Top Plaintiffs' Verdict by Impact: Rostack Investments Inc. v. Sabella

Attorneys with Mayer Brown LLP persuaded a Los Angeles County judge last October to order the daughter of a prominent Hong Kong property developer to repay a $33 million loan issued by their client, Rostack Investments, with interest.

When the defendant, Angela C. Sabella received the funds, Rostack was indirectly owned by Hong Kong's Nan Fung Group, founded by Chen Din Hwa, her father. Sabella signed a promissory note but also claimed her father gave the money to her as a gift, according to court documents.

"One of the best ways we could prove that Sabella always knew it was a real loan was to get her tax returns," said John Nadolenco, a Mayer Brown partner who represented Rostack. "So we went to court and asked the court to compel her to produce her tax returns."

Superior Court Judge Barbara A. Meiers ruled that Sabella had to produce her tax returns, but she did not immediately provide them, submitting requests to both the Court of Appeal and Supreme Court. Both let the lower court ruling stand, declining to hear the case.

"We believe a turning point came when the judge realized that Sabella was taking tax deductions on the interest she paid on the loan," Nadolenco said. "The law says that you can only take deductions on a real loan."

Meiers ruled that Sabella should repay $28.3 million in principal, plus 10 percent interest for a total of $51.9 million, according to a court order. Sabella earlier paid back $5 million. Rostack Investments Inc. v. Sabella, BC428298 (L.A. Super. Ct., filed Dec. 19, 2009).

"We ultimately convinced the judge that this was a simple breach of contract case," Nadolenco said. "We also showed the judge that the defendant, Angela Sabella, took inconsistent positions in court - saying that the Rostack loan was essentially forgiven - compared to what she told the IRS, that it was a real loan entitling her to millions in tax deductions."

Before Meiers was assigned to the case and granted the plaintiff's motion for summary judgment, Superior Court Judge Luis A. Lavin presided over the case and denied the same motion. Louis R. "Skip" Miller of Miller Barondess LLP, Sabella's attorney, said the decision is vulnerable on appeal because the law is clear that one judge of the Superior Court cannot reverse another.

"I fully expect it to get reversed on appeal," said Miller. "I'm looking forward to it."

- MELANIE BRISBON