54

1. 1 SUPERIOR COURT OF THE STATE OF CALIFORNIA
2 FOR THE COUNTY OF LOS ANGELES
3 DEPARTMENT NO. 25 HON. MARY ANN MURPHY, JUDGE
4
5 STEPHEN M. GAGGERO, )
)
6 )
Plaintiff, )
7 )
vs. ) No. BC 239810
8 )
ANNA MARIE YURA, in her capacity )
9 as Trustee of the Frederick )
Earl Harris II 1995 Trust; and )
10 DOES 1 through 15, )
)
11 Defendants. )
)
12
13 REPORTER'S TRANSCRIPT OF TRIAL PROCEEDINGS
14 JUNE 27, 2005 and JUNE 28, 2005
15
16 APPEARANCES:
17 For the Plaintiff: FOLEY & BEZEK, LLP
BY: PETER J. BEZEK, ESQ.
18 15 West Carrillo Street
Santa Barbara, California 93101
19 (805) 962-9495
20
For the Defendant: MURPHY ROSEN & COHEN LLP
21 BY: DAVID E. ROSEN, ESQ.
KIMBERLEY E. MONTANARO, ESQ.
22 100 Wilshire Boulevard
Suite 1300
23 Santa Monica, California 90401
(310) 899-3300
24
25
PAGES 1 THROUGH 284 PAULA B. RENTERIA, CSR NO. 9374
26 Official Reporter
27

2. 1 I N D E X
2
3 JUNE 27, 2005 1
4 OPENING STATEMENTS
BY MR. BEZEK 9
5 BY MR. ROSEN 66
6 STEPHEN MICHAEL GAGGERO, THE PLAINTIFF
DIRECT EXAMINATION BY MR. BEZEK 92
7
8 JUNE 28, 2005 153
9 STEPHEN MICHAEL GAGGERO, THE PLAINTIFF
DIRECT EXAMINATION (RESUMED) BY MR. BEZEK 158
54
1 THE COURT: Are you trying to tell me your client
2 wanted to do a 1031?
3 MR. BEZEK: No. I'm saying Mr. Harris wanted to do a
4 1031.
5 THE COURT: Okay. That's what I thought. All right.
6 MR. BEZEK: All right. The evidence will be, Your
7 Honor, that Mr. Gaggero commanded more than sufficient
8 resources -- that's what the law requires -- to close this
9 transaction. And the sources were a personal trust.
10 And you're going to hear testimony not only from
11 Mr. Gaggero, but from Mr. Praske, as well as others --
12 THE COURT: Is it his own trust? What's the name --
13 MR. BEZEK: It's a trust that he funded, and the
14 particulars of that trust were created by an estate
15 planning lawyer by the name of Mr. Praske. And it is
16 Mr. Praske who committed, in this very transaction here,
17 Mr. Praske, who commands in the neighborhood of $50 million

3. 18 worth of property, that he had committed the funds to
19 purchase this property --
20 THE COURT: Whose funds were going to be used to
21 purchase this property?
22 MR. BEZEK: The trust.
23 THE COURT: And is Mr. Gaggero the beneficiary of the
24 trust? Is he the trustor? Is he the trustee? What was
25 his status vis-a-vis that trust?
26 MR. BEZEK: That's a complicated question, Your Honor,
27 as to his exact status. He is not a beneficiary as such.
28 Mr. Praske is going to explain to the court --

4. 55
1 THE COURT: So what's his entitlement to money from
2 this trust? Is he the trustor, trustee? What's his legal
3 relationship to the trust?
4 MR. BEZEK: He has a relationship with the trustee,
5 Mr. Praske, who took Mr. Gaggero's net worth, back in 1997,
6 approximately in excess of $15 million, closer to 20, took
7 that net worth and, through an estate plan, created an
8 estate for Mr. Gaggero, who, to this day, continues to
9 operate on behalf of that estate plan in the purchase and
10 sale of properties. And the properties that he purchases
11 are funded by this estate through Mr. Praske, who is the
12 trustee for these estates -- these estate entities.
13 THE COURT: When you use the term "estate," I'm not
14 really sure what you're talking about there.
15 MR. BEZEK: The estate planning estate.
16 THE COURT: What vehicle was used by the estate lawyer
17 back in 1997, or whenever, to do this?
18 MR. BEZEK: The estate was actually begun in '97, but
19 wasn't implemented until '98. But once it was implemented,
20 the vehicle --
21 THE COURT: What was it? Was it a trust?
22 MR. BEZEK: It's a series --
23 THE COURT: Are you saying this lawyer took $15 million
24 of Mr. Gaggero's personal money and put it in trust? I
25 don't understand what you're saying.
26 MR. BEZEK: Put it into an estate plan, which was

5. 27 comprised of multiple trusts, multiple partnerships,
28 multiple corporations, some cash, all of which was placed

6. 56
1 in a properly organized and structured estate planning
2 vehicle for Mr. Gaggero, because he was about to -- he
3 thought he would have kids, which he does now have, and he
4 was starting to establish an estate plan for the
5 transference of property to his family. And that's what he
6 was doing. And he used an estate plan to do it.
7 Joe Praske, who's the estate planning lawyer,
8 designed the vehicle. He's the one who set up the various
9 entities through which the estate plan operates. And he is
10 the one who responds to Mr. Gaggero when Mr. Gaggero says,
11 I found a property, this is a good property, and I want to
12 purchase it for this entity or that entity, or whatever the
13 appropriate legal status is at the time, and I want you to
14 fund it. He says, fine, how much do you need. And he
15 funds it.
16 And he had committed, when he was told about this
17 property, Mr. Praske committed the full $1.15 million for
18 the purchase of the property just waiting for the close.
19 THE COURT: How so? What happened? What did he do?
20 MR. BEZEK: He gave the commitment to Mr. Gaggero.
21 There was nothing he could do physically in terms of taking
22 money and putting it into a bank account, because the money
23 is already there. The funds are already in there.
24 When you get to closing --
25 THE COURT: Where is the actual money that's going to
26 fund this transaction? Where was it on August 10th, 1998?

7. 27 Can you tell me that?
28 MR. BEZEK: It would have been in any number of his --

8. 57
1 of the trusts that existed, partnerships, or cash in the
2 bank -- I'm just talking now about the personal trust.
3 There's other areas here I'm going to leave aside for a
4 minute --
5 THE COURT: But the thing I'm totally confused about
6 now is, you told me your client's not the trustor, not the
7 trustee, and not the beneficiary of these trusts. He
8 signed this agreement --
9 MR. BEZEK: August 10th of '98.
10 THE COURT: I'm looking for how he signed it. Did he
11 sign it personally, or in what capacity did he sign it?
12 MR. BEZEK: Can I help out, Your Honor?
13 THE COURT: Let's take a look and see what he did.
14 MR. BEZEK: If you look at Exhibit 154.
15 THE COURT: He signed it individually. So where is
16 that money coming from?
17 MR. BEZEK: From Mr. Praske, who has committed, and
18 will testify as the trustee of a very, very wealthy trust,
19 will testify, yes, I've committed the money. It's there.
20 And when the escrow closes, I will take the money from
21 whatever the appropriate source is at the time.
22 THE COURT: So how do you reconcile that with what the
23 defense is saying in their brief, that he's a judgment
24 debtor and he has no money to pay this judgment?
25 MR. BEZEK: The conclusion is incorrect from the
26 defense. And here's how it works. Mr. Gaggero, as -- I'm

9. 27 trying not to go afield of my limitations here, but because
28 you asked the question --

10. 58
1 THE COURT: I would just like the answer to the
2 question. That's all.
3 MR. BEZEK: Okay. He -- there was a lawsuit that had
4 occurred in which a judgment was entered against
5 Mr. Gaggero for an amount of money. Mr. Gaggero contended
6 that, for a number of reasons, he didn't owe the judgment
7 and took it upon appeal. While it was on appeal, there
8 were these efforts to try to collect that judgment.
9 THE COURT: Did he post a bond when he took the appeal?
10 MR. BEZEK: Did not post a bond.
11 THE COURT: So they can go ahead and collect if he
12 doesn't post a bond.
13 MR. BEZEK: That's what they were attempting to do.
14 THE COURT: Got it.
15 MR. BEZEK: Do you want me to continue to explain?
16 During that time frame when they were trying to
17 collect, Mr. Gaggero did not say to Mr. Praske, give me
18 enough money to pay the judgment. Pure and simple. And
19 the reason he didn't was because he said, I don't think I
20 owe it. If the court of appeal says I owe it, then I'll
21 get it. But until then, I'm not going to pay the money;
22 then I'll never get it back again.
23 He took it up to the court of appeals and they
24 agreed he didn't have to pay it. But the bottom line is --
25 THE COURT: So the judgment was reversed?
26 MR. BEZEK: One second, Your Honor. I wasn't involved

11. 27 in that case. I forgot, Your Honor.
28 There was a companion case and there was a lawsuit

12. 59
1 based on malpractice and, in that case, Mr. Gaggero
2 contended that he was entitled to have the judgment paid
3 that he had lost in the VNBC case.
4 THE COURT: There was a legal malpractice case?
5 MR. BEZEK: Yes. And the jury found in favor of
6 Mr. Gaggero, and that money was used ultimately to appeal
7 the judgment. But to answer your real direct question --
8 THE COURT: So there's a statement in the defense
9 brief, as I understand it, that while this judgment was
10 pending against him, he said he had no assets to pay the
11 judgment.
12 And they're saying he's saying in one case he has
13 no assets under penalty of perjury, and he's coming into
14 court in this case under penalty of perjury and is going to
15 say I had 1 point, whatever it was, million dollars to fund
16 this purchase. And I'm wondering if those statements are
17 true, how you reconcile those statements?
18 MR. BEZEK: Absolutely true and absolutely
19 reconcilable. The statement in the debtor's exam where he
20 said, I do not have assets is true because the assets that
21 he would have would come from Mr. Praske when and if
22 Mr. Gaggero asked for them.
23 He wasn't asking for them now in that judgment,
24 because he didn't believe he had an obligation to pay it.
25 He took it up to the court of appeals. He did the Stacey
26 case, and he said, if I ultimately lose on all of this,

13. 27 then I will ask Praske to provide the money necessary to
28 pay the judgment. But until I get to that stage, I'm not

14. 60
1 going to do it. And he has a right to do that under the
2 law.
3 Reconcile that with his current position, it's
4 exactly the same position. Today, as he has for the last
5 eight years, he continues to find properties for the trust
6 and buys and sells properties through the trust, doing so
7 through Mr. Praske. Mr. Praske --
8 THE COURT: So he finds properties for this trust to
9 buy, but he has no control over the trust funds. He can't
10 agree to commit the funds. Praske has to do that. Is that
11 what you're trying to tell me?
12 MR. BEZEK: Praske ultimately, yes, makes the
13 commitment for the funds, and he did so in this case. And
14 the evidence will be he did so. So whether Mr. Gaggero --
15 THE COURT: So it's not his money; it's somebody else's
16 money?
17 MR. BEZEK: It's the trust's money, true.
18 THE COURT: It's not Mr. Gaggero's money?
19 MR. BEZEK: It didn't come out of his pocket. One
20 second.
21 THE COURT: Okay.
22 MR. BEZEK: I'm told by Mr. Gaggero, Your Honor, that
23 he is a beneficiary of the trust and it did come out of his
24 pocket.
25 THE COURT: Okay.
26 MR. BEZEK: And I hasten to add, Your Honor, when we

15. 27 get to these issues, I'm going to leave it to the trust
28 lawyer to explain to you precisely how the trust works,

16. 61
1 precisely what his interest is, and how --
2 THE COURT: I assume I'm going to be given a copy of
3 the trust and it's not just going to be somebody's say-so?
4 MR. BEZEK: I don't have any problem with that.
5 THE COURT: Because somebody is telling me -- okay.
6 All right.
7 MR. BEZEK: All right. That's the first one.
8 THE COURT: Okay.
9 MR. BEZEK: The second one is that his parents -- I
10 introduced you to Steve and Sue Gaggero, Steve, Sr. And Sue
11 Gaggero, the stepmother, at the beginning. They are a very
12 wealthy family in their own right, in the Fallbrook area,
13 having been in business for 50 years, and they too have a
14 significant amount of assets in real estate. They too
15 committed to their son to provide whatever money he needed
16 in order to purchase this property, and they always had the
17 money from the beginning to the end.
18 And one of the people that you'll hear testify is
19 a representative of Temecula Valley Bank, who will come in
20 and testify as to the balances in the Gaggero account and
21 that they were founding members of the bank.
22 Mr. Gaggero, Sr. Will be here saying, yes, I
23 committed the funds to my son. If I need cash and I don't
24 have the liquidity at the moment, he'll make me a
25 short-term loan. I'll do the same thing in return. I did
26 it here. And there's actually documents to support that.

17. 27 Besides their trust, the parents have money in and
28 of their own, outside of the trust, that, if they didn't

18. 62
1 want to access the trust, their own trust -- it's called
2 the Gaggero family trust, but it's not Mr. Gaggero's
3 trust -- outside of that trust, they had their own network
4 that they would -- they also made available.
5 And then, of course, he had availability through
6 lenders. And you'll hear testimony on that from
7 Mr. Gaggero.
8 Lastly, Your Honor, the trustee's final attempt to
9 avoid enforcement of the contract in this case comes in the
10 guise of a contention that the CC&R's that Mr. Gaggero
11 wanted to record, those that are attached to the complaint,
12 violate city building ordinances and, therefore, are
13 illegal.
14 The contention is that there's various setbacks
15 that are being violated by how far the CC&R's require the
16 building to encroach into the rear setback. And you'll
17 hear about that when we get into the evidence.
18 THE COURT: How many feet is the setback on this
19 zoning?
20 MR. BEZEK: 55 feet. And the final encroachment on the
21 far -- the 944 property is 10 inches. So the argument is
22 those 10 inches make the CC&R's illegal and unenforceable.
23 THE COURT: And the plan that Mr. Gaggero's architect
24 drew up, he wanted to go within 10 inches of the lot line?
25 MR. BEZEK: That's what Mr. Siebel had drawn up, but
26 it's not Mr. Siebel's fault or anybody else's. It's just

19. 27 the application of the CC&R's to the 944 lot.
28 But the savings provision, the CC&R's contained a