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Appeals Court Orders Retrial to Determine Damages in Chapala One Fraud Case

A Superior Court jury ruled in Melchiori Construction’s favor in a civil suit against Chapala One LLC and owner Don Hughes in 2011

A state appeals court panel has ordered a retrial to determine damages involving the former Melchiori Construction Co. and Chapala One developer Don Hughes.

A Santa Barbara County Superior Court jury ruled in Melchiori’s favor in the civil suit against Chapala One LLC and owner Don Hughes in 2011, after Melchiori's attorneys had argued that during the construction of the downtown luxury condo project, Melchiori was essentially forced to continue with construction while being underpaid $5.8 million.

The jury awarded those compensatory damages, but the appellate court judges stated that the case must go back to determine punitive damages.

The Second District Court of Appeal filed an opinion Feb. 5, stating that it was upholding the charges of fraud against Hughes, but that damages would need to be retried.

"The amount of compensatory damages — $5,819,165 — awarded by the jury must be vacated," according to the opinion written by Justice Kenneth Yegan.

Proof of malice is needed to qualify for punitive damages, which testimony from the court might have proven, had it not been ruled inadmissible by Superior Court Judge Denise de Bellefeuille.

Yegan said that Hughes told Scott Jacobs, Melchiori's lead project manager for the Chapala One project, that "he wanted to drive that goddamned [blank] out of business."

"In his testimony, Jacobs used the term 'blank' because the trial court had previously ruled that the ethnic slur allegedly used by Hughes — 'wop' — was inadmissible," Yegan stated.

The court found that "the statement, which could include the highly relevant word 'wop,' could well convince the jury of malice" and that "the refusal to instruct on punitive damages resulted in a miscarriage of justice."

Melchiori filed for bankruptcy in 2012, both personally and for the company, and his financial troubles are well-documented.

Many local companies claim they are still owed money after they took on jobs for which Melchiori was the general contractor.

Melchiori was also the subject of a criminal probe by the Santa Barbara County Sheriff's Department, though no charges have been filed.

John Rydell II, an attorney for Hughes, said it should be made clear that the court reversed the entire damage award.

"It wiped out all of the damages," he told Noozhawk this week. "They are starting from square one."

With a number of settlement credits and payments already made, Rydell said, credits to Hughes are bigger than any damages to be paid to Melchiori.

"Melchiori was paid in full for this job, and is never going to end up with any damages," he said.

Rydell represented Hughes during the trial, and said he thought the judge made the proper decision to take punitive damages away.

As for the racial slur, "judges exclude testimony all the time," he said, adding that the appeals court did a bit of "Monday morning quarterbacking" with de Bellefeuille.

"She's a hardworking judge and she did her level best," he said.

Edward Kerns, who represents Melchiori, said his client's bankruptcy process is still ongoing.

"Everybody was pointing the finger at Mark; the reality was Mark was liquidating everything he owned," Kerns said, adding that Melchiori poured his own money into keeping the company alive.

Melchiori was required to make changes to the project without negotiation, Kerns said, and made the changes even when the payments got behind.

"Hughes knew he was screwing him all along," Kerns said. "[Melchiori] made people millions. Nobody seems to be rallying around him now that he's been screwed."

Noozhawk staff writer Lara Cooper can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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