Court Opinion

ID: 9840673
Source: CourtListenerOpinion
Date Created: 2023-09-19 19:05:11.219975+00
Date Added: 2024-06-11T10:59:58.657936
License: Public Domain

Filed 9/19/23 Shi v. Thropay CA2/5

  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying
on opinions not certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                      SECOND APPELLATE DISTRICT

                                   DIVISION FIVE

 ZHAO HUI SHI et al.,                                    B317855

         Plaintiffs and Appellants,                      (Los Angeles County Super.
                                                         Ct. No. BC662775)
         v.

 JOHN P. THROPAY,

         Defendant and Respondent.

      APPEAL from an order of the Superior Court of Los
Angeles County, Richard Burdge, Jr., Judge. Affirmed.
      Law Offices of Steven P. Scandura and Steven P. Scandura
for Plaintiffs and Appellants.
      Davidovich Stein Law Group, Niv V. Davidovich and Elan
N. Stone for Defendant and Respondent.
                   ___________________________
       Plaintiff and appellant Zhao Hui Shi, individually and on
behalf of others similarly situated, appeals from an order denying
class certification that was entered in favor of defendant and
respondent John P. Thropay in this action arising out of an
investment. The trial court found the claims were inconsistent
with class treatment because they required an individualized
assessment of each class member’s reliance on different
representations. On appeal, Shi contends: (1) reliance on the
misrepresentations may be established by the victims’ conduct
rather than through testimony; (2) the trial court failed to
properly weigh whether common questions of fact and law
predominate; and (3) class treatment is the superior method to
resolve the controversy. We find no abuse of discretion in the
trial court’s determination that common questions do not
predominate, and therefore, we affirm.

        FACTS AND PROCEDURAL BACKGROUND

Proton Therapy Investment Program

      Thropay is an oncologist. He is the owner, president, and
medical director of an oncology and imaging medical group with
multiple outpatient clinics. In 2010, Thropay met Charles Liu,
who was a salesperson for a proton therapy equipment
manufacturer. Liu proposed funding construction of a proton
oncology facility through the EB-5 immigrant investor visa
program. The EB-5 program allowed prospective immigrants to
apply to the United States Citizenship and Immigration Services
(USCIS) for preferred immigration status based on an investment

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of $500,000 in certain types of commercial enterprises through a
designated regional center.
       In November 2010, Charles Liu applied to the appropriate
federal agency to designate Pacific Proton Therapy Center, LLC
(the regional center), as a regional center. The application stated
that Liu and Thropay were the managing principals of the
regional center, and both would administer and manage the
regional center to ensure that the project goals and regional
center requirements were met. The regional center would
organize a separate entity for each investment opportunity. The
application also requested approval of the regional center’s first
project, Pacific Proton EB-5 Fund, LLC (the fund). Prospective
immigrants would invest in the fund. The regional center would
loan the invested money to Los Angeles County Proton Therapy,
LLC (the proton therapy center), for development and
construction of a proton therapy center. USCIS approved the
application in 2012. The proton therapy center was later
renamed Beverly Proton Center, LLC.
       The operating agreement for the regional center stated that
Thropay was the president, his sister Ruth Novodor was the
secretary, and Liu was the treasurer. Liu owned 75 percent and
Thropay owned 25 percent of the regional center.
       A February 2011 memorandum of understanding stated
Thropay would serve as the chairman and chief executive officer
of the proton therapy center, Novodor would be the chief
operating officer and secretary, and Liu would be the president
with responsibility for investor relations.
       A law firm created a private offering memorandum to
market units of the fund to prospective immigrants. The
memorandum stated Thropay was a member of the regional

                                3
center, an owner and chief executive officer of the proton therapy
center, and the landlord for the proton therapy center The
memorandum explained that in these capacities, Thropay
controlled the proton therapy center, the regional center, and the
fund. Thropay would lead the proton therapy center with a team
of health professionals.
       Liu and his wife Lisa Wang met with prospective
immigrants and encouraged them to invest in the project. Liu
also hired several firms to market the investment to investors.
Thropay made five trips to China, speaking about proton therapy
with representatives of the marketing companies and potential
investors. From October 2012 through April 2016, investments
in the fund were sold for $500,000 each, raising a minimum of
$26,967,918.
       In 2012, Shi was approached about investing in the project
by an acquaintance. Lui gave a presentation to Shi explaining
that her investment would secure a green card allowing
immigration to the United States and earn money. Liu showed
her the memorandum, explained the first few pages, and
answered several questions. He did not give her a copy of the
document. Shi looked through the prospectus as best she could.
Shi paid more than $500,000 in March 2013, which she believed
would be held in escrow and used to build the project. She would
not have invested in this project if she had known the managers
of the project would not keep track of the finances and would take
the money for their own use.
       In 2015, Liu used funds received from investors to demolish
a building on certain property owned by Thropay that was
intended to be the location of the proton center. Ultimately, Liu

                                4
and Wang diverted and dissipated nearly all of the $26,967,918
invested.
       In August or September 2015, one of the companies
marketing the fund alerted Thropay to concerns about the lack of
progress on construction. Thropay hired an attorney and alerted
the Securities and Exchange Commission (SEC) to a possible
violation of federal securities laws. The SEC filed a civil action
against Liu, Wang, the regional center, the fund, and the proton
therapy center.

Class Action

      Shi and her husband Jun Lu filed the instant action on
May 25, 2017. On August 27, 2020, they filed the operative
fourth amended complaint, individually and on behalf of a class
of similarly situated individuals, against several defendants,
including Thropay. The complaint alleged that each defendant
was a fraudulent transferee or transferor, alter ego, associate,
partner, officer, director, conspirator, or was responsible,
negligently, in some actionable manner for the events, either
through their own conduct or through the conduct of their agents
and employees. The causes of action alleged against Thropay
were for fraud, negligent misrepresentation, and violation of
Penal Code section 496, subdivision (c). The fraud cause of action
alleged that the class members relied on representations in the
memorandum and accompanying documents, as distributed by
Liu and his agents. The class members relied on Thropay’s
representations of his involvement in the project and his
credibility, as conveyed through the memorandum.

                                5
       On September 20, 2021, Shi filed a motion to certify a class
of 65 plaintiffs against Thropay. The motion provided 65 names
of alleged investors who had paid approximately $500,000 each.
Shi asserted that because most of the victims were in China, they
had insurmountable obstacles to litigation in the absence of the
class format. The substance of the EB-5 program, the underlying
fraud by Liu, and the involvement of various attorneys in
creating the investment presented common issues of fact and law.
Common questions also included whether Thropay was
vicariously liable for Novodor’s conduct and whether Thropay
owed a fiduciary duty to investors.
       Thropay opposed the motion on the grounds that it was
based on inadmissible evidence from the action filed by the SEC
in federal court and Shi could not meet the elements for class
certification. Shi filed a reply.
       A hearing was held on the class certification motion on
October 15, 2021. The trial court granted Shi’s request for
judicial notice of documents from the SEC action, but denied the
class certification motion, finding that common questions of law
and fact did not predominate for the proposed class, and that
proceeding as a class was not superior to other methods. Shi filed
a timely notice of appeal from the order denying certification of
the class.1

      1 The notice of appeal also named Shi’s husband Lu as an
appellant, but Lu was not a party to the motion for class
certification and has not filed a brief on appeal.

                                6
                          DISCUSSION

Class Certification Requirements and Standard of Review

       Class actions are authorized “when the question is one of a
common or general interest, of many persons, or when the parties
are numerous, and it is impracticable to bring them all before the
court.” (Code Civ. Proc., § 382.) To certify a class, “[t]he party
advocating class treatment must demonstrate the existence of an
ascertainable and sufficiently numerous class, a well-defined
community of interest, and substantial benefits from certification
that render proceeding as a class superior to the alternatives.”
(Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th
1004, 1021 (Brinker).) The community of interest factor in turn
has three requirements: (1) common questions of fact or law that
predominate over individual issues; (2) class representatives with
claims or defenses typical of the class; and (3) class
representatives who can adequately represent the class. (Ibid.)
       The ultimate question in analyzing whether the
predominance requirement has been met is whether “ ‘the issues
which may be jointly tried, when compared with those requiring
separate adjudication, are so numerous or substantial that the
maintenance of a class action would be advantageous to the
judicial process and to the litigants.’ ” (Brinker, supra, 53 Cal.4th
at p. 1021, quoting Collins v. Rocha (1972) 7 Cal.3d 232, 238.) To
answer this question, a court must “examine the allegations of
the complaint and supporting declarations [citation] and consider
whether the legal and factual issues they present are such that
their resolution in a single class proceeding would be both
desirable and feasible.” (Brinker, supra, at pp. 1021–1022.)

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       In addition to deciding whether common issues
predominate, a court considering class certification must
determine whether the remaining individual issues can be
resolved “fairly and efficiently.” (Duran v. U.S. Bank National
Assn. (2014) 59 Cal.4th 1, 28–29 (Duran).) That includes
individual issues arising from affirmative defenses. (Id. at p. 29.)
“In considering whether a class action is a superior device for
resolving a controversy, the manageability of individual issues is
just as important as the existence of common questions uniting
the proposed class.” (Ibid.)
       Our review of the trial court’s class certification ruling is
“narrowly circumscribed.” (Brinker, supra, 53 Cal.4th at p. 1022.)
We review the trial court’s ruling for abuse of discretion. “ ‘A
certification order generally will not be disturbed unless (1) it is
unsupported by substantial evidence, (2) it rests on improper
criteria, or (3) it rests on erroneous legal assumptions.’ ” (Ibid.)
Because predominance is a factual issue, the trial court’s finding
that individual issues predominate must be affirmed if it is
supported by substantial evidence. (Ibid.) Under the substantial
evidence standard, we must credit the trial court’s reasonable
inferences, even if a competing inference could be drawn. (Boling
v. Public Employment Relations Bd. (2018) 5 Cal.5th 898, 912–
913.)
       We review the trial court’s ruling on the feasibility of
managing individual issues at trial for abuse of discretion.
(Duran, supra, 59 Cal.4th at pp. 49–50.)

                                 8
Predominance

       Shi contends the trial court erred by finding common issues
of fact and law do not predominate. Both parties’ briefs focus
more on the merits of their respective cases than an analysis of
the class certification requirements, but the trial court carefully
weighed the potential evidence and issues implicated by the
complaint. We cannot say there is no substantial evidence to
support the trial court’s conclusion that individual issues
predominate in this case.
       “To establish a claim for fraudulent misrepresentation, the
plaintiff must prove: ‘(1) the defendant represented to the
plaintiff that an important fact was true; (2) that representation
was false; (3) the defendant knew that the representation was
false when the defendant made it, or the defendant made the
representation recklessly and without regard for its truth; (4) the
defendant intended that the plaintiff rely on the representation;
(5) the plaintiff reasonably relied on the representation; (6) the
plaintiff was harmed; and (7) the plaintiff’s reliance on the
defendant’s representation was a substantial factor in causing
that harm to the plaintiff. [Citations.]’ ” (Perlas v. GMAC
Mortgage, LLC (2010) 187 Cal.App.4th 429, 434, italics omitted.)
       In general, “ ‘if the defendant’s liability can be determined
by facts common to all members of the class, a class will be
certified even if the members must individually prove their
damages.’ ” (Brinker, supra, 53 Cal.4th at p. 1022.) Class
certification is generally not appropriate, however, when liability
must be established through individualized proof. (See Duran,
supra, 59 Cal.4th at p. 30 [“ ‘ “Only in an extraordinary situation
would a class action be justified where, subsequent to the class

                                 9
judgment, the members would be required to individually prove
not only damages but also liability” ’ ”]; see also Hale v. Sharp
Healthcare (2014) 232 Cal.App.4th 50, 63–64 [class certification
inappropriate where fact of damage, rather than amount of
damages, is subject to individual proof].)
       “[T]he class action procedural device may not be used to
abridge a party’s substantive rights.” (Duran, supra, 59 Cal.4th
at p. 34.) “ ‘Class actions are provided only as a means to enforce
substantive law. Altering the substantive law to accommodate
procedure would be to confuse the means with the ends—to
sacrifice the goal for the going.’ ” (Ibid.)
       In this case, there is substantial evidence to support the
trial court’s assessment that the claims for fraud and negligent
misrepresentation would break down into mini-trials on
individualized liability issues. The allegations of fraud and
negligent misrepresentation in the complaint focused on
representations made in the written memorandum, as well as the
escrow agreement, and concealment of the truth about the
project. Liu explained a few pages of the memorandum to Shi,
who did not read English fluently at the time of the transaction,
but he did not give her a copy of the document. The evidence
showed Liu and the marketing companies also made statements
at different times to potential investors.
       Thropay is entitled to require each investor to prove
reasonable reliance on a misrepresentation for which Thropay is
liable. Although a trier of fact may conclude Thropay had no
knowledge of any fraud as Thropay asserts or is liable for fraud
from the inception of the project as Shi contends, a trier of fact
may also find Thropay had no knowledge of fraud initially, but
became liable for fraud at a certain point by continuing to make

                                10
representations about the project in light of the lack of progress.
In other words, initial representations to investors may have
been made in good faith, while later representations were made
recklessly and without regard to the truth. Class treatment
would require a mini-trial to prove individual issues such as: the
representations that a particular class member relied upon;
whether the representations were false when made; the class
member’s understanding of the investment, including any
language barrier; whether the class member’s reliance was
reasonable under the circumstances; and whether Thropay is
liable for the particular representations that the class member
relied upon. The trial court concluded that the trial could not
fairly be limited to common evidence of payment. Simply
showing each class member paid $500,000 would not establish
that each class member relied on a representation for which
Thropay is liable, that the representation was false at the time it
was made, or that the class member’s reliance was reasonable
under the circumstances. In light of the evidence, individualized
testimony was necessary to determine the representations made
to each investor and the extent that investor relied on the
representations.
       At the same time, many of the common issues of fact and
law that Shi identified in her brief are, in fact, undisputed and
subject to stipulation by the parties, or may be simplified for
trial. For example, the mechanics of the EB-5 program are legal
matters not in dispute that can be efficiently presented. Facts
about Liu’s conduct may have been established to an extent
through the SEC proceedings, reducing the common issues of fact
necessary for trial. Given that the trial court was presented with
evidence of both common questions and individual issues, we

                                11
conclude the trial court’s finding that individual issues would
predominate in determining questions of misrepresentation and
reasonable reliance is supported by substantial evidence.
       Even were we to find, however, that common questions
predominate as a matter of law in this case and there was no
substantial evidence to support the trial court’s conclusion
otherwise, Shi did not show the trial court abused its discretion
by concluding the remaining individual issues in the case could
not be handled efficiently and manageably in a class setting. As
one example of the challenges presented by class treatment in
this case, the class members reside in China, requiring the
services of translators and presenting additional communication
concerns. The trial court was in the best position to assess
whether the issues could be presented manageably in a class
setting under the circumstances of this case and no abuse of
discretion has been shown.

                         DISPOSITION

     The order is affirmed. Respondent John P. Thropay is
awarded his costs on appeal.
     NOT TO BE PUBLISHED.

                                          MOOR, J.

We concur:

             RUBIN, P. J.                 KIM, J.

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