Thursday, February 6, 2014
Page 3
Court of Appeal Rules
Agreement to Split Charity Award Effectuated Fraud, Voiding Contract
By a MetNews Staff Writer
An agreement to enter into an charity contest, and split the award if victorious, was unenforceable for having an unlawful object when one of the parties would not have been eligible to receive the money but for the agreement, this district’s Court of Appeal ruled yesterday.
Div. Two, in an unpublished opinion by Justice Victoria M. Chavez, left intact the entry of a stipulated judgment for Netan Eli Hebrew Academy after deciding not to consider its agreement to share a $500,000 charitable grant, because enforcement would have effectuated a fraud.
In July 2010, Kohl’s Department Store initiated a $10 million charitable donation program for schools, with a $500,000 grant going to the winners. The contest requirements specified that only public and nonprofit schools would be eligible for entry.
Eligible schools were to submit their proposals to receive the grant, and the proposals would be displayed on the contest’s website where members of the public could vote for the winners. The 20 schools receiving the most votes would receive the grant.
Jewish Educational Movement, a charitable organization that provides classes and sports facilities for children at the former Beverly Hills YMCA, but did not meet the eligibility requirements for Kohl’s giveaway, allegedly entered into an agreement with Netan Eli Academy, which did meet the criteria.
Rabbi Hertzel Illulian of the JEM allegedly approached Kamran Neydavood of Netan Eli and asked whether the school would be willing to help obtain the donation.
In emails dated Aug. 6 and Aug. 9, 2010, Illulian and Neydavood memorialized an agreement. The agreement explained that Netan Eli would hire Illulian to represent it in the contest, and would pay the JEM a commission salary of $450,000 if Netan Eli won. The email stated that the agreement was to be “confidential.”
In October 2010, Netan Eli won the Kohl’s donation for funding a building on its new campus. The school was informed that it would receive a check of $500,000 through UPS at the end of the month.
After learning of its victory, Netan Eli allegedly refused to honor the agreement, so the JEM sent a representative to intercept the UPS delivery and collect the check.
The JEM then filed a certificate of doing business under the fictitious name of Netan Eli, endorsed and deposited the check, and attempted to withdraw $455,000—$5,000 for “expenses”—to which it claimed it was entitled.
Comerica Bank froze the account, filed an interpleader action on Dec. 27, 2010, disclaimed any interest in the money, deposited the $500,000 with the court, and was dismissed from the action. Netan Eli Academy and Jewish Educational Movement were then required to litigate their respective claims.
Netan Eli filed a motion in limine to exclude everything related to its agreement with the movement, on the grounds that the agreement was illegal.
A Los Angeles Superior Court judge agreed, and the parties stipulated to the entry of judgment for Netan Eli.
On appeal, Chavez explained, the only issue was whether the agreement between the two organizations was unenforceable.
The Jewish Educational Movement argued that the agreement was not a fraud on Kohl’s because it was not seeking to enforce a contract against the company, and the company was not resisting any claim to do so.
Chavez explained, however, that the agreement was still fraudulent because it sought to divert money to a party that would otherwise not be eligible to receive it by falsely representing to Kohl’s that Netan Eli would be the sole recipient. He said the agreement therefore gave the contract an unlawful object.
She concluded:
“JEM seeks to have us enforce an agreement to defraud Kohl’s because it was double-crossed by Netan Eli….‘courts generally will not enforce an illegal bargain or lend their assistance to a party who seeks compensation for an illegal act. The reason for this refusal is not that the courts are unaware of possible injustice between the parties…but that this consideration is outweighed by the importance of deterring illegal conduct.’”
The case is Comerica Bank v. Jewish Educational Movement, B248315.
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