Hrg_09102018_trial_briefBriefCal. Super. - 6th Dist.February 11, 2016OO 0 9 O N Wn bh W N = N N N N N N N N O N = em e m e e e d e d e m 0 N N n h W N = S V N N N R W ND = 16CV291491 Santa Clara - Civil Electronically Filed McPHARLIN SPRINKLES & THOMAS LLP by Superior Court of CA, PAUL S. AVILLA, Bar #120458 County of Santa C lara, JEANINE DeBACKER, Bar #178054 on 9/7/2018 11:17 AM 160 W. Santa Clara St., Ste. 400 Reviewed By: R. Aragon San Jose, California 95113 Case #16CV291491 Telephone: (408) 293-1900 Envelope: 1919800 Facsimile: (408) 293-1999 : pavilla@mstpartners.com jdebacker@mstpartners.com Attorneys for Defendants and Cross-Complainants TONY TOLANI; SHALINI TOLANI; and T&S MANUFACTURING TECHNOLOGIES, LLC SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA JOANNE PHAN, ) Case No.: 16 CV 291491 Plaintiff, ) % ) DEFENDANTS AND CROSS- ) COMPLAINANTS’ TRIAL BRIEF TONY TOLANI, SHALINI TOLANI, T&S ) MANUFACTURING TECHNOLOGIES, LLC ) and DOES 2 through 10, inclusive, ) Defendants ) Trial Date: September 10, 2018 ) Time: 8:30 a.m. AND RELATED CROSS ACTION. Dept: ~~ TBD {I BACKGROUND A. This is a Retrial. This case is a retrial of a business fraud case that was tried to a jury starting August 25, 2018. At the first trial, the court accepted partial special verdicts in favor of Mr. and Mrs. Tolani on several causes of action, with a hung jury on causes of action against the Tolanis on breach of contract; and against Mr. Tolani only on a cause of action for concealment. This will be a retrial of plaintiff Joanne Phan’s cause of action against Mr. Tolani for breach of contract and concealment, and against Mrs. Tolani for breach of contract. The Tolanis have a cross-complaintj for breach of a promissory note that Ms. Phan gave to the Tolanis. However, the cross- complaint will be determined, by stipulation, as explained below. Defendants’ Trial Brief 1 R. Aragon Oo 0 9 O N n t R W e s N N N D N D N N N N O N e e em e s pe d e d e d pe em NX N N nw pA L N = O YW N N N B E R W Y N R O B. Factual Background. Tony and Shalini Tolani owned and operated Atech Manufacturing, in San Jose, California. Atech manufactures and fabricates metal and plastic parts. Products range from large semiconductor tools to small, intricate parts for medical devices. On about April 7, 2015, the Tolanis and Ms. Phan entered into an Asset Purchase Agreement for the business. The purchase price was $1.7M. Escrow on the transaction closed over four months later — on August 24, 2015. During the intervening four months, Ms. Phan conducted extensive due diligence. After the sale, Tony Tolani continued to work at Atech under a consulting agreement. Shalini Tolani also continued working at the company for approximately 30 days after the sale, to assist in the transition and to help train Ms. Phan. Roughly 60 days after the sale, Ms. Phan was concerned that orders for new business — not being placed as she had hoped. She developed a case of “buyer’s remorse” and asked the Tolanis to take the company back, or for Tony Tolani to become an investor to reduce some of Mrs. Phan’s risk. Mr. Tolani declined both] proposals. The relationship between Ms. Phan and the Tolanis deteriorated because, to save money, Ms. Phan began asking Mr. Tolani to take time off. Mr. Tolani responded that he could not agree to work “on demand” and, based on Ms. Phan’s breach of the consulting agreement, ceased] working for Ms. Phan. 1. KLA Singapore “Forecasts” and Emails. Within 90 days of purchasing the business, Ms. Phan engaged a lawyer and began scouring Atech’s records to find some basis on which she could rescind the purchase. She discovered that one of Atech’s customers, (KL.LA—Singapore) had periodically provided spreadsheets (called “OORs” or “Open Order Reports”) to Atech that listed open purchase orders and also included information about future orders, or forecast items, that KI.A—Singapore was contemplating. Ms. Phan also found two email chains between KLA Singapore and Atech which Ms. Phan claims reveal a deteriorating relationship between Atech and KLLA Singapore. Ms. Phan claims that the KI.A-Singapore forecast information reveals that KILA-Singapore was expecting to practically cease doing business with Atech as of September, 2015 (the month Defendants’ Trial Brief 2 Oo 0 9 YN nn A W N N o N o p o N o N O N N o N o N o — —_ — Je d — —_ — — pa t —_ oo ~ AN On A T W \S ] —_ o \O c c ~ J AN Wn Ex Y wd No —_ o following the sale) and, had she known aboni the forecast information and emails, she would not have purchased the business. In fact, Ms. Phan was made aware during due diligence that the KI.A-Singapore business had decreased significantly in the three years leading up to the sale. The KLLA-Singapore “forecast information” did not add anything to that conclusion. Thus, Mr. Tolani not only disputes that he intentionally concealed the KLA-Singapore forecast information contained within the OORs, but he also disputes that the information was “material” information which, if known to Ms. Phan would have affected her decision to purchase the company. 2. Sigmatron. Ms. Phan also claims that Mr. Tolani learned several months before the sale, that one of Atech’s customers, Sigmatron, would soon cease doing business with Atech. Mr. Tolani disputes that he was made aware of the change. In fact, the business Atech did for Sigmatron did not cease. Sigmatron was actually a contract manufacturer for KLA-Hong Kong that ordered various parts from Atech. The change was that KLA-Hong Kong planned to eliminate Sigmatron as a “middle-man” and begin ordering direct from Atech. That is what happened. The Sigmatron business was replaced by business directly from KLLA-Hong Kong. As with the KLA-Singapore forecasts, even if this information was concealed, it was not material. 3. Tony Tolani’s Felony Conviction. At some point after this lawsuit was filed, Ms. Phan learned that in the mid-1990s, Tony Tolani had pled guilty to charges of financial fraud by the SEC and the federal government. Ms. Phan then began claiming that Mr. Tolani was obligated to have disclosed the conviction prior to the sale and, had it been disolosed, Plaintiff would not have purchased the business from him. IL. PLAINTIFF’S CLAIMS A. Concealment. Plaintiff alleges that Mr. Tolani concealed four categories of information with the intent to defraud her into purchasing the Atech business: (1) KLA Singapore Open Order Reports/Forecasts; (2) negative emails from KLA Singapore; (3) circumstances with Sigmatron; Defendants’ Trial Brief : | 3 © © 9 OO Uh BA W N N N N N N N N O N O N O N = m e a e d e m ee d a e a p m « N N YN nt R A W L I N S O Y N Y R E W I N D +R, oO and (4) Mr. Tolani’s felony conviction. As mentioned above, these claims turn on significant factual disputes about whether Mr. Tolani intentionally or negligently concealed material information. B. Breach of Contract. Plaintiff alleges that both Tolanis breached the Purchase Agreement by failing to disclose information requested in the Seller Disclosure Statement, when Mr. Tolani warranted in the Purchase Agreement that the information in the Seller Disclosure Statement was true and accurate. In particular, plaintiff claims that the Tolanis should have disclosed Mr. Tolani’s criminal conviction in response to the question on the Seller Disclosure Statement: “dre you aware of any other facts or conditions not disclosed above that may adversely affect the operation of the Business, a Buyer's decision to purchase it or the price a buyer might pay for it?” Mr. Tolani maintains that he truthfully answered no to this question, because it did not occur to him that a 22 year-old conviction having nothing to do with the operation of Atech was something he needed to disclose. III. MR. TOLANI’S CROSS-COMPLAINT As part of the purchase price for the business, Ms. Phan’s corporation, Atech Manufacturing Solutions, Inc. delivered a promissory note to Mr. Tolani in the principal amount of $170,000, at 6% annual interest, providing for 48 monthly payments of $3,992.45. Ms. Phan personally guaranteed the note. Ms. Phan made two payments only. The note has been accelerated due to Ms. Phan’s default. Mr. Tolani’s cross-complaint seeks the balance due on the note. Mr. Tolani’s cross-complaint also includes a cause of action based on Ms. Phan’s failure to pay the amount due for services rendered by Mr. Tolani under a Consulting Agreement he entered into with Atech Manufacturing Solutions, Inc. The balance due is $3,400, plus pre- judgment interest. Defendants’ Trial Brief 4 Oo 0 9 S Y nn RR L O N N O N N N N N N O N N / m e a e k e m e d e m pe WW NN A N nt A W N R O O N N N N R W R O A. Stipulation Reached Regarding the Cross-Complaint. The parties have agreed that Mr. Tolani’s cross-complaint essentially rises or falls on the jury’s findings with respect to Ms. Phan’s claims. Therefore, the parties have entered into a stipulation that will dictate judgment on the cross-complaint, depending on the jury verdict on the complaint, thus avoiding the need for evidence or a jury determination on the cross- complaint claims. Dated: September 7, 2018 McPHARLIN SPRINKLES & THOMAS LLP By: | “Al Paul'S. Avilla Attorneys for Defendants and Cross-Complainants, TONY TOLANI; SHALINI TOLANI; and T&S MANUFACTURING TECHNOLOGIES, LLC Defendants’ Trial Brief ’ 5 OO 0 JI O N Un Bh W N N O N N O N N N N N N / km m e E pe e e d e m 0 ~ AN Wn A W \] —_ S O 0 N N wn W N — = Electronically filed by Superior Court of CA, County of Santa Clara, Phan v. Tolani on 9/7/2018 11:17 AM Case No. 16CV291491 Reviewed By:R. Aragon Case #16CV291491 Env #1919800 PROOF OF SERVICE I am a citizen of the United States and a citizen of Santa Clara County; I am over the age of eighteen years and not a party to the within action; my business address is 160 W. Santa Clara, Suite 400, San Jose CA 95113. On the date set forth below I served the documents described as: DEFENDANTS’ TRIAL BRIEF on the following parties in this action by placing a true copy thereof enclosed in a sealed envelope addressed as follows: Caroline McIntyre Bergeson, LLP 111 N. Market St., Ste. 600 San Jose, CA 95113 cmcintyre@be-law.com [] (BY MAIL) I caused such envelope(s) with postage thereon fully prepaid to be placed in the United States mail at San Jose, California. [1] (BY PERSONAL SERVICE) I caused such envelope(s) to be delivered by hand this date to the offices of the addressee(s). [1] (BY FEDERAL EXPRESS) I caused such document(s) with postage thereon fully prepaid to be placed in the Federal Express office at San Jose, California. [X] (BY ELECTRONIC SERVICE) I caused such document(s) to be transmitted by electronic service on this date through a court appointed e-filing vendor, One Legal to the offices of addressee(s). [X] (STATE) I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. [1] (FEDERAL) I declare that I am employed in the office of a member of the bar of this court at whose direction the service was made. Executed on September 7, 2018, at San Jose, California. Nestali F Qgp— Natalie P. Alejandro
