Elalami v. Great American Investments, Inc.

Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797, citations omitted.) “[W]here the causes of action are different but the parties are the same, the doctrine applies so as to render conclusive matters which were decided by the first

judgment. As this court said in Todhunter v. Smith, 219 Cal. 690, 695 [28 Pac. (2d) 916]: ‘A prior judgment operates as a bar against a second action upon the same cause, but in a later action upon a different claim or cause of action, it operates as an estoppel or conclusive adjudication as to such issues in the second action as were actually litigated and determined in the first action.’” (Sutphin v. Speik (1940) 15 Cal.2d 195, 201–202.) “But the rule goes further. If the matter was within the scope of the action, related to the subject-matter and relevant to the issues, so that it could have been raised, the judgment is conclusive on it despite the fact that it was not in fact expressly pleaded or otherwise urged.

The reason for this is manifest. A party cannot by negligence or design withhold issues and litigate them in consecutive actions. Hence the rule is that the prior judgment is res judicata on matters which were raised or could have been raised, on matters litigated or litigable.” (Id. at p. 202, italics in original.) Here, defendants argue that plaintiff’s claims for fraud and promissory estoppel against them are all barred by the doctrines of either res judicata or collateral estoppel. They contend that the plaintiff’s claims against them are directly related to the litigation in the previous case that GAI brought against Zeyad and Mamdouh Elalami involving the ownership and sale of the real property, and that, while plaintiff was not a party to the arbitration of that case, he was a defendant and could have raised his claims in that case.

They also contend that he was in privity with his brother and business partner, Zeyad Elalami, who appeared in the arbitration, and thus he is bound by the arbitrator’s decision. Since the arbitrator already determined the rights of the parties with regard to the sale and ownership of the property, defendants conclude that plaintiff cannot now relitigate the same issues in a new action for fraud. However, the doctrines of res judicata and collateral estoppel do not apply to plaintiff’s new fraud claims, as there has not yet been a final judgment in the previous action.

The Court of Appeal conditionally reversed the trial court’s decision to confirm the arbitrator’s final award on December 22, 2025, with the remittitur issuing on February 23, 2026. The Court of Appeal remanded the matter back to the trial court, with the trial court directed to schedule and hear the petition submitted by Zeyad Elalami to vacate or correct the final arbitration award as it applies to GAI only. (Court of Appeal decision, p. 18, Disposition.) The trial court has now set a new hearing on the petition to vacate or correct the award, which is set for July 10, 2026.

Thus, at this time, there is no final judgment in the underlying case and there is no basis for finding that the judgment bars plaintiff’s claims under the doctrines of res judicata or collateral estoppel. Consequently, the court will not sustain the demurrer to the complaint based on res judicata or collateral estoppel. Next, defendants contend that the plaintiff’s claims are barred by the litigation privilege as all of plaintiff’s claims are based on statements made during or in contemplation of litigation. (Civil Code, § 47, subd. (b).) “[T]he privilege prescribed by section 47(2) has been given broad application.

Although originally enacted with reference to defamation, the privilege is now held applicable to any communication, whether or not it amounts to a publication, and all torts except malicious prosecution. Further, it applies to any publication required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom and no function of the court or its officers is involved.” (Silberg v. Anderson (1990) 50 Cal.3d 205, 211–212, citations omitted.) 8

“The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.” (Id. at p. 212, citations omitted.) Prelitigation communications that have “some relation” to an anticipated lawsuit also fall within the privilege, as long as litigation is actually contemplated in good faith and under serious consideration by a possible party to the proceeding. (Rubin v.

Green (1993) 4 Cal.4th 1187, 1194-1195.) Here, plaintiff’s fraud claims are all based on communications that were made either during the litigation or that were directly related to the matters that were subsequently raised during the prior litigation and arbitration. Therefore, plaintiff’s claims are all barred by the litigation privilege. Plaintiff alleges that, “After the fire [that occurred on March 6, 2021], AJ represented to Mamdouh and Zeyad that he would receive insurance proceeds from the fire and could use those funds to purchase the Property himself at a fair price, thereby proposing to replace Sharma as the buyer.

AJ urged Mamdouh and Zeyad to terminate the Purchase Agreement with Sharma, assuring them that he would rebuild the car wash with the insurance proceeds to improve and restore the Property’s value prior to completing the purchase. Mamdouh and Zeyad, who had a decades-long friendship with AJ, were amenable to selling to either Sharma or AJ, provided the price was fair and the car wash would be rebuilt to restore the Property’s value.” (Complaint, ¶ 9.) “Based on AJ’s representations and their longstanding relationship, Mamdouh and Zeyad agreed to AJ’s proposal and to a temporary modification of the Lease terms pending resolution of any arbitration, whereby: (i) AJ would invoke the right of first refusal under the Lease to block the sale to Sharma; (ii) AJ would purchase the Property at a fair price using the insurance proceeds and pay past due rent; (iii) AJ would rebuild the car wash with those proceeds to improve and restore the Property’s value; and (iv) Mamdouh and Zeyad would pay AJ $50,000 for moving expenses upon sale.

In exchange, Mamdouh and Zeyad agreed to cooperate in blocking the Sharma sale and forbear from pursuing immediate legal remedies for the fire damage.” (Id. at ¶ 10, italics added.) “To effectuate this understanding, AJ filed a lawsuit invoking the right of first refusal to prevent Sharma’s purchase. Subsequently, an arbitration commenced involving AJ, Zeyad, and Sharma. Mamdouh, a 50% owner of the Property, did not participate in the arbitration. During the arbitration, AJ and Zeyad agreed that Zeyad would support AJ’s position to acquire the Property, based on their friendship and AJ’s repeated assurances that he would rebuild the car wash, pay past due rent, and complete the purchase fairly.” (Id. at ¶ 11, italics added.) “In or around August 2021, GAI received approximately $1.8 million in insurance proceeds from the fire, a substantial portion of which was earmarked for rebuilding the car wash and repairing the Property.” (Id. at ¶ 12.) “Throughout the arbitration and thereafter, AJ repeatedly represented, both orally and in writing, that he would rebuild the car wash using the insurance proceeds and pay rent.

For example, in April 2021, AJ stated, ‘I am fully responsible for rent payment and building repairs.’ These representations induced Mamdouh and Zeyad to cooperate in the sales process.” (Id. at ¶ 13, italics added.) 9

“Despite these promises, AJ betrayed Zeyad during the arbitration. Contrary to the parties’ understanding, AJ sought and obtained an arbitration award granting him title to Zeyad’s 50% interest in the Property without paying any consideration to Zeyad or Mamdouh. AJ failed to pay the agreed-upon fair purchase price, failed to pay the $50,000 moving expenses to himself, failed to rebuild the car wash, has not paid rent, and left the Property in a damaged and diminished state.” (Id. at ¶ 14.) “To date, AJ and GAI have abandoned the Property, failed to use the $1.8 million in insurance proceeds to rebuild the car wash, and failed to compensate Mamdouh for the fire damage or the rent owed.” (Id. at ¶ 15.)

Thus, according to the plaintiff’s own allegations, defendants’ allegedly fraudulent statements were all made either during the litigation, in anticipation of the litigation, or otherwise in connection with the litigation. Plaintiff argues that the original statements were made months before GAI filed its complaint and before litigation was contemplated, and thus the litigation privilege does not apply. However, while the original statements by AJ were made after the fire in March of 2021, several months before he filed his complaint, it appears from plaintiff’s allegations that the parties were already seriously considering having AJ file a complaint in order to assert that the sale to Sharma violated his right of first refusal to buy the property.

In fact, plaintiff alleges that he, Zeyad, and AJ agreed at the time that “pending resolution of any arbitration... AJ would invoke the right of first refusal under the Lease and block the sale to Sharma”, and then AJ would purchase the property from plaintiff and Zeyad at a fair price using the insurance money, as well as rebuilding the car wash. (Complaint, ¶ 10.) “To effectuate this understanding, AJ filed a lawsuit invoking the right of first refusal to prevent Sharma’s purchase.” (Id. at ¶ 11.) “During the arbitration,” AJ also made repeated assurances to plaintiff and Zeyad that he would rebuild the car wash, pay past rent, and complete the purchase fairly. (Ibid.)

In other words, all of AJ’s alleged representations regarding using the insurance proceeds to rebuild the car wash, paying rent, and completing the purchase of the property using the insurance money were made either in anticipation of filing his complaint to assert his right of first refusal, during the case, or as part of the arbitration of the case. Since defendants’ alleged misrepresentations were all made during litigation or in anticipation of the litigation, the plaintiff’s fraud and promissory estoppel claims are barred by the litigation privilege.

Plaintiff argues that the litigation privilege does not apply to his claim because it is based on statements that constitute extrinsic fraud, which he contends is an exception to the general application of the litigation privilege. However, “‘extrinsic fraud’ ... relates to the narrow doctrine permitting a collateral attack on a judgment that has been obtained by ‘extrinsic fraud,’ i.e., under circumstances in which ‘the aggrieved party [has been] deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently prevented from presenting his claim or defense.’” (Moore v.

Conliffe (1994) 7 Cal.4th 634, 643, fn. 5, citation omitted.) The Supreme Court in Moore found that “extrinsic fraud” was not a basis for avoiding the application of the litigation privilege. “The court in Silberg explicitly recognized that a ‘fraudulent communication’ or ‘perjured testimony’ made in the course of a judicial proceeding is absolutely privileged and does not provide a basis for avoiding the finality of the decision made in the litigation process itself.” (Ibid, citing Silberg v. Anderson, supra, 50 Cal.3d at p. 218.)

Thus, plaintiff’s

contention that AJ’s statements constituted extrinsic fraud does not assist him in avoiding application of the litigation privilege. In any event, even if extrinsic fraud does constitute an exception to the litigation privilege, plaintiff has failed to show that defendants’ statements constituted extrinsic fraud here. “Fraud is extrinsic where the defrauded party was deprived of the opportunity to present his or her claim or defense to the court, that is, where he or she was kept in ignorance or in some other manner, other than from his or her own conduct, fraudulently prevented from fully participating in the proceeding.” (In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051.) “Any fraud is intrinsic if a party has been given notice of the action and has not been prevented from participating therein, that is, if he or she had the opportunity to present his or her case and to protect himself or herself from any mistake or fraud of his or her adversary, but unreasonably neglected to do so. [¶] When a claim of fraud goes to an issue involving the merits of the prior proceeding which the moving party should have guarded against at that time, or if the moving party was guilty of negligence in failing to prevent the fraud or mistake or in contributing thereto, or failed to take advantage of liberal discovery policies to fully investigate his or her claim, any fraud is intrinsic fraud.” (Id. at p. 1069.)

Here, plaintiff has not alleged any facts showing that defendants’ statements prevented him from appearing in the prior case, or that defendants did not give him notice of the case and an opportunity to defend himself in that action. In fact, he filed an answer in the case and raised affirmative defenses. (Request for Judicial Notice, Exhibit 4. The court will take judicial notice of Mamdouh and Zeyad’s Joint Answer to GAI’s Complaint.) He also had a full opportunity to appear in the arbitration and defend himself there, although he declined to personally participate in the arbitration.

He clearly chose not to participate further in the case despite being on notice that it was pending against him. Therefore, any alleged fraud committed by AJ and GAI was intrinsic rather than extrinsic, and their statements are absolutely privileged under Civil Code section 47(b). Since plaintiff’s complaint relies entirely on privileged statements as the basis for all of its claims, it fails to state a claim and the court intends to sustain the demurrer to it. Furthermore, since the plaintiff’s claims are based on statements that are absolutely privileged, there is no possibility that plaintiff could amend his complaint to cure the defects in his causes of action.

Therefore, the court intends to sustain the demurrer to the complaint without leave to amend.

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 6/12/2026. (Judge’s initials) (Date)

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