Christian Educational Institute v. The Christian Herald CA2/7 ( 2021 )

Filed 10/19/21 Christian Educational Institute v. The Christian Herald CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
CHRISTIAN EDUCATIONAL B302175
INSTITUTE (CEI),
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No. BC645557)
v.
THE CHRISTIAN HERALD,
INC. et al.,
Defendants and
Appellants.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Michael L. Stern, Judge. Reversed with
directions.
Law Offices of Marc Gans and Marc Gans for Defendants
and Appellants.
Law Offices of Negin Yamini and Negin Yamini for Plaintiff
and Respondent.
__________________________
The Christian Herald, Inc. (the Herald) and its chief
executive officer Alex Jun Ho Yang (collectively, the Herald
defendants) appeal from a judgment after a jury trial in favor of
Christian Educational Institute (CEI). CEI filed this fraud action
after the Herald defendants cancelled a contract to sell CEI the
Herald, a non-profit religious corporation engaged in media
broadcasting. The jury found in a special verdict that the Herald
defendants intentionally misrepresented to CEI that a non-profit
religious organization could be sold so they could induce CEI to
spend $400,000 on a fruitless acquisition.
On appeal, the Herald defendants contend the
misrepresentation at issue—their assurance to CEI that “‘[in]
this country, you can sell [a] church. So how could there be any
problem?’”—was a representation of law, not of fact, and
therefore cannot provide the basis for a fraud claim.1 We agree
with the Herald defendants and reverse the judgment.
1 The Herald defendants also assert on appeal that the jury
finding that CEI reasonably relied on the Herald defendants’
misrepresentation was not supported by substantial evidence; the
special verdict findings on intentional misrepresentation and
fraudulent omission were inconsistent; the trial court erred in
admitting evidence of checks written to the Herald defendants by
nonparty affiliates of CEI; the compensatory damages award
erroneously included payments from the Herald to Yang; and the
punitive damages award against Yang was not supported by
evidence of Yang’s ability to pay. Because we agree the judgment
is based on a misrepresentation of law, we do not reach these
contentions.
2
FACTUAL AND PROCEDURAL BACKGROUND
A. CEI’s Acquisition of the Herald2
The Herald is a nonprofit religious corporation that
operates a Korean-language newspaper, television station, radio
station, and website focused on Christian programming. Yang
acquired the Herald in 2012 and served as its chairman and chief
executive officer. Yang spent more than $2 million of his own
money on the Herald’s operations and developed its television
business, but by 2015 or 2016 Yang wanted to sell the company
because it operated at a continual deficit, and Yang could no
longer afford to support its operations.
CEI is a nonprofit religious corporation formed in 2016 by
Reverend John Hoon Lee (Reverend Lee) and Ki Hyung Song.
Reverend Lee died in 2018 and was succeeded by Song as CEI’s
chief executive officer. Reverend Lee and Song met in the
seminary and decided to establish an online Christian college.
Song discussed the plan with Nam Soo Choi, another
acquaintance from the seminary who had previously worked as a
sound engineer at the Herald, and Choi suggested CEI purchase
the Herald to make use of its existing broadcast operations. Choi
in turn discussed the idea with Alex Lee (Lee), a licensed real
estate agent who also had worked at the Herald in advertising.
Lee arranged a meeting in which he participated with
Reverend Lee, Song, and Yang to discuss a possible acquisition of
the Herald. The meeting took place at a hotel in Koreatown, Los
Angeles in May or June 2016. The witnesses at trial gave
2 Our summary of the facts is based on the testimony and
exhibits at trial.
3
different accounts of what was discussed at the meeting. Song
testified that he asked Yang and Lee, “‘Is there any other
problem in purchasing this company?’” Yang or Lee responded,
“‘The U.S. is a free country. This country, you can sell [a] church,
as well. So how could there be any problem?’” Although Song
was not initially sure whether Yang or Lee made the statement,
Song later testified it was Lee.3 Song was not aware at the time
that a nonprofit religious corporation has no owner and could not
be sold, and he trusted Yang and Lee.
Yang testified he was aware the Herald, as a nonprofit
organization, could not be sold. According to Yang, “the first
thing I mentioned was, it was a nonprofit. And I asked, ‘This is
[a] nonprofit, so how are you going to handle in terms of buying
and selling?’” Reverend Lee responded to Yang that “he had a
nonprofit organization himself. So he knows what to do.” Lee
testified he also knew at the time of the meeting that a nonprofit
could not be sold, but he left the meeting after lunch. The parties
only exchanged pleasantries at lunch, not the terms of a sale. He
explained it was a Korean custom not to discuss business during
lunch.
In June and July 2016 the parties negotiated the terms of
an agreement for CEI to buy the Herald from Yang. Song
testified the final agreement reflected the input of Reverend Lee,
Song, Yang, and Lee; Choi also advised Song with respect to the
transaction. CEI did not seek the advice of a lawyer; it did not
receive any profit or loss statements for the Herald; and it did not
3 Later in his testimony Song provided another version of
Lee’s statement: “‘[The] U.S. is so free, you can sell churches if
you want to. What problem would there be?’”
4
investigate the Herald’s nonprofit registration or broadcasting
permits.
On July 29, 2016 the parties executed a “Sales Contract”
stating, “[The] purpose of this contract is for [CEI] to take over
from [the Herald defendants] ownership of ‘The Christian Herald
USA—TV, newspaper, radio’ . . . and at the same time for [CEI]
to exercise the obligation, rights and management of [the
Herald].”4 The contract deliverables were defined to include
“Christian Herald USA—TV, newspaper, radio, internet
homepage, app, etc.” plus “[a]ny asset or real property” and “any
contract” in the name of the Herald, and “any financial asset and
financial liability.” The contract provided for three installment
payments totaling $400,000, including a $100,000 down payment
upon execution, a $200,000 payment due on September 30, 2016,
and a final payment of $100,000 after the Herald defendants
made “best effort[s]” to change the Herald’s digital television
channel. The contract provided the “[p]eriod of takeover shall be
up to the 2nd payment date,” and the Herald defendants would
“maintain the current title until the 2nd and 3rd payments for
the agreed amount are paid on the agreed date.” The Herald
defendants were authorized unilaterally to cancel the contract
“[i]f [the] contract amount and remaining balance are not paid in
accordance with the contract” after providing two warning notices
and a final 15-day notice of cancellation.
CEI made the initial payment of $100,000; however, it
failed to make the second installment payment of $200,000.
Yang gave CEI two extensions, and when CEI failed to pay, on
4 The executed sales contract is in Korean. The certified
translation was admitted at trial.
5
November 7 Yang sent CEI notice of cancellation of the sale and
locked CEI out of the Herald’s offices. Song admitted CEI did not
pay the full second installment payment, but he testified CEI
paid a total of $508,000 to the Herald defendants in connection
with the acquisition, including partial purchase payments,
funding for the Herald’s operations and broadcast fees, and
payment for expense reimbursements claimed by Yang.5
B. The Complaint and Trial
CEI filed this action on January 3, 2017. The operative
second amended complaint asserted causes of action against the
Herald defendants and their television subsidiary CHTV, Inc.,6 as
well as Lee and his affiliated real estate agency, New Star Realty,
for intentional misrepresentation, negligent misrepresentation,
fraudulent concealment, negligence, and unjust enrichment.7
5 Checks admitted at trial show payments to the Herald
defendants totaling approximately $352,000. The payments
included checks written by entities that were not parties in the
litigation. Song testified that at least one of the nonparty entities
was owned by Reverend Lee’s wife; no evidence was presented as
to the other nonparty entities.
6 Reverend Lee was a named plaintiff in the initial
complaint, but not the operative second amended complaint. The
second amended complaint also named Choi as a defendant. The
record on appeal does not reflect the final resolution of the claims
against CHTV, Inc. and Choi, but CHTV and Choi did not appear
at trial and are not parties to this appeal.
7 The operative complaint alleged Lee was working in his
real estate capacity as an agent for Yang. Although at trial Lee
denied he was an agent for the Herald, the Herald defendants did
6
The complaint also asserted a cause of action for breach of
fiduciary duty against Lee and New Star Realty. The operative
complaint alleged as to all causes of action that “[a]t all relevant
times [Yang] and [Lee] fraudulently represented to [CEI] that
non-profit organizations could be sold and ownership transferred
through the [c]ontract dated July 29, 2016. At all times during
the course of negotiations for the purchase of [the Herald], [CEI]
relied on [Yang’s] and [Lee’s] representations that a non-profit
organization could be sold and that the sale of the [Herald] and
its subsidiaries would be valid.” However, “[a]t all times, [Yang]
and [Lee] were fully aware that a non-profit organization could
not be sold/transferred in the manner in which the Christian
Herald was sold/transferred to [CEI]. [Yang]’s subterfuge was to
gain the financial benefits of the sale of the [Herald] and then
regain control of the [Herald] once the financial bounty was
reaped.”
A six-day jury trial was held between July 22 and 29, 2019,
with the trial bifurcated into liability and punitive damages
phases. Song, Yang, Lee, and New Star broker Jenny Nam were
the principal witnesses. After CEI presented its liability case,
Lee and New Star Realty successfully moved for a directed
verdict on all causes of action and were dismissed. The Herald
defendants successfully moved for a directed verdict as to the
causes of action for negligence and unjust enrichment.8
not argue at trial Lee was not an agent of the Herald or that
Lee’s misrepresentation should not be attributed to them.
8 The trial court also granted CEI’s motion for nonsuit as to a
cross-complaint filed by the Herald defendants asserting causes
of action for intentional and negligent misrepresentation.
7
On July 29, 2019 the jury returned a verdict for CEI on its
claim for intentional misrepresentation, and for the Herald
defendants on CEI’s claims for negligent misrepresentation and
fraudulent concealment. In relevant part, the jury answered
“Yes” when asked on the special verdict form, “Did the Christian
Herald, Inc. make a false representation of facts to Christian
Education Institute?” and “Yes” when asked, “Did Christian
Educational Institute reasonably rely on the representation of
the Christian Herald, Inc.?”9 The jury also made findings Yang
and the Herald engaged in conduct with malice, oppression, or
fraud. The jury awarded CEI $416,421 in compensatory damages
and allocated responsibility 42.26% to the Herald and 57.74% to
Yang.
On July 29, 2019 trial commenced on the punitive damages
phase. CEI did not introduce any additional evidence, and the
case proceeded to closing arguments.10 The jury awarded $36,000
9 The jury was instructed on intentional misrepresentation
with CACI No. 1900 as follows: “To establish this claim
against . . . each such defendant, plaintiff must prove all of the
following for each defendant: [¶] One, that [the Herald
defendants] represented to [CEI] that a fact was true. [¶] Two,
that [the Herald defendants’] representation was false. [¶]
Three, that [the Herald defendants] knew that the representation
was false when [they] made it, or that [they] made the
representation recklessly and without regard for its
truth. [¶] . . . [¶] Four, that [the Herald defendants] intended
that [CEI] rely on the representation.” The jury on its special
verdict form found CEI proved each element.
10 The Herald defendants objected to the trial continuing as to
punitive damages in the absence of financial documentation of
the Herald defendants’ ability to pay, but the court allowed the
8
in punitive damages against Yang and no punitive damages
against the Herald.
The Herald defendants subsequently filed motions for
judgment notwithstanding the verdict and for a new trial. They
argued substantial evidence did not support the jury’s finding
that CEI reasonably relied on the misrepresentation, asserting
“this was an arm[’]s-length business transaction,” “[t]here was no
special relationship” between the parties, and “[a]ny reasonable
business entity or person would have conducted its own research
as to the legality of the very transaction it was attempting to
undertake.” The Herald defendants highlighted that CEI did not
consult any experts or conduct due diligence, instead relying on
amateur advice from Choi, and CEI failed to consider the
Herald’s corporate registration identifying it as a non-profit
religious corporation “not organized for the private gain of any
person.” The Herald defendants did not argue the
misrepresentation was a nonactionable representation of law.11
After a hearing, on September 27, 2019 the trial court
denied the Herald defendants’ posttrial motions. On August 6,
2019 the trial court entered judgment for CEI. The Herald
defendants timely appealed from the judgment.
punitive damages phase to proceed. The only evidence presented
at trial arguably relating to ability to pay was Yang’s testimony
during the liability phase that he owned a shopping center and
had spent $2 million subsidizing the Herald.
11 Although it is unusual the Herald defendants did not argue
in the trial court that the alleged fraudulent misrepresentation
was not actionable because it was a representation of law, CEI
does not on appeal argue forfeiture or waiver.
9
DISCUSSION
A. Governing Law and Standard of Review
“The essential elements of a count for intentional
misrepresentation are (1) a misrepresentation, (2) knowledge of
falsity, (3) intent to induce reliance, (4) actual and justifiable
reliance, and (5) resulting damage.” (Chapman v. Skype Inc.
(2013) 220 Cal.App.4th 217, 230-231; accord, Lazar v. Superior
Court (1996) 12 Cal.4th 631, 638; see Civil Code §§ 1709, 1710.)
“[T]he representation must ordinarily be an affirmation of fact.
[Citation.] A misrepresentation of law is ordinarily not
actionable in the absence of a confidential relationship or other
special circumstance. [Citation.] The theory is either that
everyone is bound to know the law, or that a statement regarding
the law is a mere opinion on which one may not rely.” (Cicone v.
URS Corp. (1986) 183 Cal.App.3d 194, 202; accord, Seeger v.
Odell (1941) 18 Cal.2d 409, 414 (Seeger) [plaintiff “may not
justifiably rely upon mere statements of opinion, including legal
conclusions drawn from a true state of facts [citations] unless the
person expressing the opinion purports to have expert knowledge
concerning the matter or occupies a position of confidence and
trust”]; Regus v. Schartkoff (1957) 156 Cal.App.2d 382, 388 [“The
general rule is that a misrepresentation of law is not actionable
fraud. That is, a representation of law by a layman not occupying
a confidential relationship toward the one to whom it is
addressed and based on facts equally known or accessible to both
does not ordinarily justify reliance on the representation.”];
Agnew v. Foell (1952) 113 Cal.App.2d 575, 577 [“a legal opinion
by a layman cannot constitute the basis of recovery for fraud”].)
An exception exists “where the party expressing the opinion,
10
having had superior means of information, possesses a knowledge
of the law and thereby gains an unconscionable advantage over
one who is ignorant and has not been in a situation to become
informed.” (Regus, at p. 388.)
The primary issue in this appeal is whether the Herald
defendants’ misrepresentation that CEI could buy a church (and
thus a nonprofit religious corporation) was a statement of fact or
a legal opinion, that is, whether the misrepresentation supported
the jury’s finding the Herald defendants made a “false
representation of facts” to CEI. Although we ordinarily review a
jury’s special verdict findings for substantial evidence, because
the Herald defendants do not dispute the substance of the
representation, we review the question whether the
representation was one of fact or law de novo. (See Boling v.
Public Employment Relations Bd. (2018) 5 Cal.5th 898, 912 [“the
application of law to undisputed facts ordinarily presents a legal
question that is reviewed de novo”]; Crocker National Bank v.
City and County of San Francisco (1989) 49 Cal.3d 881, 888
[because question whether a computer component constituted a
“fixture” for property-tax purposes required “a critical
consideration, in a factual context, of legal principles and their
underlying values,” the question is “predominantly legal and its
determination is reviewed independently”].)
B. The Herald Defendants’ Misrepresentation of Law Does Not
Support the Jury’s Verdict
CEI adduced only one misrepresentation at trial to support
its fraud claims: when Song asked at the initial meeting of the
parties whether there would be any problem with CEI purchasing
the Herald from Yang, Lee responded, “‘The U.S. is a free
11
country. This country, you can sell [a] church, as well. So how
could there be any problem?’” Insofar as this was a
misrepresentation (which the Herald defendants do not dispute),
it was a misrepresentation of law—namely, an assurance that it
is legal to sell a nonprofit religious corporation (the equivalent of
a church) in the United States.12 CEI does not contend, nor does
the evidence support a finding, that one of the exceptions to the
general rule that representations of law are nonactionable
applies here: it is undisputed the representation was made by a
layman (Lee) who was not in a confidential relationship with the
recipient of the representation (Song), and it was based on facts
equally known or accessible to Lee and Song. (Regus v.
Schartkoff, supra, 156 Cal.App.2d at p. 388.)
Zeh v. Alameda Community Hotel Corp. (1932)
122 Cal.App. 366, cited by the Herald defendants, is directly on
point. There, an agent acting for a hotel developer represented to
a potential investor that preferred stock in the hotel would pay
interest, although under California law preferred stock cannot.
(Id. at pp. 367-369.) Affirming dismissal of the investor’s claim
for rescission upon fraud, the Court of Appeal explained, “Any
statements made as to payment of interest upon this stock, and
the provisions of the stock certificates in this respect, were
misrepresentations of law. It is well settled that such
misrepresentations, at least where there is no relation of trust or
confidence between the parties, do not amount to fraud.” (Id. at
p. 369.) The court reasoned, “The allegation of the complaint in
the instant case that ‘the plaintiff is a woman unfamiliar with the
12 We do not reach the Herald defendants’ argument the
misrepresentation was not actionable because it was puffery.
12
difference between interest and dividends’ shows clearly that the
gravamen of her complaint is ignorance of the law, upon which
she had no right to rely. The truth or falsity of such
representations could have been tested by ordinary vigilance and
attention. The law is presumed to be equally within the
knowledge of all parties. There is no allegation of any
confidential or fiduciary relations between the parties hereto.”
(Ibid.) So too here, the gravamen of CEI’s claim is that despite
itself being a nonprofit religious corporation involved in an arm’s-
length negotiation of a $400,000 acquisition over a two-month
period, CEI was ignorant of the laws governing transactions
involving nonprofit religious corporations and acted in total
reliance on Lee’s assurance that even churches can be sold in the
United States.
The Supreme Court’s decision in Haviland v. Southern
California Edison Co. (1916) 172 Cal. 601, upon which the Zeh
court relied, is also instructive. There, an electric utility obtained
a liability release from an injured lineman by telling the lineman
and his wife the release “was a mere matter of form, which he
had to sign in order to be placed on the pay[]roll, and that if he
did sign it he would receive $42 on account of wages for July (he
had not been working during that month), and would be kept on
the pay[]roll until able to work.” (Id. at p. 608.) The Supreme
Court held the trial court erred in instructing the jury that a
waiver obtained by fraud is void, explaining, “Assuming that
these representations were made by [defendant], their making
did not constitute fraud in the legal sense. They were not
statements of fact, but at most misrepresentations of law. . . .
Whether the true ground for the rule be that everyone is
presumed (or, rather, bound) to know the law, or that a
13
representation regarding the law constitutes an expression of
opinion upon which the party to whom it is addressed has no
right to rely, the rule itself is thoroughly well settled.” (Id. at
pp. 608-609.)
CEI relies on Seeger, supra, 18 Cal.2d at page 416 for the
proposition that “a false statement of fact . . . is not rendered less
actionable because it also contained legal conclusions.” CEI
argues, “Alex Lee’s intentionally false legal representation that a
nonprofit organization could be sold was based on the knowingly
false premise that, in a free country such as the [U.S.], anything
could be sold. Hence, not only was the legal conclusion relayed by
Alex Lee an intentional misrepresentation, but the purported fact
on which it was based—that in a free country anything could be
sold—was knowingly false as well.” This bootstrap argument
fails: the only misrepresentation at issue here was that a church
can be sold in the United States. The fact the premise of Lee’s
statement was a fact (that anything can be sold in the United
States) does not change the misrepresentation to one of fact.
Moreover, Seeger is distinguishable. The Supreme Court in
Seeger held an attorney’s false representation to property owners
who had defaulted on their mortgage that a levy and sale of their
property had occurred, made to induce them to agree to lease
their property for oil drilling so they would “receive some return
from the land out of which they would otherwise get nothing,”
was a false statement of fact, notwithstanding that it related to
the legal status of their property, and their examination of public
records “would have revealed to plaintiffs the falsity of the
representation.” (Seeger, at pp. 413, 415.)
Bobak v. Mackey (1951) 107 Cal.App.2d 55, also relied on
by CEI, is likewise distinguishable. In that case, the defendant
14
vendor of real property falsely represented to the buyer that the
property at issue was located in a light manufacturing zone,
when in fact it was located in a different zone where such
manufacturing was prohibited. (Id. at pp. 56-57.) Rejecting the
vendor’s appeal from the judgment for fraud, the Court of Appeal
reasoned, “Such a statement, if made, and relied upon by the
purchaser is as much a representation of fact as would be a
statement that the premises involved were within the corporate
limits of Los Angeles, when they were not, or that they abutted
on a certain named thoroughfare in Los Angeles, when they did
not. In each of these examples the facts represented come about
by reason of law. But the facts as stated are not for that reason
misrepresentations of law, but on the contrary of facts. The same
is true here. . . . [¶] The representation was not a mere
misrepresentation of law, i.e., the classification made by the law,
but of the fact that the property lay within a zone of a particular
character . . . .” (Id. at p. 57.) By contrast, Lee’s pronouncement
that anything can be sold in the United States, including a
church, is a “classification made by law” about types of
businesses that can be sold, not, for example, a misrepresentation
about the Herald’s corporate status as a nonprofit corporation,
which was undisputed.
15
DISPOSITION
The judgment for CEI is reversed. The case is remanded to
the trial court for entry of a new judgment in favor of the Herald
defendants on CEI’s cause of action for intentional
misrepresentation. The Herald defendants are to recover their
costs on appeal.
FEUER, J.
We concur:
SEGAL, Acting P. J.
IBARRA, J.*
* Judge of the Santa Clara County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
16