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Railan v. Katyal

February 15, 2001


Before Schwelb, King *fn* and Ruiz, Associate Judges.

The opinion of the court was delivered by: Ruiz, Associate Judge

Appeal from the Superior Court of the District of Columbia

(Hon. Stephen G. Milliken, Trial Judge)

Argued April 22, 1998

Opinion for the Court by Associate Judge Ruiz.

Opinion concurring in part and dissenting in part by Associate Judge Schwelb at p.37.

This is an appeal from the judgment on a jury verdict awarding compensatory and punitive damages for breach of an oral contract and fraudulent misrepresentation and from the trial court's denial of a counterclaim for a deficiency judgment. We affirm in part and reverse in part.

I. Statement of the Case

Appellees, Jagdish ("Jack") Katyal and his wife, Mohana Katyal, sued appellants, Vikramaditya ("Vik") Railan and his wife, Dr. Veena Railan (the Railans), for breach of contract, fraudulent misrepresentation, and injunctive relief to halt a foreclosure sale on a building housing the Katyals' restaurant, The Tandoor, in Georgetown. The dispute stemmed from an alleged oral agreement that the Railans would purchase a bank note secured by that building on which the Katyals had defaulted, and forbear on foreclosure in exchange for certain interest payments, the outstanding debt, and a bonus. After appellants, the Railans, foreclosed and bought the property at the foreclosure sale, they filed a counterclaim seeking a deficiency judgment equaling $150,000 (the difference between the amount outstanding on the bank note and the amount for which the Railans purchased the property at foreclosure), plus all interest, taxes, liens, assessments, fines, fees and other miscellaneous costs relating to the property. The Railans also filed a complaint in the Landlord-Tenant Division for possession of the building housing the restaurant due to the Katyals' failure to vacate the building after having received a notice to quit from the Railans.

After a series of motions to amend, for summary judgment, and to exclude certain evidence (discussed below where relevant), the complaints were consolidated and the case was tried before a jury. After the trial court denied the Railans' (noteholders) motion for directed verdict, the jury found for the Katyals (debtors) and awarded $728,080.70 in damages on the breach of contract claim, which was exactly the amount owed by the Katyals to the Railans on the note the day the Railans purchased the note from the bank. The jury also awarded $50,250 in compensatory damages from each of the Railans on the fraud claim; and an additional $50,250 from each of them in punitive damages. Because the parties had agreed prior to the verdict that the jury's verdict would resolve the Railans' landlord-tenant complaint for possession and counterclaim for deficiency judgment, the trial court entered judgment for the Katyals on these issues. The Railans moved to set aside the judgments in favor of the Katyals, and for judgment as a matter of law or a new trial. The Railans argued they were entitled to judgment as a matter of law because the statute of frauds precluded enforcement of the alleged oral contract, and the evidence was insufficient to prove fraud by clear and convincing evidence. The trial court denied the motion after considering it under Rules 50 (b) (motion for judgment as a matter of law), 59 (b) (motion for a new trial), and 59 (e) (motion to amend or alter judgment). The Railans appeal both the judgment on the verdicts and the order denying post-trial relief.

II. Statement of Facts

Jack Katyal, once the successful owner of many restaurants in various east coast cities, had fallen on hard times, and filed for bankruptcy in 1992. Katyal and his wife owned the Tandoor restaurant and the building in Georgetown where it was located, as well as several other properties. After filing for Chapter 11 bankruptcy, the Katyals' banks were foreclosing on many of the properties on which they had defaulted. Although the Katyals had defaulted on the note held by First Union Bank for the Tandoor property, the bank had not foreclosed on the note, and the Katyals were seeking someone to purchase the note on terms which would enable them to continue to operate the restaurant, collect rent from various commercial and residential tenants in the building, and pay off the note in two years.

Jack Katyal and Vik Railan met at a party at the Tandoor restaurant - Katyal testified the party was at the "end of September" 1993, while Railan testified it was a New Year's party on January 8, 1994. Railan, an investor in real estate, and Katyal began to discuss the possibility of Railan purchasing Katyal's properties at foreclosure sales. Railan quickly purchased one of Katyal's properties, and the two began to meet frequently to discuss the possibility of Railan purchasing the note on the Tandoor restaurant property.

Katyal and Railan gave differing accounts at trial of the negotiations which followed. Katyal testified that he told Railan that "there are two guys trying to help me purchase" the bank note on the Tandoor restaurant property, and that one man in particular proposed that he would purchase the note from the bank at a discount, then charge Katyal that amount over two years at nine and a half percent. Katyal stated that Railan called him back a few days later, in early April 1994, saying "Jack, don't go to this loan shark and things. . . . I think I will be able to help you to buy this note from the bank and I will give you two years and I'll never shape [sic] at your bank." Katyal further testified, "I think it was mutual understanding and Mr. Railan and me, that he will foot the note because he's the one who suggested me not to go to his loan shark, you know."

Katyal summarized the terms of the deal he contends were agreed upon with Railan:

Pay him back [the discounted purchase price of the note] and plus the hundred thousand dollars, two years was the maximum period. . . . [I]f I could not pay him off five fifteen plus the hundred thousand dollar within two years he has all right to foreclose me. . . . I will pay him nine and a half percent.

Katyal also stated that he and Railan had agreed that Katyal would pay one month back taxes and one month current taxes on the property. Katyal said that he then faxed to his loan officer at the bank, Kelly Parden, a letter telling Parden to negotiate with Railan for purchase of the note. *fn1 Katyal also testified that he and the bank informed Railan of Katyal's financial situation and property taxes owed on the Tandoor restaurant building, and that Railan himself had sought Katyal's Chapter 11 documents from the court. Katyal stated that there were many on-going meetings about Katyal's debts and restructuring plans. *fn2

Katyal described the close personal relationship that developed during this period between the two men: that they spoke frequently, Railan referred to him by the affectionate Indian term for "big brother," and that Railan's wife, Dr. Veena Railan, had treated him one night in late July or early August 1994, when he suffered from high blood pressure. Katyal said that the very next morning, Railan called him and said:

Don't worry about the property, I'm buying the note. I had discussed with the bank and I'm going to give you two years to restructure your loan and things and . . . all of things we have discussed . . .

Katyal finally described the events of late September 1994, after Railan purchased the note from the bank at a discounted rate of $515,000 (the face amount due on the note was $700,000). Katyal said that Railan did not see him for approximately one week after the purchase and that when he arrived at the Tandoor restaurant on September 29, Railan first asked Katyal to sign a letter recognizing that Railan had purchased his note. Katyal further testified:

I said, you know, I don't have objection to sign it. What about my note? He says, let me write that and I can - we can work on that note also. So, we started . . . he was start [sic] writing how much would be nine and a half percent for four hundred fifteen thousand dollar [sic]. And I says [sic] you want to write that note with hand too? He says no, why don't you come to my home this evening? I like to write this note in front of my father-in-law and my wife.

Katyal testified that when Railan went to pick him up that evening, Railan asked for the paper with the calculations he had done earlier that day. Katyal said that when he told Railan he had thrown the paper away, Railan informed him: "I am not going to give you two years any more, because I decided to foreclose you." Katyal testified that Railan claimed to be following his lawyer's advice. During that conversation, Railan received a call on his car phone from someone Katyal believed was Dr. Railan, and that Railan explained that, yes, "he had told Mr. Katyal that, and he is kind of upset and things, you know."

Katyal further discussed a meeting between the men facilitated by a leader in the Indian community, Dr. Singh, in which Katyal sought to convince Railan not to foreclose on the property. At that meeting, Katyal testified, Railan offered that he would not foreclose in exchange for the Tandoor restaurant's liquor license, but Katyal explained that there was already a lien on that license. At the foreclosure sale, on November 1, 1994, Railan was the only bidder on the property, which he purchased for $550,000. As owners of the property, the Railans sought to obtain possession of the property from the Katyals and a deficiency judgment in the amount of $150,000, the difference between the face amount due on the note and the purchase price of the foreclosed property.

Railan's counsel neared the end of his cross-examination of Katyal by asking, "When are you alleging that fraud was perpetrated on you?" That question prompted the following answer and exchange:

[Katyal] Actually, the 29th of September. Then he asked me to give him the piece of paper and I said I don't have it and I throw it away [sic], and then, the one next minute he told me he has indicated to his lawyer to foreclose me [sic].

Q. So, . . . your testimony is not that the fraud was his indication to you that he wanted to help you in purchasing this property and give you two years and so on and so forth, and . . . that somehow the fraud was something else when he refused to write a piece of paper.

A. Yes, because, I don't know what is in his mind. Maybe he would have been sincere to me. I'm not saying that he wasn't. . . . Obviously, it shows that, you know - the record shows . . . that was happened is intention [sic], because ...

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