Great American Investment, Inc. v. Elalami

Frank (1990) 217 Cal.App.3d 94, 98–99.) “Notwithstanding the holding in Gherman v. Colburn (1977) 72 Cal.App.3d 544, 559 [140 Cal.Rptr. 330], that ‘the statutory terminology [of section 426.50] allows the court some modicum of discretion in determining whether or not a defendant has acted in good faith’ (italics added), it is our view that substantial evidence must support the trial court's decision.” (Ibid.) “‘“Bad faith” is defined as “[t]he opposite of ‘good faith,’ generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a 3

neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake ..., but by some interested or sinister motive[,] ... not simply bad judgment or negligence, but rather ... the conscious doing of a wrong because of dishonest purpose or moral obliquity; ... it contemplates a state of mind affirmatively operating with furtive design or ill will.”’” (Id. at p. 100, citations omitted.) In Silver Organizations v. Frank, supra, the Court of Appeal reversed the trial court’s denial of appellants’ motion to file a cross-complaint, finding that there was no evidence that appellants’ failure to file the cross-complaint earlier was a product of bad faith. “Our review of the entire record fails to reveal, directly or inferentially, any substantial evidence of bad faith by the appellants.

Looking at the entire period between the filing of the complaint and the denial of the section 426.50 motion, a time frame of less than six months, we find nothing in appellants' words or conduct remotely suggesting dishonest purpose, moral obliquity, sinister motive, furtive design or ill will.” (Ibid.) “While it may be argued that appellants, acting as their own counsel, may have been guilty of neglect, inadvertence or oversight, thereby causing delay, section 426.50 expressly disallows denial of a motion based on these grounds.

There must be bad faith and this record fails to demonstrate that element. We conclude the late filing of the motion to file a compulsory cross-complaint absent some evidence of bad faith is insufficient evidence to support denial of the motion.” (Id. at p. 101.) On the other hand, in Gherman v. Colburn (1977) 72 Cal.App.3d 544, the Court of Appeal found that the trial court has discretion to deny a motion to file a cross-complaint where the defendants acted in bad faith. “Where the defendant fails to act for a period of over 30 days and waits until the first day of trial, such conduct may be interpreted as evidence of a lack of good faith especially when coupled with the long history of litigation between the parties, which demonstrates that both sides were jockeying for position over the right to a jury trial.” (Id. at p. 559, italics in original.)

In Foot's Transfer & Storage Co. v. Superior Court (1980) 114 Cal.App.3d 897, the Court of Appeal held that the trial court abused its discretion in denying the defendants’ motion to file a cross-complaint, despite defendants’ lengthy delay in seeking leave to file the cross-complaint. “Real party in interest Worth, in seeking to support the trial court's ruling in the instant case, points to the fact that petitioner waited 23 months after service of the complaint, and 16 months after it had filed its answer to the complaint, before asserting the right to file a cross-complaint.

We have no doubt that petitioner, Foot's Transfer & Storage, as defendants are sometimes wont to do, engaged in as much delay in this litigation as possible. But section 426.50, however, expressly mentions a party's ‘neglect’ as one circumstance under which relief may be given. There is nothing in the record before us which suggests that petitioner was unusually reprehensible in this regard.” (Id. at p. 903.) In addition, the Foot court found that the real party in interest would not suffer any prejudice if the court allowed the filing of the cross-complaint. “[W]e fail to perceive any substantial injustice or prejudice to the real party in interest Worth in this litigation by the filing of petitioner Foot's Transfer & Storage's cross-complaint, as belated as it may be.

The correspondence of counsel establishes that neither side was unaware of the claims of the other. Similarly, the discovery undertaken in 1979 also indicates a lack of any such unawareness. [¶] We hold, therefore, that the evidence to support the trial court's denial of petitioner's motion to file a cross-complaint was insufficient as a matter of law in view of the well established liberality with which section 426.50 of the Code of Civil Procedure 4

is to be applied. It is preferable that the parties have their day in court.” (Id. at pp. 903– 904.) In the present case, while defendant Mamdouh Elalami1 did engage in a lengthy delay before seeking leave to file his cross-complaint, there is no substantial evidence that his delay in seeking leave to file the cross-complaint was the result of bad faith, or that GAI would suffer any prejudice if the court grants leave to file the cross-complaint. As discussed above, there is a strong policy in favor of granting leave to file crosscomplaints so that all of the parties’ claims can be heard and resolved on the merits. (Code Civ.

Proc., § 428.50.) Absent substantial evidence that the moving party has acted in bad faith, the court must grant a motion to file the cross-complaint, even up to the day of trial. (Ibid; see also Silver Organizations v. Frank, supra, at p. 99-101.) Here, Mamdouh’s new attorney claims that he sought to file the cross-complaint as soon as he reviewed the case file after being retained and determined that Mamdouh had viable claims for breach of contract and other claims based on GAI’s alleged violation of the lease. (Sarabian decl., ¶¶ 4-6.)

He then filed his motion for leave to file the cross-complaint in January of 2025, soon after being substituted into the case as Mamdouh’s counsel. (Id. at ¶ 6.) Thus, Mamdouh has met his burden of showing that he has sought to file his cross-complaint in good faith. In its opposition, plaintiff GAI argues that Mamdouh has substantially and prejudicially delayed in seeking to file his cross-claims, as the case has been pending since December of 2021 and Mamdouh filed his answer in February of 2022.

The parties went to arbitration on the issue of ownership of the property and whether GAI had a right of first refusal with regard to the sale of the property in April of 2023. The arbitrator issued his final decision in August of 2023. The court then confirmed the arbitrator’s decision and entered a judgment based on the decision on April 2, 2024. The Court of Appeal later reversed the trial court’s decision and remanded the matter back to the lower court to rehear Zeyad’s motion to vacate or correct the award.

Yet delay in seeking leave to file a cross-complaint is not enough to justify denying a party the right to bring a cross-complaint. (Silver Organizations, supra, at p. 101.) Here, while Mamdouh did delay substantially in seeking leave to file his cross-complaint, there is no evidence that he delayed in order to obtain an unfair advantage or for any other improper reason. GAI also contends that Mamdouh and his former attorney have been aware of their potential cross-claims based on the failure to repair the property or pay Mamdouh the insurance proceeds from the fire since at least September of 2023.

GAI claims that the parties met in September of 2023, after the arbitrator had issued his final award, to discuss the issue of whether GAI was going to repair the property. (Lovegren-Tipton decl., ¶ 16.) Mamdouh’s then-attorney also sent a letter on November 10, 2023, demanding that GAI make repairs to the property or pay the insurance proceeds to him within ten days. (Id. at ¶ 17.) Thus, GAI concludes that Mamdouh and his attorneys have been fully aware since at least September of 2023 that they had potential cross-claims against GAI,

1 The court will refer to defendant Mamdouh Elalami by his first name, as his brother Zeyad Elalami

is also a party to the case. No disrespect is intended. 5

and their purported “epiphany” in late 2024 that they might have valid cross-claims is “disingenuous, at best.” (Id. at ¶ 18.) However, in his reply, Mamdouh contends that the only reason that he waited to file his cross-complaint against GAI was that GAI and Rassamni had promised repeatedly that they would use the insurance proceeds to repair the property. (Mamdouh Reply decl., ¶¶ 2, 3.) Mamdouh and Rassamni have been friends for over 20 years, so Mamdouh trusted Rassamni to keep his word and make the repairs. (Id. at ¶ 2.)

Mamdouh also did not believe that it would make sense to bring his cross-claims until the arbitration had resolved the issue of who owned the property. (Ibid.) Therefore, while Mamdouh did engage in a lengthy delay before seeking to bring his cross-claims, it does not appear that the delay was the product of bad faith on Mamdouh’s part. Rather, it appears that he trusted his longtime friend Rassamni’s promises that he would repair the property, and thus did not bring his cross-claims until after the arbitration had concluded.

Also, there is no evidence that Mamdouh has gained any unfair advantage by delaying in filing his cross-complaint, or that GAI will be prejudiced by the delay. There is no trial date set in the case, and the parties have apparently not engaged in any discovery on the issues raised by the cross-complaint. Thus, it does not appear that Mamdouh has delayed in order to obtain an advantage over GAI. While GAI accuses Mamdouh of seeking to relitigate the issues that have already been resolved by the arbitration, the arbitrator’s award did not resolve the question of whether GAI had to pay for repairs to the property or whether it is liable for failing to pay the insurance proceeds to Mamdouh.

The arbitrator’s award only resolved the issues of who has the ownership of the property and whether GAI had the right of first refusal, as well as the question of damages related to the sale of the property. The award never directly addressed the question of who must pay for repairs to the property. Therefore, Mamdouh’s cross-complaint is not seeking to relitigate the issues that have already been resolved by the arbitration, and allowing him to file the cross-complaint will not cause any real prejudice to GAI.

On the other hand, there would be considerable prejudice to Mamdouh if the court denies leave to file the cross-complaint, as he would be unable to seek any relief despite GAI’s alleged failure to repair the property or pay the insurance proceeds to him. Therefore, in light of the strong public policy in favor of allowing parties to have their claims heard on the merits, the court intends to grant the motion to file the crosscomplaint.

Pursuant to California Rules of Court, rule 3.1312(a), and Code of Civil Procedure section 1019.5, subdivision (a), no further written order is necessary. The minute order adopting this tentative ruling will serve as the order of the court and service by the clerk will constitute notice of the order.

Tentative Ruling

Issued By: JS on 6/11/2026. (Judge’s initials) (Date)

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