48:448;
48:2649:2. When asked if he disclosed that information to the shareholders, he stated: "l
don't remember." RT 5-16-18 48:16-22.
On October 9,2012 at2:47 p.m., BFC Funding sent to Gurmeet Sahani, an e-mail
requesting Rajysan "Bylaws, and allAmendments that reflect changes in ownership (you
being 75o/o\. Exh, 67, p.2.
On October 9,2012 at 5:28 p.m., Gurmeet Sahani replied to BFC Funding, in part:
Rajysan. l'm having my accountant pullthis form from his archives as these minuteson the change of ownership that were signed off on in March, 2012. He is busy withtaxes through October 15. I will have it to you shortly thereafter
Exh.67, p.2.
This statement was false. Gurmeet Sahani never owned 75% of Rajysan and there
was no such document for his accountant to find. lt was not until November 6, 2012 that
Gurmeet Sahani requested that his family sign a backdated (by more than eight months to
February 28,2012) corporate resolution indicating the unanimous consent of all Rajysan
shareholders that Gurmeet Sahani owned 75o/o of Rajysan. Exh. 58.
Additionally, Gurmeet Sahani's e-mailto BFC Funding indicated that he was
president of Rajysan, lnc. Gurmeet Sahaniwas never President of Rajysan, lnc.
30
STATEMENT OF DECISION
1
2
3
4
5
6
7
II
10
11
12
13
14
15
16
17
1B
19
20
21
22
23
24
25
26
27
28
On October 9, 2012, BFC Funding e-mailed Gurmeet Sahani, notifying him that the
purchase agreement shows DRM as the purchaser, and the DRM leases are being
vacated. "SBA will take issue with this. . ." Exh. 67, p.1. The lender required an amendment
to the purchase and sale agreement removing DRM and showing Gurmeet Sahani
individually or his newly formed company as the purchaser and indicating that both Rajysan
and DRM might be required to guaranty the loan. "So we need some clarification here."
Exh. 67, p,1. . \
Later the same day, October g, 2012, Gurmeet Sahani forwarded BFC Funding's e-
mail to his realtor, Jerry Scullin, writing, in part: "Please see below. Call me. Thanks." Exh.
67, p.1
Gurmeet Sahani decided to withdraw DRM as the buyer and formed a new company
to buy the Old Road property, Halcyon Valencia Partners, LLC. RT 5-21-18 46:5-18:47:6-
2247:2248:26.
On October 10, 2O12,CNB sent Gurmeet Sahani a proposal letter indicating their
interest in loaning $8.6 million to an "LLC to be formed." Exh. 51, p.1. The terms included:
. Full Corporate Guarantee of Rajysan, lnc. and Digital Records Management,lnc.
,' Full lndividual Guarantees of Gurmeet S. Sahani and Jasmine G. Sahani.
Exh.51 p. 3
Although Gurmeet Sahani was aware that a term of the CNB loan was a "full
corporate guarantee" by Rajysan, Inc., Gurmeet Sahani never disclosed this fact to the
other shareholders of Rajysan, lnc. lnstead, he told the other shareholders that no
"individual" guaranty would be required of them.
Gurmeet Sahani testified that on October 15,2012, he advised his family of the
restructuring agreement and that Halcyon Valencia Partners, L.P. would purchase the Old
Road property. Gurmeet and his wife Jasmine would own Halcyon. RT 5-21-18 51:48-53.
31
STATEMENT OF DECISION
1
2
3
4
5
6
7
II
10
11
12
13
14
15
16
17
18
19
2A
21
22
23
24
25
26
27
28
Gurmeet Sahani's mother Rajinder Sahani was so upset by Gurmeet's inequitable
ivision that she drafted a letter to him al2:20 a.m. on October 15,2A12, referring to our
nversation "yesterday". Exh. 1256. Her letter concluded:
We have in our time been witnessed to [sic] different generations of families fallingapart. Brother against brother, Fathers and sons, sisters and cousins. Knowing that,and Acting on that Knowledge, I see the purpose of such a document as being a'STOP!' sign held up to history that we are not going to perpetuate that. , .
Exh. 1256, p.2.
On October 21,2012, Gurmeet Sahani e-mailed attorney Richard Freedman and
instructed him to prepare and send minutes as required on March2012, stating: "These will
need to be signed and presented to the SBA and CNB, albeit only after I have presented
the plan to my board." Exh.274, pp. 1-2; RT 5-16-1 8 23:8-24:15. The plan referred to in
that e-mail is the restructuring plan that Gurmeet Sahani prepared with Morgenstern. RT 5-
16-18 23.8-24:15
.October 22,2012, Mr. Freedman sent Gurmeet Sahani an e-mail, with an
attachment labeled "Rajysan stock transfer unanimous consent.doc," which stated, in part:
"attached is a draft of the Unanimous Consent of Shareholders for the transfer of stock so
that you control the corporation." Exh.274, p.1; RT 5-16-18 23:8-24:15. The attachment is
exhibit 275. RT 5-16-18 24:16-25.
. Gurpreet Sahani testified that he was never allowed to be a signatory on any of the
Rajysan accounts, except one small account that was used for petty cash and he did not
have access to the financial documents until after Gurmeet Sahaniwas terminated on
September 11,2013. RT 5-17-1870-71. After getting access to the banking records and
wire transfer transcripts, Gurpreet Sahani learned that Gurmeet Sahani had deposited
money from the Rajysan bank account into escrow to purchase the Old Road property.
RT 5-17-1871-72. Gurpreet Sahani never authorized Gurmeet Sahanito make the
transfers. RT 5-17-1 8 72.
32
STATEMENT OF DECISION
1
2
3
4
5
6
7
B
I10
11
12
13
14
15
16
17
1B
19
20
21
22
23
24
25
26
27
28
Oetaher 23, 3?l? E":'M.ai! from Raiind*i Sahqnito g$rneej Sghanj
On October 23, 2012, Rajinder Sahani sent Gurmeet Sahani an e-mail proposing a
distribution of interest in the Old Road property in Valencia as follows:2A% to Gurmeet
Sahani, 20o/o to Jasmine Sahani, 30% to Gurpreet Sahani, 15o/o to Rajinder Sahani,,and
15o/o lo Amarjit Sahani. RT 5-25-18 at 98-99; Exhibit 1257. Rajinder Sahani sent this e-mail
on the assumption that Rajysan was the purchaser of the Old Road property. RT 5-25-18
100. Rajysan had never owned real estate. RT 5-25-18 104.
Gu rm g* _ah. gnl'* P ron Unqd", Fgstru otu ri ngr Ag,_eempt3t
The restructuring agreement documents are dated October 24,2012 and October
25,2012. Exh.144, pp. 5-15.
Gurmeet Sahanitestified that his father spent most of his time in lndia from 2004 to
2012, where he had an interest in another company. RT 5-21-18 58. On October 31, 2012,
Amarjit Sahani, then in lndia, e-mailed his son Gurmeet Sahani and asked how the "new
property deal" is going. Exh. 1258, p. 3.
On October 31, 2012 at7:42 p.m., Gurmeet Sahani sent an e-mail to his mother
Rajinder Sahani, his father "moni,2" and Jasmine Sahani, but not to his brother Gurpreet
Sahani. Exh. 1258, pP. 2-3; RT 5-31-18 59:1-3.) Gurmeet Sahani stated that the appraisal
on the Old Road property was $8.6 million and he expected the Bank's commitment letter
within the week. /d., Exh. 1258, pp. 1-2. The e-mail stated that Gurmeet has undertaken a
restructuring of the company "to better suit my management" and to ensure that
compensation is drawn along the lines of responsibility and contribution. /d. Gurmeet
Sahani proposed buying out his parents and paying them through a consultancy. RT 5-21-
18 61. Although the restructuring documents were dated October 24 and 25,2012 (Exh.
144, pp.5-15), Gurmeet Sahani did not include the restructuring documents as an
attachment to his October 31, 2012 e-mail to his family.
2 Gurmeet Sahani testified that moji and moni are terms of respect. RT 5-21-'lB 102-103.
33
STATEMENT OF DECISION
1
2
3
4
5
6
7
II
10
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On October 31 ,2012 at 8:46 p.m., Amarjit Sahani sent an e-mail to both of his sons,
but not his wife Rajinder or Gurmeet's wife Jasmine, which included all prior e-mails and
updated him on other matters. Exh. 1258, p.1.
Gurmeet Sahani admitted that he did not tellthe shareholders that he was only
guaranteeing $2 million of the $20 million line of credit. RT 5-31-18 99.
When Gurmeet Sahaniwas asked if his family agreed to the restructuring plan that
he presented in November2012, he testified: "They didn't reject it." RT 5-31-18 96.
When Gurmeet Sahaniwas asked if the Rajysan shareholders ever sent him any
written documentation approving any part of the restructuring plan, he testified: "l don't
recall as to written documents." RT 5-31-18 97.
Ris( M"anager BequestS Document Showin$ Gqfmeet OWns 7S9/o of Rajvsan
On November 5, 2A12 at2:20 p.m., Raffi Sarkissian, the realtor on the Old Road
purchase, e-mailed Gurmeet Sahani indicating that the risk manager wanted the change of
ownership document indicating that Gurmeet Sahani owned 75o/o of Rajysan, lnc., and
asked who owned the rest of Rajysan. Exh. 54 p.1. Gurmeet Sahani e-mailed back that:
"ownership per the minutes signed on February 28" is Gurmeel7So/o, Jasmine 10%
Gurpreet 10o/o, Rajinder 3% and Amarjit 2%. Exh. 54, p.1 . The February 28 minutes to
which Gurmeet referred were the February 28,2012 minutes. RT 5-15-18 153:8-19. These
were the backdated minutes he asked the other Rajysan shareholders to execute and
which the other Rajysan shareholders expressly refused to execute. ld.
November 5. 2012: Gurmeet Saha$lPresqnts the.Restructuring Plan to his F,amily
Hours after he received Ratfi Sarkesian's e-mail requesting an executed change of
ownership reflecting that Gurmeet owned 75o/o o'f the shares of Rajysan, on
November 5,2012, at 6:56 p.m., Gurmeet Sahani e-mailed the restructuring plan to his
family and his wife Jasmine. Exh. 144; RT 5-16-18 83:6-85:28; RT 41:26-44:17.
The November 5,2A12 e-mail attachments included the unexecuted unanimous
consent of shareholders stating that Gurmeet Sahani owns 75% of Rajysan shares,
Morganstern noted that the Rajysan tax returns for 2009, 2010 and 2011, form 1120,
show the following ownership for Rajysan: Amarjit 30%, Rajinder 20o/o, Gurmeet 25% and
Gurpreet 25o/o. Exh. 56, p. 3. Gurmeet Sahani provided these figures to Mr. Morgenstern.
RT 5-1 5-1 8 160:5-161 :1.
Under Gurmeet Sahani's restructuring plan, Rajysan would be a management
company, MMD Equipment would be the distributor, Invincia would sell the equipment and
Lynxrite Engineered Solutions would develop and manufacture products for lnvincia or
MMD to sell. Exh. 55, p. 1.
Under Gurmeet Sahani's restructuring plan, Gurmeet Sahaniwould own 100% of
lnvincia, 7A% of MMD and 35% of Lynxrite. Exh. 55, p.2.
3 RT 5-21'1823'23-24.a The document is Bates stamped FREEDMAN00l9
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Gurmeet Sahani's November 5,2012 e-mail and attachments did not disclose the
fact that Halcyon was going to purchase the Old Road property. Exh 144. On cross-
examination, counselfor Gurmeet Sahani askeU Gurpreet Sahaniwhy he didn't ask
Gurmeet: "is Halcyon Valencia Partners the name of the entity that is buying the Old Road
proilerty?" or "is it called Halcyon Valencia Partners, because it's buying property in
Valencia?" RT 5-17-18 133-134.
Rajysan's shareholders were not required to anticipate what Gurmeet Sahaniwas
planning or guess what he had done with respect to interested transactions and other
Rajysan matters. lt was not up to the other shareholders to "object" to these matters
without full disclosure. Gurmeet Sahani had a fiduciary duty to make disclosures to the
other Rajysan shareholders and obtain their consent prior to entering into interested
transictions and other matters affecting Rajysan and he did not make the required
disclosures and obtain consent.
On November 6, 2012, Gurmeet Sahani sent his parents and brother an e-mail
asking them to sign a Rajysan unanimous consent of all shareholders, indicating Gurmeet
Sahani owned 750 of 1000 total shares, or75o/o of Rajysan and giving his wife Jasmine
Sahani, who had never been a shareholder, 100 shares, or 10%. Exh. 58; RT 5-15-18
103:26-104:10; 105:8-10; 107:5-13. Gurmeet signed the unanimous consent. RT 5-15-18
1Q4:24-105:1. ln that e-mail, Gurmeet Sahaniwrote:
I don't know if it was ciearly spelled out in the e-mail I sent earlier. The bank, CNBhas asked for a signed copy of the attached board of directors meeting. I had to showthis meeting as taking place 6 months before making an SBA application (SBA laws).
Hence, it has a date of Feb 28,2012.
Please understand that this has no bearing on the ultimate restructuring of thebusiness as outlined. This is only a formality to conclude with CNB. This isimportant, however, as I am the only person giving CNB a personal guarantee.
Exh 58, p.1, emPhasis in original' \
Despite Gurmeet Sahani's November 6,2012 e-mail (exhibit 58) explicitly requesting
his family to sign his proposed corporate minutes that were backdated by more than 8
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months, Gurmeet Sahani testified at trial that he was not asking his family to backdate a
document:
MR. GRANT: So, it isn't it true that on November 6th, 2A12, you were askingthe shareholders of Rajysan to backdate minutes of the shareholders tosubmit to CNB for a loan?MR. GURMEET SAHANI: No.
RT 5-1 5-1 8 1 A6:28-107 :4
THE COURT: But you were the one who sent the e-mail, asking them tobackdate a document, so how is that not asking them to backdate thedocument? I don't understand your thinking.
A, MR. GURMEET SAHANI: I'm trying to explain, Your Honor. When I'm askedthis question, my thought is, I'm not the one making this request. lt is the SBAand their laws that are requiring this document to be backdated.
RT 5-1-5-18 108:5-13.
There is no evidence that the SBA explicitly or implicitly requested Gurmeet Sahani
or anyone else to backdate documents. Gurmeet Sahani's explanation for his
November 6,2A12 e-mail (exhibit 58) request that his family backdate documents is not
credible and not supported by any evidence
Gurmeet Sahanitestified that he intended to submit the backdated corporate
resolution stating that he ownbd 75o/o of the stock of Rajysan to the bank to obtain a loan
and did not intend to change the ownership of Rajysan. RT 51-5-18 114:28-116:6.
CNB asked for these minutes to document Gurmeet's statement that he owned 75%
of Rajysan, something he did not tell the other shareholders. CNB was expecting truthful
corporate documents, not backdated corporate documents manufactured simply to obtain a
loan.
Although Gurmeet Sahani's November 5,2012 e-mail (exhibit 144) stated, in part,
". . . I am the only person giving CNB a personalguarantee," Gurmeet Sahanitestified that
he did not advise the Rajysan shareholders in that e-mail that Rajysan would be required to
guarantee the $8 million loan. RT 5-21-18 153:25-154:14; Exh. 58, p.1.
Gurpreet Sahani did not agree to this proposal as it made Gurmeet the majority
shareholder of Rajysan. RT 5-17-18 44:6-45:16; c.f., RT 5-31-19 166:26-167:18.
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Gurmeet Sahani's father Amarjit Sahani responded to Gurmeet Sahani's November
5,2012 e-mail (exhibit 144) on the same date, writing that he would return on November 13
and "would like to discuss and better understand the changes that you are wanting to
implement." Exh. 1261, p.4.
On November 6, 2102, Gurmeet Sahani sent a reply e-mait to his father in lndia,
insisting that his father Amarjit (Moni) sign the minutes, giving Gurmeet 75o/o of Rajysan.
Exh. 1261, p.3.
On November 6, 2012, Gurmeet Sahani's father Amarjit Sahani responded to
Gurmeet Sahani's e-mail and advised, among other things:
It is not correct for me to sign papers that will involve the bank. . . . it is important toknow and understand what I am signing away. . .Your e-mails and telephonecalls are putting too much pressure on me to do as you say. I am open tosuggestions from you, but lfeelthat I am being railroaded and so my reluctance. . .
I do not see the relationship between our reduction of ownership and the acquisitionof new property. I do not understand who the owner of this property.is going to be. I
was told it is a part of Rajysan, They are two separate issues and they both do notadd up in my reckoning. . .
Exh. 1261,pp.2-3.
Two days after Gurmeet Sahani e-mailed his proposed restructuring plan on
November 5,2012 (exhibit 144), on November 7, 2012, Gurmeet Sahani e-mailed his
father with copies to his mother, brother, Gurpreet Sahani and wife Jasmine Sahani,
informing them, in part: "l will close escrow on the new building. . . t do not need you to sign
any papers affecting your present interest in Rajysan." Exh. 1261, p.2.
On November7,2012, Gurmeet Sahani's father Amarjit Sahani, still in lndia,
e-mailed his son Gurmeet Sahani, copying his wife Rajinder Sahani:
You have talked many times about your desire to buy us out, but it was neverspelt out to make us understand what you were doing for the company and thefamily. You took many decisions without even so much as pre-information. lt is allwater under the bridge. I do not wish to ask you anything and you did not inform likeyou should have. Presenting us with a fate accompli is never a good idea.
Exh. 1261, p.1.
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One day later, on November 8, 2412, Gurmeet Sahani e-mailed his brother and
parents, giving them his reasons why they should execute the backdated resolution of
February 28,2012. Exhs. 59 and 1263, p. 2. Gurmeet Sahani's e-mail stated, in part:
This also means that no additional guerantees are needed from any otherindividual [other than Gurmeet Sahani]. This is good news. . .
l, however, want the new property's title to be held in the new company, onewhich includes a rightful share for Pete, but to do so without creating any more riskin the eyes of the bank, or having to provide personal guarantees. . .
. . I would request that the board of director's minutes [sic- unanimousconsent of shareholdersl dated Feb 28, 2012 be signed. This is not something thatwill be recorded with the California Secretary of State - it remains only in ourcorporate books of minutes. lt is only to show the bank and for their files, so that I
can then assign what is only in my name to form a new company to include Pete[Gurpreet] in the Valencia property.
And last but not least, I do not need to explain the discrepancy between thepercentages of ownership on the faxes and what is recorded with the CalifomiaSecretary of Sfafe. This was done by Bruce [Miller] and I because we as a familywant to minimize our taxes. lf I don't have a good answer for this, then the Bank willquestion the integrity of all that has been preparcd by our accountant.
Exhs.59 and 1263 p.1, emphasis added.
Gurmeet Sahanidid not make adequate disclosures to the other Rajysan
sharehotders in connection witn his November 5, 2012 restructuring proposal, exhibit 144"
Gurmeet Sahani admitted he failed to disclose in his e-mail to the Rajysan shareholders
that the bank required Rajysan's guaranty on an $8 million loan; Gurmeet simply assured
his family that their personal guarant6es were not required. RT 152:20-275
Gurmeet's mother e-mailed back to him: "l'm not clear about the changes of
percentages on the tax documents, can you please clarify those for me?' Exhs. 59 and
1263, p.1.
5 Gurmeet Sahaniwas asked the question multiple times before he answered in a responsive manner. RT 5-21-18 150-152. This occurred numerous times during his trialtestimony.
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Gurpreet Sahanitestified that Bruce Miller prepared the tax returns and he did not
review them. RT 5-17-18 at 110-111.
Later, on November B, 2012, Gurmeet e-mailed his mother, with a copy to his wife,
father, brother, explaining that the original Rajysan Secretary of State filing in 1991 stated
Gurmeefs parents each owned 33% of Rajysan shares and Gurmeet and Gurpreet each
owned 17% of the shares (there is no such document in evidence):
The tax returns filed in the last 10 years, with Bruce [Miller], and often theseare decisions he made in the interest of saving us taxes, show me and Pete bothhave 25a/o each.
Exh 1263, p.1; Exh 59, p. 1
Gurmeet Sahani's Novembe r 8,2012e-mail, quoted above, is an admission that the
Rajysan tax returns prepared by Bruce Miller do not necessarily reflect the truth and are not
reliable,
Gurmeet Sahani handled the tax returns for the family; he would simply advise the
family that the taxes have been paid. RT 5-17-18 30-32. Gurpreet Sahani testified he relied
on Gurmeet Sahanito handle the tax returns. RT 5-17-18 161. After Gurmeet Sahaniwas
fired, the family tried to locate the tax returns and asked Bruce Miller for copies of the tax
returns. /d. That is when the family learned that the percentage of shares in Rajysan had
been misstated on the income tax returns. /d.
Amarjit Sahani e-mailed from lndia: "l will be there on the 13th [of November 20121
in the afternoon, maybe we can set across the table and thrash it out. . ." Exh. 1263, p.1.
The other shareholders, Amarjit, Rajinder and Gurpreet Sahani, refused to sign the
backdated unanimous consent of shareholders and refused to approve Gurmeet Sahani's
restructuring plan. The other shareholders did not agree to Gurmeet Sahani's
November 5,2012 restructuring plan, exhibit 144.
G ulmpet Sahani'q Nqvember .g,a?-:l 2 Bpqig natign
On November 9, 2012, al ll:15 p.m., Gurmeet Sahani sent an e-mail to his parents,
brother, wife and Bruce Miller, resigning from his "responsibilities and duties as a founding
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member, now president and CEO of Rajysan lnc., MMD Equipment." Exh. 1266. The e-
mail added, in part, "ln the wake of my decision, there is the matter of escrow and bank
financing for the new building. . . /d. Gurmeet Sahani testified that he resigned due to the
family dynamics, their animosity towards him, their lack of understanding and their
insecurities which were flared for no good reason. RT 5-21-1877:1-9.
On November 1 1,2012, Amarjit Sahani e-mailed his son Gurmeet Sahani from lndia
urging him not to deny him the joys of spending time with his family, not to resign, and to
just be equitable with his brother. Gurmeet Sahani was breathing not only for himself but '
for all of them. Exh. 1267, p.4; RT 5-21-18 78-80. Gurmeet Sahani replied to his father,
stating that his brother Gurpreet does not have the ability or metal to follow through, his
expectations are unreasonable, not equitable and not drawn along the lines of contributions
and results. 'Allow me to start the next chapter in my life." Exh. 1267, p. 3. On
November 11,2011, Gurmeet Sahani's father e-mailed him and said he would try to speak
with Gurpreet Sahani and make him see Gurmeet Sahani's point of view. He requested
that Gurmeet Sahani not precipitate anything until he returned. Exh. 1267, p.2. Gurmeet
Sahani e-mailed in response that he had given Gurpreet Sahani enough of the share,
enough should be enough. Ex. 1267, p.1. His father responded to Gurmeet Sahani: "l think
we should talk further when I get back on Tuesday [November 13, 21027." Exh. 1267, p.1.
Navemlpr 1 3'.20 1.2 Fpm-ily*Meeting
Gurmeet Sahani's father Amarjit Sahani returned from lndia and on
November 13,2012, there was a family meeting at Gurpreet Sahani's home on Gleneagles
Drive in Tazana, eight days after Gurmeet's e-mail of November 5, 2012, at 6:56 p.m.
sending the restructuring plan to his family and his wife Jasmine. Exh. 144: RT 5-16-18
On November 16, 2A12, Gurmeet's mother, Rajinder Sahaniwas the corporate
secretary of Rajysan.
Gurmeet Sahani prepared a document dated November 16,2012, which stated that
his wife, Jasmine Sahaniwas the corporate secretary of Rajysan. Exh. 60. Jasmine
Sahani, as the purported corporate secretary, executed the document on
Novembe r 16, 2O12. RT 5-15-18 1 17:17-20. The document states that Gurmeet owned
75% of the shares of Rajysan, Gurmeet was'the president and treasurer of Rajysan and
Jasmine was the vice president and secretary of Rajysan. Exh 60; nt 5-15-18 117:1A-28.
This information was false.6 ,
6 Gurmeet Sahani's assertion that he was a 75% owner of Rajysan is based on capital contribution, acorporate book he saw when he was living with his father and his father's statements, up until 2008, that:"The company is mine." RT 5-15-'18 118:23-119:7. This testimony is not credible.
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QuUneet gahani and Jasm"ine Sahani $!glt$N$,Lpan Commitmsnt LelL$J
On November 16,'2012, Gurmeet Sahani and Jasmine Sahani signed the CNB $4.3
million loan commitment letter on behalf of Rajysan as guarantor on Halcyon's loan for the
purchase of the Old Road property. Exh. 107. The CNB commitment letter they executed
required an executed Old Road property lease between Halcyon and Rajysan for a
minimum of 21 years. Exh. 107, p. 4. Gurmeet Sahani did not disclose to the other Rajysan
shareholders that he executed the CNB loan commitment letter on behalf of Rajysan that
required both a 21-year lease with Rajysan as the lessee and required that Rajysan
guaranty Halcyon's loan. When asked if he sent Exhibit 107 to the Rajysan shareholders
before he signed it, Gurmeet Sahani testified: "l don't recall." RT 5-16-18 39:3-8.
Gurmeet Sahani executed the loan commitment letter as president of Rajysan.
Gurmeet Sahaniwas never the president of Rajysan. Amarjit Sahani has always been
president of Rajysan. RT 64-18 114. There was no corporate resolution of other operative
corporate document that caused Gurmeet Sahani to become president of Rajysan.
Escrow closed on the Old Road property on Valencia on December 5,2012. RT 5-
CNB's November 14,2O12loan commitment letter, executed by Gurmeet Sahani
and Jasmine Sahani on November 16, 2012, required an executed lease agreement
between Halcyon and Rajysan for a minimum term of 21 years to close the loan. Exh. 106,
p.5.
On November 16, 2012, Jerry Scullin e'mailed Gurmeet Sahani in response to
Gurmeet's waiver of the finance contingency:
I think you made a great business decision. Over time, Rajysan or itsfuture owner will cover the cost of the real estate and then the LP [Halcyon] will ownthe property debt-free. We can do the NNN lease with Rajysan whenever you areready. Deservedly, you should be feeling pretty good right now."
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Exh.40, pp.2-3.
Gurmeet Sahani's testimony that the lease was provided by the Bank involved in the
transaction was not credible. On November 19,2012, Jerry Scullin of Delphi Business
Properties e-mailed a draft lease to Gurmeet Sahani "for your new entity." Exh. 40, p.1.
Gurpreet Sahanitestified that Gurmeet Sahani never discussed with him the specific
terms of the lease, the monthly rental amount or increased monthly rent of the Old Road
property lease. RT 5-1718 77.
On November 26, 2012, Gurmeet Sahani executed on behalf of both Rajysan and
lcyon Valencia Partners, L.P., a triple net lease for the Old Road property. Exh, 38, p. B;
RT 5-15-18 164:18-165:13; 172:20-173:1. The signatures for Rajysan are Gurmeet Sahani,
"President' and Jasmine Sahani "Secretary.'1 /d.
Jasmine Sahani was never an officer or director of Rajysan.
Gurmeet Sahaniwas never the President of Rajysan.
The Rajysan corporate secretary, Rajinder Sahani, was told that Rajysan signed the
lease, but was not provided with a copy of the lease on the Old Road property. RT
5-22-18 69-70.
ln June 201g, Gurmeet Sahani gave his mother, Rajinder Sahani, a tour of the Old
There was a first mortgage from CNB in the amount of $4,300,000 and a second
mortgage from CNB in the amount of $3,440,000. Exh. 109.
There are no corporate minutes or any other document approving the use of
Rajysan funds for the down payment for the Old Road property. The Court finds that
Gurmeet Sahani did not ilisclose to the other shareholders of Rajysan that he would use
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$630,722 or any other amount of Rajysan funds for the down payment on the Old Road
property, nor did he obtain their permission to do so.
$hargholder Loans
On December 14,2012, Gurmeet Sahani e-mailed his tax preparer Bruce Miller and
advised him that he was moving forward with the purchase of the Valencia property. Exh.
65, p.1 . However, escrow closed earlier on December 5, 2012, Exh.109
Gurmeet Sahani advised Miller that the Old Road property would be a personal
asset, not one comingled with the family, and he set up a new company, Halcyon Vatencia
Partners, L.P. to purchase the Valencia property. Exh. 65. Gurmeet Sahani's e-mail stated:
Please note. Rajysan will sign a Z1-year lease to rent the building from Halcyon. Rajysan
will return my shareholder loans, which I will use as the down payment on this building.
RT 5-21-18 80-81. At trial, Gurmeet Sahanitestified that he loaned money to Rajysan in '
2O1O and 2011 "as well as the Australian dollar amount convbfted." RT 5-21-1814-19,
There was no disclosure to or approval by the other Rajysan shareholders to take these
actions.
When Gurmeet Sahani was asked if there is written documentation that
substantiates his claim that he told the Rajysan shareholders that he was going to use the
shareholder loans referred to in exhibit 65-1 as a down payment on the Old Road property,
he testified: "l don't know." RT 5-21-1 B 149:21-27.
On September 27,20'12, Gurmeet Sahani executed a business debt schedule for
submission to CNB in connection with the Rajysan loan application. Exh. 63, p. 9; RT 5-16-
19 33:20-34:26. He was required to list all the installment loans, lines of credit, contracts,
notes and mortgages payable, and capitalized leases of Rajysan, lnc. Exh. 63, p. 9.
Gurmeet Sahani included a $1 million note payable to him by Rajysan with a present value
of $764,361, which he characterized as a "loan from shareholder." /d.
Gurmeet Sahani testified that from "inception" until he was removed, there were no
notes or shareholder resolutions reflecting loans between the shareholders and Rajysan.
RT 5-21-18 1 82:1-5. He testified that there are no signed loan agreements or promissory
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notes documenting the loans he testified at trial that he made to Rajysan. RT 5-21-18
162:25-163:9.
Gurmeet Sahani did not produce any canceled check, checking account statement,
savings account statement or any other documentation of the transfer of $1 million to
Rajysan and did not offer an explanation why he did not do so. His testimony on this issue
was not credible.
The Court may consider the ability of each party to provide evidence. CACI 203. lf
weaker and less satisfactory evidence is offered when it was within the power of the party
to produce stronger and more satisfactory evidence, the evidence offered should be viewed
with distrust. Evidence Code Sa12; CACI 203.
Gurmeet Sahanifailed to sustain his burden of proving that he made a loan of $1
million, or any other amount, to Rajysan.
Red-D-Arc
Red-D,Arc was an existing customer of MMD and Rajysan's largest customer. RT 5-
30-18 4447 ,63. Rajysan was supplying Red-D-Arc with EPA classification tier 3
generators, needed in the oil and gas business. RT 5-30-18 44-47. Gurmeet Sahani
testified that in early 2013, Red-D-Arc began to issue non-cancelable purchase orders for
$30 to $35 million in generator purchases. ld. Hokustsu was a potential supplier.
ln January 2A13, Gurmeet and Gurpreet Sahani attended a meeting at Hokustsu in
Japan to obtain generators to sellto Enron Oil and Gas (EOG). Exh. 1023, RT 5-21-18
100-1 1B; RT 5-30-18 27-36. At the bottom of their power point presentation to Hokustsu
were logos, including lnvincia's logo. Exh.1023, RT 5-21-18 100-118; RT 5-30-1827-36.
Gurmeet Sahani testified that Gurpreet Sahani did not him ask any question about the
logos or the mention lnvincia logo on the power point. RT 5-30-18 36-37. Gurmeet Sahani
argues that this power point corroborates that his brother Gurpreet was aware of the
restructuring plan.
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Gurpreet Sahanitestified that typically he and his brother Gurmeet Sahaniwould go
over the presentation the night before. RT 6-6-18 4143. On this occasion, Gurpreet Sahani
asked his brother Gurmeet Sahani for the presentation and Gurmeet Sahani said it wasn't
ready yet. /d. Gurpreet Sahani saw the presentation for the first time when the power point
was shown to Hokustsu. ld. Gurpreet Sahani did not understand why the logo was on the
power point, nor did Gurmeet Sahani explain it to him. /d. The family never accepted or
agreed to Gurmeet Sahani's restructuring plan.
Qu"rrneet S.q.npni ${etifies"Hlp Fgmilylhat lJs $isned thp'Old RaaS L asp,,
S? d*ys Afte-f. He $jgned it,,",Sut Did Not Attsqh.,E, gppy #ltbp JFsgSq
On February '1,2O13, Gurmeet Sahani e-mailed his family and Jasmine Sahani:
"Saw this in my out box. Thought it was sent some,time ago." Exh. 1272.The b-mail stated
that Gurmeet Sahani was negotiating an offer for the sale of the Rajysan building, he
signed a multi-year lease for the Old Road Building and would "define timelines for our
move" once the negotiations with the current tenant are complete. /d. Gurmeet Sahani did
not attach to the e-mail the lease he signed on behalf of Rajysan 67 days earlier, on
November 26,2012, exhibit 38. /d.
Mnrph.3. ?01.3 let{pr ts klr. M.Srg*nSlpln
On March 2,2013, Gurmeet Sahani signed a letter, as president of Rajysan,
purporting to set forth all the outstanding loans to shareholders, DRM and lnvincia. Exh.
213, p.3. Gurmeet Sahani was not president of Rajysan at that time, or any other time.
The letter noted that "payments for Halcyon Valencia Partners, L.P. are treated as
distributions to Gurmeet." Exh. 213, p.3; RT 5-21-18 84. Gurmeet was instructing his
accountant to "reconcile" the monies he transferred from Rajysan on December 5, 2A12b
the Old Road escrow as a down payment on the Old Road property. TR 5-21-'18 84-85.
Neither the transfer of money from Rajysan to the Old Road escrow nor this "accounting"
were disclosed to the other Rajysan shareholders nor did they approve it.
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When Gurmeet Sahaniwas asked whether there are any minutes of Rajysan board
meetings that reflect an approval of the payments to him from the Hertz-lnvincia
transactions reflected in Exhibit 213, he testified: "l don't know." RT 5-21-18148-149.
JJbl 2013: fr-rmeet Executes a Commitment letter for q
$?0.07 Million RajysAn,and lnvincia Line ot_Gredji
Gurmeet Sahani applied for a $20,070,000 line of credit for Rajysan and lnvincia in
or about July 2014. Exh. 1 18, p.1. The purpose of this line of credit was to finance the
fulfillment of the Red-D-Arc order (RT 5-30-18 76), in other words, pay for the generators
which would be purchased from Hokustsu for sale to Red-D-Arc.
Gurmeet Sahani executed a commitment letter dated July 24, 2013, which increased
Rajysan's line of credit from PNC from $5 million to $20.07 million. Exh. 118, p.4; nf S-tO-
18 44:19'47 . Over his signature as "CEO, President" of Rajysan, the document stated:
"Agreed and accepted with the intent to be legally bound." Exh. 1 18, p.4. Gurmeet Sahani
was never the president of Rajysan.
Gurmeet Sahanitestified that in February 2A13, his father, Amarjit Sahani, asked
him what is going on, I'm hearing all kinds of things from people and Gurmeet Sahani told
his father about the line of credit. RT 5-30-18 77. Gurmeet Sahani testified that at the end
of the conversation with his father, his father said: 'Who is stopping you?" and "That's
great." RT 5-30-18 81, 85. Gurmeet Sahani testified to similar conversations with other
family members. Gurmeet Sahanitestified that he advised the family shareholders about
the $20 million line of credit and obtained their consent to taking the line of credit from
PNC.
The other family shareholders, Amarjit, Rajinder and Gurpreet Sahanitestified
credibly that Gurmeet Sahani did not disclose the PNC $20 million line of credit to them,
and they did not approve it.
There was no Rajysan board meeting or other corporate action authorizing Gurmeet
Sahani to request or obtain the $20 million line of credit from PNC Bank. The Court finds
that Amarjit, Rajinder and Gurpreet Sahani did not know about Gurmeet Sahani's request
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for a $20 million line of credit in advance, Gurmeet Sahani neither disclosed nor.made full
disclosure to them or approve it in advance. The Court finds that had Gurmeet Sahani
made full disclosure to Amarjit, Rajinder and Gurpreet Sahani, they would not have agreed
to the $20 million line of credit from PNC Bank
The increase in the credit line was to refinance Rajysan's existing debt, to pay off
shareholders' subordinated debt, purchase his parent's shares,in Rajysan pursuant to the
reorganization plan dnd fulfill existing orders from Red-D-Arc. RT 5-21-18 53-57. Gurmeet
Sahaniwas to provide a personal guaranty and a $2 million cash deposit with PNC as
collateral. RT 5-21,-18 56-57.
When Gurmeet Sahaniwas asked whether he sent the letter to the other Rajysan
shareholders before he signed it, he answered: "l don't remember." RT 5-16-18 45:16-19
He also did not remember whether he e-mailed any of the other Rajysan shareholders to
obtain their consent to increase a line of credit from $5 million to $20 million. RT 5-16-18
:2546:L He admitted that he never provided his parents with documents relating to the
finalized term of the $20 million line of credit. RT 5-16-18 46:28- 4V:3.
Gurpreet Sahani did not authorize Gurmeet Sahani to increase Rajysan's line of
credit from $5 million to $20 million and did not see any documentation regarding the
increase in the line of credit to $20 million before Rajysan terminated Gurmeet Sahani.
RT 5-17-1874-75.
Gurpreet Sahani testified that he learned of Gurmeet Sahani's attempt to raise the
PNC credit line to $20 million rvnen he traveled to the New Jersey Rajysan office and
contacted PNC, RT 5-17-1874-75. Gurpreet Sahani also testified that he learned of the
increase of the line of credit in July or August 2013, and verbally communicated his
objection to the increase in the line of credil RT 5-17-18 147-148.
The Court flnds that Gurmeet Sahani did not disclose to or obtain approval from the
other Rajysan shareholders to increase Rajysan's line of credit from PNC from $5 millidn-
$20 million.
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ln July 2013, Gurmeet and Gurpreet Sahani and Paul Daly attended a meeting at
Red-D-Arc's offices in Atlanta to discuss the fulfillment of the letter of intent for 18,000
generators and to discuss Rajysan's restructuring, as proposed by Morganstern. RT 5-30-
18 60-632. Ex. 1019 was placed on the power point; that exhibit had lnvincia, Lynxrite,
MMD and Rajysan corporate logos at the bottom of the pages. Gurmeet Sahani testified
that page 13 of Exhibit 1019 communicates information about the restructuring and
Gurpreet Sahani saw it on the power point and didn't object to the power point, ask
questions about the restructuring or state it was subject to a vote. RT 5-30-18 68-71 . This
did not constitute disclosure regarding the restructure plan to Gurpreet Sahani or approval
by him.
August 1€, 2013 Amendmeqt ,of S;ajy$sn By*p1€
Gurmeet Sahani testified that he was given notice of the August 16,2013 Rajysan
board meeting when he was on vacation with his family in Fiji. When Gurmeet Sahaniwas
asked if he had any documentary evidence that he actually had to come back to early from
his family vacation in Fiji to attend the board meeting, he testified: "l don't know if I do or I
don't." RT 5-31-18 92. He provided no documentary evidence that he was on vacation in
Fiji and/or had to incur change fees to travel home to attend the board meeting.
Gurmeet Sahani brought his wife Jasmine Sahani to the meeting, stating that she
was a Rajysan officer and a shareholder and he wanted a witness. RT 5-30-18 144-147.
Jasmine Sahani was never an officer or shareholder of Rajysan. Jasmine Sahani remained
for the entire meeting. RT 5-30-1 8 152. Gurmeet Sahani took the position that since there
were no signed formation documents, the bylaws could not be amended. ld.
On August 16, 2013, the bylaws of Rajysan were amended to, among other things,
prohibit any officer from incurring indebtedness on behalf of the corporation in excess of
$10,000 without obtaining the prior written consent of the majority of the board of directors.
Exh. 407, pp. 30-51, at p. 38. Gurmeet Sahani voted against the amendment. RT 5-30-18
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151. Rajinder Sahani testified that tensions emerged among family members at this time.
RT 5-25-18 122.
Gurmeet Sahani testified that the next morning, August 17,2013, he called Cliff
Livingston at PNC bank, and advised him of the meeting. RT 5-30-18 153.
On September 1 A,2013, Clifford Livingston, vice president of PNC Bank, e-mailed
the Sahani family, stating that PNC was in the process of approving a temporary extension
the line of credit and requested a meeting at PNC bank in New Jersey so the bank could
more fully understand the family's plans for Rajysan and how the shareholders anticipate
managing the working relationship with PNC Bank relative to PNC's loans. RT 5-25-18 at
123, Exh. 1 190. The e-mail stated, in part: "This meeting is critical." Exh 1190.
$e ptem ber'!j[.,?0 1:9 Teffi in$tion . of G U rm eqlga ha nj
At a contentious Board meeting on September 11 ,2013 at approximately 6:00 p.m.,
Gurmeet Sahaniwas terminated as an employee of Rajysan for breaching his fiduciary
duty and entering into interested transactions without prior disclosure and approvals. Exh.
407 p.56. Gurmeet Sahani was also terminated as "officer/President"T of the company.
Exh. 407 p.57, 59-60. Jasmine Sahani's employment was terminated at the meeting. RT 5-
17-18 60. Gurmeet Sahani handed over the corporate books to the corporate secretary,
Rajinder Sahani, who accepted it. /d.
Officers were elected as follows:
President: Amarjit Sahani
Executive Vice President: Gurpreet Sahani
Secretary: Rajinder Saha ni
td.
7 Amarjit Sahani was the president of Rajysan. RT 6*4-18 1 14. There was no corporate resolution of otheroperative corporate document that caused Gurmeet Sahanito become president of Rajysan.
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After the meeting, Gurmeet Sahani and Jasmine Sahani hurried to Gurmeet's office,
where they locked the door and remained for three hours after the meeting. RI 5'22'18 59-
60; RT 5-29-19 1 13. Approximately 10 minutes after the meeting, Gurpreet Sahani
knocked on the office door and neither Gurmeet Sahani nor Jasmine Sahani answered the
knock. They were both present in the office, heard Gurpreet Sahani knocking at the door
and did not answer the door. RT 5-17-18 58-59'
After knocking on the door, Gurpreet Sahani slid Exhibit 1 under the door to
Gurmeet's office on September 1 1,2013 after the board meeting. RT 5-15-18 37:20-38:3;
.42:8-24. Rajinder Sahani observed Gurmeet Sahani and Jasmine Sahani leaving the
Rajysan building, rolling two duffel bags out of the office, hours after Gurpreet Sahani slid
Exhibit 1 under the door to Gurmeet Sahani's office door. RT 5-17-18 58-59; RT 5-22'18
03. Jasmine Sahani admitted that she and her husband carried two to three briefcases full
of documents out of the Rajysan office. RT 5-29-1 I 114. Gurpreet Sahani told them that
they were not authorized to take anything out of the building, but that did not stop them
from taking two duffel bags of material out of the building. RT 5-17-18 60. Gurpreet Sahani
wanted to avoid a physical confrontation. /d.
The other members of the family left after 10:00 p.m. RT 5-22-19 62-63.
The Court finds that Gurmeet Sahani and Jasmine Sahani received Exhibit 1 when
Gurpreet Sahani slid it under the door to Gurmeet Sahani's office on September 1 1 ,2013,
Exhibit 1 is a letter signed by the members of the Board of Directors of Rajysan,
informing Gurmeet Sahanithat his employment has been terminated effective immediately,
that he is not authorized to conduct any business on behalf of the company or to be
present in the office premises, and directing him to hand over his company phone, office
keys, company credit cards, bank crypto key, and any other company property located in
his office or at his home. He was notified that his personal belongings would be packed and
sent to his home and he was not authorized to occupy his office or enter the Rajysan
building.
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Gurmeet Sahani did not turn over any of the requested property or the bank crypto
key as directed.
QUrmeet Saha-n! and Jasmine $.nhanitVfre fmilsfer af $5.00'00_0
from RajySa,rJts Ageoil$l.to, Thejl Aenoun!
After Gurmeet Sahaniwas terminated and they arrived home, Gurmeet Sahani and
Jasmine Sahani decided to wire transfer $500,000 from Rajysan's account into their own
personal account. RT 5-29-19 118-120.
At 3:00 a.m. the morning after he was fired, on September 12,2013, Gurmeet
Sahani and Jasmine Sahaniwire transferred $500,000 from Rajysan's account to their
personal account using a computer, and the wire transfer was successful. RT 5-15-18 49:6-
18; 52:6-8; RT 5-21-18 131; RT 5-29-19 118. The board did not authorize a transfer of
$500,000 or any other amount. RT 5-22-18 64.
Gurmeet Sahani did not disclose the wire transfer to the other members of the
Board. When asked if he told the shareholders, he testified that he did not recall. RT 5-15-
18 41:4-11:50:14-51:26. The Court finds that Gurmeet Sahani and Jasmine Sahani's
$500,000 wire transfer was not disclosed to authorized by any other Rajysan shareholder
or board member.
The wire transfer violated the August 16, 2003 bylaws, section ll, which prohibits any
officer from incurring any indebtedness on behalf of the corporation in excess of $10,000
without obtaining the prior written consent of the majority of the board of directors. Exh.
406, p. 9. Gurmeet Sahani admitted he received the bylaws, Exhibit 406, before he wire
transferred the $500,000 on September 12,2013. RT 5-15-18 60:1-3.
Gurmeet Sahani's September 12,2013 wire transfer of $500,000 from Rajysan to
hirnself violated his fiduciary duty of loyalty as a Board member.
Gurmeet Sahani's justification for the unauthorized transfer was that he was
transferring money to pay his taxes, as Rajysan had paid taxes on behalf of the other
shareholders. He also justified the unauthorized wire transfer as "a distribution against my
retained earnings." RT 5-21-18 134. Disclosure and consent are required. RT 5-21-18125-
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131. The other Rajysan shareholders were not advised of the wire transfer and did not
consent to or approve of the wire transfer before or after the funds were transferred.
After the early morning wire transfer was initiated, PNC bank called Rajinder Sahani,'
the corporate secretary, about the transfer. RT 5-22-18 65-66; RT 5-25-18 52-71. Neither
she nor any other member of Rajysan authorized the wire transfer. ld. The Rajysan
controller indicated that he knew nothing about the wire transfer. RT 5-25-1 I 52-71.
On September 12,2013, Rajinder Sahani left more than one message for Cliff
Livingston, the contact of record for the PNG account, requesting that PNC not release the
funds. /d Mr. Livingston called back and spoke with Mrs. Rajinder Sahani, the Rajysan
corporate secretary, and advised her that: "We are working on the details of the wire." RT
5-25-18 60. Gurpreet Sahani called Sandra Ashby at PNC, and advised her that the
corporate secretary, Rajinder Sahanispoke to Cliff Livingston and reiterated that Rajysan
wanted a hold on the wire. RT 5-25-18 65-66. The Rajysan controller also placed a similar
call to PNC. RT 5-25-18 67. On September 13,2Q13, PNC e-mailed Gurpreet Sahaniwith
a proof of a wire transfer to Gurmeet Sahani in the amount of $500,000. Exhibit 415.
The audit history on the wire transfer activity report indicates that the wire transfer
was initiated by Gurmeet Sahani on September 12, 2013, at 6:14 a.m. eastern time, after
he was fired, and approved by Jasmine Sahani on September 12, 2013 at 6:15 a.m.
eastern time, after she was fired. Exhibit 415, p. 2. Jasmine Sahani admitted at trial that
she approved the wire transfer, RT 5-29-19 117-118. At no time did Jasmine Sahani have
any authority to approve a wire transfer from any of Rajysan's accounts. At no time was
Jasmine Sahani an officer or director of Rajysan.
Gurmeet Sahani asserts that the other Rajysan shareholders made no effort to stop .
the wire transfer, as they needed the funds in cbnnection with a $20 million line of credit.
The Court flnds that contention is unsupported by any credible evidence. The Court finds
that when the Rajysan shareholders learned that Gurmeet Sahani and Jasmine Sahani
initiated the unauthorized wire transfer, they made all possible efforts to stop the wire
transfer and those efforts were not successful. The wire transfer was successful and
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$500,000 in funds were withdrawn from Rajysan's account and deposited in Gurmeet
Sahani and Jasmine Sahani's account.
Defendants introduced evidence that the IRS denied Rajysan's casualty loss
deduction. However, the defendants did not introduce evidence of the IRS criteria for
casualty losses.
P,l!C Bank Meeting
Rajysan's creditor, PNC, became concerned about the family difficulties and
reguested that the family, but not Gurmeet Sahani, meet with them at PNC Bank. At the
meeting, the PNC Bank president, Mr. Stella, said he was very sorry the family was going
through this, disputes happen in family businesses and it was very regrettable. RT 5-25-18
Kirk Meyer asked why the $500,000 wire transfer went through and PNC representatives
stated that they tried to hold the wire transfer, but it went through their system. RT 5-25-18
76:21-77:19. There were apologies and regrets from PNC about the wire transfer.
Gurpreet Sahanitestified that the $500,000 wire transfer never came up at the meeting.
RT 6-4-18 21. There were questions from Rajysan's controller and acting CFO about the
application for a $20 million Iine of credit. They asked why they did not know about the loan
application and why they were not told that PNC Bank was conducting due diligence on
that loan application. RT 5-25-1875-77.
-lanuary 3$. 2$J:l,f T*rmirutlion of Ou;gr*el'S, g,hffi i from .tllg.F-nprd of Dirpcters
At a special meeting of the Rajysan, Gurmeet Sahani was terminated from the board
of directors and the number of authorized directors of Rajysan was reduced from four to
three. The new directors elected were Amarjit Sahani, Rajinder Sahani and Gurpreet
Sahani. Exh. 407, pp. 67-68.
March ?, ?014 RdySafr..,Beprd Meeting
On March 3,2014, the Board voted to enter into an agreement for a $7.5 million line
of credit with Crestmark Bank to be used to pay off the existing $5 million line of credit with
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PNC Bank. Once the PNC bank line credit has been paid, Gurmeet Sahani's personal
guarantee of the $5 million line of credit would be extinguished. Exh. 4A7, p.71.
RajUSjtF's Dgparture fioni ths,-OJd Raad Propedy
On March 11,2014, Gurmeet Sahani authorized his attorney to send counselfor
Rajysan a letter demanding that Rajysan execute a new lease for the Old Road property or
agree to vacate the premises by May 1 ,2014. The letter stated that if Rajysan agrees to
vacate the premises by May 1 ,2014, Halcyon will release Rajysan from its obligations
under the lease from the time that possession of the property is delivered. Exh. 42; RTS-
16-18 49:25-51:17.
On March 19,2014, Gurmeet Sahani executed on behalf of Halcyon, a notice to
perform or quit, seeking back rent in the amount of $52,049.76 on or before April 10, 2013.
The notice to perform or quit stated in part:
You are further notified that, the undersigned does hereby elect to declare theforfeiture of your rental agreement under which you hold possession of the abovedescribed prernises if you fail to perform or otherwise comply.
Exhibit 43, p. 1; RT 5-16-18 51:20- 52:15
Rajysan vacated the Old Road premises in late May or June zAM. RT 5-16-18
56:23-57:7; c.f., RT 5-17-18 40:14.
Sale of !h-e Qld Lgad Ffs,perly
ln December 2015, Halcyon sold the Old Road property for $10.5 million. RT 5-16-
18 64;2-4. Halcyon purchased the property for $8.6 million on December 5,2012. Ex. 109.
Gurmeet Sahani testified that at the time of the sale, Halcyon owed $7,450,000 on
the property,RT 5-16-18 64:13-21.
The proceeds from the sale were deposited into a Halcyon bank account. RT 5-16-
18 64:27-65:1.
$eptgmler 3. ?$34 naiy$q.q Bqad Meeting
On September 3,2014, the Board elected Amarjit Sahani chairman of the board and
appointed Gurpreet Sahani CEO. Exh. 407, p, 73.
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Raiysan Ghpptpr.l 1 Procpedinqg
During the pendency of this litigation, Rajysan filed Chapter 11 proceedings.
Tampa Avenue Propertv Remod*l
Mrs. Rajinder Sahanitestified that she and her husband have lived at 5352 Tampa
Avenue tor 22 years. RT 5-22-18 33. They purchased the residence in 1995 or 1996. She
currently lives there with her husband. ld. She and her husband purchased the property
and title to the property has been held by Amarjit Sahani since the purchase for $600,000,
as no one else had the credit at the time to qualify or to help Amarjit and Rajinder Sahani
purchase the house. RT 5-22-18 34; RT 6-4-18 115, 117.
Title to the Tampa Avenue property was never transferred to Gurmeet or Jasmine
Sahani. RT 64-18 121. Currently, the property is in trust and Gurpreet Sahani is the
beneficiary of the trust. RT 64-1 8 122.
From 1996 to October 2A12, Gurmeet Sahani and Jasmine Sahani and their two
children lived at the property. RT 5-22-18 g4,75-76,78.
Mrs. Rajinder Sahani never told Gurmeet Sahani that the property was his and
never told Jasmine Sahani that the property was hers, RT 5-22-18 34. Neither Rajinder nor
Amariit Sahani offered to purchase a home for Gurmeet Sahani and Jasmine Sahani. RT 5-
22-18 34-35.
Beginning in 2012, Gurmeet put "considerable pressure" on his mother Rajinder to
gift him the house. RT 5-22-18 35. His mother told him it would be his after she died. /d.
Prior to Gurmeet Sahani and Jasmine moving into the house, Mrs. Rajinder Sahani
and her husband Amarjit Sahani paid the $2,000 per month mortgage by personal check.
RT 5-22-18 35-37.
Gurmeet Sahani and Jasmine Sahani lived in his parents' house on Tampa Avenue
from 1995 or 1996 to 2010 or 2011 and lived in the house alone from 2010 to 2012. RT 6-
4-18'124. Some Rajysan board meetings were held at the house. RT 6-4-18 124.
Gurmeet Sahani opened a home equity line of credit on the house for $500,000 and
was "constantly pressuring" his mother Rajinder Sahani to give them money from the line
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of credit to pay DRM company bills. RT 5-22-18 37. Gurmeet urged his parents to loan
DRM $500,000 for a down payment on DRM's purchase of a warehouse in Oxnard. RT 5-
22-18 37. Gurmeet Sahani assured his parents that when he sold that property, the money
would be repaid. Gurmeet Sahani never repaid his parents and the debt on his parents'
Tampa Avenue property increased to $1.2 million. RT 5-22-18 37-38. Gurmeet Sahani and
Jasmine Sahani were paying the payments on the $500,000 home equity line on the
Tampa Avenue. residence and the $500,000 loan to DRM secured by the Tampa Avenue
residence and his p"r"nir were paying the mortgage on their home. RT 5-22-18 37-38.
After Gurmeet Sahaniwas terminated from Rajysan in 2013, and the other
shareholders had access to allthe accounts, Rajinder Sahani learned that Gurmeet Sahani
and Jasmine Sahani used Rajysan and DRM funds to pay the home equity line of credit
payments on the Tampa Avenue property. RT 5-22-18 35-37.
During all relevant times, Amarjit and Rajinder Sahani held title to the Tampa
Avenue property. Mrs. Rajinder Sahanitestified that she and her husband paid the
mortgage with personal checks. Gurmeet Sahani testified that his father, Amarjit Sahani
told him that he paid the mortgage with money he took from Rajysan and did not put it on
the company's books. RT 516-18 110-112.
In 2009, Jasmine Sdhani suggested a remodel consisting of enlarging the hallway,
enlarging the powder room to include a shower and enlarging the garage to include a
maid's room and bathroom. RT 5-22-18 4344.
In the spring o12010, Jasmine Sahani insisted that her mother-in-law Rajinder
Sahani move out of her own house and move in with her younger son, Gurpreet Sahani.
RT 5-22-18 44. Rajinder Sahani was emotionally upset by this and resisted her
daughter-in-law. At the time, Rajinder Sahani's husband Amarjit Sahani was in lndia on
business and Jasmine Sahani's father lived in Rajinder Sahani's Tampa Avenue house.
RT 5-22-18 44-45.
Jasmine Sahani and her father walked into Rajinder Sahani's closet, took her
clothes off the hangars, put them in their car and drove to Gurpreet Sahani's house,
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informing Rajinder Sahani: "You can follow with the"rest of your betongings." RT 5-22-18
4445; RT 5-25-18 83. Rajinder Sahani testified that she did.not move out of the house, she
was compelled to leave, and her testimony was credible. RT 5-25-18 83. Rajinder Sahani
then went to lndia for two or three extended stays and was absent from the Tampa Avenue
property from sprin g, 2010 to August, 2014. RT 5-22-18 46; RT 5-25-18 83. Rajinder and
Amarjit Sahani have lived in the Tampa Avenue property since August, 2014 and the
property is currently held in trust. RT 5-25-18 84. The trust beneficiaries are Gurpreet
Sahani and his daughter. RT 5-25-18 85,
Jasmine Sahani denied that this occurred, and her denial was not credible. RT 5-31-
18 154-155.
After Jasmine Sahani and her father put her mother-in-law Rajinder Sahani out of
her own home, Jasmine Sahani used Rajysan funds to scale up the construction at Tampa
Avenue without the knowledge or approval of the owners of the residence, Rajinder Sahani
and Amarjit Sahani. The backyard and tennis courts were torn up, there were large
trenches all around, the front yard was destroyed, and trees had been removed. RT 5-22-
1B 45. When Rajinder Sahani asked her daughter-in-law, Jasmine, why there was so much
destruction and things were torn up, Jasmine responded that they were going to put in a
different kind of pool and backyard, different landscaping and extend the rooms a little
more..RT 5-22-18 46, Rajinder Sahani did not authorize any of this construction. RT 5-22-
18 45-46.
The Tampa House became so hazardous because of the construction that Jasmine
Sahani moved out of the house in October or November 2012. RT 5-29-1 g 121.
The renovations added approximately 2,000 square feet to the house. RT 6-4-18
123,
At trial, Jasmine Sahani admitted to writing "some" checks on Rajysan's account to
pay for the Tampa House remodeling project. RT 5-29-19 121.
Rajinder Sahani testified credibly that Rajysan did not authorize Gurmeet Sahani
and Jasmine Sahani to spend corporate money on the Tampa Avenue property, did not
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have knowledge that Rajysan funds were used for that purpose and no one knew the
extent of the money that they were spending on the project. RT 5-25-18 86-87. Rajinder
Sahani testified that when she asked her son, Gurmeet Sahani, where the funds were
coming from for the improvements to the Tampa Avenue property, Gurmeet Sahani told his
mother that he was using his personal funds, and that he had made money on the
Australian dollar. /d.
After Gurmeet Sahani and Jasmine Sahaniwere terminated frop Rajysan, Rajinder
Sahani learned that Gurmeet Sahani and Jasmine Sahani had been paying the contractors
with Rajysan company checks. RT 5-22-18 47. Rajinder Sahani was the corporate
secretary and did not approve the payments. ,
Jasmine Sahani and Gurmeet Sahani's use of Rajysan funds to pay for construction
and landscaping at the Tampa Avenue home was not disclosed to or approved by Rajinder
Sahani, Amariit Sahani and/or Gurpreet Sahani.
QBM"-Lp"an
DRM seeks $1,037,674, plus prejudgment interest, from Rajysan predicated on a
loan to Rajysan. Gurmeet Sahaniwas on the board of both Rajysan and DRM.
DRM has failed to meet its burden of proving that DRM made a loan in any amount
to Rajysan. There are no loan documents, no promissory note, no corporate minutes
documenting Rajysan shareholder approval of such a loan. Gurmeet Sahani did not offer
any bank statement, cancelled check, wire transfer or other evidence that such a loan was
made. His uncorroborated testimony is not credible.
The Court may consider the ability of each party to provide evidence. CACI 203. lf
weaker and less satisfactory evidence is offered when it was within the power of the party
to produce stronger and more satisfactory evidence, the evidence offered should be viewed
with distrust. Evidence Code Sa12; CACI 203.
Exhibits 463 and 464, contain documentation for numerous shareholder loans to
Rajysan, approved by the Board, documented by executed promissory notes and copies of
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some checks documenting the transfer of money to Rajysan. RT 5-17-18 54-6. There is no
promissory note for a loan of more than $1 million from DRM to Rajysan.
DRM has failed to meet its burden of proof that it loaned more than $1 million, or any
other amount to Rajysan. Even assuming such a loan was made, DRM has failed to meet
its burden of proving that it disclosed the materialfacts regarding the transaction to the
board or shareholders of Rajysan and that a majority of the board or shareholders of
Rajysan, not including Gurmeet Sahani, authorized, approve or ratified tl're contract in a
good faith 'iote and that the loan was just and reasonable as to Rajysan.
Credit QarS Qharg,qg
Jasmine Sahani was the head of accounts payable at Rajysan. RT 5-16-18 pp. 65-
71, Although she has an associate degree in interior design and an M.A. in ancient culture,
she does not have a degree in accounting or business administration and she is not an
accountant or a CPA. RT 5-29-19 88-89.
Jasmine Sahani was employed at Rajysan, from 1997 until 2013 and began
overseeing all accounts payable in 1988 or 1989. RT 5-29-19 88-89. She signed the
paychecks, handled accounts payable, approved most of Rajysan's expenses, signed the
checks and took care of human resource matters. RT 5-29-19 90-91, 93. When Jasmine
Sahaniwas deposed, she testified that she did not recall any specific financial checks and
balances to ensure that all payments made by Rajysan were for business expenses and
not personat expenses. RT 5-29-19 94. She testified at deposition that she did not recall
any accounting to ensure that Rajysan paid only business expenses when people were
using the Rajysan credit cards. RT 5-29-19 99, Jasmine Sahani signed the checks that
paid for her own credit card expenses. RT 5-29-19 99.
As head of accounting and accounts payable at Rajysan, Jasmine Sahani was
responsible for reviewing the Rajysan credit card statements, including her credit card
statements and her husband Gurmeet Sahani's credit card statements, to make sure the
charges incurred on them were Rajysan related business expenses, not personal
expenses. RT 5-29-19 103. Jasmine Sahani was responsible for reviewing the credit card
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statements before they were entered in QuickBooks.'RT 5-29-19 96-97. Some of the credit
card statements were not reviewed at all, they were simply entered in QuickBooks. RT 5-
29-19 97.
Jasmine Sahani paid the entirety of credit card bills and the family was on an honor
system to reimburse Rajysan for non-corporate expenses. Gurmeet Sahani and Jasmine
Sahani reconciled the bank statements. RT 5-29-18 143.
Jasmine Sahani paid for her family's personal and family expenses, including her
children's schooltuition at Buckley and Cate with the Rajysan credit cards and did not
reimburse Rajysan. RT 5-16-18 86-100, RT 5-29-18 100-102. Jasmine Sahani paid for her
children's braces with the Rajysan credit card. RT 5-29-18 100.
At trial, Gurmeet Sahani and Jasmine Sahani took the position that Rajysan properly
paid for school tuition and related expenses for their children. Gurmeet testified that
thousands of dollars of Mont Blanc pens he purchased at the Mont Blanc store in Glendale
and the Mont Blanc shop at the Palazzo Hotel in Las Vegas were "gifts," but did not name
a single person or entity to whom Rajysan gifted any of the pens. Gurmeet Sahani has a
pen collection. RT 5-25-18 185:12-21.
Rajysan paid "Smart Tuition" charges of $7,393 and $949.41 . 5-16-18 RT p.98.
Jasmine Sahani took the position that payments to a Woodland Hill business, Skin
Results, for facial hair removal and laser treatments for dark pigment on her face were
proper corporate expenses to be paid by Rajysan because her insurance did not cover the
facial cosmetic treatments. RT 5-29-1 I 102-106; 5-16-1 B 97-98.
26 U.S.C. $262(a) prohibits deductions for personal expenses. Jasmine Sahani's
skin treatments were not Rajysan business expenses. lf the Rajysan medical insurance
policy did not cover the treatments, Rajysan was free to institute a Health Care Spending
unt.
Jasmine Sahani testified that Rajinder Sahani approved billing schooltuition and
facial treatments to Rajysan. RT 5-29-18 154-156" Even if that testimony is true, such
expenses would not be properly chargeable to the corporation as a business expense
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Jasmine Sahani gave her mother, Mrs. Sani, a Rajysan corporate credit card to
purchase items from Bombay Palace when she was in London, the expense was billed to
Rajysan as a "travel expense" and Rajysan paid the expense. RT 5-29-19 107-109.
Rajysan paid charges for trips that appeared to be nothing more than family
vacations.
Gurpreet Sahani reviewed the credit card bills and bank statements after Gurmeet
Sahaniwas fired and reviewed the forensics report on the credit card expenses. RT 5-17-
18 77-80. He testified that he observed Gurmeet Sahani used the Rajysan credit card for
personal expenses and his review of Gurmeet's Rajysan credit card charges showed many
charges that appeared to be personal charges. /d.
Gurmeet Sahani testified that one of the Smart tuition charges was marked
"personal." RT 5-16-18 101. He stated that if a charge was marked personal, either the
shareholder would pay for it, or the accounts would reconcile it at the end of the year. He
then contradicted himself, stating that Rajysan would pay the charge in the first instance.
RT 5-16-18 101-102.
Gurmeet Sahani testified that the Rajysan tax returns contained a line for disallowed
meals and entertainment. RT 5-15-18:161-162; RT 5-17-18 169.
Neither Gurmeet nor Jasmine Sahani produced any bank or other records showing
they reimbursed Rajysan for personal credit card expenses paid by Rajysan.
Bruep.M,il_lgt
One of the five consolidated actions in this litigation is Rajysan's April 1,2A15
complaint against Bruce Miller, his wife Jodee Omer-Miller and his firm Bruce.Miller &
Associates, Case No. PC056071. On May 14,2018, the first day of trial, counsel for the
Miller defendants reported to the Court that the Miller case settled.
Gurmeet Sahani called Bruce Miller as a witness in his defense case. Miller
appeared twice voluntarily, without subpoena, once on 90 minutes notice. RT 5-30-18 117
n he testified in defendants' rebuttal case, he "dropped everything to come in and help
Gurmeet." RT 6-6-18 90. Prior to Bruce Miller's deposition, he spoke with Gurmeet Sahani
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three to four times and he was represented by Gurmeet Sahani's former counsel. RT 5-30-
18 117-121. Currently, he is the accountant for Gurmeet Sahani and his businesses,
including DRM. RT 5-30-18121.
Bruce Miller owns Miller and Associates in Sherman Oaks, California, a tax and
accounting firm for bookkeeping, payroll services, tax preparation and consulting. RT 5-30-
18 93-94. Bruce Miller is not a CPA. He has an undergraduate degree in history and no
graduate degrees. He is an enrolled agent. He testified that he has represented more than
250 S corporations in his career, He represented Rajysan from 2002 through 2012. RT 5-
30-18 95.
He performed payroll services for Rajysan from 2A04 through 2013 and prepared
individual tax returns for the Sahani family. RT 5-30-18 95-96.
He is currently the accountant for Gurmeet Sahani and his businesses.
Bruce Miller testified that he met with Rajinder Sahani, who wanted to decrease her
shares in Rajysan and increase Gurpreet and Gurmeet Sahani's shares by 5% each. RT 5-
30-18 115. Rajinder Sahani testified that she never had such a conversation with Bruce
Miller; her testimony is credible and Bruce Mille/s testimony is not credible. RT 6-6-18 65.
The first time Bruce Miller prepared tax returns for Rajysan was the 2004 return.
RT 5-30-18 101. The K-1's on the 2OA4 federal return he prepared list shareholder
percentages as 33-33-17-17 that is, Amarjit Sahani and Rajinder Sahanieach owned 33%
of Rajysan, and Gurmeet Sahani and Gurpreet Sahani each owned 17o/o of Rajysan. RT 5-
30-18 99-100. Mr. Miller used these numbers for subsequent tax returns. ln 2005, the tax
returns Mr. Miller prepared reflected a 30-30-20-20 ownership, but there is no corporate
documentation of the change of shares. The 2008 return reflects a 30-20-25-25 ownership.
RT 5-30-18 113,
On cross-examination, Bruce Miller admitted that he relied upon Gurmeet Sahanifor
his information about the shareholders' percentage ownership of Rajysan for preparation of
the Rajysan tax returns and the shareholder's K-1 forms. RT 5-30-18 123.
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Bruce Miller has never seen corporate minutes changing ownership shares of
Rajysan and has never seen any documentation for any of the shareholder loans that
appear on the Rajysan tax returns for any year that he prepared them. RT 5-30-18123,
126. He has never seen a DRM-note payable to Jasmine Sahani and Gurmeet Sahani in
the amount of $500,000. RT 5-30-18 126.
As of September 2012, Bruce Miller believed that Hertz was not a Rajysan
ll Ourmeet Sahanitestified that personal vacations billed to Rajysan inctuded a family I
llctuise, Fiji and Yosemite and his family would meet him on business trips. Jasmine Sahani
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lltestified at trial that they took family vacations, but not every year. Most of the time the
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lltamilV joined Gurmeet Sahani on a business trip, adding a few days for a family vacation.
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llnf S-ef -18 163. Jasmine Sahaniwas impeached with her deposition testimony, in which Iil
llsne testified that her family has taken a family vacation approximately once a year since
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ll zoos. Rr s-31-18 164. I
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ll "n Septem ber 12,2013,Gurmeet Sahani sent an e-mail to Rajysan, stating, in na*
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ll "l understand you been asked to prepare my final check. With the exception of this year I
ll 'u uEUil.15r\su r,u PrvP.lrs nry ilrlcu uilt'un. vvil.il r.ils exuePuon ot Utlti ygal, I
lf wnere I took 12 days off, I haven't taken any vacation in the last 27 years. Please be sure
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llto accumulate all my vacation pay." Exh. 181; RT 5-31-18 140. I
ll tecond, Mr. Bower found an unexecuted promissory note in the amount of
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ll$2t8,899, which Gurmeet Sahani asserted were payments to Halcyon Valencia Partners I
llt t on behalf of Rajysan in connection with the Old Road purchase, There was no OacL up I
lIin n";yr"n's books for this note. When asked if others made loans to Rajysan without I
lInrori..ory notes, Mr. Bower testified that his primary interest was the economic srUstance I
llu"nino the transaction. RT 5-24-18 5e-60
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ilil,,ll .rArEMENr oF DEcrsroN
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Third, Mr. Bower found that $500,492 in Rajysan funds was used for construction of
a residential property.
Fourth, he found unsubstantiated credit card payments for $164,91S, that is,
payments without any back up credit card statements to support the business purpose for
the charges.
Fifth, Mr. Bower found payments to Gurmeet Sahani's Nordstrom's account in the ,
amount of $18,439; Mr. Bower testified that these were not company expenses.
The sixth category was unsubstantiated payments to Gurmeet Sahani in the amount
of $123,228. There were no physical records showing the purpose of the payments and no
back up documents for the items. Mr. Bower accepted management's representation that
there was a $500,000 wire transfer to Gurmeet Sahani in September 2013, analyzed
above.
Seventh, Rajysan paid $5,419 for Gurmeet Sahani's residence utility bills from the
Department of Water and Power, the Gas Company'and Time Warner Cable.
Eighth, with respect to the Hertz-lnvincia transactions, Mr. Bower reviewed the
Rajysan management analysis of the difference between what MMD charged lnvincia and
what lnvincia charged Hertz. (Exh. 164) The difference was $2,574,990, that is, the profit
that lnvincia made from appropriating Rajysan's Hertz order.
Ninth, Rajysan paid $65,000 rent on the Old Road property during the time that
Gurmeet Sahani and Jasmine Sahani's company was collecting rent from another tenant.
Non-Mgnetary Findj$g$
Mr. Bower opined that during the period of time that Bruce Miller & Associates
performed accounting services for Rajysan (prior to the retention of Morganstern),
Rajysan's financialstatements had never been prepared in accordance with generally
accepted accounting principles. Mr. Miller prepared Rajysan's tax returns through 2012.
Morganstern did not perform an audit. Prior to the retention of Morganstern, Jasmine
Sahani had primary responsibility for the records and books of Rajysan. The company had
an outside bookkeeper, Bruce Miller's wife Jodee Miller, who, in the opinion of Mr. Bower,
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did not even have a fundamental knowledge of accounting. RT 5-22-'18 133-134. Cash
deposits were recorded backwards. The books could not be reconciled at the end of the
month and the bookkeeper simply entered a "reconciliation number" so the books would
balance.
Morganstern sent Rajysan a 2S-page management comment letter, typically sent
when an accounting firm concludes that the company's books cannot be relied upon. Exh.
176; RT 5-22-18 138-140. There were 120 adjusting journal entries and Morganstern
recommended hiring a controller. Mr. Bower testified that he has never seen a
management comment letter with so many adjusting journal entries; he has r..n "
tetter
with five to ten adjusting journal entries. The letter was addressed to Gurmeet Sahani. lt is
unlikely that Gurmeet Sahani brought this letter to the attention of the other shareholders,
as Rajinder Sahani had not seen the letter before Mr. Bower showed it to her, Mr. Bower
found major problems with Rajysan's books, including recording bank deposits with no
corresponding record of such a deposit. RT 5-22-18 143-152. Mr, Bower opined that
Rajysan was issuing NSF checks because the company books were not accurate.
Mr. Bower did not calculate monetary damages with respect to the non-monetary
findings. RT 5-24-18 66.
Mr. Bower testified that whoever was doing the Rajysan books did not know what
they were doing when they booked the Maserati as an expense instead of an asset. RT 5-
24-18. At the time, Jasmine Sahani was in charge of the accounting department and her
husband Gurmeet Sahani was the CEO of Rajysan. /d.
Mr. Bower testified that Jasmine Sahani used corporate secretary and controller
titles in Rajysan correspondence she.sent to third parties. Jasmine Sahani was never the
controller or the corporate secretary. Rajinder Sahani was secretary of Rajysan.
Mr. Bower was a credible witness. He prepared exhibit 430, a sound, thorough and
detailed analysis of Rajysan's records.
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Defendant's Accountant Barbara C. Luna
Gurmeet Sahani's expert accountant Barbara C.' Luna has excellent credentials. She
is with the accounting form of White Zuckerman Wasavsky Luna and Hunt. She is a CPA,
certified fraud examiner, accredited senior appraiser in business valuation, certified
valuation analyst, certified realestate appraiser, certified management consultant, and has
numerous memberships and eleven publications. She has taught at the UCLA Graduate
School of Management, California State University, Northridge and at Pepperdine
University. She has testified in court 500 times in forty years and has been deposed 500
times. She has been appointed by a Los Angeles Superior Court to value businesses twice
and has testified as an expert in accounting matters relating to closely held subchapter S
corporations approximately 50 to 100 times.
Dr. Luna was retained to analyze the plaintiffs claims, compute any additional
damage and calculate the valuation of Rajysan. Opinions not offered at her deposition were
excluded. Jones v. Moore (2000) 80 Cal. App.4th 557, 564-566; Weil Brown, Civl
Procedure Before Inal (Rutter Group 2018) ll8:1718.1, p. 8J-33,
Dr. Luna reviewed five binders of material and examined the documents pertinent to
the claims, including wire transfers, tax returns, bank statements, cashier's checks and
information on RBZ.
Dr. Luna assumed that Gurmeet Sahani had a 25% interest in Rajysan as of
Sbptember 11,2103 based on the tax returns, K-1's and what Gurmeet Sahanitold her. 5-
23-18 45-46.|t was Dr. Luna's opinion that "the tax returns rule." RT 5-23-18 189.
Dr. Luna opined that Gurmeet Sahani had sufficient cumulative capital in the
retained earnings account and from loans to Rajysan. When asked what IRS code sections
she relied on for this opinion, Dr. Luna stated: "lRS Code 1012 [basis of property - cost],
351 ltransfer to corporation controlled by transferor], 1367 [adjustment to basis of stock of
shareholdersl, 1366.2 [indefinite carryover of disallowed losses and deductions], there are
more," RT 5-23-18 57 Dr. Luna was unable to state the title number of the lnternal
Revenue Code in the United States Code, i.e., Title 26, and had to call her office on a
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break to obtain the information, nor was she able to identify the title number of the Code of
Federal Regulations for the IRS regulations. RT 5-23-18 57-59, 79-80. Dr. Luna did not cite
lnternal Revenue Code sections, regulations or other legal authority that supported her
opinions on the deflnition and treatment of retained earnings. RT 5-23-18 59.
Dr. Luna has no information that any of the shareholders approved Gurmeet Sahani
taking a distribution from his capital account. RT 5-23-18 198-199
Gurmeet Sahani's loans to Rajysan, the "basis in debt," should be on line 16C,
"items affecting shareholder basis," of Gurmeet Sahani's K-1's in the Rajysan tax returns,
and they are not. RT 5-23-18 116-118.
Dr, Luna testified that retained earnings is income that is being keep track of, to
which contributions are added and from which deductions are subtracted. RT 5-23-18 60,
Luna testified that from 2011 to 2014, Gurmeet Sahani always had a "positive balance,"
from a high of $32 million to low of $575,000. She op_ined that Gurmeet Sahani had
sufficient funds in the retained earnings account, cumulative capital account or cumulative
adjustment account to cover plaintiffs damage claim of $4,01 5,112,including the $500,000
wire transfer. He has a positive balance in his capitalaccount and is owed money by
Rajysan. Exh. 415, p. 4. RT 5-23-18124-125
As to the Old Road property, Dr. Luna testified that Gurmeet Sahani offered the
opportunity to buy the property to his parents and they declined. Dr. Luna "charged"
$630,732 against Gurmeet Sahani's "cumulative adjustment account." RT 5-23-18 !2.This accounting does not appear anywhere in Rajysan's books and records, but
rather was performed after the fact by Dr. Luna.
Dr. Luna testified there was a $5,821 gain on the sale of the condominium. RT 5-23-
18 81.
Dr. Luna did not do any fair market value analysis to determine the fair market rent
for the Old Road property. She opined that Rajysan's rent was not above market because it
was the same rent the prior tenant paid. RT 5-23-18 89-90, 181.
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As to the improvements to the Tampa Avenue property, Dr. Luna's view was that
since Gurmeet Sahani's parents held title to the property, there should be no claim. RT 5-
23-'18 92-93. She did not see any Rajysan company checks to Shor Construction for work
on the Tampa property. RT 5-23-18 180
As to the credit card charges, Dr. Luna did not do her own analysis, but testified that
the focus should not be on one person; her "understanding" is that all the shareholders
used company credit cards for personal expenses. RT 5-23-18 94-95, /
To determine whether credit card charges are properly charged to the business in a
closely hetd company, she would look at the credit card statements of all shareholders "and
then do a relationship between all of them to see if one got excess personal use of the
credit card, not just focusing on one." RT 5-23-18 95. She would "look to see whose benefit
the charges were going." ld. Dr. Luna did not perform such an analysis. ln Dr. Luna's view,
instead of simply asking whether the expense is properly chargeable to the business under
the lnternal Revenue Code and regulations or other recognized legal authority, if a
shareholder billed a visit to the spa to the business, the proper analysis would be to
determine whether the other shareholders also billed visits to the spa to the business. RT
5-23-18 94-95. This approach justifies charging personal items to the business if other
shareholders charged personal items to the business, jettisoning the lnternal Revenue
Code and regulations because others did it too. lf others did it, the impropei charges are
justified, but if one did it, the charges are not proper. Dr. Luna did not cite any lnternal
Revenue Code or regulations or any other authority in support of her opinion.
Dr. Luna did not review credit card charges for any shareholder other than Gurmeet
Sahani. RT 5-23-1 8 177-178 Dr. Luna did not see any documents showing that any family
members other than Gurmeet Sahani used Rajysan credit cards for personal expenses
without reimbursing Rajysan and she did not review the documentation regarding Gurmeet
Sahani's credit card charges. RT 5-23-18 176-.178. She did not have time to get that
portion of the analysis done. RT 5-23-1 I 1 81-1 82. Any analysis of the credit card
transactions based on the documents she was provided would be "incomplete." RT 5-23-18
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182. She testified that without looking at material she was not provided, it is a "lopsided
incomplete analysis.' RT 5-23-18 183.
As to the Maserati, Dr. Luna testified Rajysan held title to the vehicle, it was listed on
the Rajysan tax return, each shareholder had a "nice car" and Rajysan took the vehicle
back. RT 45-23-18 98-99.
As to unauthorized self-distributions of $123,228, Dr. Luna opined that it is "not
applicable.'lf it is lacking back up: "We're not allowing it until it is proven otherwise." RT 5-
23-18 99.
Dr. Luna opined ttraitne utility expenses were appropriate, as Gurmeet Sahani
worked from home. RT 5-23-18 99-102.
Some unknown pro rata portion of the gas and television might be proper if
Gurmeet Sahanitook a home.office deduction on his personal return, but Dr. Luna did not
know whether he did. /d.
Dr. Luna opined that Gurmeet Sahani's parents or brother or Rajysan owe Gurmeet
Sahani and Jasrnine Sahani $1,265,298 for the Tampa Avenue residence construction paid
by Gurmeet Sahani. RT 5-23-18 104. Dr. Luna's documentation was incomplete. RT 5-23-
1B 178-180.
From April 2014 to December 2015, Rajysan did not pay rent to Halcyon for the Old
Road property. RT 5-23-18 111. Dr. Luna opined that Rajysan owes Halcyon rent for 20
months at $65,000 for a total of $1,300,000. Dr. Luna did not review Jerry Scullin's
deposition. RT 5-23-18 180.
The market valuation for Rajysan as of September 1 1 , 2013 is $32,310,000 and a
25% share is worth $8,078,000. RT 5-23-18 135, 146.
Dr. Luna's opinions are based on tax returns prepared by Bruce Miller. RT 5-23-18
177.The Rajysan tax returns prepared by Bruce Miller are unreliable. They are based on
the unreliable records of Rajysan, no records of Rajysan or information Gurmeet Sahani
provided to Miller for the purpose of saving money on taxes and not supported by Rajysan
records. Mr, Miller did not verify the shareholder percentages Gurmeet Sahani provided to
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him. Dr. Luna's statement that the "tax rbturns rule" (RT 5-23-18 189) illustrates the
defective foundation for her opinions in this case.
Dr. Luna was given a budget in working on the case and was told to keep her fees
within a certain range. RT 5-23-18 165-167. Dr. Luna did not review any depositions,
including the depositions of Gurmeet Sahani, Gurpreet Sahani, Amarjit Sahani, Rajinder
Sahani, Bruce Miller, Rick Morganstern, Rajysan CEO Kirk Meyer, had not seen exhibit
125 in which Gurmeet told his accountant he owned 17% of Rajysan, did not review any
Rajysan articles of incorporation or any corporate document evidencing transfers of shares
of Rajysan. RT 5-23-1B 162-165 Dr. Luna spoke with Gurmeet Sahani and Bruce Miller
before her deposition. RT 5-23-18 201
Gurmeet Sahani retained Dr. Luna on December 15, 2017 and was she deposed on
January 1A,2018. RT 5-23-18 175. Her report was produced on the morning of her
deposition. RT 5-23-18175. Dr. Luna stated that it was a "mad rush" to get everything done
and she finished at 7:00 p.m. the night before her deposition. RT 5-23-18 164. Dr. Luna
was told to keep the costs down in working on the case for Gurmeet Sahani. RT 5-23-18
166. She was rushed in getting her report done. RT 5-23-18 169 Dr. Luna had "a lot of
work to do in a short amount of time." RT 5-23-18 168.
Dr. Luna testified:
lf I had the luxury of time and the luxury of money, I would have asked forsome of these other documents as well, but I was scrambling to get a reportdone.RT 5-23-18 168.
Dr. Luna testified that the tax returns and K-1's are the "best indicators" of Gurmeet
Sahani's share of Rajysan. RT 5-23-18162. She did not have access to Gurmeet or
Jasmine Sahani's personal income tax returns. RT 5-23-18 199
On cross examination, Dr. Luna volunteered non-responsive information and gave
so many non-responsive answers that she undermined her credibility and appeared as
more of an advocate than an expert witness.
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Because Dr. Luna could not return to trial due to her scheduled surgery and she
would be unavailable to testify for the duration of the trial, at the conclusion of Dr. Luna's
testimony on the afternoon of May 23,2018, the Court asked all counsel whether there
were "any other matters" with respect to Dr. Luna and all counsel replied "no." RT 5-23-128
204-205. The Court asked all counsel if Dr. Luna could be excused, and all counsel replied
"yes." RT 5-23-18 205
The morning after Dr. Luna was excused, defense counsel stated that he wished to
"submit an offer of proof as to what Dr. Luna woutd testify to. . ." RT 5-24-18 7. Rajysan
counsel objected to the request as prejudicial. RT 5-24-18 12-13. The defense request to
make an offer of proof as to. what Dr. Luna would testifu to, after she had been excused
and was unavailable to testify, was denied. RT 5-24-18 13-15.
Dr. Luna's credibility was poor. She was an advocate for the {efense, She admitted
that any analysis of the credit card charges based on the documents she was provided was
"incomplete."
ftadlsy-Lpfsr"en
Mr. Lofgren is an expert in commercial real estate appraisal. He is a principalwith
Peregrine Realty Partners. He holds an undergraduate degree from UCLA and is an
experienced commercial real estate appraiser. He is a member of the Appraisal lnstitute
and is licensed as a real estate appraiser in California and Hawaii. RT 5-24-19 169-172.
He has testified,more than 25 times in court.
Mr. Lofgren was retained to provide an opinion regarding the market rent for the
77,064 square-foot industrial building a|29145 The Old Road, Valencia, California as of
November 26,2Q12. RT 5-24-18 172-173,177.
He reviewed the lease, CNB documents on the transaction, and other documents on
the building, examined the County records for the building, the proprietary Peregrine
database, and commercial real estate subscriptions with Costar, which requires a
subscription, and Loopnet, which does not require a subscription. He consulted with other
appraisers.
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Mr. Lofgren opined that the market rent for The Old Road property was $.55 per
square foot, triple net, or $42,358.20 per month, as of November 26,2012. RT 5-24-18
176,178. $ .55 per square foot is the same rate as the bank appraisal in connection with
Gurmeet Sahani's loan on the property
Halcyon Valencia Partners, L.P. charged the tenant, Rajysan, $61,000 per month
rent, which equates to $.79 per square foot. RT 5-24-1 8 177 . Rajysan moved out of the Old
Road property in May 2014,18 months after the lease was executed, RT 5-24-18 at 177 , or
n early 2013. RT 6-4-18 142.
The difference between the market value of the rent and the rent Rajysan paid to
Halcyon Valencia Partners, L.P. is $355,066.40. He does not know whether Rajysan paid
the rent every month from the execution of the lease until Rajysan moved out and does not
know when Rajysan moved into the building. RT 5-24-18 181 . He does not know the
amount of the prior tenant's rent. RT 5-24-18 182.
Mr. Lofgren testified that in a triple net lease, the tenant is responsible for taxes,
insurance and general maintenance. RT 5-24-18 178.!n the Halcyon Valencia Partners,
L.P. lease with Rajysan, Rajysan was also responsible for paying structural expenses, such
as walls and roof, which is unusualfor a triple net lease. RT 5-24-1S 178.
Mr. Lofgren was a very credible expert.
Credibility of Pa"4v .YVitn$sses
gurmqet Sahani: Mr. Gurmeet Sahani had major credibility issues. He seemed quite
intelligent and seemed more than capable of understanding the questions and courtroom
progedure. He was extremely evasive and non-responsive, parsed words, was not
forthcoming and was repeatedly impeached with his deposition. There were long gaps
between the questions and many answers. Many times, he made it difficult for the opposing
attorney to obtain even basic information.
While the Court was briefly distracted addressing a question from a court employee,
Gurmeet Sahani got up from the witness stand and followed his attorney out of the
courtroom while a question directed to him pursuant to Evidence Code 5776 was pending
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ll
J. He did not ask for permission to leave. This viotated Los Angetes I
llll.il
lIanO unanswered. He did not ask for permission to leave. This violated Los Angeles
f f Sunerior Court Local Rule 3.114s. RT 5-15-1 872:18-74:17. During pretrial proceedings, the
I
llCourt ordered counsel to read and comply with the Los Angeles Superior Court rules for I
ll tri"f , Local Rules 3.70 to 3.192 and the rutes on motions in limine, 3.57. Counsel were also
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llordered to instruct their parties and witnesses regarding those rules. I
ll Gurmeet Sahani made false statements to obtain an SBA backed loan from CNB. I
llH" t"rtined that he did not recognize the Hertz-Rajysan purchase order, which he Ill
llconverted to a Hertz-lnvincia Purchase orderwithin 16 days. He testified that he did not
I
If m"* it came from Hertz. He was impeached with his deposition. RT 5-15-18 67:6-22.
I
ll At one point, Gurmeet Sahani interrupted the proceedings, and essentially I
llrnnoun.ed verbally: "Well that's not correct." RT 6-5-18 8. He repeatedty volunteered I
llinforr.tion not called for by the question and gave nonresponsive answers. On two Ilt
lloccasions, he took issues with the court's rulings while he was on the witness stand. His I
llo"r.rnor and manner while testifying were not credible. I
il "urmeet Sahani had major credibility issues, was repeatedly impeached and at.
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lltir"., seemed not even to try to answer questions in a credible manner I
ll Gurmeet Sahaniwas not a credible witness and was not worthy of belief.s I
ll Jasmine $ahani: Jasmine Sahaniwas not a credible witness. Her demeanor and I
11r"..", ** **rr"n was not credible. Jasmine Sahani headed the accounting I
llO"purt*ent at the time she caused Rajysan to pay her family's personal credit card I
illl"*n"nr"s. She bears a great deal of responsibility for the lax accounting and payment of
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lln"r family's personal credit card expenses. She put her mother-in-law Rajinder Sahani out I
llot n"r. own home and her denials regarding that incident are not credible. She acted in I
ll.on."rt with her husband, Gurmeet Sahani, in many of the incidents addressed here. I
ll;"min" Sahani glared at the Court on a number of occasions while she was sitting in the I
llU"rk of the courtroom observing the proceedings. Cf., RT 6-5-18 90. Iilill
ll I tos Angeles Superior Court Local Rule 3.114 provides: Consultation with Witnesses on the Stand. No I
ll consultations between counsel and a witness while on the stand will be permitted without leave of court. I
lle ueiner v. Fard (1971) 17 CaL App. 3d 127, 140-142 |
llselll
rrArEMENr oF DEcrsroN I
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Grlrpreql,gqhani: Gurpreet Sahani was a credible witness on the issues in dispute in
the trial, although his memory was poor.
Rgji.Lld.er,$nnanj: Rajinder Sahani was a credible witness.
Anrsrilt $ahpni: Amarjit Sahani was a credible witness.
,Appreyal of Qp,jnl!'a.cts qn-d Trqq-$scli$ns in a clo,$g,Qamdrntion
It is undisputed that Rajysan Was a close corporation, Close corporations are
authorized by statutory provisions enacted in 1975. Freedman ef al., Corporations (Rutter
Group 2017) flfl3:234, pp. 3-54 - 3-55. These statutes recognize that participants and small
corporations often reach agreements among themselves as to control and financial matters
that are akin to a partnership, and that do not fit within the normal corporate procedures
(e.9., operating through shareholders'and directors meetings). Id. The intent of the law is
to give effect to such agreements, so long as certain statutory requirements are met, /d.
The effect is to allow the participants the benefit of corporate status, and at the same time
avoid some of the normal corporate procedures and formalities. /d.
A board of directors is not necessary in a statutory close corporation. The
shareholders agreement can dispense with the board of directors entirely and authorize the
shareholders themselves to adopt bylaws, or elect officers, and perform other functions of a
corporate director. Freedman et al., Corporations (Rutter Group 20171flfl3:250, p. 3-57.
The failure to observe corporate formalities cannot be considered as tending to
establish shareholder liability for corporate debts of a close corporation, Corp. Code
9300(e), but this does not immunize the shareholders,from personal liability if there are
other grounds for piercing the corporate veil. Freedman et al., Corporations (Rutter Group
2017) 11113:246- 3:247, pp.3-56 - 3-57.
Decisions reached by all the directors and stockholders of a close corporation at
informal conferences will be binding on the corporation when, by custom and with consent
of all concerned, corporate formalities have been dispensed with and the corporate affairs
have been carried on through such informal conferences. Brainard v. de la Montoya (1941)
18 Cal. 2d 502, 511.
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The shareholders must have full knowledge and must give approval, consent or
ratify transactions in good faith. Armstrong Manors v. Bunis (1961) 193 Cal. App. 2d 447 ,
455456.
Directors of a California close corporation may make a corporate decision in an
informal manner if all directors participate or acquiesce in the decision. Lozano v.
Commissioner of lntemal Revenue (Tax Court 1977) 68 T.C. 366.
Where the parties form an independent judgment concerning the transaction and act
knowingly and intentionally, the transaction is not invalid. Coachella Valley Lumber and
Supply Co. v. Hollenbeck (1956) 145 Cal. App. 2d 722,729.
A transaction can be ratified by shareholder acceptance of the benefit of the
transaction. Coachella Valley Lumberand Supply Co. v. Hollenbeck (1956) 145 Cal. App.
2d 722,729.
Shareholders cannot agree to change certain matters that are strongly supported by
public policy, including the right to inspect corporate records, Corp. Code S 1800, ef seq.
Freedman et al., Corporations (Rutter Group 2017) 1ltl3:253, 3:256, p. 3-58.
By unanimous written agreement, the shareholders of a statutory close corporation
can bypass the board of directors and their.agreement may relate to any phase of
corporate affairs. Corp. Code S300(e); Freedman et al., Co.rporations (Rutter Group 201'7)
flfl3:248, p. 3-57.
Fid ucjary Duties,,q,[ pfficery and Diiestsrs
At the time Rajysan was formed, Amarjit Sahani was president and chief financial
officer, Gurmeet Sahaniwas vice president and Rajinder Sahani was secretary. From the
formation of Rajysan, the members of the board of directors of Rajysan were Amarjit,
Rajinder, Gurpreet and Gurmeet Sahani,
An officer who participates in corporate management by exercising some
discretionary authority owes a fiduciary duty of loyalty to the corporation. This duty exists
even where the officer's authority falls short of having control over the corporation. GAB
From July through August 2013, Gurmeet Sahani requested the Rajysan salary
register. RT 5,31-18 169, Exh. 1277.On August 8,2013, Jodee Miller, thewife of the
Rajysan accountant Bruce Miller, advised Gurpreet Sahani that no one other than Gurmeet
Sahani had full access to sensitive payroll information. RT 5-31-18169-171. Gurmeet
Sahani permitted Gurpreet Sahani access to only generalized annual payroll figures. RT 5-
31-18171-173.
As a director, Gurpreet Sahani had a right to inspect the payroll records and
Gurmeet Sahani's failure to permit access to the payroll records was improper.
llte-f ested D i f gctg,f ? n d ",
I n te rlo cki ng, Q i r$etgr$.trjp Trn ns?ctla n s
Enacted in 1975, California Corporations Code 5310 governs interested director and
interlocking d irectorship contracts a nd transactions.
Intsrloqhihq,girgctorshin$: As to contracts between corporations with interlocking
directorates, the contract is not void or voidable if: (1) the material facts as to the
transaction and as to such director's other directorship are fully disclosed or known to the
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board and the board authorizes, approves or ratifies the contract or transaction in good
faith by a vote sufficient without counting the vote of the common director or directors or the
contract or transaction is approved by the shareholders in.good faith, or (2) as to contracts
or transactions not so approved, the contract or transaction is just and reasonable as to the
corporation at the time it is authorized, approved or ratified. Corp. Code S310(bX1), (bX2).
The material facts of the transaction, including the fact of the common directorship,
must be disclosed or known to the boards of each corporation, or to the shareholders
where their approval is sought. Freedman et al., Corporations (Rutter Group 2A17) fl6:302,
p. 6-108.
Unlike interested director transactions, there is no additional requirement that the
interlocking director transaction be just and reasonable to each corporation. Absent
approval by the board or shareholders, fairness becomes a separate requirement: i,e,,
transactions between corporations with common directors may still be upheld if the
transaction is just and reasonable as to the corporation at the time it is,authorized,
approved or ratified. Corp. Code S310(bX2); Freedman ef al., Corporations (Rutter Group
2017) fl6:307, p. 6-109-6-110.
Absent compliance with the Corporations Code, ih" trrnructions may be voidable by
either corporation. Freedman ef al,, Corporations (Rutter Group 2017\ flfl6:299-6:310, p. 6-
107-6:1 10.
lnterested Dirqgtor Trans3ctigns; lnterested director transactions are governed by
Corporations Code $310(a), which provides that no contract or other transaction between
the Corporation and one or more of its directors is void or voidable because the director is
a party unless: (1) the material facts as to the transaction and as to the director's interests
were fully disclosed and known to the shareholders, and such contract or transaction is
approved by the shareholders in good faith, with shares owned by the interested director or
not being entitled to vote thereon, or (2) the materialfacts as to the transaction and as to
the director's interest are fully disclosed or known to the board and the board authorizes,
approves or ratifies the contract or transaction in good faith by a vote sufficient without
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counting the vote of the interested director and the contract or transaction is just and
reasonable as to the corporation at the time it is authorized, approved or ratified, or (3) as
to contracts or transactions not so approved, the person asserting the validity of the
contract or transaction sustains the burden of proving that the contract or transaction was
ust and reasonable as to the corporation at the time it was authorized, approved or ratified.
Corp. Code $31 0(a)(1 XaX3).
Mere common directorship does not constitute materialfinancial interest. Corp.
Code 5310(a).
Absent compliance with the Corporations Code, the corporation may rescind the
contract and recover anything of value paid to the director or affirm the contract and sue for
damages, i.e., the amount of the unfairness or excessive price charged to the corporation.
Freedman et al., Corporations (Rutter Group 2017) flfl6:2BO-G:298, p. 6-102-6:107.
$gbehaot*rr S Qorp*r, aJions
It is undisputed that Rajysan, lnc. is a subchapter S corporation, A subchapter S
corporation is governed by subchapter S of the lnternal Revenue Code, 26 U.S.C. SS 1961-
1 379.
RBZ accountant Stephen Rickert testified that there are two requirements to receive
the tax benefits of a subchapter S corporation. First, income must be allocated to the
shareholders in accordance with their ownership percentages. Second, distributions to the
shareholders from the company must be done in accordance with ownership percentages.
lf those two things do not occur, the IRS has the ability to negate the subchapter S
corporation election and all the benefits of that election, RT 6-4-18 101 .
Mr. Rickert testified that a subchapter S corporation passes its income to its
shareholders. The shareholders must pay tax on their personal returns on income earned
by the subchapter S corporation. RT 6-4-18 102.
Rajysan paid the tax bills for the individual shareholders. RT 6-4-18 132.
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26 U.S.C. $ 1362(a) provides that a small business may elect to be a subchapter S
corporation. Such an election is valid only if all persons who are shareholders in such a
corporation on the day on which the election is made consent to such election.
ln Valentino v. Franchise Tax Board (2001) 87 Cal. App. 4th 1284,1288-1289, the
Court provided a historical overview of the treatment of subchapter S corporations under
federal and California tax law:
Under federal income tax law, there are two distinct types of corporations, C andS corporations so named because of their governing subchapters under chapter1, subtitle A of the lnternal Revenue Code. The former constitutes a separateentity which pays corporate income taxes based upon its net income. (S 23151 ,
subd. (a).) The latter, howeveir, generally does not pay taxes as an entity. (26C.F.R, S 1.1363-1 (1993).) "Rather, the S corporation files only an informationalreturn reporting for the taxable year its gross income (or loss) and deductions, itsshareholders, and the shareholders'pro rata shares of each item. (26 U.S.C.S 6037(a).) The items are then 'passed through' on a pro rata basis to theshareholders, who report them on their personal income tax returns. [Citations.]'The S corporation is, in effect, a Code-created hybrid combining traits ofboth corporations and partnerships,' [Citation.l" (Heller v. Franchise TaxBd. (1994)21 Cal.App.4th 1730, 1733,27 Cal.Rptr.2d 88, quotin$ Beard v.
United Sfafes (11th Cir .1993) 992 F.2d 1516, 1518.)
California did not distinguish between C corporations and S corporations for statetax purposes before 1987, instead treating all corporations as C corporations. (2Plant & Eager, Cal. Tax Analysis (CCH 1995) S 45. 121121, p. lV-1715.\ However,commencing that year, California changed its tax law so that "subchapter S ofChapter 1 of Subtitle A of the lnternal Revenue Code, relating to the taxtreatment of 'S corporations'and their shareholders, shall apply, except asothenruise provided.'(S 23800, subd. (a); see 2 California Taxes (Cont.Ed.Bar2nd ed.1996) S 4.101,p.226.) One notable difference between federal andCalifornia law regarding the treatment of S corporations is that under the former,with certain exceptions not relevant here, S corporations do not pay federalincome tax (26 U.S.C. $ 1363(a); 26 C.F.R. S 1.1363-1 (1993)), while underCalifornia law a state tax is imposed upon the net income of the reporting Scorporation (S 23802, subds.(a), (b)(1\). (Heller v. Franchise Tax Bd., supra,21Cal.App.4th at p. 1734,27 Cal.Rptr.2d 88,) From the perspective of theshareholder, C corporations are taxed upon their income as separate entities,and their distributions of earnings and profits to their shareholders are generallytaxable to the shareholders as dividends. ln contrast, S corporation shareholdersare taxed on their pro rata share of the corporation's income, regardless ofwhether it makes any distributions. (lbid.)
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An S corporation is an entity separate and apart from its shareholders. Accordingly,
unlike a partnership, an S corporation is not treated as a mere aggregation of its
shareholders. Blau, Lemons, S Corporations Federal Taxation (2018) S7.2.
Generally, an S corporation's items of income, gain, loss, deduction, preference
items and credits flow through to its shareholders who must report those items on their
individual returns. Blau, Lemons, S Corporations FederalTaxation (2018) $7.3. The
character of tax items (as ordinary income or capitat gain) also flows through to the
shareholders, /d. The tax items flowing through an S corporation for a year are generally
apportioned equally to each day of the year and are then apportioned among the
shareholders in proportion to their ownership of shares on each day of the year. ld.
Prioprialy sf Oarparate.Trannaetione an$'$.ha$ins Fxpqnses tp.Railrsan
This case involves certain Rajysan officers and directors and the spouse of an
officer and director, incurring debts on behalf of the corporation, entering into
transactions on behalf of Rajysan and charging expenses to Rajysan, including the
purchase of real property, entering into lebs'es, renovation of real property owned by
Amarjit and Rajinder Sahani, travel expenses, school tuition for Gurmeet Sahani's
children, spa treatments not prescribed by a physician or other health care provider
(characterized as an "unreimbursed medical expense"), local meals and entertainment,
clothing, vehicles, gifts, and other expenses.
As to these expenses, the issues are whether the requisite disclosure was made,
whether there was approval and whether the expense were properly charged to
Rajysan.
As Rajysan was a close corporation, informality in the conduct of corporate
affairs was permitted. However, each officer and director owed fiduciary duties of care
and loyalty. At a minimum, there should have been disclosure to the other directors and
officers and approval, at least by a majority of them, even if the disclosure and approval
was informal. The informality in a close corporation does not absolve the directors and
officers from compliance with their fiduciary duties of care and loyalty.
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lnternal Revenue Code and regulations state Federal law regarding whether
expenses are properly chargeable to a corporation or whether they are personal
expenses which must be borne by the individual taxpayer. They provide a perspective
on whether expenses are properly paid with corporate funds.
For example, even if all directors agree that purchasing their personal clothes for
the directors at Nordstrom's can be paid by Rajysan, billing those expense to the
corporation would constitute a breach of that director's fiduciary duties. Even if other
directors have billed personal clothing purchases at Nordstrom's to the company in the
past, billing that expense to the corporation would constitute a breach of that directo/s
fiduciary duties.
gqrqe ratq, FXp s ns oq*f,g,fia $u bch apter $ Siu f*p-f p:lto n
ln Tulia Feedlot, lnc. v. United Sfafes (5th Cir. 1975) 513 F. 2d 800, 804-805, the
Fifth Circuit held:
ln order for payments to qualify as ordinary and necessarybusiness expenses under lnt.Rev.Code of 1954, $ 162(a), they must beappropriate, helpful, and of a common or frequent occurrence in the typeof busines.s carried on by the taxpayer. Lilly v. Commissioner of lnternalRevenue, 1952,343 U.S. 90,72 S.Ct.497, 96 L.Ed. 769; Deputy v. Du Pont,1940, 308 U.S.488, 60 S.Ct. 363, 84 L.Ed.416; Welch v. Helvering, 1933, 290U.S, 111,54 S.Ct. 8, 78 L.Ed. 212.The payments rnust be ordinary, not in thesense that they are habitually or normally made by a single taxpayer, but in thesense that they are of a known type and commonly made, in somecircumstances, by persons in the type of business carried on by the taxpayer.The expenses of a lawsuit to safeguard a taxpayer's business, for instance, maybe "unique in the life of the individual affected, but not in the life of the group, thecommunity, of which he is a part". Welch v. Helvering, 1933, 290 U.S. 111,114,54 S.Ct. 8, 9, 78 L.Ed. 212.The payments must also be ordinary in the sensethat they represent expenses that are currently deductible, and not capitalexpenditures which, if deductible at all, must be amoftized over the useful life ofthe asset. Commissioner of lnternal Revenue v. Tellier, 1966, 383 U.S. 687, 689-90, 86 S.Ct. 1 1 18, 16 L-Ed.2d 1B5.They must be reasonable in amount.Limericks, lnc. v. Commissioner of lnternal.Revenue, 5 Cir. 1948, 165 F.2d 483.-
Expenses must be necessary in the sense that they are, at least,appropriate and helpful for the development of the taxpayer's business.Commissioner of lnternal Revenue v. Tellier, 1966, 383 U.S. 687, 689, 86 S.Ct.1118,16 L.Ed.2d 185. Section 162(a) does not require that expenses be
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necessary in a philosophic or logical sense. As one commentator has suggested,a reading of Section 162(a) based on the logical meaning of " necessary" would"place the courts and the Commissioner in the position of business efficiencyexperts reviewing the commercial decisions of the taxpayer, a function whichthey are ill-fitted to perform." Comment, Business Expenses, Disallowance AndPublic Policy: Some Problems of Sanctioning With The lnternal Revenue Code,72Yale L.J. 108, 113, n. 2A (962). Because courts are reluctant to reviewcommercial decisions made by a taxpayer, they have generally looked to theactual practices of businessmen to determine the standard. ln determiningwhether expenses are ordinary and necessary under Section 162, the test iswhether a hard-headed businessman, under the circumstances, would haveincurred the expense. Cole v. Commissioner of lnternal Revenue,2 Cir. 1973,481 F.2d 872, 876. This rule is, of course, subject to numerous limitations. First,it is only the business practices of a hard-headed businessman, and not his taxavoidance schemes, that are subject to judicial deference. Second, the practicesof an entire trade or profession may be infirm from the standpoint of theadministration of the revenue laws. Third, special relationships between thecontracting parties ffiay, as here, limit the utility of the hard-headed businessmanprinciple.
2014), the Tax Court considered the propriety of calendar year 20A4-2006 deductions of a
subchapter S Corporation. The Tax Court held:
Deductions are a matter of legislative grace, and the taxpayers bear the burdenof proving that they are entitled to any deduction claimed. Rule 142(a);INDOPCO, lnc. v. Commrssioner, S03 U.S. 79,84,112 S.Ct. 1039, 117 L.Ed.2d226 (1992); New Colonial lce Co. v. Helvering,292 U.S. 435, 440,54 S.Ct. 788,78 L.Ed, 1348 (1934). Section 6001 requires taxpayers to maintain recordssutficient to establish the amount of each deduction. See a/so sec..1.6001-1(a),lncome Tax Regs.
Section 162(a) allows a deduction for ordinary and necessary expenses that ataxpayer pays in connection with the operation of a trade or business. Boyd v.
Commissioner, 122T.C.305, 313,2004 WL 886993 (2004). To be "ordinary"the expense must be of a common or frequent occurrence in the type of businessinvolved. Deputy v. du Pont,308 U.S. 488, 495, 60 S.Ct. 363, 84 L.Ed. 416(1940). To be "necessary" an expense must be "appropriate and helpful" to thetaxpayer's business. Welch v. Helvering, 290 U.S. at 113. Additionally, theexpenditure must be "directly connected with or pertaining to the taxpayer's tradeor business", Sec. 1.162-1(a), lncome Tax Regs. Section 262(a) disallowsdeductions for personal, living, or family expenses.
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lf a taxpayer establishes that an expense is deductible, but is unable tosubstantiate the precise amount, we may estimate the amount, bearing heavilyagainst the taxpayer whose inexactitude is of her own making. See Cohan v.
Commissioner,39 F.2d 540, 543-544 (2d Cir.1930). The taxpayer must presentsufficient evidence for the Court to form an estimate because without such abasis, any allowance would amount to unguided largesse. Williams v. UnitedSfafeg 245 F.2d 559, 560-561 (5th Cir.1957); Vanicekv. Commisstbnec 85T.C. 731 ,742:743, 1985 WL 15409 (1985).
Section 274 overrides the Cohan rule with regard to certain expenses.See Sanford v. Commissioner, S0 T.C. 823,828,1968 WL 1537 (1968), affd percuriam, 412 F .2d 201 (2d Cir.1 969); sec. 1 .274-5T(a), Temporary lncome TaxRegs., 50 Fed.Reg. 46014 (Nov. 6, 1985). Section 274 requires strictersubstantiation for travel, meals, and certain listed property. Section 274(d)provides that no deduction dhail be allowed unless the taxpayer substantiates byadequate records or by sufficient evidence corroborating the taxpayer's ownstatement (1) the amount of the expense; (2) the time and place of the expense;and (3) the business purpose of the expense. See Oswa ndel v.
Even if such an expense would otherwise be deductible, section 274 may stillpreclude a deduction if the taxpayer does not present sutficient substantiation.
" Sec. 1.274-5T(a), Temporary lncome Tax Regs., supra. However, in thealternatlve, each element of an expenditure or use may be established by thetaxpayer's own wriften or oral statement "containing specific information in detailas to such element" combined with corroborative evidence sufficient to establishsuch element. Sec. 1 .274-5T(c)(3)(i)(A) and (B), Temporary lncome Tax Regs.,50 Fed.Reg.46020 (Nov. 6, 1985).
ln Tulia Feedlot, lnc. v. United Sfafes (Sth Cir. 1975) 513 F. 2d 800, 804-805, the
Fifth Circuit held:
The law presumes, for instance, that corporate otficers make expenditures ofcorporate funds only when they consider them to be in the interest of the \
corporation and its shareholders. Armour & Company v. Wantock, 1944,323U.S. 126, 130-31, 65 S.Ct. 165, B9 L.Ed. 118. Transactions between relatedtaxpayers or between a close corporation and its principals, who may have amulti-dimensional relationship with the corporation, must be subject to closescrutiny. United States v. Ragen, 1942,314 U.S. 513,62 S.Ct. 374,86 L.Ed.383. ln these circumstances, it is the nature and origin of a transaction, ratherthan its form, that must be accorded controlling weight. lnterstate Transit Lines v.
Commissioner of lnternal Revenue, 1943, 319 U.S. 590, 63 S.Ct. 1279,87 L,Ed.1607.
Gurmeet Sahani testified that he was entitled to take money from Rajysan because'
he had money in his retained earnings account evidenced by Rajysan's federal income tax
returns. Gurmeet Sahani's position is that the amounts he took from Rajysan constitute
"constructive distributions." California Corporations Code S1 66.
Transfers of cash or property to shareholders without consideration are subject to
regulation by the California Corporations Code. California Corporations Code $166;
Friedman, Corporations (Rutter Group 2018) ll7'.2,p.7-1.
Gurmeet Sahani testified that retained earnings is "a direct figure from the K-1's for
any amount that each individual shareholder that is not distributed to that shareholder in
any year." RT 5-17-19 1B-21. Counsel for plaintiff objected to Gurmeet Sahani answering
question. Given that Gurmeet Sahani was not listed as an expert witness and his lack
of accounting or tax credentials, his testimony deserves little weight, but it does provide
insight into how he and Bruce Miller reported matters on Rajysan's tax returns.
Gurmeet Sahani reviewed the financials with the accountant, Bruce Miller and
Gurmeet Sahani also reviewed the tax returns with Miller during the time period Gurmeet
Sahani asserts he was president of the Rajysan, from late 2008 or early 2009 until his
termination on September 11,2A13. RT 5-16-18 122-126. Gurmeet Sahani admitted that
the percentage ownership of Rajysan was misstated on Rajysan's tax returns to save
money on taxes. See, e.9., Exh. 59 p.1. )
Gurmeet Sahanitestified that Rajysan paid the shareholders'taxes by writing
company checks for the shareholders directly to the lRS. RT 5-16-18 154-155,
Any distribution to the shareholders, no matter what it is called, is treated as a
dividend to the extent the corporation has current or accumutated earnings or profits. 26
U.S.C. S316(a); Freedman et al., Corporations (Rutter Group 2017)117:178, p.7-35.
Dividends to individual shareholders are taxed at the capital gains rate. 26 U.S.C.
S1(hX1 1); Freedman ef al., Corporations (Rutter Group 20171ll7:178, p. 7-35.
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A corporation is prohibited from making any distributions to its shareholders unless
the Board of Directors determines in good faith that the distribution meets either the
retained earnings test or the asseUliability test. California Corporations Code 9500(a);
Freedman et al., Corporations (Rutter Group 2017) l[ff]:12,7:21 ,7;27 , pp, 74 - 7-T .
Galifornia Corporations Code $501 imposes a traditional insolvency limitation: a
corporation may not make a distribution to a shareholder if, as a result, the corporation
would "likely . . . be unable to meet its liabilities (except those whose payment is otherwise
adequately provided for) as they mature." Corporations Code $501; Freedman et al.,
Corporations (Rufter Group 2017)1ff:42, p. 7-8.
The insolvency restriction on corporate distributions is not whether the corporation
would be rendered insolvent in the bankruptcy sense, i.e., more liabilities than assets. For
purposes of Coiporations Code S501, the test is "cash-flow" insolvency: The distribution
would render the corporation insolvent in the "equity" sense, that is, unable to pay its bills
as they mature. Freedman et al., Coryorations (Rutter Group 2017)lf :43, p. 7-8.
A corporation may be insolvent in the equity or cash flow sense, even if it medts the
retained earnings test, and/or the asseUliability test. This may occur where the cash
distribution leaves the corporation with insufficient cash or other liquid assets to pay its
debts as they mature. Freedman et al., Corparations (Rutter Group 2017)ll7:44, p. 7-8.
Whether the distribution will render the corporation "unable to meet its liabilities,"
and whether the liabilities are "otherwise adequately provided for," are fact questions to be
determined objectively. ln each case, if the board's judgment is wrong, the directors may
face personal liability for unlawful dividends. Flynn v. Califomia Casket Co. (1g5l) 108 Cal,
App. 2d 196,205-206; Freedman ef al., Corporations (Rutter Group 2017)1f7:45, p. 7-8.
ln this case, Rajysan filed Chapter 11 proceedings during the pendency of this
action.
Directors who approve a distribution to the shareholders in violation of Corporation
Code SS 500-501, subject to certain defenses, are jointly and severally liable to the
corporation for the amount of such distribution. Corporation Code SS316(b), see a/so,
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Corporation Code SS 2701(b); Freedman ef al., Corporations (Rutter Group 2A17)ff7:142,
p,7-27 .
A shareholder who receives an unlav'rful distribution from the corporation with
knowledge of the facts indicating the impropriety thereof is personally liable for the amount
received by the shareholder, the fair market value of property received at the time of the
illegal distribution with any reasonably incurred appraisal or valuation costs, and interest at
the legal rate from the date of the illegal distribution. Corp. Code SS 506(a); Freedman ef
al., Corporations (Rutter Group 2017) ffi:162,7;172-7:172.1, p. 7-31, 7-33.
ln closely held corporations where all shareholders are active in management, it
may be impossible to avoid shareholder liability for illegal distributions because all
shareholders may be presumed to know the pertinent facts. Freedman et al., Corporations
(Rufter Group 2017) J[Z:166, P.7-31
Gurmeet Sahani's position that he was entitled to take money from Rajysan because
he had money in his retained earni-ngs account evidenced by Rajysan's federal income tax
returns is not a defense to his actions.
First, the Rajysan income tax returns were premised on a deliberate overstatement
of Gurmeet Sahani's percentage of ownership of Rajysan to save taxes.
Second, Bruce Miller testified that the Rajysan shareholders retained earnings were
set forth on the Rajysan income tax returns as a single number and there was no way to
tell any particular shareholders retained earnings balance. RT 5-30-18 137-138. There is
no credible, reliable evidence of the proper division of the Rajysan retained earnings
account among the shareholders. The books and records of Rajysan were kept in such a
manner that they are not reliable. The Rajysan tax returns, the product of Rajysan's
financial records and what Gurmeet Sahanitold Bruce Miller to put in the tax returns, are
unreliable. Rajysan's financial records are unreliable and Gurmeet Sahani admitted that he
provided Bruce Miller with percenitg.t of shares owned by the sharehotders to reduce
taxes. Miller did not ask for or obtain back up documentation for the Rajysan shareholder
percentages of ownersh ip.
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Third, distributions or constructive distributions of retained earnings as described in
this trial were not supported by credible expert testimony. Many expenses charged to
Rajysan as "business expenses" would not be viewed as business expenses by the
lnternal Revenue Service. Transactions were not disclosed to the other shareholders and
they did not consent to the transactions. Rajysan has made a strong showing of bad faith
or fraud as to the disputed transactions that are the basis for the judgment in this action.
One cannot commit fraud, steal corporate,assets, violate fiduciary duties, violate California
Corporations Code S310 and engage in the type of activities involved in this case and claim
that that there is no basis for liability because it.was a "distribution" or there was enough
money in a corporate retained earnings account.
Fourth, Gurmeet Sahani did not demonstrate that the retained earnings account or
accumulated adjustments account in Rajysan's books or Rajysan's income tax returns was
reduced by the arnount of the "distributions" or "constructive distributions." Stated
differently, Gurmeet Sahani did not show that there was a transfer from Rajysan's retained
earnings account or any other corporate account to account for the "distributions" or
"constructive distributions" to him. C.f., Freedman ef al., Corporations (Rutter Group 2A17)
lft,,249, p.7-50.
A subchapter S corporation does not recognize gain or loss on the distribution of
cash. Blau, Lemons, S Carporafibns Federal Taxation (2018) 510.5, Distributions of Cash.
However, a non-dividend distribution generally reduces the accumulated adjustments
account (AAA) and, if the distribution constitutes a dividend, the distribution will reduce an
S corporation's accumulated earnings and profits. ld. The Rajysan records do not provide
evidence of such distributions.
Tjade and Busin$$q,,Fipenseq
The Internal Revenue Code, 26 U,S.C. 5162(aX1)-(3) defines certain trade or
business expenses as follows:
(1) a reasonable allowance for salaries or other compensation for personal servicesactually rendered;
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(2) traveling expenses (including amounts expended for meals and lodging otherthan amounts which are lavish or extravagant under the circumstances) while awayfrom home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continueduse or possession, for purposes of the trade or business, of property fo which thetaxpayer has not taken or is not taking title or in which he has no equity. (emphasisadded)
Pqrsonal" living and Family Expenngs
Except as expressly provided in the lnternal Revenue Code, no deduction is allowed
for personal, living or family expenses. 26 U.S.C. $262(a). Cases decided under 26 U.S.C.
5262 prohibit deduction\ for schooltuition for children, clothes for meetings, personal gifts,
medical expenses (typically deemed personal or family expenses and not deductible),
home living and maintenance expenses, home repairs, removal of trees in the residence
yard, home utilities, insurance and property taxes.
Furdenp-l Proof
The initial burden of producing evidence as to a particular fact is on the party with
the burden of proof as to that fact. Evidence Code $550(b); Wegner, et al., CivilTriats and
Evidence (Rutter Group 2017) fl8:3651, p. BG-89. The party asserting a claim or defense
has the burden of introducing sufficient proof to establish a prima facie case. Sargenf
Fletcher, lnc. v. Able Corp. (2003) 110 Cal. App. 4th 1658, 1667; Metropolitan Water Dist.
v. Campus Crusade for Chist (2007) 41 Cal.4th 954, 969; Wegner, el al., CivilTrials and
Evidence (Rutter Group 2A17) Jf8:3651, p. 8G-Bg-90.
lf the party has met its initial burden, the burden of going fonarard then shifts to the
opposing party to rebut the prima facie case. Levin v. United Airlines (2008) 158 Cal, App.
4th 1002, 1018; Wegner, et al., CivilTrials and Evidence (Rutter Group 2017) fl8:3652, p,
8G-90.
lf rebuttal evidence is introduced on an issue by the opposing party, the burden of
going forward with additionalevidence on that issue shifts back to the first party.Wegner,
et al., CivilTials and Evidence (Rutter Group 2017) 118:3653, p. 8G-90,
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RAJY$AI|'S COMPLA|NT
F,aivsan, l*c. vs. Gurmeet $ahani. ef,aL, PC05$25Q
As to Rajysan's action against Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia
Partners, L.P. and lnvincia, LLC, the causes of action of the second amended complaint tried
by the parties were: The first cause of action for breach of fiduciary duty against Gurmeet
Sahani, the second cause of action for conversion against Gurmeet Sahani, the third cause
of action for breach of fiduciary duty against Jasmine Sahani, the fourth cause of action for
conversion against Jasmine Sahani, the sixth cause of action for declaratory relief against
Halcyon, the seventh cause of action for constructive trust against Halcyon, the eighth cause
of action violation of California Corporation Code 5310 against Gurmeet Sahani and Halcyon,
and the ninth cause of action for violation of California Corporation Code 5310 against
Gurmeet Sahani and lnvincia, LLC. Plaintiff seeks punitive damages on the first through
fourth causes of action.
Jasmine $ahanls Bfeqfjr pf Firlilqjary nilly
Gurmeet Sahaniwas a shareholder and director of Rajysan. Jasmine Sahani, his
spouse, was the head of accounting at Rajysan. Jasmine Sahani was the person in charge
of receiving, reviewing and authorizing requests for reimbursements for Rajysan business
expenses. Jasmine Sahani used Rajysan funds to pay for credit card, utility and other
expenses she approved. Gurmeet Sahani and Jasmine Sahani held Jasmine Sahani out to
third parties as an officer and shareholder in Rajysan. Jasmine Sahani is liable for breach
of fiduciary duty as a de facto officer. John Paul Lumber v. Agnew (1954) 125 Qal. App. 2d
613, 619. Jasmine Sahani had a fiduciary duty to Rajysan and she violated her fiduciary
duty by using Rajysan funds for her family's personal, nonbusiness related expenses and
for authorizing and using Rajysan funds to reimburse herself or pay her credit card
company bills for her family's personal, non-business expenses, including their children's'
tuition, orthodontics and pet care.
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Utilities
Rajysan seeks $5,419 from Gurmeet Sahani and Jasmine Sahanifor utility charges
for Gurmeet Sahani and Jasmine Sahani's personal residence at22137 Avenue San Luis,
Woodland Hills. Rajysan's expert, Mr. Bower, calculated the amoynts, which are set forth in
Exh. 430, Appendix 7. Rajysan paid for the following utility bills for Gurmeet Sahani and
Jasmine Sahani's residence: Department of Water and Power (DWP) $4,121.53, The Gas
Company $638,54 and Time Warner Cable $659.21.
Defendants' expert, Dr. Luna testified that a pro rata portion of the utilities might be
proper if Gurmeet Sahanitook a home office deduction on his personal return, but Dr. Luna
did not know whether he took such a deduction. /d. The Gas Company and DWP expenses
were not business related.
As to telephone expenses, 26 U.S.C. 5262 provides:
(a) General rule. - Except as othenruise expressly provided in this chapter, nodeduction shall be made for personal, living, or family expenses.(b) Treatment of certain phone expenses. -- For purposes of subsection (a), in thecase of an individual, any charge (including taxes thereon) for basic local telephoneservice with respect to the 1st telephone line provided to any residence of thetaxpayer shall be treated as a personal expense.
Cases decided under 26 U.S.C. S202(b) prohibit deductions for a modem, fax and
telephone line where there was no evidence of the percentage of business use of the
modem, fax and telephone line.
Gurmeet Sahanitestified that Rajysan paid for telephone lines and computers and a
"telephone exchange extension" so someone could contact him directly from New Jersey
or California. There is no evidence of the specific charges for the "telephone exchange
extension." The cable bill is not chargeable to Rajysan and a portion of the internet bill
attributable to business use would be attributable to Rajysan. Of the $659 in Time Warner
Cable bills, no more than half, $329.60, are arguably Rajysan business expenses.
The Court awards $5,089.63 in favor of Rajysan and against Gurmeet Sahani and
Jasmine Sahani for breach of fiduciary duty in obtaining reimbursement from Rajysan for
personal utility expenses.
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ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
7o/otromthe date of the tast payment, September 13,2013 to the date of judgr"nt,
pursuant to Civil Code SS32B7, 3288.
P.jggllgwsd tuleal and Entertnin:fl?nt Eruremps on FpderalTaX Retu,rns
Gurmeet Sahani'testified when Rajysan paid for personal items, he woutd either ". . .
pay for it then personally or it may be reconciled at the end of the year. . . by the company's
accountants." RT 5-16-18 101:13-22. Gurmeet Sahanitestified that Rajysan accountant
Bruce Miller told him:
The company's accountants, if they saw something personal, or if they disallowedsomething as personal per IRS regulations, I was told they would adjust it againstthe shareholders distributions or retained earnings. RT 5-16-18 101:23-102:3; RT S-16-18 161':22-163:10 (testimony as to what Bruce Miller told Gurmeet Sahanistricken as hearsay).
The "disallowed meal and enteilainment expenses" Bruce Miller entered on the
p, 13), $12,840 in 2005 (exh. 1218, p. 13), $t 1,z1g in 2006 (exh. 1219, p. 13), $3,260 in
2007 (exh. 1220, p. 13), $23 in 2008 (exh. 1221, p. 13), $8,117 in 2009 (exh. 1222,p.28),
$26,088 in 2010 (exh. 1031, p. 13) $20,852 in 201 1 (exh. 1033, p. 1S).
Gurmeet Sahani's testimony as to what Bruce Miller did with respect to mealand
entertainment expenses is hearsay. Gurmeet Sahani has no personal knowledge of what
Bruce Miller did or why he did it.
Gurmeet Sahani's testimony in based on what Bruce Miller told him. Gurmeet
Sahani is not an accountant and has no expertise in accounting. Defendant's accountant
Bruce Miller and defendant's expert accountant Dr. Luna did not provide opinions based on
"disallowed meal and entertainment expenses." No expert testified what the IRS considers
"disallowed meal and entertainment expenses" or how it is treated on a tax return.
Only one figure per year is reported on Rajysan's tax returns for disallowed meal
and entertainment expenses. There was no evidence of the breakdown of jisallowed meal
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and entertainment expenses for each of the four shareholders and Jasmine Sahani in any
year.
Mr. Miller testified that retained earnings were set forth on the Rajysan income tax
returns as a single number per year; there was no way to determine any particular
shareholders retained earnings balance. RT 5-30-18 137-138. There is no documentation
of an "adjustment" for disallowed meal and entertainment expenses against the single
figure provided for retained earnings on Rajysan yearly tax returns.
Rajysan paid Gurmeet Sahani and Jasmine Sahani's entire credit card bills. There
was no documentation that Gurmeet Sahani or Jasmine Sahani reimbursed Rajysan for
disallowed meal and entertainment expenses, such as cancelled checks, bank transfers or
bank statements. )
The record does reflect that Bruce Miller put inaccurate information regarding
shareholder percentages in Rajysan tax returns to save money on taxes. He used
whatever figures Gurmeet Sahani gave him regarding shareholder percentages without
asking for backup Rajysan documents, and th'e shareholder percentages on Rajysan's tax
returns differed depending on the year. The tax returns Bruce Miller prepared are not
reliable.
Gurmeet Sahani's position regarding unreimbursed meal and entertainment
expenses is not supported by credible evidence.
Credit Card e,hargeq
Rajysan claims damages from Gurmeet Sahani and Jasmine Sahanifor using
Rajysan corporate funds to pay for personal and other expenses not properly chargeable to
Rajysan. Rajysan seeks $619,405 for non-business credit card charges, $18,439 in
Nordstrom's credit card charges and $164,915 in unsupported credit card charges that
were lacking back up credit card statements.
Defendants assert that all or a part of this claim is barred by the statute of
limitations. Rajysan asserts that the claims are not barred by virtue of the discovery rule,
that is, Rajysan credit card bills were eontrolled by Gurmeet Sahani and Jasmine Sahani.
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Jasmine Sahani was head of accounts payable and oversaw accounts at Rajysan. RT S-
16-18 66:1-3; 69:3-5. She ran the accounting department and was in charge of accounting
relating to the Rajysan credit card bills and business expenses. The inappropriate charges
were not discovered until after,Gurmeet Sahani and Jasmine Sahani were fired on
September 11,2013. Rajysan filed its complaint on October 9,2013, within the limitations
period. Defendant has failed to prove its affirmative defense of the statute of limitations by
a preponderance of evidence.
Gurmeet Sahani and Jasmine Sahani billed items to the corporate credit card that
were not properly charged to Rajysan. Rajysan paid the entire credit card bill and the
directors and Jasmine Sahaniwould reimburse Rajysan on an "honor system." The policy
also applied at MMD Equipment in New Jersey. RT 5-24-18 139-140. For example, Amarjit
Sahani used his credit card overseas, Jasmine Sahani sent Rajinder Sahani her husband
Amarjit Sahani's credit card statements, and Rajinder Sahaniwould highlight personal
charges and send a personal check directly to the credit card company for the personal
charges. RT 5-22-18 51-52.
After Gurmeet Sahaniwas fired, Rajysan engaged a CPA firm, R.B.Z., currently
Armanino. Dean Bower was the CPA that worked on the Rajysan account. After Mr. Bower
reported that he could not find back up for the credit card statements, he requested that the
corporate secretary, Rajinder Sahani assist him in what were possibly personal charges
and what were business expenses. RT 5-22-18 50-51. Rajinder Sahani reviewed fotders
with 7 to B years of credit card expenses, from 2005 or 2006 to 2013. ld. She had never
seen these credit card statements before. ld. lt took 6 to 8 weeks to go through the credit
card statements. RT 5-22-18 56.
When Rajinder Sahani reviewed Jasmine Sahaniand Gurmeet Sahani's credit card
charges for Mr. Bower, she found that there was no distinction between personal and
business expenses and that Rajysan simply paid Jasmine and Gurmeet Sahani's entire
credit card bills. RT 5-22-18 53-54.
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The defense asserted that charges were in conjunction with trade shows or were
client entertainment. No specific trade shows were mentioned by date and location.
Gurmeet Sahani did not name clients who were given specific gifts, including numerous
Mont Blanc pens. Gurmeet Sahani had a Mount Blanc pen collection.
Jasmine Sahani testified that Rajysan paid her entire credit card bill and she would
reimburse Rajysan for personal expenses. Jasmine Sahani and Gurmeet Sahani have not
produced a single check or other documentary evidence supporting Jasmine Sahani's
testimony that she or her husband Gurmeet Sahani reimbursed Rajysan for personal, non-
business charges that were incurred by Jasmine Sahani or Gurmeet Sahani and paid by
Rajysan. Jasmine Sahani is familiar with Rajysan's books and records, as she was in
charge of accounting. Jasmine Sahani and Gurmeet Sahani had access to Rajysan's
books and records during discovery.
The Court may consider the ability of each party to provide evidence. CACI 203. lf
weaker and less satisfactory evidence is offered when it was within the power of the party
to produce stronger and more satisfactory evidence, the evidence offered should be viewed
with distrust. Evidence Code $a12; CACI 203.
Gurmeet Sahani and Jasmine Sahani's personal charges to Rajysan, for which they
did not reimburse Rajysan, included spa treatments, vacations, a vacation in Tahiti, rental
of a yacht for approximately $8000, airline tickets for friends, jewelry, personal clothing,
stays in hotels, and $15,000 for two containers of merchandise from lndia Jasmine Sahani
ordered, with an invoice for antiques, paintings and rugs, RT 5-22-18 55-56.
Gurmeet Sahani violated his fiduciary duty to Rajysan by billing personal, non-
business expenses to Rajysan and receiving reimbursement for his personal, non-business
expenses from Rajysan authorized and paid by the head of accounting at'Rajysan, his wife
Jasmine Sahani.
Rajysan's expert, Mr. Bower, created Exhibit 430,.a comprehensive analysis which
included a detailed examination of the credit card expenses. There is a line listing for each
expense.
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A. Nordstrom's 9redit..9p"rd Qtalgmentg: The Nordstrom's credit card staternents are
set forth at Exh. 430, Appendix 5, Exh. 430, pp. 93-94 and total $18,438.94.
The Court finds that Rajysan has met its burden of proving that the $18,438,94
Rajysan paid for Gurmeet Sahani and Jasmine Sahani's Nordstrom's bills were for
personal expenses and not proper Rajysan business expenses, Defendants did not meet
their burden to rebut Rajysan's prima facie case. There was no testimony regarding any
specific gift purchased at Nordstrom's for any specific client. Discovery of Rajysan's books
and records was available to all parties during the discovery period in these cases.
The Court awards $18,438.94 to Rajysan against Jasmine and Gurmeet Sahani for
breach of fiduciary duty.
B. Unsqll,porLed Qredit Card Psy,mg$t$: Mr. Bower testified that $164,915 in non-
business credit card charges, as set forth in Exhibit 430, pp. 3-4, 91-92 (Appendix 4). He
attempted to match credit card statements to cash disbursements in the company's
accounting system. After matching all statements in the company's possession to
payments, for credit card accounts identified with Gurmeet Sahani and Jasmine Sahani as
card holders, not all statements could be located, resulting in unsubstantiated charges.
These were detailed in Exh. 430, p. 92. These appear to be payments by check to pay for
charges made to Bank of America, Wells Fargo, American, Express and Barclay's credit
cards. The memos indicate that the payments are to credit cards for Jasmine and Gurmeet
Sahani. lt appears that Jasmine and Gurmeet Sahani used Rajysan cash disbursements to
pay their own credit card expenses. As Jasmine Sahani was head of accounting, she had
the ability to properly document business expenses.
Rajysan has met its prima facie case and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $164,915 for unsuppoded credit card payments to Rajysan
against Jasmine Sahani and Gurmeet Sahanifor breach of fiduciary duty.
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C. Nsn-Fusiness ffredit Gard Qharosq: Mr. Bower testified that $619,404.60 credit
card charges reimbursed to Gurmeet Sahani and Jasmine Sahani by Rajysan were for
personal, non-business expenses. Each charge is listed in Exhibit 430, pp 11-71(Appendix
4). The Court awards $595,559.26 for the reasons stated below:'
1 . Art classes And suqnlies; $131S.34i These charges are for art classes and
are not Rajysan business expenses. Exhibit 430, p.16.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $1 ,31 5.24 to Rajysan against Jasmine Sahani and Gurmeet
Sahanifor breach of fiduciary duty.
2. Auto or automstiv-e-pu,fchased by lnvincla: $5.0Qfi: The charges for $5,000
down payment on an Audiwhich is in the name of lnvincia, a Gurmeet Sahani owned and
created to usurp Rajysan's Hertz orders. Exhibit 430, p. 17.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case,
The Court awards $5,000 to Rajysan against Jasmine Sahani and Gurmeet Sahani
for breach of fiduciary duty.
3. Cegha$-vancss ggd f-gps: $32,l{6,.s*43: These charges are for cash
advances in Las Vegas and other locations and, with two exceptions, the cash advances
are between $5,000 and $8,000. Exhibit 430, p. 18. The cash advances are from the
Bellagio, Venetian Palazzo, MGM Grand Hotel in Las Vegas and unidentified locations.
When entertaining clients in Las Vegas by taking them out to a dinner or to a show,
or by paying for room charges, a credit card would be used to document the expense. The
voluminous credit card charges submitted by Rajysan in this action confirm this practice.
Cash would likely be used for nonbusiness related activities in Las Vegas, such as
gambling, or activities not placed on credit cards.
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Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $32,466.3410 to Rajysan against Jasmine Sahaniand Gurmeet
Sahani for breach of fiduciary duty.
4. C,hildrenlq-itq,m,g: $1i$i2.74: These charges are for children's items, such
as Lakeshore Learning in Northridge. Exhibit430, p. 19,
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases,
The Court awards $1,542.74 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
. 5. Slnthitrg: $?S.$'911.82: These expenses are for clothing. The Nordstrom's
expenses do not duplicate the expenses set forth at Ex. 430, pp.20-21.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $28,481.82 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
6. fqtnilvjfa.c,ation and pereonaltrips:-$214,.2S6"52: Gurmeet Sahani admitted
that 10% of the travel expenses were personal, There is no evidence that Rajysan was
reimbursed for the personal expenses, and it is unlikely that Gurmeet Sahani or Jasmine
Sahani reimbursed Rajysan for personal travel. Exhibit 430, pp. 22-32.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
i0 The typographical error at 106:3, 9 in the Proposed Statement of Decision filed on November 9, 2018 iscorrected. The figure is $32,466.34, not $3,246.34. This typographical error was raised and litigated inobjections to the Proposed Statement of Decision.
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The Court awards $25,000 to Rajysan against Jasmine Sahani and Gurmeet Sahani
for breach of fiduciary duty.
7. Furniture and home furnishin$s:, $8.844.84: These charges are for home
furnishing. Exhibit 430, p. 33.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $8,844.84 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
8. Grocerigq $$,606,24: These are grocery store charges. Exhibit 430, p. 34.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahanihave not
meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's books
and records was available to all parties during the discovery period in these cases.
The Court awards $3,696.24 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
9. l-iq"r,dWa"fe and hUjldinE materials; $25*13?i4$: These are building materials
charges incurred at Home Depot, Restoration Hardware, Orchard Supply, Garage Envy
and other stores. Exhibit 430, p. 35.
Rajysan has met its prima facie case, and Gurmeet Sahaniand Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $25,122.46 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
10. ffqatrsnics and,homp agniianceq: $?p,07S-"84,: These are charges at
Pacific Sales, Ken Cranes, Active Appliances and Magnolia Audio and appear to be
charges for home appliances and electronics. Exhibit 430, p. 36.
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Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $20,078.52 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
11. J:eWelry; $, $S;$J7.8$: These are charges incurred at Tiffany, Tourneau,
Mont Blanc and other stores. Jasmine Sahani has a jewelry collection and Gurmeet Sahani
has a Mont Blanc pen collection. Exhibit 430, p. 37. Neither defendant gave examples of
specific business clients to which they gave items on this schedule.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $58,617.85 to Rajysan against Jasmine Sahani and Gurmeet
Sahanifor breach of fiduciary duty.
12. Nqkbusiness entq,ftainment: $19,994.87: These items consist of movie
tickets, Netflix charges and iTunes store charges and the like. Exhibit 430, pp. 3843. They
appear to be family personal expenses. Gurmeet Sahanitestified that he sometimes
downloaded films to watch on planes during business travel, He did not specify the amount
of these expenses
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court "warbs
$18,000 to Rajysan against Jasmine Sahani and Gurmeet Sahani
for breach of fiduciary duty.
13. Ngn-buS"ine"ss mppl$: $t$.,49$"€: These are charges for Starbucks, fast
food restaurants or other restaurants, primarily near the Sahani residence, that one would
not expect a business person to utilize for entertaining a client, such as Carl's Jr., California
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Pizza Kitchen, Chipolte and McDonald's. Exhibit 430, p. 41-57. They appear to be family
and personal dining expenses.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $56,493.33 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary dutY.
14. O,fthqdontisf $$.4$-$J These are orthodontist expenses for Gerald A.
Malovos, D.D.S. Exhibit 430, p. 58, They are personal expenses and not properly billed to
Rajysanr
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of reb.utting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these €ses.
The Court awards $5,480 to Rajysan against Jasmine Sahani and Gurmeet Sahani
for breach of fiduciary duty.
15. Pgtkinq,fjgkets.q,nd driving.s$hog'"1:, S1.g4$.4g: These charges are for
payment of parking tickets to Los Angeles Superior Court and for parking meter payments.
Exhibit 430, p.59.
Rajysan has met its prima facie case, and Gurmeet Sahaniand Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case, Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $1,948.49 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
16. Ferpo,F#l,puto fuEl: $2,488-96: Rajysan did not meet its burden to show
that the fuel charges were not legitimate Rajysan business expenses. Exhibit 430, p. 60.
17. Miscellaq"gops*n,glsonal goods and expp,ndituJes:"$51..917._[Q: These
charges were incurred at Amazon.comr Apple store, Barnes & Noble, the Containers Store,
Bose, dry cleaners, paint stores, Firestone Vineyard, Party City, Rite Aid, Target, the
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Tarzana Carwash and other local stores, locations to purchase typical items for personal
and family use. Exhibit 430, pp. 61-68.
Rajysan has met its initial burden of proving that $38,000 of these charges were
personal expenses. Gurmeet Sahani and Jasmine Sahani have not meet their burden of
rebutting Rajysan's prima facie case. Discovery of Rajysan's books and records was
available to all parties during the discovery period in these cases.
The Court awards $38,000 to Rajysan against Jasmine Sahani and Gurmeet Sahani
for breach of fiduciary dutY.
18. Persoqathe-althffife:j$8,881'99.: These are charges incurred at Kaiser
and to a much lesser extent, pharmacies and eyeglass dispensers. Exhibit 430, pp. 69-71.
Rajysan has met its prima facie case, and Gurmeet Sahaniand Jasmine Sahani
have not meet their burden of r:ebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases,
The Court awards $8,881.99 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary dutY.
19. Fet *g[e aAd,S{ggli$.$-$$;€il3,?7: These expenses were incurred at the
Animal Clinic of Encino, Petco and a pet training facility. Exhibit 430, p.72.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $8,203.77 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
20. Frivate scho"-o_l$ afrd tuition: $S7.10.S;$7: These tuition expenses for
Gurmeet Sahani and Jasmine Sahani's children are not business expenses. Exhibit 430,
p.70"
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysanis
books and records was available to all parties during the discovery period in these cases.
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The Court awards $37,106.57 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty.
21. SRp, r:sso*.and cosrfietietrsatr'nent$: $15,,979"97.: These charges are for
spas, skin treatments and beauty shops. Exhibit 430, pp. 74-75. They are not business
expenses.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $15,979.97 to Rajysan against Jasmine Sahani and Gurmeet
$ahani for breach of fiduciary duty.
22. $psfllLq.gcgds: ${.911.,S41These charges were incurred at Dicks
Clothing and Sporting, Passion Nail Salon, Ready Golf Centers, REl, Sports Chalet and
Sports Authority, among others. Exhibit 430, p. 76.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case. Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $4,911.34 to Rajysan against Jasmine Sahani ahd Gurmeet
Sahani for breach of fiduciary duty.
Zg. Wi,ne q|ld p$iti,:q: $7;9"*, .83: These charges were incurred at liquor stores.
Exhibit 430,p.77.
Rajysan has met its prima facie case, and Gurmeet Sahani and Jasmine Sahani
have not meet their burden of rebutting Rajysan's prima facie case, Discovery of Rajysan's
books and records was available to all parties during the discovery period in these cases.
The Court awards $7,033.81 to Rajysan against Jasmine Sahani and Gurmeet
Sahani for breach of fiduciary duty with respect to charges at liquor stores.
The total personal, nonbusiness-related credit card bills of Gurmeet and Jasmine
Sahani for personal expenses for their family paid with Rajysan funds is $412,205.32.
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As to Rajysan's first and third causes of action for breach of fiduciary duty against
Gurmeet Sahani and Jasmine Sahani, the Court awards Rajysan $595,559.26 against
Gurmeet Sahani and Jasmine Sahanifor payment of personal Nordstrom's charges
($18,438.94) unsupported credit card charges ($164,915) and non-business credit card
charges ($412,205.32) credit card charges for 22 of the 23 categories of non-business or
personal expenses of Gurmeet Sahani and Jasmine Sahani and their family paid with
Rajysan funds.
ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
7o/ofrom the date of the filing of the complaint, October 9, 2013, to the date of judgment,
pursuant to Civil Code SS 3287, 3288.
Benovatiqnp of lhe.Iampa HpqSg
Rajysan seeks $500,492 from Gurmeet Sahani and Jasmine Sahani for their
renovation of the Tampa Avenue property owned by Gurmeet's parents, Amarjit and
Rajinder Sahani. Mr. Bower set forth the expenses, amounts and dates in Exh, 430,
Appendix 3.
Rajysan has proven by a preponderance of evidence the elements of breach of
fiduciary duty against Gurmeet Sahani and Jasmine Sahani for their breach of fiduciary
duty in expending $500,492 of Rajysan's funds for renovations to the Tampa Avenue
property through the testimony of its expert, Mr. Bower.
Jasmine Sahani held herself out as an officer and shareholder in Rajysan and is
liable for breach of fiduciary duty as a de facto officer. John Paul Lumber v. Agnew (1954)
125 CaL App. 2d 613, 619. Gurmeet Sahani was a shareholder and director of Rajysan and
his spouse Jasmine Sahaniwas head of accounting. They acted together to transfer these
funds from Rajysan for use in the Tampa Avenue remodel.
The Court awards $500,492 in favor of Rajysan and against Jasmine and Gurmeet
Sahani on Rajysan's first and third causes of action for breach of fiduciary duty.
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ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
7o/o from the date of the payment of the last expense, December 12,2102, to the date of
judgment, pursuant to Civil Code SS3287, 3288.
Maserati
Rajysan seeks damages from Gurmeet Sahani for the Maserati Gurmeet purchased
with Rajysan funds. RT 5-171-8 155-156. Gurmeet Sahanitestified that the Maserati cost
$105,000 to $110,000, and he paid for it with a Rajysan check. RT 5-16-18 61:16*62:26.
When Gurmeet Sahani was asked if he told any of the other Rajysan shareholders before
he purchased the Maseratifor more than $100,000, he stated: "Pete [Gurpreet] was with
me on the original test drive." RT 5-21-18 135.
Gurpreet Sahanitestified that the first time he learned that Gurmeet Sahani had
purchased a Maseratiwas when he siw Gurmeet Sahanidriving the car. RT 5-17-18 33-
35. Gurpreet Sahani testified that Gurmeet Sahanitold him he purchased the Maseratiwith
his personalfunds.
There is no credible evidence that Gurmeet Sahani disclosed to the other
shareholders that he was going to buy a Maseratiwith Rajysan funds and received their
consent to make the purchase. Gurmeet Sahani defends this claim by asserting that other
members of the family drove expensive vehicles.
Gurpreet Sahani testified that after Gurmeet was fired, he became the CEO and
drove a Maserati Quattroporte leased by Rajysan and, beginning in 2016, his wife drove a
Mercedes-Benz station wagon that was paid for by Rajysan.ll RT 5-17-18 155-157. His
father Amarjit Sahani drove a BMW 750 with a cost basis of $114,182 placed in service in
March 2014, after Gurmeet Sahaniwas fired and removdd as a director, RT 5-171-8 150
His mother, father and brother drove vehicles paid for by Rajysan. RT 5-171-B 185-187.
11 The incomplete board minutes (undated and first page only) at Exh. 407 p. 13, contain an approval of the
transfer of registration of a 1974 Mercedes-Benz from Rajysan to Amarjit Sahani to save the corporation the
expense of paying insurance premiums, noting that the proceeds of the sale of the vehicle will go to Rajysan,There is no evidence Amarjit Sahani's vehicle was purchased without notice to and acquiescence by theother shareholders.
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Gurmeet Sahani has not shown that the vehicles driven by the other family members
were not disclosed to or approved by the other shareholders,
After Gurmeet Sahaniwas terminated, Rajysan demanded that Gurmeet Sahani
return the Maserati and BMW 750. After a couple of months, he did not return the vehicles
and Rajysan contacted a recovery agent who repossess the vehicles. RT 5-17-18 72-74.
The Maseratiwas returned to Rajysan four months after Gurmeet Sahaniwas fired. RT 5-
21-18 136.
Rajysan sold the Maserati. There is no evidence of the amount for which Rajysan
sold the Maserati. Any award of damages in connection with the purchase and sale of the
Maserati would be speculative.
Hertz-l nvincia Tra nsaction
Rajysan seeks damages in the amount of $2,547,990 for the Hertz-lnvincia
nsaction in the first cause of action for breach of fiduciary duty against Gurmeet Sahani,
the third cause of action for breach of fiduciary duty against Jasmine Sahani and the ninth
cause of action for violation of Corporations Code 5310 against Gurmeet Sahani and
lnvincia.
Jasmine Sahani and Gurmeet Sahaniformed the lnvincia Limited Partnership and
were the only shareholders of lnvincia. RT 5-1 5-1871:17-19;72:11-14. Gurmeet Sahani
caused employees of Rajysan's MMD office in New Jersey to change the Hertz-Rajysan
invoices to Hertz-lnvincia invoices. Rajysan issued warranties on the generators and sold
the generators to lnvincia. lnvincia sold the generators to EOG (Enron Oil and Gas) and
Invincia sold the units at a profit.
Rajysan has proven by a preponderance of evidence the elements the first cause of
action against Gurmeet Sahani and the ninth cause of action against Gurmeet Sahani and
lnvincia for violation of California Corporations Code 5310. The Hertz-lnvincia transactions
were interested director transactions and interlocking director transactions without the
required disclosures.and consents and, in addition, constituted a breach of fiduciary duty in
that Gurmeet Sahani caused a purchase order issued to Rajysan to be reissued to his
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company, lnvincia without disclosure to or consent by any other shareholder of Rajysan.
The transaction was not just and reasonable as to Rajysan at any time. The Court awards
damages of $2,574,990, the profit on that transaction, against defendant Gurmeet Sahani
and lnvincia and in favor of plaintiff Rajysan.
The Court finds that Rajysan has proven the elements of the first cause of action for
breach of fiduciary duty against Gurmeet Sahani and the ninth cause of action for violation
of Corporations Code section 310 against Gurmeet Sahani and lnvincia.
As to the third cause of action for breach of fiduciary duty against Jasmine Sahani,
Jasmine Sahani and Gurmeet Sahaniwere the sole shareholders of lnvincia. Jasmine
Sahani was in charge of bookkeeping at Rajysan when the Hertz-lnvincia transaction
occurred at the direction of her Husband Gurmeet Sahani. For reasons stated elsewhere in
this Statement of Decision, Jasmine Sahani owed a fiduciary duty to Rajysan. Jasmine
$ahani transferred $875,000 from the proceeds of the Hertz-lnvincia transaction from the
lnvincia account to her own personal bank accounts. On January 18, 2014, Jasmine
Sahani deposited a $250,000 cashier's check from the lnvincla account signed by Gurmeet
Sahani into her personal checking account. Exh. 465, p. 46, RT 5-29-18 138-139. on
January 18,2014, Jasmine Sahani deposited a check in the amount of $275,000 from
lnvincia LLC into her personal bank account. Exh. 465, p.48, RT 5-29-18 122-124. An
June 23,2014, Jasmine Sahani wrote a $300,000 check on the Invincia account, payable
to herself. Exh 465, p.49, RT 5-29-18 140-141
The Court finds that Rajysan has proven its third cause of action for breach of
fiduciary duty against Jasmine Sahani awards damages at $2,574,990, the profit on that
transaction, against defendant Jasmine Sahani. This award does not dispose of the third
cause of action, as breach of fiduciary duty is also asserted for other acts addressed
elsewhere in this Statement of Decision.
ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
7o/o from September 27,2012 to the date of judgment, pursuant to Civil Code SS3287, 3288
as to Gurmeet Sahani, Jasmine Sahani and lnvincia.
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N overn b e-r. 26, * Q 1 3 Q-Ld, Road Pr,o pe$yJ*a:*s
SetsteeL!-la lcyp,n Va I en ch PA rtn ers., L. P, a nd' Rajysa rl
On November 26, 2012, Gurmeet Sahani executed on behalf of both Rajysan and
Halcyon Valencia Partners, L.P., a triple net lease for the Old Road property. Exh, 38, p. 8;
RT 5-15-18 164:18-165:13; 172:20-173:1. The signatures for Rajysan are Gurmeet Sahani,
"Presidenf' and Jasmine Sahani "Secretary." /d. Jasmine Sahani was never an officer or
director of Rajysan. Gurmeet Sahani was never the president of Rajysan. Amarjit Sahani
was the president of Rajysan. RT 64-18 114. There was no corporate resolution of other
operative corporate document that caused Gurmeet Sahani to become ilresident of
Rajysan or that caused Jasmine Sahani to be Secretary of Rajysan.
, The Court finds that Gurmeet Sahani did not disclose the terms of the Rajysan-
Halcyon lease to any of the other Rajysan shareholders, he did not provide the Rajysan-
Halcyon lease to any of the other Rajysan shareholders before he executed the lease and
he did not seek or obtain the approval to enter into the lease on behalf of Rajysan from any
of the other Rajysan shareholders before he and Jasmine Sahani executed the lease. See,
e.g., RT 5-15-18 173:27-174:14; RT 5-16-18 65:2-11. Had Gurmeet Sahani done so, the
other Rajysan shareholders would have becomb suspicious, as the lease indicated that
Jasmine Sahaniwas the corporate secretary of Rajysan. The corporate secretary of
Rajysan was Gurmeet's mother, Rajinder Sahani. Jasmine Sahaniwas never a Rajysan
officer or shareholder.
Gurmeet Sahani violated California Corporations Code 5310 in executing the Old
Road property lease on behalf of both Rajysan and Halcyon Valencia Partners, L.P. He
was an interlocking director and an interested director, and it was an interlocking director
and an interested director transaction without the required disclosures and consent. The
transaction was not just and reasonable as to Rajysan at any time.
The Court declares the Old Road property lease between Rajysan and Halcyon
Valencia Partners, L.P., executed on or about November 26,2012, void pursuant to
California Corporations Code 5310'
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lmpr,oper lrqnsfef oJ Rgiy:s?t)-Fulrds fai,Pilrctlepp of Old Roqd Pr*perq
Rajysan's first cause of action against Gurmeet Sahani for breach of fiduciary duty
and eighth cause of action against Gurmeet Sahani and Halcyon for violation of California
Corporations Code S310 seeks $630,722 from Gurmeet Sahani and Halcyon for the
improper transfer of $630,722 from Rajysan into Halcyon's escrow for use for Halcyon's
down payment on the Old Road property. Gurmeet Sahanitransferred $630,722 from
Rajysan into escrow for Halcyon's down payment for the Old Road property.
Gurmeet Sahani and Jasmine Sahani were the sole shareholders of Halcyon Limited
Partners LP. Although Rajysan turned down the opportunity to purchase the Old Road
transaction, the transfer of funds was an interested director transaction without disclosure
to or consent by Rajysan shareholders. The transaction was not just and reasonable as to
Rajysan at any time.
Gurmeet Sahani violated his fiduciary duties to Rajysan and Gurmeet Sahani and
Halcyon violated California Corporations Code 5310 by transferring Rajysan's funds into an
escrow, without disclosure to or consent of the other Rajysan shareholders. Rajysan has
proven by its eighth cause of action against Gurmeet Sahani and Halcyon for violation of
California Corporations Code S310 and its first cause of action against Gurmeet Sahani for
breach of fiduciary duty by a preponderance of evidence and has proven damages in the
amount of $630,722. The Court awards Rajysan damages and the amount of $630,722
against Gurmeet Sahani and Halcyon.
ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
7o/ofrom the date escrow closed on the Old Road property, December 5,2012, to the date
of judgment, pursuant to Civil Code SS32B7, 3288.
Above Market Bent on thg Qld Rgad Property
Rajysan's first cause of action against Gurmeet Sahanifor breach of fiduciary duty
and eighth cause of action against Gurmeet Sahani and Halcyon for violation of California
Corporations Code S310 seeks $335,070 from Gurmeet Sahanifor charging Rajysan
above market rent for the Old Road property.
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Gurmeet Sahani and Jasmine Sahani's entity, Halcyon Valencia Partners, L.P., was
the lessor. Gurmeet Sahani and Jasmine Sahani were the sole shareholders of the lessor,
Halcyon Limited Partners LP. Gurmeet Sahani breached his fiduciary duty to Rajysan by
charging Rajysan above market rent. Halcyon did not disclose to Rajysan or obtain
Rajysan's consent to charge it above market rent on the Old Road property.
Mr. Lofgren testified that the difference between the market value of the rent and the
rent Rajysan paid to Halcyon Valencia Partners, L.P. is $355,066.40.
The Court finds that plaintiff has proven by a preponderance of evidence that
Halcyon Valencia Partners L.P. charged Rajysan above market rent in the amount of
9355,066.40. The Court finds that Gurmeet Sahani violated his fiduciary duties to Rajysan
and Gurmeet Sahani dnd Halcyon violated California Corporations Code S310. The Court
awards $355,066.40 to Rajysan against Gurmeet Sahani and Halcyon Valencia Partners,
L.P. on the first and eighth causes of action.
ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
Zo/o from the date escrow closed on the Old Road property, December 5, 2012, to the date
of judgment, pursuant to Civil Code SS3287, 3288'
Sale.,of Old R.paglPfpnertg
Rajysan's first cause of action against Gurmeet Sahani for breach of fiduciary duty
and Rajysan's eighth cause of action against Gurmeet Sahani and Halcyon for violation of
California Corporations Code S310 seeks $3,200,000 from the sale of the Old Road
property.
Gurmeet Sahani and Jasmine Sahani's entity, Halcyon Valencia Partners, L.P., was
the owner of the property. Gurmeet Sahani and Jasmine Sahani were the sole
shareholders of Halcyon Limited Partners LP. Gurmeet Sahani breached his fiduciary duty
to Rajysan and Gurmeet Sahani and Halcyon violated California Corporations Code 5310
by transferring $630 ,722lrom Rajysan's accounts to the escrow account for Halcyon
Valencia Partners, L.P. purchase of the Old Road building. Gurmeet'Sahani did not
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disclose the transfer of those funds to the other Rajysan shareholders nor did he obtain
Rajysan"s consent to do so.
Halcyon Valencia Partners, L.P.'s purchase price was for the Old Road property was
$8,600,000. Rajysan's funds comprised 7.3o/o of the purchase price.
ln December 2015, Halcyon sold the Old Road property for $10.5 million, a profit of
$1.9 million. Rajysan's 7 .3o/o share of the profits from the sale of the property is $138,700.
The Court finds that Rajysan has proven the elements of its first cause of action for
breach of fiduciary duty against Gurmeet Sahani and its eighth cause of actibn for violation
of California Corporations Code 5310 against Gurmeet Sahani and Halcyon Valencia
Partners, L.P. The Court awards $138,700 to Rajysan against Gurmeet Sahani on the first
cause of action for breach of fiduciary duty and against Gurmeet Sahani and Halcyon
Valencia Partners, L,P. on the eighth cause of action for violation of California Corporations
Code $310.
ln the exercise of its discretion, the Court awards prejudgment interest at the rate of
7o/o fram the date escrow closed on the sale of the Old Road property, December 5,2012,
to the date of judgment pursuant to Civil Code SS3287, 3288.
that as of the time he signed the loan application, he and his wife owned 100% of Digital
Records Management, lnc., and lnvincia, LLC. RT 5-25-18 155.
As to current financial condition, Gurmeet Sahani currently lives at 5007 Vanalden
Avenue, Tazana, California. RT 5-25-18 147 . After Rajysan filed this action, Gurmeet
Sahanitransferred title of his residence to Acquisition lnvestments Group LLC, a company
owned by Gurmeet Sahani and his wife Jasmine Sahani. RT 5-25-18 147-148; 5-29-18 21-
The residence is a 5-bedroom, 5,029 square foot home, on a 28,000 square foot lot,
located south of Ventura Boulevard in Tazana. RT 5-25-18172-173.The mortgage(s) on
the residence are $1.3 million. RT 5-29-19 30. The current monthly mortgage payment is
$7,500 per month. RT 5-25-18 165. The asset is included for purposes of financial net
worth, as Gurmeet Sahani and Jasmine Sahani transferred the residence to an LLC after
this action was filed and can transfer the residence back to themselves.
Gurmeet Sahani testified in response to his counsel's question that there is a "tax
assessment pending, a lien" of $1.6 to $1.8 million, state and federal, as the result of
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"phantom income" Rajysan reported on his K-1's during allthe years since he has been
removed, from 2013 to 2016. RT 5-29-18 35-36. No documentary evidence of that lien is in
evidence.
Gurmeet Sahani and Jasmine Sahani own a 34,000 square foot industrial
warehouse at 3 Hawk Court, Swedesboro, New Jersey. RT 5-25-18 176-177. The loan on
the property is $1.1 million to $1.2 million, approximately equal to Gurmeet Sahani's
approximate valuation of the building, and the payments are $9,000 per month. RT 5-25-18
176-179. There has been no tenant in the property for four years. RT 5-25-18176-177.
Gurmeet Sahani does not know what the property was worth in 2013 when he refinanced it
with Bank of America. RT 5-25-18 179. He is current on the property taxes of $20,000 per
year. RT 5-25-18 180.
Gurmeet Sahani "believes" that he cosigned his children's'student loans. RT 5-25-
18 181 , His son attends a private school in Ohio with tuition of $50,000 per year paid for by
his grandparents in lndia for the last couple of semesters; he provides $400 per month for
living expenses. RT 5-25-18 182-185.
He owns seven or ten Mont Blanc pens, but does not remember whether he
purchised them at the Mont Btanc store in Glendale. Jasmine Sahani an engagement ring,
but Gurmeet Sahani does not remember the number of carats. RT 5-25-18 186. He owns
"three or fou/'watches, including Rolex, Cartier, Tag Heuer and Jaeger Reverso watches,
RT 5-29-1 B 22-23.
Gurmeet Sahani is current on his attorney's bill. RT 5-25-18 175.
Gurmeet Sahani's checking and saving account balances with J.P. Morgan, as of
June 30,2014, was $1,837,439.13. RT 5-25-18 159. He testified that his current savings
account balance is approximately zero or less than $100 and he cannot approximate the
number of his checking accounts. RT 5-25-18 160-161; 5-29-1 8 27. He believes the current
balances on his checking accounts are between $40,000 and $60,000. RT 5-25-18 161.
Gurmeet Sahanitestified that his wife Jasmine Sahani has four to six bank accounts with
total balances between $40,000 and $60,000. RT 5-25-18174-175. Jasmine Sahani
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testified that she did not remember the exact number of personal bank accounts she and
her husband have. RT 5-29-18 144. Gurmeet Sahanitestified that he does not believe that
lnvincia, LLC and AGS have bank accounts. RT 5-25-18 161-162.
Jasmine Sahani owns two or three diamond rings and owns gold, ruby and emerald
jewelry. RT 5-29-19 145-146. She denies having access to any cash and denies that
anyone is holding any cash for her or owes her any rnoney. RT 5-29-18 147. Jasmine
Sa.hani testified that she and her husband are current on all bills, except taxes, and have
credit card debt. RT 5-29- 18 147-144. Ottrer than'a check for $200,000 to her father, she
denied transferring any funds to family members within the last three years. RT 5-29-18
149. Her IRA has a balance of $120,000 to $130,000. RT 5-29-18 149.
Since Jasmine Sahaniwas terminated from Rajysan, she has not attempted to
obtain a job. RT 5-29-18 152.
Jasmine Sahani testified that AGS Enterprises is Gurmeet Sahani's consulting firm.
RT 5-29-18 134.
Both Halcyon Valencia Partners, L.P. and Digital Records Management are active
California corporations. RT 5-25-18 164.
When asked if he is delinquent on any account, Gurmeet Sahanitestified that he is
delinquent on loan payments on loans of $160,000 or $170,000 on his life insurance policy
of $500,000 and,loans of $65,000 to $70,000 on each of his 18 and 20-year-old children's'
life insurance policies. RT s-2F-te 165-168.
Gurmeet Sahani testified that the children's grandparents in lndia are "principally"
paying their schooltuition.,RT 5-25-18 168. He testified that other than providing a
Starbucks card and an Uber account, he is not providing financial support to his daughter
at college. RT 5-25-1817O.
Gurmeet Sahani drives a 2014 BMW 750 with a $90,000 loan balance and he is
current on those payments of $1200 per month. RT 5-25-18 170-171. His wife, Jasmine
Sahani, d.rfues a 2A1O BMW X5 diesel; there is no loan balance. RT 5-25-1 B 172. His son
drives a used 2A04 Ranger Rover; there is no loan balance. /d.
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Rajysan's complaint was filed on October 9, 2013. Three months later, Gurmeet
Sahani and Jasmine Sahani made a series of large cash withdrawals from their accounts.
Jasmine and Gurmeet Sahaniwrote checks payable to themselves, using the AGS
Enterprises checking account, or made withdrawals from that account as follows:
$275,000 on January 18,2014, $250,000 on May 12,2014, $300,000 on June 23,2A14.
Exh 465, RT 5-29-18 129-134.
On January 18, 2014, Jasmine Sahani deposited a $250,000 cashier's check from
the lnvincia, LLC account signed by Gurmeet Sahani into her personal checking account.
Exh.465, p.46, RT 5-29-18 138-139.
On January 18, 2A14, Jasmine Sahani deposited a check in the amount of $275,000
from lnvincia, LLC into her personal bank account. Exh. 465, p.48, RT 5-29-18122-124.
On June 23,2014, Jasmine Sahaniwrote a $300,000 check on the lnvincia, LLC
account, payable to herself. Exh 465, p. 49, RT'5-29-18 140-141.
On January 4,2014, Gurmeet Sahani wrote a check in the amount of $200,000 on
the lnvincia, LLC account, payable to himself. Exh. 465, p. 47, RT 5-29-18 139."
Gurmeet Sahani and Jasmine Sahani live in a large home in an affluent
neighborhood, drive expensive cars and send their children to private schools. They
testified they have significant debt and have help from Jasmine Sahani's family paying for
their children's'education expenses. They moved money after Rajysan filed this action
against them and they did not provide a satisfactory explanation for those transactions.
Gurmeet Sahani and Jasmine Sahaniwere not completely credible regarding their financial
condition.
On the first cause of action against Gurmeet Sahani for breach of fiduciary duty, the
second cause of action against Gurmeet Sahani and Jasmine Sahanifor conversion and
the third cause of action against Jasmine Sahani for breach of fiduciary duty, the Court
assesses punitive damages against Gurmeet Sah.ani in the amount of $990,000 and
against Jasmine Sahani in the amount of $390,00'0. The low award of punitive damages,
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given the high level of reprehensibility, is based on the current financial condition of
Gurmeet Sahani and Jasmine Sahani.
*rsiudarn€nl InterePJ
Rajysan seeks prejudgment interest pursuant to Civil Code SS3288 and 3287(a), (c)
on the second cause of action for conversion and on the first and third causes of action for
breach of fiduciary duty. Rajysan demanded prejudgment interest in the operative
complaint, its Second Amended Complaint, filed on December 31 ,2013 in PC055253, at
24:4-5 (seeking prejudgment interest at the rate of 10% on the second cause of action for
conversion against Gurmeet Sahani and Jasmine Sahani)'and at261ll (general prayer).
No statute providing for the award of prejudgment interest was specified in Rajysan's
operative complaint.
Rajysan requested prejudgment interest pursuant to Civil Code SS32BB and 3287(a)
in its June 28,2018 proposed statement of decision at 40:4-6.
A general prayer in the complaint such as the one at ZO,t 1, "for such other and
further relief as may be proper and just" is sufficient to support an award of prejudgment
interest. North Oakland Med. Clinic v. Rogers (1998,) 65 Cal. App. 4th 824,829i Wegner ef
al, Civil Trials and Evidence (Rutter Group 2018) tfJf17:1 121, et seg., p. 17-213; Weil,
Brown, Civil Procedure Before Trial(Rutter Group 2018) 116:277, p. 6-92. '
Rajysan timely requested prejudgment interest under Civil Code $$3288 and
3287(a).
On December 14, 2018, Rajysan lodged a proposed judgment awarding Rajysan
prejudgment interest at the rate of 10% in the amount of $3,285,998. On Decembe.r 24,
2018, counselfor defendants filed objections indicating that both sides agree that
prejudgment interest is7Yo, not 10%. Hearings were held on prejudgment interest were
held on December21,2O18 and January 2,2019.
The remaining issues are whether the Court should exercise its discretion to award
prejudgment interest and, if so, whether prejudgment interest should beTo/o simple or
compound interest.
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Civil Code S3287(a) provides for an award of prejudgment interest on damages
certain or capable of being made certain by calculation, the right to recover which is vested
in the person upon a particular day. The damages awarded for conversion and breach of
fiduciary duty awarded to Rajysan are certain or capable of being made cefiain by
calculation and the right to recover was vested in Rajysan on a particular day.
Civil Code S32BB Provides:
ln an action for the breach of an obligation not arising from contract, and inevery case of oppression, fraud or malice, interest may be given, in the discretion ofthe iury.
ln an action for breach of an obligation not arising from contract, in the discretion of
the trier of fact, the prevailing party in a case involving fraud may be awarded interest. Civil
Code $3288; CACI 3935; Tevis v. Beigel (1959) 174 Cal. App, 2d 90, 101 ; Wegner et al.,
Civit Trials and Evidence (Rutter Group 2018) ffi17:1110, ef seql P. 17-212.
Taking secret profits by a fiduciary is at least constructively fraudulent and is a basis
for an award of interest. /d.
Compound prejudgment interest may be awarded on a cause of action for breach of
fiduciary duly. Michelsan v. Hamada (1994) 29 Cal. App. 4th 1566, 1587; Pepitone v.
Russo (1976) 64 Cal. App. 3d 685, 690; Wegner et al, CivilTials and Evidence (Rutter
Group 2018) flfl17:1110, ef se9., P. 17-212.
ln conversion cases, prejudgment interest may be awarded from the date of
conversion. Schmidt v. Nunan (1883) 63 Cal. 371.
An award of prejudgment interest pursuant to Civil Code S3288 is in the discretion of
the Court, considering all of the circumstances of the case. Civil Code 53288; West v.
Stainback (1952) 108 Cal. App.2d 806,819. ln the case of fraud, prejudgment interest
runs from the date the money was paid or the property was lost be.cause the duty to
compensate plaintiff for her losses arose then and no demand was necessary. Conger v.
White (1945) 69 Cal. APP. 2d 28,40.
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An award of prejudgment interest under Civil Code $3287(a) is left to the discretion
of the trier of fact to be exercised in consideration of the circumstances of the case.
Pavlovich v. Niedhadt (1954) 128 Cal. App. 2d 559, 562.
Prejudgment interest is awarded not to punish the defendant, but to make plaintiff
whole and ensure that defendant does not profit from the wrong. Wheeter v.'Bolton (1891)
92 Cal. 159, 172-173. The Court may award both punitive damages and prejudgment
interest. Vogelsang v. Wolpeft (1964) 227 Cal. App. 2d 1A2,125.
Few cases have discussed the factors to be considered or the standards for the trial
courts in exercising discretion whether to award prejudgment interest. Cf., A & M Ptoduce
v. FMC (1982) 135 Cal. App. 3d 473,496 (Civil Code S3287(b))
ln A & M Produce, supra,135 Cal. App. 3d at 496, the court affirmed an award of
prejudgment interest in a seven-year long case, observing that during that time the
defendant essentially borrowed the funds from plaintiff. The court of appeal held that the.
"trial court was permitted to take cognizance of the exceedingly higher market interest rates
during [the seven-year period] in exercising its discretion to award prejudgment interest."
td.
ln Fsgnr Central v. General lns. Co, (1971) 20 Gal. App. 3d 1054, the appellate
court held that the trial court prejudicially erred in denying a motion for prejudgment interest
pursuant to Civil Code $32S7(a). Esgro Centratwas an insurance coverage case in which
the parties' contentions regarding the amounts due varied by approximately 10% of the
foss and 15% of the coverage. ld. at 1059-1061. The court of appeal noted that appellants
made a showing that would have supported an exercise of discretion awarding them
interest. ld. at 1065. The insurer could have avoided suit by honoring the insured's proof of
loss and the insurer's refusal to pay the insured caused a delay of four years in paying the
insured. That delay permitted the insurer to benefit from an investment return on the funds
for four years. The insurer's profit from the return was ". . . at the expense of the public
treasury, which was required to financ.e a jury trial." ld. at 1065. The determination that he
trial court could have exercised its discretion in favor of awarding prejudgment interest did
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not end the analysis. The court of appeal held that the trial court abused its discretion in
stating that the plaintiff received a very substantial award and asking for ". . . prejudgment
interest on something as uncertain as this is seems to be pouring on a little," as indicating
that the trial court believed that the jury already awarded prejudgment interest. ld. aL1065,
Here, Rajysan seeks 7% prejudgment interest for conversion and breach of fiduciary
uty arising from the conduct of the defendants and losses that occurred from
approximately May 2007 to September 2013. Rajysan seeks 7% compound interest, as the
amages were based on breaches of fiduciary duty.
Rajysan filed its action on October 9, 2013, more than 5 years ago. Rajysan, a
corporation, a corporation is entitled to the same fair and impartial treatment as an
individual. CACI 5006.
Amarjit and Rajinder Sahani who began Rajysan in 1985 and incorporated Rajysan
in 1991. Gurmeet Sahani subsequently played a major role in the business. Gurmeet
Sahani testified that his motive in restructuring the company was to buy out his parents
shares and set them up for retirement. RT 5-21-18 51:13-18, RT 5-30-18 88:22-89:18.
When the family balked Gurmeet Sahani's request to have Rajysan purchase the Old Road
property, instead of making the required disclosures to the other shareholders and
obtaining their consent, Gurmeet Sahani and Jasmine Sahani embarked on a course that
drove Rajysan into Chapter 11 Bankruptcy and did anything but set his parents up for
retirement.
Rajysan and its shareholders have been deprived of substantialfinds and the loss of
use of those funds, beginning in May 2A07. Prejudgment interest is a reimbursement for
the loss of use of the funds, including the costs to borrow money, including bank fees,
points and interest. After a financial loss on the scale presented in this case, the cost of
borrowing money would be more than for a company or individuals who had not sustained
such a loss. Halcyon's loan documents on the Old Road property reflect interest rates of
greater than 4o/oand loan fees in excess of $100,000, at a time before Rajysan filed
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Chapter 11 proceedings. Assuming a lender were willing to lend to a company in Chapter
11 proceedings, the interest rates would be extremely high.
Gurmeet Sahani owed a fiduciary du$ of making disclosures to and obtaining
consent from the other shareholders and he breached his fiduciary duties. His conduct
went beyond nondisclosure; he concealed what he was doing because he knew that the
other shareholders, his family members, would not agree to his plan for Rajysan.
Jasmine Sahani owed a fiduciary duty to Rajysan. She held herself out as an officer
and shareholder of Rajysan and she was neither. Jasmine Sahani concealed from Rajysan
shareholders that she was paying her family's personal family expenses with Rajysan
funds, including pet care and,school tuition for their children. Jasmine, Sahani signed, on
June 7 ,2A13, a Gertificate of Secretary as corporate secretary of Rajysan, lnc. stating that
she ownedTo/o of Rajysan shares; she was never corporate secretary and never owned
any shares. Exh.469, p. 135-136. RT 5-29-18 142. Jasmine Sahani signed as secretary of
Rajysan, a second "limited guaranty" of the Halcybn $3.44 million CNB note dated
November 28,2A12. Exh. 273; RT 5-16-18 13:7-21. On November 16,2A12, Jasmine
Sahani signed the CNB $4.3 million loan commitment letter on behalf of Rajysan as
guarantor on Halcyon's loan for the purchase of the Old Road property. Exh. 107. Jasmine
Sahani had no authority to sign these documents on behalf of Rajysan, knew she had no
authority to sign the documents and concealed from Rajysan and its shdieholders (except
for her husband Gurmeet Sahani) that she and her husband were executing these
documents.
Both Gurmeet Sahani and Jasmine Sahani engaged in fraudulent conduct in
performing the acts that are the basis for imposing liability against them and breached their
fiduciary duties.
Considering all of the circumstances of this case and in the exercise of the Court's
discretion, the Court awards prejudgment interest pursuant at the rate of seven percent per
year to Givil Code SS 3287(a), (c), 32BB on the second cause of action for conversion
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against Gurmeet Sahani and Jasmine Sahani and on the first and third causes of action for
breach of fiduciary duty against Gurmeet Sahani and Jasmine Sahani.
The Court does not award compound prejudgment interest. The award of seven
percent prejudgment interest has compensated Rajysan for the loss of use of its funds.
lnterest rates were at a historic low during most of the period at issue in this case. The
record in this action does not support an award of compound prejudgment interest, To
award compound interest in addition to 7o/o prejudgment interest would constitute a windfall
to Rajysan and would be punitive as to Gurmeet Sahani and Jasmine Sahani.
Prejudgment.interest is awarded not to punish the defendant, but to make ptainiif whole
and ensure that defendant does not profit from the wrong. Wheeler v. Bolton (1891) 92 Cal"
159, 172-173..
Stat ut_e-. gf L im itat igr s
The statute of limitations for breach of fiduciary duty involving fraud is three years.
Ameican Master Lease v. ldanta Paftners (2014) 225 CaL App, 4th 1451, 1479. The
discovery rule applies to causes of actiott for breach of fiduciary duty. April Enterpn'ses v.
KTTV (1983) 147 CaL App,3d 805, 826-828.
The exception to the three-year statute of limitations for conversion, CCP $338(c), is
where a fiduciary has concealed the facts giving rise to the cause of action. Sfrasberg v.
Odyssey Group (1996) 51 Cal. App. 4th 906, 915-916.
Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia Partners, L.P. and lnvincia,
LLC have failed to meet their burden of proving their second affirmative defense of the
statute of limitations in PC055253 by a preponderahce of evidence,
Rajysan's causes of actions are not barred by the statute of limitatibns. This action
was filed on October 9, 2013. Rajysan did not discover the acts upon which'it bases its
causes of action for breach of fiduciary duty and conversion until after Gurmeet Sahani and
Jasmine Sahani were fired on September 11,2013 and the other shareholders undertook
an examination of the records of Rajysan and obtained records of third parties and entities,
including during discovery in this litigation. Gurmeet Sahani and Jasmine Sahani had
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illillil
llcontrol of the records before they were fired and, for example, Gurmeet denied access of I
Il.a"V information to Gurpreet Sahani. As to the $500,000 wire transfer of September 12, I
11rr13,
the complaint was filed within "t" gll"o:| the transfer.
I
ll The elements of the defense of laches are: (1) delay in asserting a right or claim, tz) [il
lltne delay was not reasonable or excusable, and (3) prejudice to the party against whom t
f f U.n", is asserte d. Magic Kitchen LLC v. Goad Things lnt't. (20Q7) 153 Cal. App. 4th 11M,
Illrrso-rrsz.
ll A delay in attempting rescission of a contract may support the defense of laches. I
|lCorrnrnu Vattey Lumber and Suppty Co. u. Hollenbeck (1956) 145 Cal. App. 2d722,72g I
l[tr"* than one-year delay).
I
ll Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia Partners, L.P. and lnvincia, I
ll ata have failed to meet their burden of proving their fourth affirmative defense of laches in I
llraouurb3 by a preponderance of evidence. I
ll -ajysan did not discover the acts upon which it bases its causes of action for nreacn I
lIof fiOuciary duty and conversion are based until after Gurmeet Sahani and Jasmine Sahani I
lf *"r" fired on Septembe r 11,2A13 and the other shareholders undertook an examination of
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lltfl" r".ords. Gurmeet Sahani and Jasmine Sahani had control of the records before they
I
llwere fired and, for example, Gurmeet denied access of salary information to Gurpreet
I
llsanani. Rajysan timely filed its complaint on October g, 2013. Nor did Amarjit Sahani, I
Il*"i,nd"l, Sahani and Gurpreet Sahani "accept the benefits" as asserted by defendants. I
It consent I
ll ^s a general rule, consent by a plaintiff will preclude subsequent litigation as to
I
f f matters to which consent is given. Schwing,et at, Catifomia Affirmative Defenses (Thomson
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f f neuters 2108) 532.1 , pp. 201-203. Consent rneans a capable, deliberate and voluntary I
ll".r"nt, agreement or concurrence in some act or purpose, reflecting mental and physical
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llno*"t and free action. /d. Consent is an act unclouded by fraud, duress, mistake or undue
I
llinfluence. /d
il146
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ll trArEMENr oF DEcrsroN
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Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia Partners, L.P. and lnvincia,
LLC have failed to meet their burden of proving their twelfth and twenty fifth affirmative
defenses of consent in PC055253 by a preponderance of evidence. Rajysan did not
consent to the acts of Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia Partners, L.P.
and lnvincia, LLC that were the subject of the complaint and litigated at trial. Nor did Amarjit
Sahani, Rajinder Sahani and Gurpreet Sahani 'laccept the benefits" as asserted by
Fatification
Defendants Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia Partners, L.P. and
lnvincia, LLC did not raise the defense of ratification in their answer the second amended
complai;.rt and no motion to amend the complaint to conform to proof was made at trial.
Rajysan did not ratify the acts complained of in this action,
Other Affi rmjrtive DefeJsgg
Defendants Gurmeet Sahani, Jasmine Sahani, Halcyon Valencia Partners, L.P. and
lnvincia, LLC have failed to prove by a preponderance of evidence the elements of any
other affirmative defense raised in their answer to the second amended complaint in
PCo55253.
Oo.lelu*iqn as to ngiyggn v. Gufmset $ahanl',,,,J4'sminp $ahgili,
lConsolidated with f;ase Nos" 1C101739and PC 056071I
AMEND-ED JUDGMHNT
Case No. PC055?53
v$.
GURMEfiT $AHANl, an individual;JA$MINE $AHANl, an individual;IIALCYON VALENCIA PARTNER$, 1.P., ACalifornia limited partnership; lNVlNSIA,LLC, a Delaware limited tiability company;and DOES 1 thraugh ?0, inclusive,
Fefendants.
JA$MINE SAHANI,
Cross-Complainanl,
v$.
AMARJIT SAHANI, sn individual;RAJINDHR SAI{ANI, an individual;GURPRET $AHANl, an individual;RAJYSAN, INC., INCSRPORATED, ACalifornia corporation; and ROES 1 - 50,inclusive,
1
Cross-Defendants
AMtrNntrn .il rnG[ntrNT
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OURMEET $AHANl, on behalf of himself asan individual and as a shareholder in and onbehalf of RAJY$AN, INC.,I NCORP0RATHil; HALCY0N VALENC lAPARTNER$, L.F., a California limitedpartnership; and lNV|NC|A, LLS, aDalaware limited liability company,
Cross-Complainants, Case No. PC05$2S3
v$.
RAJY$AN, INC., INCORPORATffD, A
Califarnia corporation; GURPRHETSAHANI, an indivldual; RAJINDER SAHANI,an individual; AMARJIT $AHANI, anindividual; and MOES 1 * 25, inclusive,
Cross-ilefendants.
DIGITAL RTCORN$ MANAGEMENT, INC,,
Flaintiff,
v$.
AAJY$AN, INS., INCORPORATTD,
Defendants.
Case No. LC101739
The Judgment filed on March 28, 2S19 is amended as follows:
Atl parties waived a jury trial and the case was tried before the llonorable Mary Ann
Murphy in Dnpartment 25 of the above-enlitled courl from May 14, 2A18 to June t 7, 9018.
Adam D.H, Grant of Alpert, Barr & Grant, A Professional Law Corporation, appeared for
