Williams v. Nat. W. Life Ins. Co.

Filed 3/4/22
Opinion following transfer from Supreme Court
CERTIFIED FOR PARTIAL PUBLICATION *
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Butte)
----
BARNEY THOMAS WILLIAMS, C090436
Plaintiff and Appellant, (Super. Ct. No. 17CV03462)
v. OPINION ON TRANSFER
NATIONAL WESTERN LIFE INSURANCE
COMPANY,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Butte County, Tamara L.
Mosbarger, Judge. Affirmed in part and reversed in part.
Majors & Fox, Frank J. Fox; Law Offices of Mary A. Lehman and Mary A.
Lehman for Plaintiff and Appellant.
Brian P. Brosnahan for Life Insurance Consumer Advocacy Center as Amicus
Curiae on behalf of Plaintiff and Appellant.
* Pursuant to California Rules of Court, rules 8.1105 and 8.1110, this opinion is
certified for publication with the exception of parts IIB, IIC and IID.
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Green Bryant & French, Joel R. Bryant; and Peter G. Lomhoff for Consumer
Federation of California as Amicus Curiae on behalf of Plaintiff and Appellant.
The Vossler Law Firm and Sil Vossler for California Elder Justice Coalition as
Amicus Curiae on behalf of Plaintiff and Appellant.
De Vries Law, Lizabeth N. de Vries and Kelly K. Dixon for Institute on Aging as
Amicus Curiae on behalf of Plaintiff and Appellant.
Zach Newman and Patrick T. Nakao for Legal Aid Association of California as
Amicus Curiae on behalf of Plaintiff and Appellant.
Hinshaw & Culbertson, Edward F. Donohue, Peter L. Isola; Davis Wright
Tremaine and Spencer Persson for Defendant and Appellant.
National Western Life Insurance Company (NWL) appeals from a jury verdict
holding the company liable for negligence and elder abuse arising from an NWL annuity
sold to Barney Thomas Williams by Victor Pantaleoni. In 2016, Williams contacted
Pantaleoni to revise a living trust after the death of Williams’ wife, but Pantaleoni sold
him a $100,000 NWL annuity. When Williams returned the annuity to NWL during a
30-day “free look” period, Pantaleoni wrote a letter over Williams’ signature for NWL to
reissue a new annuity. In 2017, when Williams cancelled the second annuity, NWL
charged a $14,949.91 surrender penalty. The jury awarded Williams damages against
NWL, including punitive damages totaling almost $3 million.
In our prior opinion in we reversed the judgment, concluding that Pantaleoni was
an independent agent who sold annuities for multiple insurance companies and had no
authority to bind NWL. We determined that Pantaleoni was an agent for Williams, not
NWL.
2
Williams petitioned the California Supreme Court for review, 1 which granted
review and on September 22, 2021, issued an order stating in relevant part: “The matter
is transferred to the Court of Appeal, Third Appellate District, with directions to vacate
its decision and reconsider its finding that Pantaleoni did not have an agency relationship
with National Western Life Insurance Company in light of Insurance Code sections 32,
101, 1662, 1704 and 1704.5 and O’Riordan v. Federal Kemper Life Assurance Company
(2005) 36 Cal.4th 281, 288. (See also Ins. Code, §§ 31 [‘ “Insurance agent” means a
person authorized, by and on behalf of an insurer, to transact all classes of insurance
other than life, disability, or health insurance, on behalf of an admitted insurance
company’ (emphasis added)], 33 [‘ “Insurance broker” means a person who, for
compensation and on behalf of another person, transacts insurance other than life,
disability, or health with, but not on behalf of, an insurer’ (emphasis added)].)” 2
Section 1704.5, subdivision (a) provides in relevant part that “a licensed life agent
may present a proposal for insurance to a prospective policyholder on behalf of a life
insurer for which the life agent is not specifically appointed, and may also transmit an
application for insurance to that insurer,” and “[i]f a policy of insurance is issued
pursuant to that application, the insurer is considered to have authorized the agent to act
on its behalf, and the insurer is responsible for all actions of the agent that relate to the
application and policy as if the agent had been duly appointed for the insurer.” Section
101 provides: “Life insurance includes insurance upon the lives of persons or
appertaining thereto, and the granting, purchasing, or disposing of annuities.”
1 We deferred ruling on Williams’ request to take judicial notice of letters submitted
by amici curiae to the California Supreme Court in support of his petition for review, and
now deny the request as unnecessary to resolution of the appeal. (JRS Products, Inc. v.
Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168, 174 & fn. 4.)
2 All undesignated statutory references are to the Insurance Code.
3
After the transfer order, Williams submitted a supplemental brief contending that
under the Supreme Court’s opinion, and the authority cited therein, the judgment should
be affirmed. However, Williams continues to maintain that the trial court abused its
discretion by not using plaintiff’s counsel’s home market rate in calculating the attorney
fee award. NWL in its supplemental brief contends that it cannot be held liable for
Pantaleoni’s conduct in violation of the rules governing its agents.
We will affirm the judgment finding NWL liable for negligence and financial
elder abuse. However, punitive damages assessed against NWL are reversed. We find
no abuse of discretion in the trial court’s calculation of the attorney fee award but remand
the case for the court to reconsider the award in light of the reversal of punitive damages.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Pretrial Proceedings
In December 2017, Williams filed a complaint alleging claims for elder financial
abuse, negligence per se, and breach of fiduciary duty against Pantaleoni. 3 Williams
alleged that he contacted American Family Legal Services to update a trust and estate
plan after the death of his wife. Williams received a call from Pantaleoni to set up an
appointment in Williams’ home. Pantaleoni identified himself as a paralegal with the
company.
At the meeting in Williams’ home, Pantaleoni provided Williams with a business
card stating Pantaleoni was a CSA (Certified Senior Advisor) and “Managing Partner and
Paralegal” with American Family Legal Services. Pantaleoni obtained Williams’ trust
documents and a $360 fee to update them. One week later Pantaleoni returned and
3 Williams also alleged that, in 2015, California’s Department of Insurance (DOI)
filed an action against Pantaleoni for violations of the Insurance Code prohibiting
misrepresentations to a senior regarding annuities. The action was resolved by an order
on a stipulation in which Pantaleoni denied the allegations but agreed to a restricted
license and payment of a $2,500 fine.
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obtained Williams’ signature on blank documents and a blank check, which Pantaleoni
filled in in the amount of $100,000 and used to purchase an annuity from NWL for
Williams.
When Pantaleoni delivered the annuity, Williams decided he did not want it and
returned it to NWL during a 30-day free look period. Two weeks later Pantaleoni
returned with more blank documents for Williams to sign, including documents that
retracted the cancellation of the annuity. When the premium was not refunded, Williams
sought the assistance of a financial advisor who wrote to NWL to cancel the annuity.
Because the 30-day free look period had passed, NWL refunded the premium but charged
a surrender penalty.
In February 2018, Pantaleoni answered the complaint.
In May 2018, Williams amended the complaint to add NWL in place of a Doe
defendant.
In July 2018, NWL demurred to the complaint. The trial court sustained the
demurrer with leave to amend. The court adopted its tentative ruling that (1) the elder
abuse cause of action had not alleged facts that NWL knew Pantaleoni’s conduct was
likely to be harmful to Williams, as required by Welfare and Institutions Code section
15610.310, subdivision (b), and (2) the negligence per se cause of action alleged that a
series of Insurance Code provisions were violated but no facts regarding how defendants
violated them, including a statutory provision prohibiting misrepresentations of the terms
or benefits of a proposed policy where NWL was not alleged to have made
misrepresentations to Williams. “Further, the exact duty owed by NWL to Plaintiff is
unclear in the pleadings.”
In August 2018, Williams filed a first amended complaint. The amended
complaint alleged, inter alia, that: (1) NWL knew of the DOI action against Pantaleoni
and his restricted license because these were matters of public record; (2) NWL knew that
Pantaleoni had filed bankruptcy three times in the last six years and was still in
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bankruptcy at the time of the transactions at issue; (3) NWL knew or should have known
that Pantaleoni did not have errors and omissions insurance coverage, contrary to NWL
policy; (4) NWL knew or should have known that Pantaleoni operated “ ‘living trust
mills’ ” 4 to gain access to seniors and sell annuity products, which NWL knew was
unlawful, and that Pantaleoni was selling insurance products using a company named
Sierra Legal Services; (5) NWL knew that Pantaleoni would earn a $9,500 commission
from the sale of an annuity based on a 13-year surrender period, which was inappropriate
for someone Williams’ age; and (6) Williams’ April 5, 2017 letter instructing NWL to
cancel the annuity complained about Pantaleoni’s misconduct, but NWL did not
investigate or terminate Pantaleoni and charged a surrender penalty of $14,949.91.
In addition, Williams alleged that in April 2016 he sent a mispunctuated,
misspelled handwritten note to NWL to return the first annuity, but the handwriting of the
letter Pantaleoni forged to complete the application for the second annuity contrasted
starkly with the first note, which Williams asserted “was a HUGE red flag of Mr.
Pantaleoni’s financial abuse of Plaintiff.”
In September 2018, NWL demurred to the amended complaint. The trial court
overruled the demurrer, stating that (1) as to the elder abuse cause of action, the amended
complaint alleged the likelihood of harm to Williams in that (a) his life expectancy was
less than the surrender term of the annuity, or (b) NWL possibly had notice of problems
with the annuity because it received two notes in different handwriting purportedly from
Williams, and (2) as to the negligence per se cause of action, the court took judicial
4 A “ ‘living trust mill’ ” involves “salespeople, posing as experts in estate planning,
engage[ing] in the unlawful practice of law, advis[ing] senior citizens to establish a living
trust, and to invest in . . . annuities.” (People ex rel. Lockyer v. Fremont General Corp.
(2001) 89 Cal.App.4th 1260, 1263.)
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notice of the DOI’s opinion that there was a private right of action under section 785 5 and
found that Williams presented “at least one theory” that NWL knew that Pantaleoni was
wrongly using a legal services company to sell insurance products.
In November 2018, NWL answered the first amended complaint.
In February 2019, the trial court granted Williams’ unopposed motion for leave to
file a second amended complaint, which substituted a fraud claim for the breach of
fiduciary claim against Pantaleoni.
B. The Trial
1. Plaintiff’s Case
a. Barney Williams
Williams testified that his wife of 46 years, Barbara, passed away in 2015.
Barbara was an ex-bookkeeper who took care of paying the bills. The couple saved on
average $3,000 per year.
In February 2016, Williams called the office that had prepared a trust for him,
seeking someone to make changes to the trust because of his wife’s death. Pantaleoni
came to Williams’ house. Williams said he wanted to remove his stepdaughter, Merrily
Lee, from the trust and give her $25,000 of the trust benefits, with the remainder going to
a homeless shelter, the Jesus Center. Williams gave Pantaleoni a check for $360 paid to
American Family Legal Services for changes to the trust. Williams signed the check and
Pantaleoni filled in the rest, including the words “TRUST UPDATE” on the memo line.
Pantaleoni asked Williams questions about his finances. Williams said that he had
approximately $80,000 invested with a broker and $114,000 in the bank, $8,000 in
5 Section 785, subdivision (a) provides: “All insurers, brokers, agents, and others
engaged in the transaction of insurance owe a prospective insured who is 65 years of age
or older, a duty of honesty, good faith, and fair dealing. This duty is in addition to any
other duty, whether express or implied, that may exist.”
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checking and $106,000 in savings. Williams showed Pantaleoni the brokerage and bank
statements. Pantaleoni worked on the trust papers and confirmed for Williams that the
changes he requested had been made. Williams let Pantaleoni take the trust documents
with him when he left.
A week later Pantaleoni came back for another meeting. At Pantaleoni’s
suggestion, Williams signed a paper to transfer $100,000 from his savings to his checking
account and the two of them went to the bank to complete the transfer. Back at Williams’
house, Pantaleoni asked for a check. Williams signed a blank check that Pantaleoni filled
in. Williams knew the check was to be in the amount of $100,000. Williams did not
know what the check was to be used for. Pantaleoni assured Williams his money was
safe. Pantaleoni took the check with him and some other blank documents that Williams
signed. Williams thought the documents had something to do with the trust. Pantaleoni
did not give Williams copies.
The documents Williams signed included an NWL annuity application, a
withdrawal benefit rider and a suitability questionnaire. The suitability questionnaire
stated that Williams’ annual income was $24,000. Williams did not tell Pantaleoni his
annual income was $24,000; his actual income was approximately $16,000 per year. A
box checked on the questionnaire indicated that Williams’ approximate net worth after
purchase of the annuity ranged from $50,000 to $99,999, but a blank for his liquid net
worth after purchase was filled in with the amount of $120,000. Williams signed and
initialed but did not fill out these documents. Williams did not understand what he was
signing; he thought it had something to do with the trust. Pantaleoni never told or
notified Williams that Pantaleoni was an insurance agent or selling insurance products.
Williams received a bank statement in the middle of the following week. From
the statement, Williams learned for the first time that the $100,000 check was made out
to an insurance company.
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Pantaleoni came back to deliver the annuity and Williams signed a delivery
receipt. Williams read on the first page of the policy that he could return the annuity
within 30 days. Williams wanted to send the annuity back because there was a 15
percent surrender penalty if the money was withdrawn within the first year, and a bit less
each year thereafter for seven years. Williams did not think that in his medical condition
he would survive for the surrender period. Williams sent the policy back with a
handwritten note that he had received the policy and wanted to return it. The note stated:
“I-WITH-LIKE-TO-RETURN-IT.” (Sic.)
A few days later Williams heard from Pantaleoni, inquiring about the cancelled
annuity. Pantaleoni said he had papers for Williams to sign regarding his stepdaughter.
Williams suggested Pantaleoni send the papers and he would sign them and send them
back. Pantaleoni insisted on visiting Williams. Williams told Pantaleoni he would have
to show Williams where to sign because he was sick and “blurry eyed.” When Pantaleoni
came to the house, Williams signed another annuity application. Williams also signed
two letters both stating in handwritten printing that “I HAVE DECIDED TO KEEP MY
ANNUITY CONTRACT . . . AND NOT CANCEL IT,” and requesting that the annuity
be reissued. Besides Williams’ signature, none of the handwritten printing on the page
was his. When he signed, it was a blank sheet of paper. Williams told Pantaleoni he did
not like signing blank papers. Williams thought he was signing papers regarding his
stepdaughter. Pantaleoni never delivered a reissued annuity.
Williams waited two months for the return of his money but it did not show up.
Williams called NWL’s office and was told the value of the annuity was now $88,000,
two months after Williams paid $100,000 for it. Williams decided not to cancel the
annuity so that the amount of interest would increase and could be applied to the 15
percent surrender penalty. With the help of a neighbor who had a computer, Williams
checked online to see if the interest had increased.
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Williams sought help to try to get his money back from NWL. He paid $500 to
Mark Starr of the investment firm Edward Jones for that purpose. In March 2017,
Williams signed a surrender request to NWL directing that the refund check be mailed to
Edward Jones.
On April 5, 2017, Starr typed a letter to NWL signed by Williams, which stated:
“I am requesting an immediate processing of the surrender request for my annuity . . . . A
copy of the surrender request is included with this fax. [¶] Not only was the policy
purchased without explanation of what the investment was, but the agent, Victor
Pantaleoni, refused to process the policy cancelation during my 30 day free look period.
[¶] Since the day I decided to surrender the policy, Mr. Pantaleoni has continually
harassed me by phone and in person to keep me from cancelling the policy. His focus is
not on what is best for me, but only how his commission will be affected. [¶] My next
step will be to file a complaint with the California Department of Insurance unless this
request is processed quickly.”
In May 2017, NWL sent a check to Edward Jones for the benefit of Williams in
the amount of $88,056.64.
On August 28, 2017, Williams and Prescott Cole, an attorney with California
Advocates for Nursing Home Reform, wrote to NWL requesting all Williams’ annuity
policies and related documents, as well as a final balance statement showing surrender
charges.
In early September 2017, Juanita Ziebell at NWL responded to the letter from
Williams and Cole. Ziebell summarized the events regarding the initial application for
the annuity in February 2016, Williams’ request for a refund under the free look
provision, and the subsequent letter Williams signed stating that he wanted the policy
reissued. Ziebell stated: “At the time of your application, your agent, Victor Pantaleoni,
provided you with a copy of the Consumer Information and Disclosure Brochure. The
brochure provides an overview of the policy’s features, benefits, and limitations. This
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includes free withdrawal options and withdrawal charge rates. The disclosure also states
that this annuity is a deferred annuity and a long term investment. I am enclosing a copy
of the signature page which you signed which states, in part, ‘I have received a copy of
this disclosure and I have reviewed it with my agent. I fully understand the disclosure
and specific points outlined above.’ ” The letter concluded with an explanation of the
surrender charges, noting that in the second policy year the charge was 14.75 percent and,
as of the first anniversary of the policy, Williams had earned $3,300 at a fixed interest
rate of 3.30 percent.
On cross-examination by counsel for NWL, Williams confirmed that, when he
went to Starr at Edward Jones, Williams did not ask for advice on how to get a $100,000
refund, because 30 days had passed and Williams knew the refund would be about
$88,000, due to the surrender penalty. Williams confirmed in deposition testimony read
to the jury that he received the September 2017 letter from Ziebell and read it, but
accidentally burned it with his wife’s papers.
b. Dr. Stacey Wood
Dr. Stacey Wood, an expert on the susceptibility of elders to undue influence,
testified that Williams was significantly susceptible to undue influence by Pantaleoni.
On cross-examination by NWL, Dr. Wood confirmed that she was not testifying that
undue influence actually occurred.
c. Victor Pantaleoni
Pantaleoni’s business card for his company American Family Legal Services
identified him as a “CSA” and “Managing Partner/Paralegal” with the company and
included insurance license numbers for California, Arizona and Nevada.
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In 2005, 2009 and 2013, NWL appointed Pantaleoni as an agent in Arizona,
California and Nevada. 6 Pantaleoni’s 2009 and 2013 contracts with NWL stated: “We
appoint you to personally procure applications for insurance for us, deliver policies
issued by us and provide policyholder services as requested, all subject to our Rate Book
and our Rules and Regulations. You are an independent contractor, and this agreement
does not establish an employer-employee relationship.” The contracts further read:
“You agree to abide by our Rules and Regulations and the laws and regulations where we
are licensed to sell insurance.”
Pantaleoni testified that NWL had a right to terminate him if he violated any laws
or regulations. NWL never terminated him.
Pantaleoni received compliance bulletins from NWL. As advised by a bulletin on
estate planning services, Pantaleoni understood he (1) could not give legal advice if he
did not have a law license, (2) should avoid using the sale of a living trust as a pretext to
sell insurance or an annuity, (3) had to identify himself as an insurance agent in
advertising and when meeting with a customer, and (4) should avoid using professional
designations that imply a level of authority or expertise that he did not possess.
Pantaleoni admitted that (1) he had a certification as a CSA but lost it, (2) CSA was not a
designation approved by DOI, and (3) he was “negligent” in keeping “CSA” on his
business card. Pantaleoni understood, as advised by an NWL bulletin, that he should not
use business names that misled customers. Pantaleoni testified that he understood that it
was unlawful to use pretext interviews to sell annuities, but said he did not know that it is
unlawful to use a trust mill to sell an annuity, nor did he understand what constituted a
trust mill.
6 In 2007, Pantaleoni’s contract was terminated for lack of production.
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Pantaleoni testified that he had sold 13 annuities in the 13 years he had been
appointed by NWL. He was familiar with NWL’s policy that for each annuity he
delivered he was required to obtain a delivery receipt from the customer confirming that
the policy was received.
Pantaleoni understood that in California the word “insurance” was required to
appear on his business card. He agreed he sold insurance, an annuity, to Williams, and
admitted he “should have had a different card.”
Pantaleoni testified to his understanding that California has special Insurance Code
provisions to protect people over 65. The law requires that anyone who meets with a
senior in the home must deliver a notice in writing 24 hours prior to the meeting. He
understood he was required to keep a copy of the notice, but he did not have one for
Williams in his file. Pantaleoni testified he had asked NWL and the third party broker he
was affiliated with for the notice to Williams but neither had a copy. Pantaleoni
understood that a person meeting with a senior must provide a business card with
identifying information and an insurance license number. He did not provide that card to
Williams because he did not meet with him to sell insurance. Pantaleoni understood that
he could not sell a life insurance policy or annuity using a scheme that misrepresented the
true status of his contact with a senior.
In 2016, Pantaleoni was the president of American Family Legal Services. In
2013, Pantaleoni surrendered his right for American Family Legal Services to transact
intrastate business in California and reactivated it in 2018.
Pantaleoni’s contracts with NWL provided that all records and documents
associated with NWL transactions were the company’s property and open to inspection.
Pantaleoni could not recall, since 2016, NWL inspecting his business card, or telling him
to put the word “Insurance” on it, remove “CSA,” or move the word “Paralegal” away
from his insurance license numbers.
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In 2013, Pantaleoni provided a certificate of errors and omissions insurance to
NWL. Pantaleoni did not carry errors and omissions insurance when he met with
Williams in 2016 and admitted he was negligent in not doing so. Pantaleoni also
admitted that he was the subject of an enforcement action by DOI in 2015.
In February 2013, Pantaleoni filled out and signed an NWL agent data sheet
identifying “Sierra Attorney Services Inc.” as agent and Pantaleoni as its principal. The
2013 contract Pantaleoni signed between NWL and Sierra Attorney Services Inc.,
identified Pantaleoni as general agent, and included his personal guarantee of Sierra
Attorney Services Inc.’s obligations to NWL. In May 2013, NWL notified Pantaleoni
that his requested name change from “Sierra Attorney Services” to “Victor Scott
Pantaleoni” was executed and in effect. In June 2013, Pantaleoni signed an assignment
of all compensation received under his contract with NWL to Sierra Attorney Services
Inc.
In August 2013, Pantaleoni filed for bankruptcy. Pantaleoni was in bankruptcy
proceedings when he dealt with Williams in 2016. The bankruptcy terminated in April
2016.
In February 2016, Pantaleoni received a $9,500 commission from NWL for selling
an annuity to Williams.
Pantaleoni received a notice from NWL dated April 7, 2016, stating that Williams
had returned the annuity delivered in March 2016. The notice read: “This request will be
held for 5 calendar days from today. If the policy is conserved you must fax written
notification from the policy owner to Client Services. This will be confirmed by letter.
[¶] Comments: Please confirm if you are able to conserve. Return contract if you are
unable to conserve. Thanks.”
Pantaleoni contacted NWL. He was told (1) in order to conserve the annuity, to
go to see Williams and talk about the benefits of the annuity, and (2) what paperwork
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NWL would need to conserve the annuity. The term “conserve” is an insurance term for
speaking with a client to see if the client would like to keep a policy.
Pantaleoni called Williams to set up an appointment to talk with him about the
reasons why he wanted to return the annuity. Williams did not tell Pantaleoni he was
sick and would rather that Pantaleoni put the documents in the mail. On April 9, 2016,
Pantaleoni visited Williams in his home and gave him the second annuity application to
sign. Pantaleoni confirmed that he wrote the handwritten printed letter Williams signed
stating his intention to keep the annuity. Pantaleoni denied the letter was blank when
Williams signed it.
Five days later, NWL issued a new annuity with the same policy number.
Pantaleoni delivered the second annuity. Pantaleoni testified that Williams signed a
delivery receipt for the second annuity. Pantaleoni denied that he did not deliver the
second annuity so Williams would not have a chance to return it.
On cross-examination by NWL, Pantaleoni testified that he had life insurance
agent appointments from multiple insurance carriers. No insurance company had ever
asked to review his business card. Every insurance company reviewed the form of
Pantaleoni’s 24-hour notice letter but no company ever asked to review the 24-hour
notice from a specific sale.
Pantaleoni formed Sierra Attorney Services in Nevada to provide paralegal
services to attorneys. The name was approved by the Nevada Department of Insurance.
Pantaleoni only sold insurance products in California under his own name. The DOI in
California required him to use his own name.
Williams wanted an annuity because his stepdaughter was abusing him and he
wanted to keep money away from her. Pantaleoni made a recommendation on a solution
for Williams to keep the money in his estate and give it to a different beneficiary, because
this could not be done in the trust. Williams’ trust had a clause that the beneficiary could
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not be changed by one trustor after the death of the other trustor. A beneficiary
assignment in an annuity would trump the trust.
Regarding the second annuity application, Pantaleoni testified he called Williams
to set up an appointment and Williams agreed. At the appointment, Williams was not
sick and did not take off his glasses because his eyes were tearing. They went over why
the original application for the annuity was done.
Williams said he cancelled the first annuity because he did not understand it.
Pantaleoni talked about why Williams had his assets in a living trust and that a bank
account not in the trust would go to probate. They talked about the benefits of the
annuity. They talked about the surrender charge and Williams did not say he did not like
the surrender provision. Williams asked why he was signing an application again.
Pantaleoni explained that NWL required it because there was a change to the income
benefit rider to give Williams a better payout in the future.
Pantaleoni handwrote the letter from Williams instructing NWL to reissue the
policy because he does this on the spot in front of the client instead of preparing it
beforehand. Something might change at the meeting; the client might have some
peculiarity or idiosyncrasy regarding the letter of instruction.
On redirect, Pantaleoni confirmed that his 2013 agent application gave NWL the
right to conduct a background check on him. The bankruptcies Pantaleoni filed were a
matter of public record, which NWL could have discovered if they conducted a
background check in 2013.
d. Merrily Lee
Merrily Lee, Williams’ stepdaughter, testified that she had never physically or
financially abused Williams. In August 2015, Lee returned home when she learned her
mother was near death. Lee and Williams took care of administering pain medication to
Barbara in the last two weeks of her life. After her mother died, Lee stayed on for
another week helping Williams with finding marriage, birth and death certificates and
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sending death certificates to the appropriate people. To express his appreciation,
Williams gave Lee a substantial check.
e. Ayanna Burns
Ayanna Burns, vice-president of marketing operations at NWL, previously was the
manager of the suitability department.
Burns admitted that NWL had not inspected Pantaleoni’s records, before or after
the April 5, 2017 letter from Williams.
The April 5, 2017 letter came to NWL with a fax cover sheet addressed to the
attention of the compliance department. The compliance department has procedures for
investigating California complaints. NWL did not investigate the April 5, 2017 letter at
the time.
Burns admitted that the August 28, 2017 letter was a complaint letter. Ziebell
reviewed the file in responding to the August 28, 2017 letter. The April 5, 2017 letter
was in the file. Ziebell would have seen in the file that there had been no investigation of
the April 5, 2017 letter.
There was no delivery receipt for the second annuity in NWL’s file. NWL
believed the policy had been delivered. There was other activity in the file that made it
clear Williams was aware of the second annuity. NWL procedure required an e-mail
reminding the agent that a signed delivery receipt was needed. There was no such e-mail
in the file. Once a policy is issued, there is an automated process for generating a
delivery receipt. The second annuity was issued with the same policy number as the first
policy, so the automated process for delivery receipt reminders did not occur. If an agent
did not provide the signed delivery receipt, a second reminder stated that NWL can
charge back the commission. Pantaleoni’s commission was never charged back.
Prior to NWL issuing the first annuity to Williams in 2016, NWL was aware from
the DOI’s website that there was an enforcement action against Pantaleoni and an order
restricting his license. There was nothing in NWL’s file indicating the company had
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determined what the enforcement action against Pantaleoni in 2015 involved. His license
was still active but restricted. NWL looked into whether Pantaleoni was still eligible to
write business with a restricted license.
NWL knew from the first annuity application that Williams was 78 years old. On
the suitability questionnaire, a box was checked that Williams’ approximate net worth
after purchase of the annuity ranged from $50,000 to $99,000 but also stated that he had a
liquid net worth of $120,000 after purchase. Burns agreed that this was a mistake. The
file did not indicate that NWL called Williams to find out what his net worth was. There
was no reason to question his liquid net worth. The discrepancy was not that big.
Williams could still be deemed suitable despite this anomaly, based on his other answers
on the questionnaire.
Williams’ suitability questionnaire stated that his annual income was $24,000.
NWL’s suitability guidelines state that, if the client’s annual income is below $25,000,
low income would be a concern if the client does not have adequate liquid assets and
emergency savings.
An NWL document setting forth frequently asked questions in a suitability review
stated that a person at or nearing age 65 should have liquidity of at least one-and-a-half to
two years of expenses liquid in the event of an emergency and an annuity for a person
over 65 should make up no more that 60 percent of the client’s liquid net worth.
Williams had $114,000 of liquidity, so 60 percent of that amount was the largest annuity
he should have been sold.
NWL sends a form letter to a client who has decided not to cancel a policy to let
the client know the original policy is being conserved. NWL did not send this letter to
Williams because a new and different policy was issued that made changes to the original
policy.
The fax cover sheet from Starr on April 5, 2017, stated that the letter of instruction
and annuity surrender request were provided “to be reviewed by your Compliance
18
department.” NWL’s California complaint handling procedures required the company to
(1) consider all relevant facts in resolving complaints, (2) attempt to resolve oral
complaints over the phone and advise clients to make the complaint in writing when it
cannot be resolved over the phone, (3) contact the client by phone, e-mail or regular mail
to request clarification of any portion of a complaint that is not clearly understood, (4)
make notes of communications with the client and agent in the course of the
investigation, (5) maintain these records for the time required by statute, and (6) conduct
a thorough investigation of the complaint and where an agent denies misconduct take into
account whether the agent provided a substantive and believable explanation. NWL did
not conduct an investigation in compliance with these procedures. NWL did not treat the
April 5, 2017 fax as a complaint.
On cross-examination by NWL, Burns testified that items in the file showed
Williams was aware that he had the second annuity policy, including several letters from
NWL to Williams, the surrender request, his receipt of a personal identification number
(PIN) to access the NWL Web site for information about the policy, and that Williams
had accessed the policy online.
NWL did not send the letter conserving the policy because the letter only goes out
for policies that can be conserved. Williams did not conserve the policy. When NWL
received Williams’ request during the 30-day free look period, NWL cancelled the first
annuity and it was null and void. NWL required a new application and letter of
instruction signed by Williams to issue a new policy. The letter of instruction was to
make sure he understood why his money was not being returned after he cancelled the
first policy.
Burns reviewed the suitability application with a box checked that Williams’ net
worth after purchase of the annuity ranged from $50,000 to $99,000. NWL measured
liquidity as at least one-and-a-half to two years of expenses. $99,000 would be almost
five times Williams’ expenses. The 60 percent rule was not a strict rule. Another factor
19
that affected the suitability analysis was that the annuity had a withdrawal benefit rider
giving Williams an annual income of $7,000 for the rest of his life, which would increase
his annual income. Sources of income listed on the suitability questionnaire were 10
percent investments, 80 percent pension, and 10 percent social security—all of which
were guaranteed sources of income. It was not uncommon for 78 year olds to have the
majority of their income from pension and social security.
On redirect, Burns testified NWL did not require agents in California to submit
their business cards for approval. NWL knew that in California an insurance agent has to
give a business card to a senior. When Burns reviewed Pantaleoni’s file, there was no
business card in the file. Burns saw documents in his file referring to Sierra Attorney
Services. NWL did not determine what business Sierra Attorney Services was in. NWL
did a background check on Pantaleoni when he received his first contract. Burns did not
know the exact date of that background check. The background check would have
included whether Pantaleoni was in bankruptcy.
Burns saw documents in Pantaleoni’s agent file indicating he was affiliated with
American Family Legal Services. NWL did not determine the nature of that company’s
business because there was no reason to. There was no document indicating that
Pantaleoni worked for American Family Legal Services or that the company had anything
to do with the insurance business.
In 2016, NWL did not require agents to have errors and omissions insurance. It is
industry practice now but was not in 2016.
NWL did not terminate Pantaleoni or charge back his commission. NWL has not
refunded the surrender penalty charged to Williams.
f. Dr. Aazaz Ul Haq
Dr. Aazaz Ul Haq, an expert witness in forensic geropsychiatry, testified that
Williams suffered severe psychological distress as result of his interactions with
Pantaleoni and had symptoms of posttraumatic stress disorder.
20
On cross-examination by NWL, Dr. Haq admitted that his written report did not
mention posttraumatic stress disorder. Dr. Haq agreed that a medical record from
Williams’ physician at the time of Williams’ interaction with Pantaleoni stated under
“ ‘Psychology,’ ” “ ‘No depression, no eating disorder, no mental or physical abuse, no
anxiety, no stress.’ ” Dr. Haq testified that this medical record was not an accurate
indication of Williams’ mental state and reflected the poor quality of medical records
prepared for medical insurance purposes.
g. Reynaldo Perez, Jr.
Excerpts of the deposition of Reynaldo Perez, Jr., NWL’s chief legal officer, were
read to the jury. Perez testified that NWL did not require agents to submit their business
cards for review and approval.
Perez confirmed that Ziebell was involved in handling policy holder complaints in
2016 and 2017. The April 5, 2017 letter sounded as if it was a complaint about the
agent’s conduct. If the complaint handling department or whoever received the April 5,
2017 letter thought it was a complaint, they should have followed the requirements of
NWL’s complaint handling procedures.
Perez stated that NWL did not contract with legal service companies. All NWL
contracts were with independent insurance agents, not with legal service providers. NWL
had compliance bulletins advising agents to avoid arrangements with legal service
providers. NWL did not have a policy or procedure (1) that applied when the company
learns that a legal service company is a trust mill, or (2) that screened legal service
companies to make sure they are not trust mills. NWL did not take steps to make sure
that the company is not doing business with agents selling annuities with trust mills other
than to communicate the prohibition to agents.
If an agent violated a compliance bulletin or engaged in unlawful conduct, NWL
had the right to terminate the agent. NWL did not terminate Pantaleoni.
21
h. Neal Bordenave
Neal Bordenave, an expert witness on the standard of care in life insurance
transactions with elders in California, testified that NWL had guidelines and requirements
in compliance bulletins but did not enforce them and had no checks and balances to make
sure annuities were being transacted correctly. All insurance companies send out
bulletins and expect agents to review them, but marketing or compliance people at
insurance companies need to confirm that agents are in compliance with bulletins.
The document Williams wrote returning the first annuity was from someone with
marginal literacy, which should have voided the annuity, but NWL asked Pantaleoni to
conserve the annuity and a week later NWL issued another $100,000 annuity with the
same policy number. The suitability questionnaire did not reconcile, which should have
been a red flag for NWL to investigate further. The annuity of $100,000 was 85 to
almost 90 percent of Williams’ liquid assets, which did not meet a reasonable suitability
standard. The April 5, 2017 letter from Starr was effectively a complaint about
Pantaleoni indicating a need to investigate the incompleteness of the file and NWL
should have immediately offered to pay Williams’ money back.
Bordenave disagreed with NWL’s expert, Larry Nevonen, that Pantaleoni was a
broker, stating that in California to transact life insurance or annuities Pantaleoni had to
be an agent of NWL. 7
On cross-examination by NWL, Bordenave confirmed that he was testifying that
NWL’s overall supervision of Pantaleoni was insufficient. Bordenave stated that
7 Bordenave also testified that Pantaleoni breached the standard of care: (1) he
offered to do trust work as a way to sell insurance in violation of the Insurance Code; (2)
he had Williams sign a blank check; (3) Williams apparently did not know he was buying
an annuity; (4) Pantaleoni was illegally charging fees for trust work and getting a
commission on an insurance transaction at the same time; (5) Pantaleoni may not have
delivered the second annuity to Williams; and (6) Pantaleoni did not provide the required
24-hour notice acknowledged by the customer for sales to a person over 65.
22
insurance companies have a responsibility to monitor their agents to make sure they are
doing the right thing. Failing to monitor agents falls below reasonable custom and
practice in the insurance industry. Insurance companies need to monitor agents because
they are the company’s agents.
Bordenave agreed that there was nothing in NWL’s file to put the company on
notice that Williams was complaining that he wanted a trust but got an annuity.
2. NWL’s Case
a. Larry Nevonen
Nevonen, an insurance industry expert, testified that the name Sierra Attorney
Services in the agent’s file did not give rise to duty to inquire what the name meant. The
name was authorized by the Nevada Department of Insurance. Sierra Attorney Services
received an assignment of commissions but never transacted insurance in California
under that name. A legal name in Nevada would not be a red flag for illegal activity in
another state.
The card Pantaleoni gave Williams improperly mixed insurance business with
living trust and paralegal services business. The card should not have had a CSA
designation that was expired and not recognized in California. Nothing on the card
referred to NWL that would trigger review by NWL.
NWL’s compliance manuals were consistent with industry practice. Pantaleoni’s
conduct did not constitute a trust mill because it was not a repetitive practice. “The
classic trust mill situation is senior seminars for trust services and everybody walks out
with an annuity.” Pantaleoni met with Williams not to sell an annuity but on learning his
situation thought he might benefit from an annuity.
Nevonen was not surprised that the NWL annuity had a 13-year surrender period.
Actuaries require higher surrender charges in the early years of an annuity because of the
financial risk to the insurance company that comes from early surrenders.
23
In doing a suitability review, NWL did not see Pantaleoni’s bad acts. NWL
assumed the suitability questionnaire was accurate. The contractual responsibility of the
agent was to ask questions of the applicant and accurately record the answers in the
application. For a senior, the particular focus is on liquid assets available after purchase
of the annuity, so that if there is a change in the annuitant’s expenses the annuity does not
have to be surrendered. The application answered this question by stating Williams had
$120,000 in liquid assets. There were inconsistences in the questionnaire but it did not
have to be entirely consistent. The questionnaire need only show a reasonable basis to
determine there to be enough liquidity to avoid early surrender from a change of
circumstances.
In forming his suitability opinion, Nevonen considered the product sold. NWL’s
guaranteed benefit withdrawal rider had a good reputation in the industry for being liberal
and favorable to buyers, which made it a good choice for people who want to improve
their income and still have surrender value. The second NWL annuity sold to Williams
had a guaranteed withdrawal benefit rider that would generate $7,200 annual income and
also allowed him to withdraw 50 percent in 10 percent increments over time. This was a
more liberal benefit than the first annuity.
Nevonen disagreed with Bordenave’s opinion that NWL was required to supply
and obtain a copy of the 24-hour notice. The notice was the agent’s responsibility. The
agent does the meeting and is required to keep a copy of the notice for seven years, even
where no sale results. The custom and practice was for insurance companies to make
agents aware of the requirement.
There is no requirement that an insurance company’s name be on an agent’s card
presented to a senior. An agent might be offering several companies’ products.
The letter cancelling the first annuity voided the policy. It is fairly common for
people to change their minds about a policy. The change from the first annuity to the
second annuity made objective sense since the withdrawal benefit rider increased the
24
payout. The $100,000 should have been sent back promptly unless there was a written
direction from the buyer that he wanted a different policy. The notice to Pantaleoni that
he had five days to conserve the business was not just to conserve the business but was
also a heads up to check in with the client. Often a different agent will offer a customer
an annuity during the 30-day free look period, describing it as a better deal. The first
agent will not know what has happened, and the insurance company only will know the
annuity was surrendered.
Nevonen disagreed with negative comments about the handwritten letter
instructing NWL to keep the policy. Agents meeting with people do not have computers.
A handwritten note is more likely to be performed with the knowledge and consent of the
applicant than a typed letter. The fact that the note was handwritten was a positive
indication that it represented Williams’ actual decision.
The April 5, 2017 letter from Starr was a mixed and unclear request for service to
process surrender of the policy combined with complaint language. Nevonen was not
surprised the letter went to the service department instead of the compliance department
because the letter opened and closed with a request for service. Williams did not put
NWL on notice of a problem that needed to be addressed. Williams did not complain at
the time about Pantaleoni’s selling practices because he liked the interest in the annuity.
Starr handled the surrender properly but mishandled the complaint.
The Ziebell letter was responsive to the demand letter from Cole based on her
reading of the file. There was no documentation that Williams was demanding an
investigation of Pantaleoni or return of surrender charges.
b. Juanita Ziebell
Beginning in March 2015, Ziebell was in the compliance department at NWL.
The August 28, 2017 letter from Cole and Williams was a request for copies of
documents. Ziebell had received a request for documents but did not have a specific
complaint, so she was generally looking at the file. Since the April 5, 2017 letter was
25
also in the file, in Ziebell’s opinion the August 28, 2017 letter was a complaint. Ziebell
testified that it sometimes happens that an initial expression of dissatisfaction is followed
by a letter from an attorney.
In handling the complaint in 2017, Ziebell reviewed the initial annuity application.
All of the documents in the file appeared to be properly signed. The signature was
distinctive. The check was in the file. It did not look suspicious or forged. It did not
occur to Ziebell that the check might be filled out after it was signed. Ziebell went by the
signature on the first application and from that point was looking for consistencies or
inconsistencies in signatures.
The April 5, 2017 letter in the file contained complaint language. Ziebell did not
form the impression from the letter that the policy holder did not know they owned the
policy at the time the letter was written. The letter requested surrender of the annuity and
NWL did that for Williams. Ziebell did not believe the agent had successfully interfered
with the initial cancellation because Williams cancelled the policy himself. Both the
initial cancellation and surrender of the second policy were effectuated successfully.
Ziebell believed Williams had requested the second policy and wanted to surrender it
because the policy had been in force for a year.
Ziebell provided some narrative in her letter response because, when an annuity
has been surrendered, it was her standard practice to point out the benefits of the annuity.
Ziebell sent the requested documents by Federal Express.
Ziebell testified that mostly NWL receives a letter stating a specific complaint.
Ziebell responded to the August 28, 2017 letter with some narrative instead of just
sending the requested documents, because NWL tries to explain the benefits of the
annuity to the client, which sometimes helps the client to reply. NWL sets the matter for
a follow-up in the system if there is a reply to get more information. The system has a
30-day review set up automatically. Ziebell will look at the file to see if there is a
26
response from the client and then NWL gives it another 30 days. That would have
happened twice after Ziebell wrote her letter.
This file was unusual because most of the time she would get a reply with more
details about the grievance. Ziebell was hoping for a reply explaining the nature of the
grievance. Ziebell’s letter gave a telephone number to contact Ziebell or the NWL client
services department with any further questions. More often than not the client will call
the number. Ziebell was not trying to resolve the entire complaint process with her letter,
but rather to make a record of what she saw in the file so Williams could address it.
In reviewing the file, Ziebell saw there was a blank delivery receipt. It did not
cross her mind that Williams did not receive the policy, because he had surrendered it.
Applicants also received a welcome letter with an offer for a PIN and an interest letter on
the anniversary of the policy.
On cross-examination by Pantaleoni, Ziebell testified she retained the April 5,
2017 letter from Starr in the file, but did not reach out to Williams to address it because
the annuity had already been surrendered.
On cross-examination by Williams, Ziebell confirmed that she was following the
specific procedures for complaints from California in April 2017 and would do an
investigation in response to a complaint. She admitted that the compliance department
did not review the April 5, 2017 letter at the time or contact Williams to request
documentation. The April 5, 2017 letter did not go to the compliance department but to
the surrender department. Surrender was a priority.
c. Diamantina Courson
Diamantina Courson, currently the highest ranking person in licensing at NWL,
testified to the basic functions and procedures of the licensing department. NWL
operates in 49 states and Puerto Rico, Guam and the Virgin Islands. NWL has about
20,000 agents.
27
On cross-examination by Williams, Courson testified that the legal department
makes the decision to terminate an agent for misconduct or unlawful conduct. Licensing
staff are not trained to look for agent complaints. If there is a complaint, it goes to the
complaint department. Licensing would want to know if an agent was in trouble or had
done something unlawful, but would not get the information unless it was sent to
licensing. A report goes to licensing where information is received by compliance.
Courson testified that NWL procedure is to do a background check when newly
contracting with the agent. The background check would not include looking for a
bankruptcy. NWL would have run a background check on Pantaleoni when he was first
appointed in 2005. NWL did not run a background check on Pantaleoni at the time of his
new contract in 2013.
In January 2016, when NWL learned that Pantaleoni had been the subject of
enforcement action and had been placed on a restricted license, NWL would go to DOI to
check to see if the license was active and what the enforcement notice concerned. DOI
would tell NWL if the enforcement action had been resolved. DOI would give
background information from the enforcement documents only if NWL asked for it.
Courson did know if NWL had asked for this information.
d. Ayanna Burns
On defense for NWL, Burns testified that she reviewed the annuity transaction
with Williams for conformity with company policies and standards of suitability and it
appeared to be suitable based on the documents the company received. There were no
signs that Williams’ signature was forged or other red flags as to suitability. The answers
provided in the suitability questionnaire and other documents looked in line for Williams’
age, what he was looking for, and the additional benefits he was receiving.
On cross-examination by Williams, Burns confirmed that NWL uses a score sheet
to document and determine suitability. A score equal to or greater than 10 would require
documentation by the suitability reviewer as to why the product is still deemed suitable.
28
NWL did not have the score sheet for Williams because it was changing systems and the
results were loaded into the new system. There was no need to keep the actual score
sheet.
On redirect, Burns testified that the total suitability score for Williams was 6.2.
NWL’s suitability reviewer or a coder entered information from the suitability
questionnaire into an Excel spreadsheet, which generated a score and the information was
uploaded into NWL’s system. The suitability reviewer looked at the information, the
suitability questionnaire, and other documents to make sure the reviewer felt the product
was suitable, and entered comments in the system. In user notes, the reviewer, Jennifer
Burgess, identified a yellow flag for annual income because it was below $25,000. The
reviewer noted that Williams’ expenses were covered and he had more than five years of
liquidity. It looked like Williams had plenty of liquidity based on the information
provided.
C. Motion for Nonsuit
At the close of Williams’ evidence, NWL filed a motion for nonsuit. The court
denied the motion finding that “there has been substantial evidence presented during
plaintiff’s case in chief supporting judgment on all causes of action for the plaintiff.”
D. Jury Verdicts and Judgment
The jury found NWL liable for elder abuse awarding Williams $14,949.41 in
damages for economic loss, $200,000 in noneconomic damages for past pain and
suffering, and $150,000 for future pain and suffering, totaling $364,949.41. The jury
further determined the Williams had proved by clear and convincing evidence that NWL
acted with recklessness, malice, oppression or fraud.
The jury also found Pantaleoni liable for elder abuse and that Williams proved
Pantaleoni acted with recklessness, malice, oppression or fraud, awarding total money
damages of $168,309.41 on this claim.
29
The jury found both NWL and Pantaleoni liable for negligence, awarding
Williams total money damages of $618,309.41 and allocating 30 percent to Pantaleoni
and 70 percent to NWL. The jury further found Pantaleoni liable for intentional
misrepresentation and awarded $200,000 in total damages.
The jury awarded punitive damages of $1,000 against Pantaleoni and $2.5 million
against NWL. 8
In entering judgment, the trial court found that noneconomic damages awarded in
the verdict for negligence overlapped with the elder abuse award. To avoid double
recovery, the court limited noneconomic damages to $600,000 allocating 70 percent
($420,000) to NWL and 30 percent ($180,000) to Pantaleoni.
The court entered judgment for Williams in the amount of (1) $14,949.41 against
Pantaleoni and NWL, jointly and severally, (2) $2.92 million against NWL, and (3)
$186,050.59 against Pantaleoni.
E. Posttrial Proceedings
NWL filed motions for judgment notwithstanding the verdict and for a new trial,
arguing, inter alia, that Pantaleoni was not NWL’s agent in the transactions with
Williams.
The trial court denied the motions.
II. DISCUSSION
A. Section 1704.5
It is undisputed that NWL issued two annuities, a form of life insurance policy, to
Williams on applications submitted by Pantaleoni. Thus, under section 1704.5,
Pantaleoni was NWL’s authorized agent and NWL was “responsible for all actions of the
8 Regarding punitive damages, the parties stipulated that NWL had $1.4 billion in
assets and Pantaleoni was able to pay $1,000 in punitive damages.
30
agent that relate to the application and policy as if the agent had been duly appointed for
the insurer.” (§ 1704.5, subd. (a).)
Pantaleoni’s actions included: (1) misrepresenting on NWL’s suitability
questionnaire that Williams’ annual income was $24,000 when Williams told Pantaleoni
it was $16,000; and (2) misrepresenting on the questionnaire that Williams’ net worth
after purchasing the annuity was $50,000 to $99,999 and liquid net worth was $120,000,
when Williams had approximately $80,000 invested with a broker but only $114,000 in
the bank and Pantaleoni had facilitated Williams’ signing a check for $100,000 drawn on
his bank funds to purchase the annuity.
Under section 1704.5, Pantaleoni was NWL’s agent and NWL was responsible for
his wrongful actions committed in the sales of NWL annuities to Williams. (See People
ex rel. Bill Lockyer v. Fremont Life Ins. Co. (2002) 104 Cal.App.4th 508, 525-526
(Lockyer); Civ. Code, § 2338 [“a principal is responsible to third persons for the
negligence of his agent in the transaction of the business of the agency, including
wrongful acts committed by such agent in and as a part of the transaction of such
business . . . ”].) As NWL’s agent, Pantaleoni’s knowledge regarding the annuity sales to
Williams was imputed to NWL whether or not Pantaleoni conveyed that information to
NWL. (See O’Riordan v. Federal Kemper Life Assurance Co., supra, 36 Cal.4th at
p. 288 (O’Riordan); Civ. Code, § 2332 [“As against a principal, both principal and agent
are deemed to have notice of whatever either has notice of, and ought, in good faith and
the exercise of ordinary care and diligence, to communicate to the other”].) Such
imputed knowledge included that Williams’ annual income was not $24,000 as stated on
the first suitability questionnaire but $16,000, and he did not have $120,000 of liquidity
after he gave Pantaleoni a check for $100,000 to buy the annuity. In short, NWL was
charged with knowledge that the annuity was not suitable for Williams.
In supplemental briefing, NWL preliminarily argues that the California Supreme
Court only directed this court to eliminate the portion of our prior opinion analogizing an
31
independent agent serving multiple insurance companies to an insurance broker. NWL
maintains that an insurance agent selling policies for multiple insurers may be the agent
of the insurance company or the insured, depending on the facts. (See Eddy v. Sharp
(1988) 199 Cal.App.3d 858, 865 (Eddy) [“If an insurance agent is the agent for several
companies and selects the company with which to place the insurance or insures with one
of them according to directions, the insurance agent is the agent of the insured”];
Mercury Ins. Co. v. Pearson (2008) 169 Cal.App.4th 1064, 1073 (Mercury) [same, citing
Eddy]; see also Loehr v. Great Republic Ins. Co. (1990) 226 Cal.App.3d 727, 733 (Loehr)
[“An agent is generally not limited in the number of agency appointments that he or she
may have; thus, an agent may solicit business on behalf of a variety of different carriers,
and still technically be an agent of each of those carriers”].)
NWL misses the point of section 1704.5, which treats an agent selling life
insurance differently from agents selling other classes of insurance. Eddy and Mercury
did not involve life insurance. (Eddy, supra, 199 Cal.App.3d at p. 862 [property
insurance]; Mercury, supra, 169 Cal.App.4th at pp. 1066-1067 [automobile insurance];
see also Loehr, supra, 226 Cal.App.3d at p. 729 [health insurance]; cf. Lockyer, supra,
104 Cal.App.4th at p. 511 [annuities]; O’Riordan, supra, 36 Cal.4th at p. 283 [life
insurance].) Under section 1704.5, by operation of law, an agent submitting an
application for a life insurance or an annuity policy, which is then issued by an insurer, is
the insurer’s authorized agent and the insurer is responsible for the agent’s actions. The
California Supreme Court emphasized this statutory distinction in its order to this court
by highlighting that the definition of an insurance “agent” and “broker” set forth in
sections 32 and 33, respectively, expressly exclude life insurance.
NWL’s principal contention is that “the undisputed facts show that Pantaleoni was
acting outside the scope of his agency for NWL when he sold an annuity to Williams, and
therefore NWL cannot be held liable for Pantaleoni’s negligent conduct.” NWL argues
Pantaleoni’s agreement with NWL “expressly prohibited the sales tactics Pantaleoni
32
employed with Williams.” Pantaleoni also failed to follow “the advice of NWL’s many
compliance bulletins” he received relating to California laws and regulations. NWL cites
evidence presented at trial that “Pantaleoni violated California law, violated Pantaleoni’s
contract with NWL, or both, when he (1) did not inform Williams prior to either of his
trust meetings that the purpose of the interaction was to sell insurance; (2) did not present
the NWL annuity completely and accurately while leaving the brochures and disclosures
with Williams; (3) misled Williams into believing that he was receiving trust work and
not an NWL annuity; (4) identified himself as a paralegal but would not say if an attorney
supervised his work; (5) claimed to be a CSA but his certification lapsed in 2008; (6)
mixed his trust services with the sale of NWL’s annuity; and, (7) gave Williams legal
advice relating to changing his trust’s beneficiary without a license.”
Missing from this list are the critical facts that Pantaleoni filled out the suitability
questionnaires for Williams that overstated his annual income and grossly overstated his
net worth and liquid net worth after purchasing the annuity. Under section 1704.5, NWL
is responsible for these actions and charged with Pantaleoni’s knowledge that these
figures were false and that the true state of affairs was that the annuities were unsuitable
for Williams. Thus, NWL is responsible for its agent’s actions in procuring an unsuitable
annuity.
Moreover, assuming Pantaleoni exceeded his authority in some or any of his
actions, there is no evidence that Williams knew or had notice that Pantaleoni had
breached his contract with NWL or failed to follow NWL’s compliance bulletins. Absent
notice to the insured, an insurer is liable for the acts of an agent that are within the
ordinary scope and limits of the insurance business entrusted to the agent, even if they are
in violation of private instructions and restrictions on the agent’s authority. (See Chicago
Title Ins. Co. v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th 401, 426; R & B Auto
Center, Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 344; Troost v. Estate of
DeBoer (1984) 155 Cal.App.3d 289, 298.) NWL appointed Pantaleoni to procure
33
applications and deliver insurance policies, which was what he did in Williams’ case.
The actions that NWL asserts breached Pantaleoni’s contract with NWL and violated the
company’s compliance bulletins occurred in the course and scope of Pantaleoni procuring
annuity applications from Williams and delivering policies to him that NWL issued.
Since NWL does not direct us to evidence in the record showing that Williams knew the
terms of NWL’s agreement with Pantaleoni, the advisements of NWL’s compliance
bulletins, or Pantaleoni’s violations thereof, NWL cannot insulate itself from liability by
claiming that they were outside the scope of his authority.
NWL’s supplemental brief does not address the jury verdict on Williams’ elder
abuse claim, but Insurance Code section 1704.5 affects that claim, as well. Financial
elder abuse “occurs when a person or entity . . . [¶] (1) Takes, secretes, appropriates,
obtains, or retains real or personal property of an elder or dependent adult for a wrongful
use or with intent to defraud, or both.” (Welf. & Inst. Code, § 15610.30, subd. (a)(1).)
The statute defines “wrongful use” as taking property of an elder by a person or entity
who “knew or should have known that this conduct is likely to be harmful to the elder or
dependent adult.” (Welf. & Inst. Code, § 15610.30, subd. (b); Paslay v. State Farm
General Ins. Co. (2016) 248 Cal.App.4th 639, 657.) Since, under Insurance Code section
1704.5, NWL is charged with knowledge of what Pantaleoni knew—i.e., that Pantaleoni
employed deceptive methods to sell Williams unsuitable annuities—NWL committed
financial elder abuse in accepting $100,000 from Williams to purchase the annuity and in
charging him a $14,949.91 surrender penalty.
In our prior opinion, because we reversed the judgment in favor of Williams, we
found moot the remaining issues that NWL raised on appeal and that Williams raised in
his cross-appeal concerning the attorney fee award. Since we now affirm the judgment
against NWL on Williams’ negligence and financial elder abuse claims, we turn to the
remaining issues.
34
B. Emotional Distress Damages
NWL challenges the jury’s award and the trial court’s allocation of $420,000 in
noneconomic damages to NWL on various grounds. NWL contends: (1) Williams
presented no evidence that NWL caused him emotional distress; (2) emotional distress
damages are “inappropriate” under the economic loss rule; (3) the large amount of
emotional distress damages raised a presumption that the award against NWL was the
product of passion and prejudice; and (4) the allocation of 70 percent of emotional
distress damages was not supported by substantial evidence. 9
NWL’s first contention is essentially that there is no substantial evidence to
support an award of emotional distress damages against the company. (Garcia v. Myllyla
(2019) 40 Cal.App.5th 990, 999 [“We review the evidence relating to emotional distress
damages under the substantial evidence standard”].) Under the substantial evidence
standard, “we ‘ “view the evidence in the light most favorable to the prevailing party,
giving it the benefit of every reasonable inference and resolving all conflicts in its
favor.” ’ [Citation.] Our task ‘begins and ends with the determination as to whether, on
the entire record, there is substantial evidence, contradicted or uncontradicted,’ which
will support the verdict. [Citation.] Substantial evidence is any evidence that is
‘ “reasonable in nature, credible, and of solid value.” ’ [Citation.]” (Id. at pp. 999-1000.)
NWL admits that Dr. Haq testified that Williams suffered severe emotional
distress. Dr. Haq testified Williams was traumatized by the loss of control of his life
9 NWL also claims that the trial court erroneously denied its motion in limine to
exclude evidence of emotional distress and “doubled down” on the error by instructing
the jury that Williams had a preexisting disability that NWL aggravated and that
Williams had impaired faculties, which instructions NWL asserts misled the jury and
impacted the verdict. NWL does not cite supporting authority or articulate a standard for
evaluating these claims, which are not set forth under a separate heading. Accordingly,
we do not consider them. (See Hernandez v. First Student, Inc. (2019) 37 Cal.App.5th
270, 279 (Hernandez).)
35
savings that he had accumulated over many years with his wife, which became an
“ongoing trauma, and a lot of his symptoms can best be thought of as a posttraumatic
stress disorder.” (See Kelly-Zurian v. Wohl Shoe Co. (1994) 22 Cal.App.4th 397, 410
[plaintiff’s posttraumatic stress disorder diagnosis and symptoms constituted substantial
evidence supporting emotional distress damages].) To the extent NWL attempts to
attribute Williams’ emotional distress to Pantaleoni alone, under section 1704.5, NWL is
liable for his negligent actions that led to Williams’ emotional distress. (See also Jacoves
v. United Merchandising Corp. (1992) 9 Cal.App.4th 88, 103-104 [denying summary
judgment to hospital on negligent infliction of emotional distress claim because triable
issues existed as to whether negligent doctor was hospital’s agent].)
Turning to the economic loss rule, NWL does not cite any authority applying the
rule to damages awarded on a financial elder abuse claim. In American General Life
Insurance Co. v. Valentine (C.D.Cal. April 13, 2017, No. LA CV16-08097 JAK (JCx)),
2017 WL 5635014, the federal court rejected application of the economic loss rule in that
context. The court explained: “ ‘The economic loss rule requires a purchaser to recover
in contract for purely economic loss due to disappointed expectations, unless he can
demonstrate harm above and beyond a broken contractual promise.’ [Citation.] The
rationale behind the rule is that it ‘prevent[s] the law of contract and the law of tort from
dissolving one into the other.’ [Citations.] The elder abuse claim arises under statute and
not the common law of torts. Thus, California Welfare and Institutions Code § 15657.5
provides for ‘compensatory damages and all other remedies otherwise provided by law,’
as well as ‘reasonable attorney’s fees and costs.’ ” (Id. at p. *11.) 10
10 NWL does not distinguish between negligence and financial elder abuse regarding
application of the economic loss rule. We are not obliged to develop NWL’s arguments
for it. (Hernandez, supra, 37 Cal.App.5th at p. 277.) In any event, the trial court
determined that damages awarded for emotional distress on Williams’ financial elder
abuse and negligence claims overlapped.
36
Regarding the amount of the emotional distress damages awarded, “[w]hen an
appellate court reviews a jury verdict for excessive damages, it can interfere ‘only on the
ground that the verdict is so large that, at first blush, it shocks the conscience and
suggests passion, prejudice or corruption on the part of the jury.’ [Citation.]” (Pearl v.
City of Los Angeles (2019) 36 Cal.App.5th 475, 491, quoting Seffert v. Los Angeles
Transit Lines (1961) 56 Cal.2d 498, 507.) While the emotional distress damages awarded
against NWL were high, we cannot say that an award of $420,000 “shocks the
conscience,” even though Williams’ economic damages were relatively small, amounting
to $14,949.91. (See Iwekaogwu v. City of Los Angeles (1999) 75 Cal.App.4th 803, 821
[$450,000 for emotional distress out of $500,000 total damages awarded were not
“excessive as a matter of law”]; Little v. Stuyvesant Life Ins. Co. (1977) 67 Cal.App.3d
451, 465-466 [award of $172,325 for emotional distress where no economic loss was
proved was not “so excessive or disproportionate as to raise a presumption that it resulted
from passion or prejudice”].)
NWL presents a cursory argument that “there is no justification for holding NWL
70% responsible for Williams’ emotional distress where no evidence supported that
NWL caused any of Williams’ non-economic damages.” “We review a jury’s
apportionment of fault under the substantial evidence standard and will disturb the
finding only if unsupported by the evidence.” (Scott v. County of Los Angeles (1994)
27 Cal.App.4th 125, 147; Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1286
[“courts rarely disturb the jury’s apportionment of fault”].)
Here, there was substantial evidence supporting allocation of 70 percent of
noneconomic damages to NWL. Among other things, NWL did not immediately return
Williams’ $100,000 premium payment when he sent back the first annuity during the free
look period with a note that he did not want it. Rather, NWL advised Pantaleoni to
contact Williams to induce him to keep the annuity, applied the payment on the first
annuity to the second annuity, and assessed a surrender charge when Williams sought to
37
return the second annuity. Had these actions by NWL not occurred, Williams would not
have unwittingly purchased a second annuity policy, when he never wanted the first one,
and incurred a loss of thousands of dollars when he returned that annuity, which as
Dr. Haq testified, was the main source of the traumatic psychological effects Williams
experienced. Accordingly, we have no basis to disturb the allocation of fault.
C. Punitive Damages
NWL contends that punitive damages were not justified because the evidence
merely showed negligence and there was no evidence that a managing agent knew of or
ratified Pantaleoni’s conduct. Alternatively, NWL argues that the amount of $2.5 million
imposed was unconstitutionally excessive. We agree with NWL on the first point and
therefore do not address the second.
To recover punitive damages for financial elder abuse against a corporate
defendant, a plaintiff must satisfy the requirements of Civil Code section 3294.
Subdivision (c) of Welfare and Institutions Code section 15657.5 provides in relevant
part: “The standards set forth in subdivision (b) of Section 3294 of the Civil Code
regarding the imposition of punitive damages on an employer based upon the acts of an
employee shall be satisfied before any punitive damages may be imposed against an
employer found liable for financial abuse as defined in Section 15610.30.” Civil Code
section 3294, subdivision (b) states: “An employer shall not be liable for damages
pursuant to subdivision (a), based upon acts of an employee of the employer, unless the
employer had advance knowledge of the unfitness of the employee and employed him or
her with a conscious disregard of the rights or safety of others or authorized or ratified the
wrongful conduct for which the damages are awarded or was personally guilty of
oppression, fraud, or malice. With respect to a corporate employer, the advance
knowledge and conscious disregard, authorization, ratification or act of oppression, fraud,
or malice must be on the part of an officer, director, or managing agent of the
corporation.”
38
Williams asserts that: “NWL’s status as Pantaleoni’s principal provides even
more substantial evidence supporting the jury’s punitive damage [sic] award. This is
because NWL’s status imputes to it, as a matter of law, all of Pantaleoni’s knowledge and
ratification of his fraudulent and other misconduct in connection, with two annuity
applications. NWL ‘is deemed to have knowledge of such facts,’ ” quoting O’Riordan,
supra, 36 Cal.4th at page 288. However, even if we impute knowledge of Pantaleoni’s
acts to NWL based on a principal-agent relationship under Insurance Code section
1704.5, recovery of punitive damages for financial elder abuse requires more. Civil Code
section 3294, subdivision (b), incorporated in Welfare and Institutions Code section
15657.5, subdivision (c), calls for a plaintiff to show by clear and convincing evidence
that an officer, director or managing agent had the required advance knowledge and
conscious disregard, authorized or ratified the agent’s acts, or personally acted with
oppression, fraud or malice towards the plaintiff. (Civ. Code, § 3294, subd. (b); see also
Barton v. Alexander Hamilton Life Ins. Co. of America (2003) 110 Cal.App.4th 1640,
1644; White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 571 (White) [Civ. Code, § 3294,
subd. (b) was intended by the Legislature “to avoid imposing punitive damages on
employers who were merely negligent or reckless and to distinguish ordinary respondeat
superior liability from corporate liability for punitive damages”].)
As to advance knowledge, Williams argues “NWL acquired advance knowledge
of Pantaleoni’s use of misleading business names to sell insurance and then continued to
employ him without taking action reasonably designed to protect the rights or safety of
others.” Williams also refers to NWL’s “knowledge of [Pantaleoni’s] restricted license.”
This is insufficient. Evidence of advance knowledge of the employee’s unfitness
must show that a director, officer or managing agent of the corporate defendant knew that
the agent or employee had a propensity to inflict the injury that the plaintiff sustained.
(See Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1159; Croskey et al., Cal.
Practice Guide: Insurance Litigation (The Rutter Group 2021) ¶ 13:402.5 [“It must
39
appear that the employer had advance knowledge of the employee’s propensity to
perform the type of act committed against the plaintiff”].) Conscious disregard also
requires “ ‘ “actual knowledge of the risk of harm it is creating, and in the face of that
knowledge, fail[ure] to take steps that [the defendant] knows will reduce or eliminate the
risk of harm.” ’ ” (King v. U.S. Bank National Assn. (2020) 53 Cal.App.5th 675, 711,
quoting Butte Fire Cases (2018) 24 Cal.App.5th 1150, 1159.)
At best, the evidence presented showed that NWL was negligent in appointing
Pantaleoni and renewing his appointment to sell annuities (e.g., in light of his restricted
license). However, there was no evidence that any person at NWL, let alone a director,
officer or managing agent, knew in advance of Pantaleoni’s propensity to commit the
misconduct that victimized Williams.
Turning to ratification, Williams contends that Perez, Burns, Ziebell and Mohr
were NWL’s managing agents. NWL disputes that Ziebell and Mohr were managing
agents but concedes that Perez and Burns qualify for that status. However, NWL
maintains that neither Perez nor Burns had actual knowledge of Pantaleoni’s misconduct
prior to Williams’ suit.
We agree with NWL that there was insufficient clear and convincing evidence to
support a jury finding that Ziebell and Mohr were NWL’s managing agents. The
evidence Williams describes as supporting that determination showed only that they had
discretion in handling individual customer complaints and compliance issues. This is not
the discretionary authority described in White, where the California Supreme Court said,
“principal liability for punitive damages [does] not depend on employees’ managerial
level, but on the extent to which they exercise substantial discretionary authority over
decisions that ultimately determine corporate policy.” (White, supra, 21 Cal.4th at
pp. 577-578; Cruz v. HomeBase (2000) 83 Cal.App.4th 160, 167-168 (Cruz)
[“ ‘[C]orporate policy’ is the general principles which guide a corporation, or rules
intended to be followed consistently over time in corporate operations. A ‘managing
40
agent’ is one with substantial authority over decisions that set these general principles
and rules”].) There was no evidence that Ziebell and Mohr had discretionary authority
that determined general NWL policy.
Williams analogizes Ziebell and Mohr to the claims adjuster in Major v. Western
Home Ins. Co. (2009) 169 Cal.App.4th 1197, held to be a managing agent for purposes of
ratification. This case hurts Williams’ argument more than it helps. In Major, the claims
adjuster was the “regional manager/supervisor/claims adjuster,” who “managed 35
employees in an office in Minnesota that handled claims as far away as California,
oversaw the claims operation, supervised lower ranking supervisors, trained adjusters,
worked on the budget, supervised the handling of certain files, and authorized payment of
benefits.” (Id. at p. 1220.)
Assuming based on NWL’s concession that Perez and Burns were managing
agents for purposes of Civil Code section 3294, subdivision (b), the evidence does not
show the requisite knowledge and acceptance of Pantaleoni’s conduct for Williams to
recover punitive damages against NWL under a ratification theory. “For purposes of
determining an employer’s liability for punitive damages, ratification generally occurs
where, under the particular circumstances, the employer demonstrates an intent to adopt
or approve oppressive, fraudulent, or malicious behavior by an employee in the
performance of his job duties.” (College Hospital Inc. v. Superior Court (1994) 8 Cal.4th
704, 726 (College Hospital); see also Cruz, supra, 83 Cal.App.4th at p. 168
[“ ‘[R]atification’ is the ‘confirmation and acceptance of a previous act’ ”].) “Corporate
ratification in the punitive damages context requires actual knowledge of the conduct and
its outrageous nature.” (College Hospital, supra, at p. 726; Cruz, supra, at p. 168 [“A
corporation cannot confirm and accept that which it does not actually know about”].)
Thus, recovery of punitive damages from a corporation based on ratification requires
clear and convincing evidence that a director, officer or managing agent had actual
41
knowledge of an agent’s malicious and outrageous conduct and adopted or approved such
conduct.
Williams claims that Perez ratified Pantaleoni’s misconduct because he learned of
it from Williams’ complaint, but NWL failed to investigate the allegations of the
complaint, did not return the surrender charge, and did not terminate Pantaleoni. As for
Burns, Williams asserts that she knew of the suitability requirements that Williams could
not meet, and when designated as NWL’s most qualified person in this case, reviewed the
agent file for Pantaleoni and the annuity file for Williams, learning that Williams’
complaint had not been investigated, there was no delivery receipt for the second annuity,
and NWL did not charge back Pantaleoni’s commission. NWL also claims that Burns
reviewed Williams’ complaint but NWL did not terminate Pantaleoni, investigate the
complaint, charge back Pantaleoni’s commission, or refund the surrender charge.
None of this evidence shows actual knowledge on the part of Perez or Burns of
Pantaleoni’s malicious and outrageous misconduct until Williams filed suit. In College
Hospital, the California Supreme Court said the ratification issue “commonly arises
where the employer or its managing agent is charged with failing to intercede in a known
pattern of workplace abuse, or failing to investigate or discipline the errant employee
once such misconduct became known.” (College Hospital, supra, 8 Cal.4th at p. 726.)
None of the cases cited in College Hospital involved a managing agent of the corporation
learning for the first time of the misconduct of the agent or employee via the allegations
of a lawsuit. (Ibid.)
To be sure, in Chodos v. Insurance Co. of North America (1981) 126 Cal.App.3d
86, in response to receiving the insured’s lawsuit, there was evidence of the insurance
company’s decision not to pay the plaintiff, including an internal memorandum which
characterized the insurer’s position as “ ‘very strong.’ ” (Id. at p. 102.) The court said
that the insurer’s “choice to respond to the summons and complaint rather than settle the
42
matter removes any doubt about ‘ratification’ of the procedure utilized by the [insurer’s]
employees.” (Id. at p. 103.)
There was no similar evidence in this case. To the contrary, Williams moved to
exclude, and NWL moved to admit, evidence of settlement negotiations, including
NWL’s multiple offers to compromise that included compensation for the surrender
charge. The court ruled in favor of Williams on the dueling motions. NWL agrees on
appeal that the trial court’s ruling was correct. However, as a result of the court’s ruling,
there was evidence that NWL did not refund the surrender charge but no evidence that
NWL chose not to do so, which would support a claim of ratification. 11
Additionally, as Burns testified, when a lawsuit regarding the conduct of an agent
is filed, the legal department of NWL “puts a hold on everything,” including the process
for terminating an agent. The agent would be “flagged,” and NWL would not accept any
additional business from the agent. Accordingly, Pantaleoni was flagged when NWL
first learned of the litigation Williams instituted and could no longer place business with
the company, which effectively terminated his appointment by NWL.
Based on these facts, there was insufficient clear and convincing evidence that
NWL ratified, i.e., adopted and approved of Pantaleoni’s conduct after Perez and Burns
learned of it from Williams’ lawsuit. Rather, NWL attempted to refund the surrender
charge and cut off Pantaleoni from placing new business, actions that would naturally
result from NWL accepting the validity of Williams’ allegations regarding Pantaleoni’s
malicious and outrageous conduct, but not accepting, adopting or approving Pantaleoni’s
11 Williams added NWL as a defendant on May 24, 2018. On August 22, 2018,
NWL served a Code of Civil Procedure section 998 offer to compromise in the amount of
$16,000. This offer, the first of multiple offers to compromise, was specifically intended
and calculated to compensate Williams for the surrender charge.
43
conduct. Given the evidence, the jury’s verdict awarding punitive damages must be
reversed.
D. Attorney Fee Award
NWL contends that the attorney fee award should be reversed if we reverse
Williams’ elder abuse claim. We have upheld the elder abuse claim, so we consider
NWL’s alternative argument that we should remand to the trial court for recalculation of
attorney fees if we reverse or reduce any of Williams’ damage claims. We agree that
because we reverse the bulk of the total damages awarded, the trial court should have the
opportunity to reconsider the reasonableness of attorney fees sought. (See Greenwich
S.F., LLC v. Wong (2010) 190 Cal.App.4th 739, 768 [case remanded for trial court to
reconsider attorney fee award after $600,000 in damages reversed]; see also Maldonado
v. Epsilon Plastics, Inc. (2018) 22 Cal.App.5th 1308, 1337.) We do not address whether
the remaining damages would support the fee award. That issue is for the trial court to
decide in the first instance. (Greenwich, supra, at p. 768.)
Williams cross-appeals the amount of attorney fees, contending that the trial court
abused its discretion in refusing to award attorney fees based on his counsel’s “home
market hourly rates” in San Diego. In calculating the “lodestar” award, the trial court
used an hourly rate of $500 for plaintiff’s counsel, Frank Fox, instead of his “normal
hourly rate of $765.”
In awarding attorney fees, California courts use the lodestar approach, “i.e., the
number of hours reasonably expended multiplied by the reasonable hourly rate.” (PLCM
Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 (PLCM Group); Doppes v. Bentley
Motors, Inc. (2009) 174 Cal.App.4th 967, 997.)
“The reasonable hourly rate is that prevailing in the community for similar work.”
(PLCM Group, supra, 22 Cal.4th at p. 1095.) “The relevant ‘community’ is that where
the court is located.” (Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc. (2014)
226 Cal.App.4th 26, 71; MBNA America Bank, N.A. v. Gorman (2006) 147 Cal.App.4th
44Supp. 1, 13 [“determination of market rate is generally based on the rates prevalent in the
community where the services are rendered, i.e., where the court is located”].) “[A]
court’s use of reasonable rates in the local community, as an integral part of the initial
lodestar equation, is one of the means of providing some objectivity to the process of
determining reasonable attorney fees. Such objectivity is ‘ “ ‘vital to the prestige of the
bar and the courts.’ ” ’ [Citations.]” (Nichols v. City of Taft (2007) 155 Cal.App.4th
1233, 1243.)
“ ‘The court may rely on its own knowledge and familiarity with the legal market
in setting a reasonable hourly rate. [Citation.]’ [Citation.]” (Nishiki v. Danko Meredith,
P.C. (2018) 25 Cal.App.5th 883, 898.) 12 “The courts repeatedly have stated that the trial
court is in the best position to value the services rendered by the attorneys in his or her
courtroom [citation], and this includes the determination of the hourly rate that will be
used in the lodestar calculus.” (569 East County Boulevard LLC v. Backcountry Against
the Dump, Inc. (2016) 6 Cal.App.5th 426, 437.) For that reason, while the trial judge's
determination is subject to review, “ ‘ “it will not be disturbed unless the appellate court
is convinced that it is clearly wrong.” ’ [Citation.]” (Ketchum v. Moses (2001)
24 Cal.4th 1122, 1132.)
“[I]n the unusual circumstance that local counsel is unavailable” or, put another
way, “hiring local counsel was impracticable,” the trial court may use the rate of counsel
from a higher fee market in determining a reasonable hourly rate. (Horsford v. Board of
Trustees of California State University (2005) 132 Cal.App.4th 359, 399 (Horsford).) In
Horsford, the plaintiff submitted an uncontradicted declaration that he was unsuccessful
in obtaining local lawyers in Fresno to represent him before turning to a San Francisco
12 At the hearing on plaintiff counsel’s attorney fee, the trial court commented: “I
don’t know an attorney in Butte County who is billing $750 an hour, let’s put it that
way.”
45
lawyer. The Court of Appeal held that the trial court abused its discretion in using local
Fresno rates. (Id. at pp. 397-399; see also Center for Biological Diversity v. County of
San Bernardino (2010) 188 Cal.App.4th 603, 618-619 [a plaintiff's declaration that no
local attorneys in San Bernardino practicing environmental law on behalf of
environmental groups will do so for a reduced fee or on a contingent basis, and possess
requisite expertise, was a sufficient showing that hiring qualified counsel in the area was
impracticable]; Environmental Protection Information Center v. Department of Forestry
& Fire Protection (2010) 190 Cal.App.4th 217, 249 [affirming trial court’s use of out-of-
town rates where the plaintiffs submitted a declaration from a local lawyer that he would
not undertake primary representation in the suit and knew of no local counsel who would,
as well as declarations from other local attorneys that would not have been willing to
represent the plaintiffs at all].)
Here, Williams stated in his declaration that he contacted the district attorney and
met with a local paralegal and an attorney to try to get documents from Pantaleoni but
they were unable to help him. Then Williams met with an attorney for Northern
California Legal Services, who could not take his case but referred Williams to Cole.
Besides writing a letter on Williams’ behalf to obtain documents from NWL, Cole tried
to find an attorney for Williams through his organization, California Advocates for
Nursing Home Reform. After speaking with Cole, a lawyer from San Francisco called
Williams, asked him some questions, but declined to take the case. At that point, as
Williams stated: “I got frustrated and gave up.”
Cole stated in his declaration in support of an attorney fee award that he
administers the lawyer referral service for California Advocates for Nursing Home
Reform and helped develop a panel dedicated to assisting victims of financial elder
abuse, which included Fox and 20 other lawyers at the time Cole referred Williams to
Fox. California Advocates for Nursing Home Reform receives a 15 percent referral fee
from any attorney fee recovered in a referred matter. Cole referred Williams to one San
46
Francisco-based attorney who did not take the case. Cole’s attempt to find another
lawyer from Northern California “was unsuccessful because of the relatively small
economic losses involved and Mr. Williams’s inability to pay by the hour or even
advance necessary costs.” Cole referred Williams to Fox in San Diego, the only attorney
on the panel Cole could find who was willing to take the matter on a contingency basis
and advance costs.
In opposition to Williams’ motion for attorney fees, NWL submitted the
declarations of six attorneys with elder law experience, all of whom stated that they
would have taken the case if contacted. For example, the declaration from Dave C. Jones
stated that he: is the senior trial lawyer at his firm; has litigated numerous financial elder
abuse cases in counties from San Diego to Shasta, including Butte; and will take a
contingency case where the financial injury is low but he perceives the injustice to be
great. Jones further stated that, having reviewed the pleadings and jury instructions in
this case, he was qualified and available to take the case and would have taken it if given
the opportunity. Jones also stated that he was aware of five law firms in Butte and
Sacramento counties and other firms in the Bay Area qualified to litigate a financial elder
abuse case and would do so for less than a $765 hourly rate.
The other declarations were in a similar vein. Edward W. Goldkuhl declared that
he had served as an expert witness in financial elder abuse cases. The hourly rates of
these declarant attorneys ranged from $350 to $500 per hour.
Williams counters that the declarant attorneys were located in Sacramento and
Contra Costa counties, which are not “contiguous” to Butte County, and none had offices
in Butte County or Chico where the case was tried. Cole submitted a reply declaration in
which he stated that none of the declarant attorneys was on his organization’s financial
elder abuse panel; “however, having received attestations of their interest in handling
elder financial abuse matters involving low economic losses, I will be sending them an
application to join that panel.”
47
Citing Horsford, Williams argues that “when a prevailing party’s attorney has a
home office in a different market where rates are higher, the attorney is entitled to home
market hourly rates if the party either made a ‘good faith effort’ to find local counsel or
showed that retaining local counsel was ‘impracticable.’ ” (Italics added.) Not so. The
court in Horsford said, “we doubt a plaintiff needs to make anything more than ‘a good
faith effort to find local counsel’ [citation] in order to justify the fees of out-of-town
counsel . . . .” (Horsford, supra, 132 Cal.App.4th at p. 399, italics added; see also In re
Tobacco Cases I (2013) 216 Cal.App.4th 570, 582 [“The court has the discretion to make
an exception [to local rates] . . . when the prevailing party shows it was impracticable to
use local counsel” (italics added)]; Cal. Judges Benchbook: Civil Proceedings—Trial
(CJER June 2021 update) § 16.100 [“When local counsel is unavailable, the judge has the
discretion to consider an out-of-town attorney’s higher rates” (italics added)].) In other
words, on a sufficient showing of the unusual circumstance that local counsel is not
available, the trial court is not limited to the use of local hourly rates and has discretion to
use higher rates from counsel’s home market. It is an abuse of discretion only “to fail
even to consider an hourly rate based on counsel’s ‘home’ market rate.” (Horsford,
supra, 132 Cal.App.4th at p. 399; Caldera v. Department of Corrections & Rehabilitation
(2020) 48 Cal.App.5th 601, 609 (Caldera) [“When a plaintiff needs to hire out-of-town
counsel, a trial court must consider counsel’s ‘home market rate’ when setting the hourly
rate, rather than the local market rate”].)
We cannot conclude that the trial court abused its discretion under the principles
articulated in Horsford and its progeny. To begin with, the trial court did not err, as
Williams claims, “applying Butte County rather than San Diego County hourly rates.”
To the contrary, Williams’ argument was that the attorneys who submitted declarations in
support of NWL’s opposition to his attorney fee motion were not local to Butte County,
but from Sacramento and the Bay Area, both of which are major metropolitan areas.
Thus, the $350 to $500 hourly rates these attorneys quoted represent rates for financial
48
elder abuse cases in higher-fee markets than Butte County. The rate the court ultimately
used for the lodestar calculation was the highest of these.
Nor is there evidence that the court refused to consider Fox’s home market rate.
The court’s passing comment that it was unaware of any lawyer in Butte County charging
$750 an hour does not equate to refusal to consider his rate. (Cf. Caldera, supra,
48 Cal.App.5th at pp. 610-611 [“[T]he trial court rejected Caldera’s request of $750 per
hours because it was ‘too high for this locale,’ ” and “lowered the hourly rate to $550 per
hour, which the court stated was at the top of local rate for counsel in San Bernardino
County ($450 to $550 per hour)”].)
Moreover, the evidence before the trial court in Horsford was “overwhelming and
uncontradicted” the plaintiff could not find a local lawyer to take the case (Horsford,
supra, 132 Cal.App.4th at pp. 398-399), while here the evidence of Williams’ attempt to
find a lawyer with experience and expertise in financial elder abuse was for the most part
limited to Cole’s efforts and contradicted by the declarations NWL submitted.
Therefore, our remand to the trial court is for the limited purpose of reconsidering
the attorney fee award, if the court chooses, in light of the reversal of punitive damages.
We find no abuse of discretion in the trial court’s use of a $500 hourly rate in the lodestar
calculation.
49
DISPOSITION
The award of punitive damages is reversed. We remand this case to the trial court
to reconsider the attorney fee award in light of the reversal of punitive damages. The
judgment is otherwise affirmed. Williams shall recover his costs on appeal. (Cal. Rules
of Court, rule 8.278(a)(1), (2).)
/s/
RAYE, P. J.
We concur:
/s/
ROBIE, J.
/s/
MURRAY, J. *
* Retired Associate Justice of the Court of Appeal, Third Appellate District,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
50