Davis v. Hosaka Nagel & Co. CA4/1 ( 2021 )

Filed 4/20/21 Davis v. Hosaka Nagel & Co. CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
JAIMIE DAVIS, D076593
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2014-
00024074-CU-RI-CTL)
HOSAKA NAGEL & CO., et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of San Diego County,
Richard E. L. Strauss, Judge. Affirmed.
Jaimie Davis, in pro. per., for Plaintiff and Appellant.
Williams Iagmin and Jon R. Williams, for Defendants and
Respondents.
Jaimie Davis (Davis) sued her tax advisors Roy Hosaka (Hosaka) and
Hosaka Nagel & Company (Hosaka Nagel) (collectively, Respondents) for
fraudulent concealment and breach of fiduciary duty after she suffered
investment losses. Davis alleged Respondents fraudulently induced her to
purchase high-risk investments and failed to disclose material information
about their relationship with the individuals and companies selling the
investments. A jury returned a verdict in favor of Respondents on both
causes of action. After denying Davis’s motion for a new trial, the trial court
entered judgment on the verdict.
Davis appeals from the judgment. She contends the trial court erred by
excluding evidence related to a separate Securities and Exchange
Commission (SEC) enforcement action against one of the companies with
which Davis invested, the jury’s verdict is not supported by the evidence, and
the court erred by denying her motion for a new trial. We conclude Davis has
not met her burden to establish error on appeal and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
I.
Overview of the Litigation
After starting a successful medical consulting business, Davis began
investing her money in rental properties and traditional investment
accounts. With the goal of early retirement, Davis sought out more
personalized investment advice. She met Curtis Sathre (Sathre), a licensed
broker and investment advisor, in 2004. At the time, Sathre was a senior
financial planner with Western Financial Planning Corporation (WFPC) and
a registered representative of WFP Securities. WFPC and WFP Securities
were related entities; Louis Schooler (Schooler) owned WFPC and co-owned
WFP Securities with his brother, John Schooler. WFPC sold investments in
raw undeveloped land through a series of general partnerships and WFP
Securities sold a broader range of investments, including investments in oil
and gas drilling programs.
Sathre became Davis’s investment broker. In December 2004, Davis
purchased her first investment with Sathre, a natural gas well project called
2
Texas Keystone 2004. She also made investments in a medical billing
company (Medical Capital), an apartment building (Castle Pines), and a
general partnership related to the purchase of undeveloped land (WFPC
Grandview) based on Sathre’s recommendations.
In February 2005, Sathre referred Davis to his certified public
accountant (CPA), Hosaka at Hosaka Nagel, for tax advice. Hosaka Nagel
prepared Davis’s tax returns for approximately five years, from 2005 to 2010.
During that time, Hosaka Nagel also provided tax and accounting services to
Sathre, Schooler, WFPC, and several WFPC general partnerships.
Davis continued to make investments with Sathre and ultimately
invested approximately $2.4 Million between 2004 and 2008. Of relevance
here, Davis invested in another natural gas program (Texas Keystone 2005),
five other oil and gas programs (Reef Oil & Gas, Discovery South Central,
Waveland Drilling Partners 2006-A, Striker Petroleum, and Patriot Minerals
Arapaho), and three real estate investment programs (DBSI Denton Court,
Behringer Harvard Opportunity REIT, and Desert Capital REIT).
In 2009, Davis learned the SEC was investigating Medical Capital and
that two of her other investments, Striker Petroleum and DBSI Denton
Court, were not performing well. In February 2010, Davis filed an
arbitration claim against Sathre and WFP Securities with the Financial
Industry Regulatory Authority (FINRA) to recover her investment losses.
She alleged fraud in connection with Medical Capital, Striker Petroleum, and
DBSI Denton Court.1
1 Davis did not recover any damages in the FINRA arbitration.
However, that information was not presented to the jury because the trial
court granted Davis’s motion in limine to exclude evidence of the arbitration
outcome.
3
Meanwhile, in early 2011, Hosaka retired and Hosaka Nagel sold its
business. Thereafter, neither Hosaka nor Hosaka Nagel performed any
further tax and accounting work for Davis or any other client.
In July 2014, Davis filed the present lawsuit against Hosaka and
Hosaka Nagel. She alleged Respondents fraudulently induced her to
purchase “lightly regulated” high-risk investments with Sathre and WFP
Securities. According to Davis, Respondents knew the investments were
“extremely risky” or “Ponzi schemes” because they served as the CPA for the
individuals and entities selling the investments and therefore had access to
confidential information that revealed the investments were “not financially
viable.” Specifically, Davis alleged Hosaka Nagel served as the auditor for
certain general partnerships formed by WFPC involving investments in
unimproved land. Davis further alleged Respondents concealed a referral
relationship with Sathre and WFP Securities, whereby Respondents collected
fees and commission for recommending the fraudulent investments promoted
by Sathre and WFP Securities.
Based on these allegations, Davis asserted causes of action for
fraudulent concealment and breach of fiduciary duty against Respondents.2
Davis sought damages for losses she incurred in twelve investments: Medical
Capital, Texas Keystone 2004, Texas Keystone 2005, Reef Oil & Gas,
Discovery South Central, Waveland Drilling Partners 2006-A, Striker
Petroleum, Patriot Minerals Arapaho, DBSI Denton Court, Behringer
Harvard Opportunity REIT, Desert Capital REIT, and Triple Net
Opportunity Fund.
2 Davis also asserted a cause of action under the Racketeering Influenced
and Corrupt Organizations Act (18 U.S.C. § 1961, et seq.), but dismissed that
claim before trial.
4
In defense, Respondents asserted they provided tax advice and not
investment advice to Davis and therefore were not responsible for any
investment losses she incurred.
Trial began February 14, 2019, and eleven days later the jury returned
a complete verdict for Respondents. In the special verdict form, the jury
specifically found that Respondents did not “intentionally fail to disclose
a[ny] fact that Jaimie Davis did not know and could not reasonably have
discovered” and that Respondents did not breach any fiduciary duty owed to
Davis. The trial court denied Davis’s motion for a new trial and entered
judgment for Respondents on June 17, 2019. Davis timely appealed.
II.
Summary of Relevant Trial Testimony
Because Davis challenges the sufficiency of the evidence supporting the
jury’s verdict, we summarize the relevant testimony of key witnesses from
the trial.
A. Fact Witnesses
1. Robert Phalen3
Robert Phalen (Phalen) was a client of both Sathre and Hosaka.
Phalen began investing with Sathre in 2007. Phalen had previously invested
in rental properties and Sathre encouraged him to mortgage those properties
and invest the funds in oil and gas and raw land deals. Sathre told Phalen
that he needed an accountant who understood the investments he was
making and referred him to Hosaka.
3 Robert Phalen was a named plaintiff in the lawsuit but settled his
claims on the eve of trial. He is not a party to the appeal.
5
Phalen met with Hosaka in June 2007. Hosaka “praised Sathre” and
told Phalen he was “lucky to have gotten into such good deals.” Hosaka
“looked at all the investments” he made with Sathre and said “they were
great investments,” but warned Phalen that he was “going to have some
issues with income tax because these investments would be throwing off a lot
of money.” Hosaka told him to diversify his investments and that oil and gas
and raw land would be “ideal” investments for Phalen, and he would also
gain tax advantages from those types of investments. Hosaka encouraged
Phalen to talk to Sathre about these investments. Hosaka also suggested
Phalen invest in an avocado farm for the tax deductions, but Phalen was not
interested.
Phalen was Hosaka’s client for one year and had met with Hosaka only
twice, in July 2007 and February 2008. During that time, Hosaka did not tell
Phalen he had any type of relationship with Sathre or any company affiliated
with Sathre. However, Sathre told Phalen that Hosaka also did his taxes
when he referred Phalen to Hosaka.
Phalen acknowledged that 14 of the 17 investments he made with
Sathre were purchased before he ever met Hosaka. Hosaka never told
Phalen to buy or sell an investment in any particular company or program,
and Hosaka’s advice centered around the tax advantages of certain types of
investments. Finally, Phalen testified Hosaka never indicated any of his
investments were “safe” or otherwise discussed the level of risk associated
with those investments.
2. Jaimie Davis
Davis met with Sathre in late 2004 to discuss her investment goals.
She told Sathre that she wanted to invest her money so she could “live off the
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money” when she retired. Between 2004 and 2008, Davis invested
approximately $2.4 Million with Sathre.
For each investment at issue in this litigation, Sathre provided Davis
with a private placement memorandum (PPM) which laid out the risks for
the investment. Apparently, each PPM would contain approximately 10
pages devoted to explaining the risk factors. In at least some of the PPMs
she read, Davis was warned: “ ‘This isn’t reviewed by any governmental
agency. You could risk losing all your money and this is highly risky.’ ”
According to Davis, however, Sathre “explained away” the language and
assured her the investments were sound. Sathre continued to provide PPMs
for each of her subsequent investments, but Davis stopped reading them at
some point and instead relied on Sathre’s advice.
Additionally, for each investment she purchased, Davis received and
signed a subscription agreement before purchasing. The subscription
agreement would also contain an explanation of the risk factors. For example,
the subscription agreement for Texas Keystone 2004 contained the following
language: “ ‘Investment in the partnership is speculative due to the nature of
the partnerships proposed drilling activities and involves a high degree of
risk of loss.’ ” Davis stated many times she only received the signature pages
to sign but acknowledged the explanation of the risk factors were probably
provided when she signed the subscription agreement for Texas Keystone
2004. Davis stated she would not have purchased the investments had she
known they were “highly risky.”
When she began investing with Sathre, he told Davis the person
preparing her taxes did not have enough knowledge about the proposed
investments, and she needed someone “ ‘more experienced’ ” who could review
her “whole financial picture” and make recommendations based on the
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“global . . . picture” of her taxes and investments. So Sathre referred Davis to
Hosaka in February 2005.
At their initial meeting in April 2005, Hosaka told Davis that Sathre
was a “good advisor” and “ ‘would never steer [her] wrong.’ ” Hosaka assured
Davis that he would work with Sathre to help her reach her goals and that “
‘Sathre’s products are good.’ ” In addition to doing her taxes, Hosaka told
Davis, “ ‘We'll go over your investments. And if I ever see anything that
doesn't fit, I'll let you know that it doesn't meet your goals. I'll let you know.
We'll work it out and we'll make sure you stay on track.’ ” According to
Davis, Hosaka “would always brag about his investment knowledge.”
Davis hired Hosaka for her personal taxes and later brought over the
business from her medical consulting company for tax and accounting
services. Whenever Davis took a distribution from her company, Hosaka
would suggest that she ask Sathre about additional oil and gas, bond, or real
estate investments. According to Davis, they “always” talked about the
investments when they met and it would generally be about how the
investments she already made were doing. Hosaka “always” sent her back to
Sathre to see what other investments he had, but Hosaka never
recommended that she purchase any specific investment, only “categories of
investments” such as a bond or oil and gas. On one occasion, however,
Hosaka specifically told Davis to ask Sathre about a second Medical Capital
investment.
Hosaka did not disclose to Davis that he had any type of professional
relationship with WFPC or that he was friends with Sathre, Schooler, “and
all these guys for over 40 years.” Had she known of the relationships, Davis
would have understood that Hosaka had personal motivation to say what he
did about the investments and it “was just a sales pitch.” She first learned
8
Hosaka had a relationship with WFPC when she overheard Sathre and
Schooler talking about Hosaka in the hallway during the FINRA arbitration
in 2011.4 She heard from Phalen, who was at the arbitration, that he was
also a client of Hosaka and Sathre, and that Hosaka said similar things to
Phalen about his investments with Sathre. At that point, Davis believed that
Hosaka might have engaged in some type of wrongdoing. She later learned
that Hosaka had been the CPA for one of the WFPC land investment entities.
Davis acknowledged the engagement letters she signed with Hosaka
Nagel was for the preparation of her tax returns, and not for investment
advice. When asked if she had any written evidence of receiving investment
advice from Hosaka or Hosaka Nagel, Davis pointed to an e-mail she received
from Hosaka Nagel indicating oil and gas investments were good
investments. She believed the email constituted investment advice. When
pressed, however, Davis conceded she was only copied on the email and the
attached letter, which was addressed “ ‘To Whom It May Concern’ ” and sent
to a mortgage broker on a separate land purchase she had made. The
purpose of the letter was to explain the tax consequences of intangible
drilling costs (IDCs) associated with certain oil and gas investments she had
made. There was nothing in the letter suggesting she should buy, or sell,
additional oil and gas investments. Other than that email and letter, Davis
also pointed to a brochure about investing in alpacas that she claims Hosaka
gave her as written evidence of Hosaka’s investment advice.
4 Davis generally stated she heard Sathre talking with “other guys who
were with Western.” Throughout the trial, several witnesses, including
Davis, used general terms to refer to the various related entities. We have
attempted to discern the meaning of those terms from the overall record but
are limited by the precision of the testimony itself.
9
3. Curtis Sathre
Sathre first referred Davis to a tax advisor in Orange County, where
she lived, because she was unhappy with her CPA. Sathre only referred her
to Hosaka after she asked who did his personal taxes. Sathre denied he had
any relationship with Hosaka to “split a commission” on referrals from
Hosaka. Indeed, while Sathre believes he referred a little more than ten
clients to Hosaka, Hosaka has never referred a client to him.
Sathre described Davis as “a very sophisticated investor.” She was a
licensed real estate broker, worked as a CFO “making 300,000 a year,” and
handled “her own complicated transactions.” From the start, Davis told
Sathre she wanted “nonstock market investments.” She felt she had the
expertise to invest in the traditional stock market herself and she “really
wasn’t enamored with the stock market.” Instead, she asked Sathre to
introduce her to “alternative investments.” Sathre encouraged Davis to
consider traditional stock market investments “but she never had an appetite
for them.”
Sathre explained that the investments Davis purchased were not
considered safe; they were “at least aggressive” if not “highly risky.” For each
investment, Davis received subscription documentation, which she signed,
that set out “[i]n bold, big, larger print than everything else on the page” that
the investment was risky. Sathre did not tell Davis to dismiss the language
as “boilerplate.” Rather, he “spent a lot of time on the risk factors” with
Davis. He never told Davis “there were no risks involved or that [the
investments] were safe.”
Sathre personally invested in the WFPC partnerships that bought raw
land and in the other funds that he recommended to Davis, including
approximately eight of the twelve investments that are the basis of Davis’s
10
lawsuit⎯Behringer Harvard Opportunity REIT, Triple Net Opportunity
Fund, Texas Keystone 2004, Texas Keystone 2005, Desert Capital REIT,
Striker Petroleum, Reef Oil & Gas, and Discovery South Central.
Sathre explained that investments were, at times, tax driven and, in
such cases, the client would discuss the merits of a specific investment with
him but that “would not be part of the conversation with the accountant.”
The client would have a separate discussion with the accountant on
“verifying how [the investment] would affect their specific tax situation.”
Davis had those types of discussions with her accountant, presumably
Hosaka, and Sathre specifically recalled discussions regarding how IDCs
related to her oil and gas investments would affect her tax returns. Davis,
however, made the final decision regarding the investments.
After Davis began working with Sathre, she referred her mother,
father, and stepfather to Sathre for investment advice. At the time of trial,
Sathre was still advising Davis’s mother and last spoke with her a week
before he testified.
4. James Nagel
James Nagel (Nagel) testified as a company representative for Hosaka
Nagel. He explained that Hosaka Nagel gave tax advice, which would
include the tax consequences of certain types of investments, but that, as a
rule, Hosaka Nagel did not provide any investment advice. However, because
Hosaka did all of his own client interviews, Nagel would not know whether
Hosaka provided investment advice to any of his clients.
Nagel testified that a CPA is prohibited from giving a tax client
“investment advice” because it is not part of their license. He would consider
it improper and “prohibited investment advice” to tell a tax client they should
invest in a particular type of investment, such as raw land or oil and gas, or
11
to indicate the investments they had were “really good investments.” It
would also not be within the scope of the firm’s tax services to “evaluat[e] the
quality” of their clients’ investments or to advise a client to make
investments for diversification.
Nagel explained, however, that advising a client on the tax
consequences of specific investments was an important aspect of the firm’s
services, but that such advice would not include an evaluation of the viability
of any particular investment. For example, telling a client to put money into
an IRA or 401k account would be within the scope of tax advice, but telling a
client to purchase certain investments within such an account would go
beyond tax advice into the area of improper investment advice. He explained
that a letter like the one Davis was copied on, explaining how IDCs impacted
her tax return, would be considered tax advice as opposed to investment
advice.
5. Roy Hosaka
Hosaka was not available to testify in person, but both parties played
video excerpts from his prior depositions for the jury.5
Hosaka stated he was not qualified to provide investment advice and,
therefore, would never provide advice about a specific investment or a specific
financial advisor to his clients. He focused his clients on “retirement
planning” and specifically encouraged them to regularly contribute to
traditional investment vehicles, such as 401(k) and IRA accounts.
Investment advice, however, “was totally out of [his] realm.”
5 We hereby grant Davis’s unopposed motion to augment the record with
the transcripts of the deposition testimony played at trial. (See Cal. Rules of
Court, rule 8.155(a)(1)(A).)
12
Hosaka did not, as far as he can recall, discuss Davis’s “investment
needs” with her. He never advised any of his clients to buy oil and gas.
Indeed, he believed oil and gas “were not good investments” because they
were highly speculative in nature, but they could provide significant tax
write-offs.
Hosaka confirmed he had known Schooler and Sathre a long time.
Other than prepare their personal tax returns, Hosaka did not do any work
for Schooler or Sathre. Hosaka Nagel prepared financial statements and tax
returns for WFPC and certain related real estate partnerships but did not
work on any of the oil and gas partnerships.
Hosaka never disclosed to Davis, or any individual taxpayer clients who
invested with WFPC or WFP Securities, that he performed CPA work for
WFPC, Sathre, or Schooler. Hosaka explained that kind of information was
“confidential.” Hosaka was never contacted by FINRA or the SEC regarding
claims against WFPC or Schooler.
B. Expert Witnesses
1. Douglas Aguilera
Douglas Aguilera (Aguilera) testified as an expert witness on behalf of
Davis. Aguilera was an auditor with extensive experience in fraud
investigations. He opined that Respondents failed to comply with the
American Institute of Certified Public Accountants (AICPA) Code of
Professional Conduct by endorsing the investments Davis purchased from
Sathre, without informing Davis that Hosaka also provided tax services to
Sathre, Schooler, WFPC and WFPC related entities. He further opined that
Hosaka failed to comply with the AICPA Code by providing investment
advice that he was not qualified to provide.
13
Aguilera admitted he had no professional experience related to a CPA’s
duties to disclose conflicts of interest. He also stated the issue of a CPA
providing investment advice to a tax client was a “gray area.” Finally, he
agreed his opinions were based on multiple assumptions, including that
Davis was telling the truth.
2. Jolene Fraser
Jolene Fraser (Fraser) testified as an expert witness on behalf of
Hosaka Nagel. Fraser holds a CPA license and has a certified financial
forensics designation and a certified fraud examiner designation from the
AICPA. She works with the Accounting Standards and Auditing Standards
Committee that provides review and input on suggested changes to the
AICPA standards.
She opined there was no conflict of interest and no evidence Hosaka
gave Davis advice that would be considered investment advice as opposed to
tax advice. In addition, Fraser indicated that Sathre disclosing to Davis that
Hosaka did his taxes was the same as Hosaka disclosing that information to
her.
DISCUSSION
I.
General Principles of Appellate Review
Our review is limited by the standards and presumptions that involve
substantial deference to the trial court on its discretionary decisions, and to
the trial court and the jury on the resolution of factual issues. We begin with
the cardinal rule that the trial court's ruling is presumed correct and all
ambiguities are resolved in favor of affirmance. (Foust v. San Jose
Construction Co., Inc. (2011) 198 Cal.App.4th 181, 187; Winograd v.
American Broadcasting Co. (1998) 68 Cal.App.4th 624, 631 (Winograd).) As
14
the party seeking reversal, the appellant carries the burden to overcome the
presumption of correctness and show prejudicial error. (Winograd, supra, at
p. 632.)
On appeal, “[w]e do not reweigh evidence or reassess the credibility of
witnesses.” (Pope v. Babick (2014) 229 Cal.App.4th 1238, 1246 (Babick).)
“We are ‘not a second trier of fact.’ ” (Ibid.) We defer to the judge or jury's
resolution of factual issues as they have had the benefit of observing the
demeanor of the witnesses and are therefore in a better position to assess
credibility. (Johnson v. Pratt & Whitney Canada, Inc. (1994) 28 Cal.App.4th
613, 622 (Johnson) [“Credibility is an issue for the fact finder.”].)
Because it is the appellant’s burden to affirmatively demonstrate error,
she must provide citations to the appellate record directing the court to the
evidence supporting each factual assertion. (Cal. Rules of Court, rule
8.204(a)(1)(C); Bernard v. Hartford Fire Ins. Co. (1991) 226 Cal.App.3d 1203,
1205 [“It is the duty of a party to support the arguments in its briefs by
appropriate reference to the record, which includes providing exact page
citations.”].) The appellant must also set forth an adequate “summary of the
significant facts limited to matters in the record.” (Cal. Rules of Court, rule
8.204(a)(2)(C).) In doing so, the appellant must set forth all material facts
and evidence, including facts and evidence damaging to the appellant’s
position. (Rayii v. Gatica (2013) 218 Cal.App.4th 1402, 1408.) The reviewing
court is not required to develop appellant’s arguments or search the record
for supporting evidence and may instead treat arguments that are not
developed or supported by adequate citations to the record as waived.
(ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1011
(ComputerXpress) [“It is not the duty of a reviewing court to search the record
15
for evidence on a point raised by a party whose brief makes no reference to
the pages where the evidence can be found.”].)
An appellant who represents herself, as Davis does here, “is entitled to
the same, but no greater, consideration” as any other attorney or litigant on
appeal and is required to follow the rules. (Nelson v. Gaunt (1981) 125
Cal.App.3d 623, 638 (Nelson); McComber v. Wells (1999) 72 Cal.App.4th 512,
523 [“Although (appellant) is representing herself in this appeal she is not
entitled to special treatment and is required to follow the rules.”].)
Respondents assert that Davis has violated fundamental rules of
appellate procedure, including failing to properly support factual assertions
with record citations, arguing facts outside the record, and failing to provide
an adequate summary of facts and evidence to support her contentions on
appeal and instead presenting only favorable facts while ignoring damaging
evidence.6 We agree that Davis has generally failed to comply with the
applicable rules of appellate practice and we address her arguments with the
foregoing principles in mind. Ultimately, we conclude Davis has failed to
overcome the presumption of correctness and affirmatively establish error on
appeal.
6 In response, Davis asserts that Respondents have routinely
misrepresented the record. Respondents present the facts in a light most
favorable to their position, and the jury’s verdict, as they are entitled to do on
appeal, but we do not agree that they have materially or intentionally
misrepresented the record. Regardless, neither party seeks any specific relief
in connection with the alleged rule violations.
16
II.
The Trial Court Did Not Abuse its Discretion by
Granting Respondents’ Motions in Limine Nos. 2, 5, and 12
Davis asserts the trial court erred by granting three motions in limine
and excluding evidence related to an enforcement action brought by the SEC
against Schooler and WFPC in 2012. She contends this was structural error
requiring reversal per se because it denied her the right to present her case
and, thus, the right to a fair trial. We summarize the SEC enforcement
action before turning to Davis’s contentions.
A. The 2012 SEC Enforcement Action Against Schooler and WFPC
The SEC alleged WFPC and Schooler defrauded unsophisticated
investors by purchasing raw undeveloped land and then selling multiple
investments in the land at grossly inflated prices through a series of general
partnerships. Although Schooler asserted he only bought properties if he
could buy them for a significant discount and, thus, the fair market value was
in fact significantly higher than the purchase price, the SEC alleged the
comparable properties he relied upon were not really comparable.
As a result of the SEC action, the United States District Court for the
Southern District of California placed WFPC under receivership and
appointed Thomas Hebrank (Hebrank) as the receiver.
In June 2015, the district court granted in part the SEC’s partial
motion for summary judgment. The court found Schooler and WFPC had
knowingly misrepresented the value of one specific property, the Stead
property. Around the same time, in a ruling on a separate motion for partial
summary judgment based on unregistered securities violations, the court
ordered disgorgement of approximately $136 million in funds raised from
investors. There was no finding of fraud associated with the disgorgement
17
ruling and, based on the record before us, it appears the court did not make
any further findings of fraud or misrepresentation.
B. Standard of Review
We review a trial court’s ruling on the admissibility of evidence,
whether in limine or during trial, for abuse of discretion. (Pannu v. Land
Rover North America, Inc. (2011) 191 Cal.App.4th 1298, 1317.) The trial
court has broad discretion in admitting or rejecting proffered evidence and its
decision will not be reversed on appeal unless there is a manifest abuse of
that discretion resulting in a miscarriage of justice. (See Cal. Const., art. VI,
§ 13; People v. Hall (1980) 112 Cal.App.3d 123, 127; People v. Wein (1977) 69
Cal.App.3d 79, 90.) Whenever the trial court has discretionary power to
decide an issue, its decision will not be set aside “as long as there exists ‘a
reasonable or even fairly debatable justification, under the law, for the action
taken,’ ” even if the appellate court “ ‘might feel inclined to take a different
view from that of the court below as to the propriety of its action.’ ” (Gonzales
v. Nork (1978) 20 Cal.3d 500, 507 (Gonzales), quoting Harrison v. Sutter St.
Ry. Co. (1897) 116 Cal. 156, 161.) In other words, an appellate court will
interfere with the trial court’s exercise of discretion only when it concludes
that under all the evidence, viewed most favorably in support of the decision,
“no judge could reasonably have made [the challenged decision].” (Newbauer
v. Newbauer (1949) 95 Cal.App.2d 36, 40.)
Davis, however, appears to argue we should apply a de novo standard
of review. She asserts the trial court’s evidentiary rulings resulted in the
exclusion of “an entire class of relevant evidence” and therefore she was
denied her due process right to present her case. Relying on Kelly v. New
West Federal Savings (1996) 49 Cal.App.4th 659 (Kelly), Davis argues this is
structural error and reversible per se. Davis misunderstands Kelly. In Kelly,
18
the court first considered whether the trial court’s evidentiary rulings
constituted an abuse of discretion and then, only after concluding that it did,
the court further considered whether the error required reversal. (Id. at p.
677.) Because the court in Kelly found that the trial court “had effectively
excluded any presentation of evidence on liability,” it then determined the
error resulted in a miscarriage of justice and required reversal per se. (Id. at
pp. 668, 677, italics added.) Similarly, here, we must first consider whether
the trial court abused its discretion by granting the relevant motions in
limine before considering whether reversal is required as a result of any
associated error.
C. Analysis
Davis sought to rely on the SEC action as evidence of material
information Hosaka knew, or should have known, but did not disclose to her
and to establish when she became aware of the SEC action insofar as that
knowledge pertained to a statute of limitations defense. She noticed Hebrank
as a trial witness. Respondents brought motions in limine to preclude
Hebrank from testifying (MIL No. 2), to exclude any reference to the WFPC
investments as being “ ‘fraudulent’ ” based on the SEC action (MIL No. 5),
and to exclude any testimony, documents, argument, or reference to the SEC
action (MIL No. 12).
The trial court granted all three motions with some limited exceptions.
Specifically, the court allowed Davis to offer evidence as to what Hosaka
actually knew about any investment she made based on the work he did for
WFPC and when she became aware of the SEC action in support of her
statute of limitations defense.
19
We begin our analysis with the trial court’s ruling on MIL No. 12,
which sought to exclude any testimony, documents, argument, or reference to
the SEC action, as it is the broadest of the motions at issue.
1. Motion in Limine No. 12
In granting MIL No. 12, the trial court considered that the SEC action
occurred several years after the events underlying Davis’s claims and that
Respondents were not parties to the SEC action. The court therefore
concluded evidence of the SEC action would be more prejudicial and
confusing than probative. (See Evid. Code, § 352.) We agree with the trial
court’s analysis and find no abuse of discretion in the trial court’s ruling.
The SEC action was filed in 2012, approximately one year after Hosaka
retired and Hosaka Nagel had ceased performing work for any client.
Neither Hosaka nor Hosaka Nagel were parties to the SEC action; Hosaka
testified at his deposition that he was never contacted by the SEC regarding
Schooler or WFPC, and Davis presented no evidence indicating any of the
Respondents were involved in the SEC action.
Further, the SEC action centered around WFPC land investments and,
although Davis did invest in some WFPC land investments during the
relevant time period, she was not seeking damages against Respondents
related to any of those investments. Further still, there was no evidence
indicating Davis made any investment in the Stead property, the only
property about which the district court made any specific factual findings.
Davis asserts evidence from the SEC action included findings regarding
the structure of the WFPC land investments and there was reason to believe
Hosaka knew about the structure of those investments as he was the CPA for
WFPC and several of the related general partnerships. However, Davis did
not establish any connection between the investments at issue in the SEC
20
action and any investment she alleged Hosaka advised her on, beyond the
mere association of the related WFPC entities. Moreover, Davis’s last
meeting with Hosaka occurred in 2010, approximately two years before the
SEC action was filed and, thus, there is nothing in the record to suggest that
Hosaka had knowledge of the allegations set forth in the SEC action when he
advised Davis.
In sum, the SEC action involved different parties, different
investments, and occurred long after the allegedly improper advice that
formed the basis of Davis’s allegations against Respondents. Thus, it was
reasonable for the trial court to conclude the SEC action was not relevant to
Davis’s claims in this litigation and there was potential for the jury to be
confused or misled by the unrelated findings made by the district court.
(Evid. Code, §§ 210, 352; Gonzales, supra, 20 Cal.3d at p. 507.) Accordingly,
the trial court did not abuse its discretion in precluding Davis from
presenting evidence related to the SEC action.
2. Motion in Limine No. 5
MIL No. 5 was more specific and sought to preclude Davis from relying
on the SEC action to broadly assert that all WFPC investments were
fraudulent.
As previously discussed, and as Davis’s trial counsel conceded, there
was no specific finding by any tribunal of fraud associated with any
investment at issue in the present litigation. The trial court correctly
concluded there was no basis for use of the term “fraudulent” with respect to
the WFPC investments and granted the motion. For largely the same
reasons already discussed with respect to MIL No. 12, we find no abuse of
discretion in the trial court’s ruling.
21
Davis asserts there were findings in the SEC action suggesting
Schooler and WFPC engaged in widespread improper business practices,
which Davis characterizes as “fraudulent.” To the contrary, the district court
in the SEC matter did not make findings of widespread fraud. Instead, the
court found that Schooler and WFPC misrepresented the value of one specific
property, the Stead property, which Davis did not invest in, and subsequently
ordered disgorgement based on unregistered securities violations. Moreover,
the court specifically noted in the disgorgement order that disgorgement was
appropriate “even in the absence of fraud.” Accordingly, we agree with the
trial court that it would be unduly prejudicial to characterize all of the WFPC
land investments as fraudulent as a result of the SEC action.
As with MIL No. 12, Davis asserts the ruling on MIL No. 5 precluded
the jury from hearing evidence that would have shown Respondents failed to
disclose material facts they knew or should have known. To the contrary, the
court specifically ruled that Davis could present evidence regarding “what
[Hosaka] did . . . know about anything that she invested in and he did tax
returns on.” In doing so, the court properly limited Davis to evidence
relevant to the claims at issue.
3. Motion in Limine No. 2
Finally, MIL No. 2 sought to preclude Hebrank, the court appointed
receiver in the SEC action, from testifying at trial. The trial court granted
the motion after noting Hebrank was not designated as an expert, that his
knowledge was based primarily on the review of documents in the SEC
action, and, therefore, any lay opinion he had would be based on
impermissible hearsay. Again, we agree with the court’s analysis and find no
abuse of discretion in the ruling.
22
Davis failed to designate Hebrank as an expert. Accordingly, Hebrank
would be limited to presenting lay opinions rationally based on his personal
knowledge and perceptions. (See Code Civ. Proc., §§ 2034.260, 2034.300;
Evid. Code, §§ 702, subd. (a), 800.) However, there was no indication
Hebrank had any independent or first-hand knowledge of WFPC’s business
practices, or what Hosaka Nagel knew about those practices, and, instead, as
Davis conceded, Hebrank’s knowledge and perceptions were primarily based
on his review of documents in the SEC action. As such, any relevant
testimony he could offer would have been based on impermissible hearsay.
(See Evid. Code, § 1200.)
Davis asserts Hebrank could have authenticated his own forensic
reports and other business records of WFPC. As the trial court noted, it was
not likely he could authenticate WFPC records as he was not the custodian of
those records, and he therefore did not have first-hand knowledge of how they
were created. (Sierra Managed Asset Plan, LLC v. Hale (2015) 240
Cal.App.4th Supp.1, 8 [to establish business records exception, a qualified
witness must possess sufficient personal knowledge of the identity and mode
of preparation of the documents]; cf. People v. Fowzer (1954) 127 Cal.App.2d
742, 747-748 [assistant cashier with direct access to bank records could lay
foundation and testify regarding those records].) Although Hebrank may
have been qualified to testify about the reports he himself made, as receiver,
those reports were created in connection with the SEC action, in or after
2012, and therefore were not relevant to the present litigation.
In any event, any testimony Hebrank would have offered as the
receiver in the SEC action was, by definition, related to the SEC action, and
therefore would have been properly excluded for the reasons already
discussed with respect to MIL No. 12.
23
4. The Exclusion of Evidence Related to the SEC Action Did
Not Preclude Davis From Presenting Her Case
As a final matter, Davis asserts the trial court’s erroneous rulings on
the motions in limine effectively precluded her from presenting “an entire
class of evidence” that was fundamental to proving her claims. Relying on
Kelly, supra, 49 Cal.App.4th at page 677, she contends the rulings are
therefore subject to reversal per se. First, for the reasons already discussed,
we conclude there was no error. To the contrary, evidence related to the SEC
action was not particularly relevant, let alone fundamental, to Davis’s claims.
In any event, the trial court specifically allowed Davis to present evidence on
what Hosaka actually knew about any investment she made based on the
work he did for WFPC7 and on when she became aware of the SEC action to
support her statute of limitations defense. Unlike Kelly, where the trial court
excluded “any presentation of evidence on liability,” the court in this trial did
not exclude an entire class of relevant evidence. (Compare Kelly, supra, at
pp. 668, 677, italics added.)
We therefore conclude Davis has not met her burden on appeal to
establish that the trial court erred in its evidentiary rulings or that reversal
is required as a result.
7 During oral argument, Davis asserted the trial court later “gutted” the
exception he allowed by precluding Hosaka’s testimony regarding what he
actually knew about investments she made based on the work he did for
WFPC. The court did subsequently exclude three excerpts from Hosaka’s
deposition testimony, but none of the proffered excerpts constitute such
evidence. Instead, the excerpts address what Hosaka would have done if he
learned a client was committing fraud, which⎯the court correctly ruled⎯was
an incomplete hypothetical and lacked foundation.
24
III.
Substantial Evidence Supports the Jury’s Verdict
A. Standard of Review
Davis argues the jury’s verdict in favor of Respondents was not
supported by the evidence. We review a challenge to the jury’s verdict and its
resolution of disputed factual questions under the substantial evidence
standard. (Oregel v. American Isuzu Motors, Inc. (2001) 90 Cal.App.4th 1094,
1100 (Oregel).)
“When findings of fact are challenged in a civil appeal, we are bound by
the familiar principle that ‘the power of the appellate court begins and ends
with a determination as to whether there is any substantial evidence,
contradicted or uncontradicted,’ to support the findings below. [Citation.].”
(Oregel, supra, 90 Cal.App.4th at p. 1100.) In applying this standard, “[w]e
view the evidence most favorably to the prevailing party, giving it the benefit
of every reasonable inference and resolving all conflicts in its favor.” (Ibid.)
“Substantial evidence is evidence of ponderable legal significance, reasonable,
credible, and of solid value.” (Ibid.) “Substantial evidence, of course, is not
synonymous with ‘any’ evidence.” (Toyota Motor Sales U.S.A., Inc. v. Super.
Ct. (1990) 220 Cal.App.3d 864, 871.) “[T]he focus is on the quality, not the
quantity of the evidence. Very little solid evidence may be ‘substantial,’ while
a lot of extremely weak evidence might be ‘insubstantial.’ ” (Id. at pp. 871-
872.) The testimony of a single witness, standing alone, can be substantial
evidence to support the jury’s verdict. (Zinn v. Ex-Cell-O Corp. (1957) 148
Cal.App.2d 56, 85 (Zinn).) And as we stated at the outset, we do not reweigh
the evidence or reassess the credibility of witnesses. (Babick, supra, 229
Cal.App.4th at p. 1246; Johnson, supra, 28 Cal.App.4th at p. 622.)
25
Importantly, and overlooked by Davis here, “when a losing party
challenges the verdict for a lack of substantial evidence, they ‘must set forth,
discuss, and analyze all the evidence on that point, both favorable and
unfavorable.’ ” (Babick, supra, 229 Cal.App.4th at p. 1246.) It is Davis’s
“fundamental obligation to this court, and a prerequisite to our
consideration” of her challenge to the jury verdict, to set forth the version of
events most favorable to Respondents. (Schmidlin v. City of Palo Alto (2007)
157 Cal.App.4th 728, 738.) Instead, Davis turns this standard of review on
its head. She argues there is evidence “that proved a verdict for Davis was
warranted,” sets forth merely her own evidence and reweighs the evidence
and credibility of witnesses. However, even disregarding the failure to follow
fundamental principles of appellate review, we conclude Davis has failed to
meet her burden of establishing the verdict was not supported by substantial
evidence.
B. Analysis
To prove her claim for fraudulent concealment, Davis needed to prove
Respondents concealed or suppressed a material fact that they had a duty to
disclose with the intent to defraud Davis, that she was unaware of the
concealed fact, and that she suffered damages as a result. (See Graham v.
Bank of America, N.A. (2014) 226 Cal.App.4th 594, 606.) With respect to her
claim for breach of fiduciary duty, Davis needed to prove Respondents owed
her a fiduciary duty, that Respondents breached that duty, and that she was
damaged as a result. (See IIG Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630,
646.) The jury ultimately concluded Davis did not prove either claim.
Specifically, as to her claim of fraudulent concealment, the jury found that
Respondents did not “intentionally fail to disclose a[ny] fact that Jaimie
Davis did not know and could not reasonably have discovered.” On her
26
second claim, the jury found that Respondents did not breach any fiduciary
duty owed to Davis.
Although Davis failed to present a fair description of the evidence, it is
apparent from our own careful review of the record that there was
substantial, if not overwhelming, evidence to support the jury’s findings. We
do not attempt to exhaustively discuss every item of evidence that supports
the jury’s verdict. (ComputerXpress, supra, 93 Cal.App.4th at p. 1011 [“It is
not the duty of a reviewing court to search the record for evidence on a point
raised by a party whose brief makes no reference to the pages where the
evidence can be found.”].) Rather, we highlight three central and dispositive
facts the jury decided in Respondents’ favor.
Both of Davis’s claims are premised on the following three factual
assertions: 1) Respondents provided her with improper or fraudulent
investment advice; 2) Hosaka concealed a referral relationship he had with
Sathre, WFPC, and other related entities; and 3) Hosaka concealed material
information not known to Davis regarding the risk level associated with the
relevant investments she made with Sathre. There was substantial evidence
from which the jury could conclude that Davis failed to prove each of these
underlying assertions.
First, both Nagel, as the company representative for the firm, and
Hosaka testified they only provided tax advice, which sometimes included
advice on the tax consequences of certain investments, and that they did not
give investment advice. In addition, Nagel testified that the letter concerning
the tax consequences of IDCs related to certain oil and gas investments—
which Davis offered as the only direct evidence of Hosaka Nagel providing
27
investment advice—was in fact tax advice and not investment advice.8 The
testimony of either Nagel or Hosaka, standing alone, is substantial evidence
to support the jury’s findings that Respondents did not provide Davis with
investment advice. (Zinn, supra, 148 Cal.App.2d at p. 85.)
Second, there was substantial evidence from which the jury could
conclude that Hosaka did not have a referral relationship with Sathre,
WFPC, and any of the other related entities. Sathre denied having any such
relationship with Hosaka and testified, to the contrary, that he had only
referred a handful of clients to Hosaka and that Hosaka had never referred
any clients to him. In addition, Sathre indicated he only referred Davis to
Hosaka because she asked who did his personal taxes, and both Davis and
Phalen testified they made significant investments with Sathre before they
ever even met Hosaka. Thus, Sathre’s testimony, standing alone, constitutes
substantial evidence to support the jury’s implied finding that there was no
referral relationship. (Zinn, supra, 148 Cal.App.2d at p. 85.)
Third, there was substantial evidence from which the jury could
conclude Hosaka did not conceal any material fact not known to Davis
regarding any investment she purchased with Sathre. Sathre described
Davis as “a very sophisticated investor” who had no appetite for traditional
stock market investments and specifically requested non-traditional
“alternative investments.” Sathre testified he spent a great deal of time
explaining the risk factors of each proposed investment to Davis and that he
never told her the investments were safe or without risk. Again, the
testimony of Sathre, standing alone, is substantial evidence for the jury to
8 Davis also asserts the alpaca brochure Hosaka gave her constituted
investment advice, but Davis admitted she never invested in alpacas and,
thus, any such advice was irrelevant.
28
conclude Respondents did not “intentionally fail to disclose a[ny] fact that
Jaimie Davis did not know and could not reasonably have discovered.”
However, Davis’s own testimony corroborated Sathre. She
acknowledged that Sathre provided her with written disclosures of all
material information regarding the risks associated with each investment,
including the following explicit warnings: “ ‘You could risk losing all your
money and this is highly risky.’ ” “ ‘Investment in the partnership is
speculative due to the nature of the partnerships proposed drilling activities
and involves a high degree of risk of loss.’ ” Although Davis claimed that
Sathre “explained away” those warnings, the jury was entitled to believe
Sathre’s testimony over hers.
In sum, there was substantial evidence for the jury to conclude
Respondents did not provide Davis with any investment advice; Respondents
did not have a referral relationship with Sathre, WFPC and other related
entities; and Sathre provided Davis with full disclosure of the risks inherent
in her investments. Because Davis’s two causes of action rise or fall on proof
of these three factual assertions, the jury properly found in favor of
Respondents.
Davis argues there was evidence to support each of these underlying
factual assertions but, as noted, in doing so, Davis fails to understand the
relevant standard of review, relies primarily on her own evidence, and
improperly asks this court to reweigh the evidence and reassess the
credibility of witnesses. (See Babick, supra, 229 Cal.App.4th at p. 1246;
Johnson, supra, 28 Cal.App.4th at p. 622.) We decline to do so and, instead,
conclude substantial evidence supports the verdict actually rendered by the
jury.
29
IV.
The Trial Court Did Not Err in Denying Davis’s Motion for a New Trial
As a final matter, Davis contends the trial court erred in denying her
motion for a new trial. We review a trial court’s ruling on a motion for a new
trial for abuse of discretion and we make all presumptions in favor of the
order.9 (Jiminez v. Sears, Roebuck & Co. (1971) 4 Cal.3d 379, 387 (Jiminez);
Whitlock v. Foster Wheeler, LLC (2008) 160 Cal.App.4th 149, 159 (Whitlock).)
“The determination of a motion for a new trial rests so completely within the
court's discretion that its action will not be disturbed unless a manifest and
unmistakable abuse of discretion clearly appears.” (Jiminez, supra, 4 Cal.3d
at p. 387.)
Davis argues the trial court erred by denying the motion on procedural
grounds without hearing or determining the motion on the merits. It appears
Davis misunderstands the court’s ruling. Code of Civil Procedure section 657
sets forth the specific grounds upon which the court may grant a new trial.
The court denied Davis’s request because it concluded she had not
established any of the statutory grounds for granting a new trial. Since it
was denying the motion, the court was not required to set forth its reasoning
in any detail. (See Code Civ. Proc., § 657 [court must specify its reasons for
9 Davis asserts where the trial court denies a new trial motion, as it did
here, the appellate court must review the entire record to make an
independent determination as to whether any error was prejudicial. Davis
relies on City of Los Angeles v. Decker (1977) 18 Cal.3d 860, 872 (Decker). As
with the standard of review for the motions in limine, Davis confuses the
standard for error with the standard for prejudice. The court in Decker
acknowledged the trial court’s discretion in ruling on a motion for a new trial
and, only after finding the trial court abused its discretion, did it conclude it
was appropriate to consider the entire record in determining whether that
error was prejudicial. (Id. at pp. 870-872.)
30
granting a new trial]; Laabs v. City of Victorville (2008) 163 Cal.App.4th
1242, 1272, fn. 17 (Laabs) [“Although a trial court is statutorily required to
state its reasons for granting a motion for new trial, it is not required to
specify any reasons for denying the same motion. (Citation.)”].) We are
required to infer from the court’s denial of Davis’s motion that it made the
determinations necessary to support its order. (Laabs, supra, 163
Cal.App.4th at p. 1272; Evid. Code, § 666 ["Any court of this state . . . is
presumed to have acted in the lawful exercise of its jurisdiction.”].) Thus, we
presume the court considered the merits of Davis’s motion, and Respondents’
opposition, before reaching its conclusion.
To the extent Davis asserts the trial court abused its discretion in
reaching its conclusion, Davis does not develop the argument. Specifically,
Davis does not assert the court should have granted the motion based on any
of the individual bases set forth in her motion for a new trial, nor does she
provide any legal authority to support such a claim. (See Benach v. County of
Los Angeles (2007) 149 Cal.App.4th 836, 852 [“An appellant must provide an
argument and legal authority to support his contentions.”]; Nelson, supra,
125 Cal.App.3d at p. 638.) Regardless, we have reviewed Davis’s motion for a
new trial—which raises many of the same issues we have already addressed
with respect to the motions in limine concerning the SEC action and the
sufficiency of the evidence—and conclude the trial court did not abuse its
discretion in denying the motion.
31
DISPOSITION
The judgment is affirmed. Respondents are awarded their costs on
appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)
DO, J.
WE CONCUR:
HUFFMAN, Acting P. J.
GUERRERO, J.
32