Farmers & Merchants Trust Co. v. Vanetik

Filed 2/27/19; Modified and Certified for Partial Publication 3/27/19 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
FARMERS & MERCHANTS TRUST
COMPANY, as Trustee, etc.,
G053688 (consol. with G053689,
Plaintiff and Respondent, G054218)
v. (Super. Ct. No. 30-2013-00688150)
YURI VANETIK et al.,
Defendants and Appellants.
FARMERS & MERCHANTS TRUST
COMPANY, as Trustee, etc., G053978
Plaintiff and Appellant, (Super. Ct. No. 30-2013-00688150)
v.
OPINION
RICHARD WEED et al.,
Defendants and Appellants.
Appeals from judgments and postjudgment orders of the Superior Court of
Orange County, Ronald L. Bauer, Judge. Appeal Nos. G053688 and G053689 affirmed
in part and reversed in part. Appeal No. G053978 affirmed. Cross-appeal in appeal
No. G053978 dismissed as moot. Appeal No. G054218 affirmed. Motion to augment
appellate record. Denied.
Klapach & Klapach and Joseph S. Klapach for Defendant and Appellant
Yuri Vanetik.
Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup; Hamilton Law
Offices and John Michael Hamilton for Defendant and Appellant Anatoly Vanetik.
Law Office of Jim P. Mahacek and Jim P. Mahacek for Plaintiff and
Appellant Farmers and Merchants Trust Company.
White & Reed and Michael R. White for Defendants and Appellants
Richard Weed, Weed & Co., L.C., and Weed & Co. LLP.
* * *
INTRODUCTION
Yuri Vanetik and his father, Anatoly (Tony) Vanetik, were involved with a
number of interrelated companies in the business of oil exploration in Russia. (To avoid
confusion, we will refer to Yuri and Tony by their first names; we intend no disrespect.)
Yuri approached his friend, Elliot Broidy, about investing in one of those companies,
Terra Resources (Terra). Broidy agreed to invest $750,000, with the written agreement
his investment would go only to efforts to start production on the oil wells.
Farmers & Merchants Trust Company (F&M Trust) was the trustee and
administrator of the simplified employee pension plan (SEP) for Broidy’s individual
retirement account (IRA). F&M Trust acquired stock in Terra. Broidy later learned that
his investment had not been used in connection with the oil wells. Rather, the money had
been used to pay off Yuri’s and Tony’s preexisting debts.
Broidy and Tony orally agreed that Tony would pay back the $750,000;
Tony failed to do so. F&M Trust then sued Yuri and Tony for breach of written and oral
contracts, and for fraud. F&M Trust also sued Richard Weed (the attorney for Yuri,
Tony, and the oil exploration companies) for fraud. (Weed and his law firm, at different
times known as Weed & Company, L.C., and Weed & Company LLP, will be referred to
collectively in this opinion as the Weed defendants.) The jury found in favor of
F&M Trust on all causes of action, and awarded compensatory and punitive damages
against Yuri, Tony, and the Weed defendants. Judgment was entered against Yuri and
2
Tony; the trial court granted judgment notwithstanding the verdict (JNOV) in favor of the
Weed defendants.
On appeal, we conclude that substantial evidence supported the jury’s
verdict against Yuri and Tony on the claims for breach of written contract, breach of oral
contract, and fraud. The jury’s special verdict findings on the contract and fraud claims
neither resulted in inconsistent verdicts, nor required F&M Trust to make an election of
remedies. However, F&M Trust failed to offer substantial evidence supporting the
punitive damages awards against Tony and Yuri. We reverse those punitive damage
awards, but otherwise affirm the judgment in favor of F&M Trust and against the
Vanetiks.
We further conclude the trial court properly granted JNOV in favor of the
Weed defendants on the fraud causes of action. There was no evidence that the Weed
defendants had an independent duty to F&M Trust, or that their actions went beyond the
ordinary performance of professional duties as the Vanetiks’ legal counsel. We therefore
affirm the judgment in favor of the Weed defendants and against F&M Trust.
We further affirm the postjudgment orders awarding attorney fees to
F&M Trust as the prevailing party on its judgment against Yuri and Tony, and awarding
attorney fees to the Weed defendants as the prevailing parties on their judgment against
F&M Trust.
STATEMENT OF FACTS
Elbrus Energy Group, Ltd. (Elbrus) was formed by Tony, Alex Sulla, Jed
Dolkart, and Dean Miller in 2009 to acquire and develop oil concessions in Kalmykia,
Russia. (A concession is a right to remove oil with the government receiving some of the
income.) Yuri helped capitalize the company by providing $750,000 in startup funds.
Terra was established to own the equity of Elbrus and facilitate the raising of capital and
the addition of new shareholders.
3
Broidy was a friend of Yuri’s. In late 2010, Yuri informed Broidy of
Terra’s oil exploration business in Russia. Broidy decided to invest $750,000 in Terra.
Broidy performed due diligence before making his investment, hiring an
international oil and gas consulting company called Pace Global to investigate Terra’s oil
concessions. Pace Global advised that it was “comfortable” with the deal and “felt there
was oil there and time would tell whether we could extract.” Pace Global also advised
Broidy that it did not see any “fatal flaws” and thought there could be significant reserves
of oil in the concessions. Pace Global described the investment as an extremely high-risk
investment: “While that may lead to higher returns, it is critical to understand that these
fields are much higher risk and could be technically challenging.”
Broidy wanted his investment to go strictly into uncapping the wells and
making them productive. The securities purchase agreement specified: “SELLER
covenants to use funds from Initial Purchase in furtherance of efforts to start production
on the 85,000 acre Concession in Kalmykia owned by NK Alliance LLP.” Broidy was
willing to accept the risk that the wells might not produce any oil. Yuri told Broidy that
his $750,000 investment would uncap some of the wells, although Yuri knew that the true
cost of uncapping a single well could be in excess of $1.5 million. The Vanetiks told
Broidy that Terra was financially stable. Broidy would not have invested in Terra if he
had known about the amount of debt it was carrying. The Vanetiks did not tell Broidy
they had personal financial claims against Terra.
Broidy acquired his Terra stock from KLEL Funds (KLEL), a subsidiary of
Terra. Broidy was told the Vanetiks controlled KLEL, and the transaction was being run
through KLEL as an accommodation to the Vanetiks. The stock was sold to F&M Trust
as the trustee and administrator of Broidy’s SEP IRA, rather than directly to Broidy.
Broidy’s attorney, David Camel, prepared the purchase documents with Weed, who was
acting as counsel for Terra and KLEL.
4
On March 11, 2011, Broidy and KLEL executed a securities purchase
agreement. Neither Tony nor Yuri nor any of the Weed defendants were signatories of
the securities purchase agreement.
Concurrently with the securities purchase agreement, Broidy and KLEL
executed an escrow agreement with Weed & Company LLP to facilitate the stock
transfer. Neither Tony nor Yuri was a signatory to the escrow agreement.
Broidy’s investment was used by Terra to repay loans, reimburse expenses,
and pay operating expenses; none of Broidy’s investment was used directly to develop
the oil concessions.
Yuri advised Broidy that things were going well, wells were being
uncapped, and Terra had contracted with Baker Hughes, the oil development company
that would supervise the project and manage the capital. Baker Hughes, however, had
not been paid.
Terra’s brokerage firm in Germany, Euroline Bankers, owed a custodian
fee to Baader Bank, Terra’s custodial bank. Baader Bank liquidated a large quantity of
Terra’s stock to satisfy the debt, seriously depressing the value of Terra’s stock. Terra
was later delisted from the Frankfurt Stock Exchange. Both Yuri and Miller sold their
Terra stock.
In 2013, Broidy advised Yuri and Tony he was unhappy with his Terra
investment. According to Broidy, Tony said “he was going to give me my money back.”
Tony also told Broidy: “I promise you you won’t lose one penny. I’m going to give you
your money back.” Yuri told Broidy: “It’s up to my father. I think my father will make
it right.”
In June 2013, Camel and Weed exchanged a series of e-mails regarding a
proposed settlement. Camel forwarded a proposed stock purchase agreement to Weed.
The accompanying e-mail read, in relevant part: “Following up our conversation earlier
today, attached is a Stock Purchase Agreement along with a draft letter cancelling the
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Option. Please let me know if you have any comments regarding the Agreement or the
letter. Also, please send me the name of the buyer and when your client can close. [¶]
My client is concurrently reviewing the documents and they are subject to his review,
comment and approval.”
On June 17, Camel wrote to Weed: “It has been ten days since I last heard
from you, 14 days from when the Stock Purchase Agreement was first sent to you and
over six weeks from when our clients first addressed this matter. [¶] If we are going to
successfully resolve this matter without the involvement of litigation attorneys, we need
to have an executed Agreement by the end of this week along with an initial minimum
payment of $250,000. Please contact your client and let me know if that is going to
happen. If not, per my previous emails, my client will direct his litigation counsel at
Latham & Watkins to vigorously pursue all rights and remedies on his behalf against all
parties.”
On July 25, 2013, Broidy e-mailed Tony: “While I truly appreciate your
repeated assurances that you will buy out my Terra shares at cost of $750,000, you are
moving far too slowly. Please instruct your attorney Rick Weed to complete and deliver
the executed note and associated documents today. I require a $250k down payment by
the 31st of July and the balance of $500k by Aug 15th. . . . I have been more than
patient. It is now time for you to perform. Thank you in advance for making this
happen.” The repurchase of Broidy’s stock never occurred.
PROCEDURAL HISTORY
F&M Trust, as administrator and trustee of Broidy’s SEP IRA, initiated the
lawsuit in November 2013. The operative first amended complaint asserted causes of
action for breach of a written contract, breach of the covenant of good faith and fair
6
dealing, negligent misrepresentation, fraud, negligence, constructive fraud, breach of
1
fiduciary duty, unfair competition, and for an accounting.
Shortly before the scheduled trial date, F&M Trust sought leave to amend
to file a second amended complaint. F&M Trust proposed adding, among other things, a
cause of action for breach of oral contract based, in part, on the alleged promises of
Terra, Tony, and Yuri to pay Broidy back his $750,000 investment. The trial court
denied the motion for leave to amend.
The case proceeded to trial before a jury, with certain matters bifurcated for
a later bench trial. After all parties had rested their cases before the jury, F&M Trust
made an oral motion to amend the complaint to add a cause of action against Yuri and
Tony for breach of an oral contract—the agreement between Broidy and the Vanetiks in
2013 to buy back Broidy’s Terra stock for $750,000. The court granted the motion to
amend.
The Weed defendants then made a motion for nonsuit of the cause of action
against them for breach of the securities purchase agreement. The trial court granted the
motion because the Weed defendants were not parties to that agreement.
The jury rendered a special verdict finding:
1. Yuri and Tony breached the written securities purchase agreement;
2. Yuri and Tony breached the oral contract to repay F&M Trust;
3. None of the defendants was liable for negligent misrepresentation;
4. All defendants made false representations, intentionally concealed facts,
and made false promises;
5. All defendants violated Business and Professions Code section 17200;
1
The causes of action for negligence, constructive fraud, and breach of fiduciary duty
were alleged only against the Weed defendants; all other causes of action were alleged
against all defendants. A cause of action for violations of the Corporations Code was
withdrawn by F&M Trust during trial.
7
6. F&M Trust suffered compensatory damages in the amount of $750,000;
and
7. By clear and convincing evidence, all defendants engaged in the conduct
underlying the causes of action for intentional misrepresentation, fraudulent concealment,
and false promise with malice, oppression, or fraud.
After a second phase of the trial, the jury found that F&M Trust was
entitled to recover punitive damages from all defendants in the following amounts:
1. Yuri: $2,000,000
2. Tony: $1,250,000
3. Richard Weed: $110,000
4. Weed & Co., LLP: $1
5. Weed & Co., L.C.: $1
The court then conducted a bench trial on the causes of action for breach of
fiduciary duty, constructive fraud, and breach of the escrow agreement against the Weed
defendants. The court concluded that each of these causes of action failed. The court
also concluded that the cause of action for unfair competition against all defendants must
be dismissed.
The Vanetiks’ motion to compel an election of remedies by F&M Trust was
denied. The Vanetiks and the Weed defendants separately objected to the proposed
judgment on grounds of election of remedies. Those objections were overruled.
On April 15, 2016, judgment was entered based on the jury’s verdicts and
the court’s ruling after the bench trial. The Vanetiks filed motions for JNOV and for a
new trial. The trial court denied the Vanetiks’ motions. Yuri and Tony each filed a
notice of appeal from the judgment and the postjudgment order denying their motions for
JNOV and for a new trial.
8
F&M Trust filed a motion for attorney fees against the Vanetiks. The trial
court awarded F&M Trust $850,000 in attorney fees against the Vanetiks. The Vanetiks
filed a notice of appeal from the attorney fees order.
The Weed defendants also filed motions for JNOV and for a new trial. The
trial court granted the Weed defendants’ motion for JNOV; the court did not rule on the
new trial motion, declaring that the JNOV “essentially moots the Weeds’ motion for a
new trial.” On July 8, 2016, the trial court entered a judgment that F&M Trust take
nothing from the Weed defendants.
The Weed defendants then filed a motion to recover attorney fees. The
court awarded the Weed defendants $325,000 in attorney fees against F&M Trust.
F&M Trust filed a notice of appeal from the judgment in favor of the Weed defendants,
and the award of attorney fees in favor of the Weed defendants. The Weed defendants
filed a protective cross-appeal from the judgment, challenging the denial of their motion
for a new trial in the event the appellate court reversed the trial court’s order granting the
JNOV.
DISCUSSION
I.
THE FINDINGS IN THE JURY’S SPECIAL VERDICTS ARE NOT INCONSISTENT.
Yuri and Tony argue that the jury’s verdict on the claim for breach of the
oral contract is inconsistent with its verdicts on the other claims the oral contract was
purportedly intended to resolve. “‘Inconsistent verdicts are “‘against the law’”’ and are
grounds for a new trial. [Citations.] ‘The inconsistent verdict rule is based upon the
fundamental proposition that a factfinder may not make inconsistent determinations of
fact based on the same evidence. The rule finds parallel expression in the law relating to
court findings: “Where the findings are contradictory on material issues, and the correct
determination of such issues is necessary to sustain the judgment, the inconsistency is
reversible error.”’ [Citations.] An inconsistent verdict may arise from an inconsistency
9
between or among answers within a special verdict [citation] or irreconcilable findings.
[Citation.] Where there is an inconsistency between or among answers within a special
verdict, both or all the questions are equally against the law. [Citation.] The appellate
court is not permitted to choose between inconsistent answers.” (City of San Diego v.
D.R. Horton San Diego Holding Co., Inc. (2005) 126 Cal. App. 4th 668, 682.)
The jury made the following findings regarding the claim for breach of the
securities purchase agreement: (1) the Vanetiks entered into a written securities purchase
agreement with F&M Trust; (2) all conditions required for the Vanetiks’ performance
occurred; (3) the Vanetiks breached the securities purchase agreement; and
(4) F&M Trust was harmed by the Vanetiks’ breach. Regarding the claim for breach of
oral contract, the jury found: (1) the Vanetiks entered an oral contract to repay
F&M Trust; (2) all conditions required for the Vanetiks to perform occurred; (3) the
Vanetiks breached the oral contract; and (4) F&M Trust was harmed by the Vanetiks’
breach. Regarding the fraud claims, the jury found: (1) the Vanetiks made a false
representation to Broidy; (2) the Vanetiks knew the representation was false, or made the
representation recklessly and without regard for its truth; (3) the Vanetiks intended that
Broidy and F&M Trust rely on the representation; (4) Broidy and F&M Trust reasonably
relied on the representation; and (5) their reliance on the representation was a substantial
2
factor in causing harm to Broidy and F&M Trust.
To summarize, the jury found that the Vanetiks defrauded Broidy before
entering into the written securities purchase agreement; breached the securities purchase
agreement; entered an oral contract in the hope of avoiding litigation; and then breached
the oral contract as well. There is nothing inconsistent in the jury’s findings.
A comparison with cases in which the verdicts were inconsistent supports
our conclusion here. In City of San Diego v. D.R. Horton San Diego Holding Co., Inc.,
2
The jury’s findings regarding the claims for false promise and fraudulent concealment
were similar.
10
supra, 126 Cal. App. 4th 668, the jury’s special verdict included two different findings
about the value of the property in an eminent domain action. (Id. at pp. 682-683.) In
Singh v. Southland Stone, U.S.A., Inc. (2010) 186 Cal. App. 4th 338, 359, the appellate
court concluded that the findings in the jury’s special verdict that the defendants made no
promises or misrepresentations to the plaintiff regarding his employment were
“inconsistent with and cannot be reconciled with the jury’s other findings” that the
defendants fraudulently misrepresented and concealed important facts regarding the
plaintiff’s employment. In Lambert v. General Motors (1998) 67 Cal. App. 4th 1179,
1182, a products liability case, the jury found there was no defect in the design of the
Chevrolet Blazer, but then found General Motors was negligent in the design of the
Chevrolet Blazer. The appellate court held that these findings were inconsistent because
General Motors could not be deemed negligent if the design was not defective. (Id. at
p. 1186.) In the present case, none of the jury’s factual findings was inconsistent with
any other factual finding.
II.
THE TRIAL COURT DID NOT ERR BY PERMITTING F&M TRUST TO ADD A CLAIM FOR BREACH
OF ORAL CONTRACT AFTER THE PARTIES RESTED DURING THE FIRST PHASE OF THE TRIAL.
After the close of evidence, the trial court granted F&M Trust’s oral motion
to amend the complaint to add a cause of action against Yuri and Tony for breach of the
oral contract made by Tony to buy back Broidy’s Terra shares. “‘Leave to amend a
complaint is . . . entrusted to the sound discretion of the trial court. “ . . . The exercise of
that discretion will not be disturbed on appeal absent a clear showing of abuse. More
importantly, the discretion to be exercised is that of the trial court, not that of the
reviewing court. Thus, even if the reviewing court might have ruled otherwise in the first
instance, the trial court’s order will yet not be reversed unless, as a matter of law, it is not
supported by the record.”’” (Branick v. Downey Savings & Loan Assn. (2006) 39
Cal. 4th 235, 242.)
11
A.
The Vanetiks Failed to Establish the Breach of Oral Contract Claim
Was Barred by the Statute of Limitations.
A cause of action for breach of an oral contract is subject to a two-year
statute of limitations. (Code Civ. Proc., § 339, subd. 1.) The burden was on the Vanetiks
to prove the statute of limitations had run on the claim for breach of an oral contract,
unless facts proving the expiration of the statute appear on the face of the complaint.
(Wise v. Williams (1887) 72 Cal. 544, 548.)
In this case, the claim for breach of oral contract was added by means of an
oral motion, and there is no “face of the complaint” to review. The proposed second
amended complaint for which F&M Trust sought leave to amend in September 2015
alleged that the breach of the oral contract occurred in November 2013: “In or around
July, 2013, Mr. Broidy, as the beneficiary for Plaintiff, was told by Anatoly, Yuri, Weed
and Yuri[] and Anatoly’s counsel, Steve Brown, on numerous occasions that Terra,
Anatoly and/or Yuri would pay back Plaintiff the entire amount of $750,000.00. This
included oral representations between these parties that Yuri and Anatoly would
personally guaranty such payment to Plaintiff. The terms of the subject agreement were
to be complied with no later than November, 2013.” (Italics added.) There was no
testimony at trial regarding the date by which the oral contract to repurchase Broidy’s
Terra stock was to be completed. Camel e-mailed Weed on June 17, 2013 that “we need
to have an executed Agreement by the end of this week.” On July 25, 2013, Broidy
e-mailed Tony: “Please instruct your attorney Rick Weed to complete and deliver the
executed note and associated documents today. I require a $250k down payment by the
31st of July and the balance of $500k by Aug 15th.”
The date by which the buy back was to occur was a moving target. The
contract was not breached until the buy back was refused, or until an absolute end date
passed without performance. Such a date does not appear in the record. The Vanetiks
12
therefore failed to prove the breach of oral contract occurred more than two years before
3
the claim was added to the complaint in November 2015.
B.
F&M Trust Established the Existence of a Sufficiently Final and Definite Contract.
The Vanetiks also argue that the trial court erred by permitting F&M Trust
to amend the complaint because the alleged oral contract was not sufficiently final or
definite to be enforced. An agreement to agree is not enforceable under California law.
(Bustamante v. Intuit, Inc. (2006) 141 Cal. App. 4th 199, 213.)
However, a contract may be enforced when its general terms are agreed
upon, although not all of the specifics of the contract have been settled. “‘Under
California law, a contract will be enforced if it is sufficiently definite (and this is a
question of law) for the court to ascertain the parties’ obligations and to determine
whether those obligations have been performed or breached.’ [Citation.] ‘To be
enforceable, a promise must be definite enough that a court can determine the scope of
the duty[,] and the limits of performance must be sufficiently defined to provide a
rational basis for the assessment of damages.’ [Citations.] ‘Where a contract is so
uncertain and indefinite that the intention of the parties in material particulars cannot be
ascertained, the contract is void and unenforceable.’ [Citations.] ‘The terms of a contract
are reasonably certain if they provide a basis for determining the existence of a breach
3
The parties argue about whether the relation-back doctrine can save the breach of oral
contract cause of action from being barred by the statute of limitations. “The relation-
back doctrine requires that the amended complaint must (1) rest on the same general set
of facts, (2) involve the same injury, and (3) refer to the same instrumentality, as the
original one.” (Norgart v. Upjohn Co. (1999) 21 Cal. 4th 383, 408-409.) “An amended
complaint relates back to an earlier complaint if the amended complaint is based on the
same general set of facts, even if the plaintiff alleges a different legal theory or new cause
of action.” (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016)
6 Cal.App.5th 1207, 1221-1222.) Our conclusion, ante, that the Vanetiks failed to prove
the breach of oral contract cause of action was filed more than two years after that
contract was breached obviates the need to address this argument.
13
and for giving an appropriate remedy.’ [Citations.] But ‘[i]f . . . a supposed “contract”
does not provide a basis for determining what obligations the parties have agreed to, and
hence does not make possible a determination of whether those agreed obligations have
been breached, there is no contract.’” (Bustamante v. Intuit, Inc., supra, 141
Cal.App.4th at p. 209.)
There is no real dispute about the terms of the oral contract. According to
Broidy, he told Tony he was unhappy with the Terra investment, and Tony promised he
would give Broidy his money back. The e-mails exchanged between Camel and Weed as
4
the legal representatives of Broidy and Tony are consistent with this understanding. The
involvement of the legal representatives in documenting the agreement does not make it
unenforceable for lack of certainty.
Nothing in the record supports the inference that Broidy and Tony did not
intend their oral contract to be binding until a formal writing was executed. (See Beck v.
American Health Group Internat., Inc. (1989) 211 Cal. App. 3d 1555, 1562.) The cases
the Vanetiks cite in support of this argument are federal cases interpreting New York law,
and are not helpful to our analysis. (See Winston v. Mediafare Entertainment Corp. (2d
Cir. 1985) 777 F.2d 78; R.G. Group, Inc. v. Horn & Hardart Co. (2d Cir. 1984) 751 F.2d
69.)
Camel testified that he called Weed after communicating with Broidy, “and
my recollection is that he was aware that our respective clients had reached a settlement
of this transaction.” Camel testified the settlement “was pretty straightforward. We
would give back the stock and our rights, and my client would get his money back. And
they would essentially just walk away from the transaction.” Based on his conversation
with Weed, Camel understood “that Mr. Weed understood that there was an agreement
4
Tony denied there was an agreement to buy back Broidy’s Terra stock, and Yuri
testified Broidy mentioned he was “amenable” to selling back his shares, but that Yuri
was not involved in any discussions about a deal.
14
between Mr. Broidy and the Vanetiks to repay the 750 to Mr. Broidy, and he would
return the stock,” and that “[t]here w[ere] no deal point issues.”
C.
The Admission of Evidence Regarding the Oral Contract Did Not Violate
Evidence Code Section 1152.
The Vanetiks and the Weed defendants filed a motion in limine to “exclude
evidence of settlement negotiations,” specifically e-mails from Broidy and other evidence
of settlement negotiations. Following a hearing, the trial court denied the motion in
limine without prejudice.
As discussed more fully ante, Broidy testified that Tony promised to give
back his money and that Yuri said, “I think my father will make it right”; Camel and
Weed exchanged e-mails regarding a draft settlement agreement; and Broidy e-mailed
Tony regarding Tony’s “repeated assurances that you will buy out my Terra shares at cost
of $750,000.”
Generally, statements made in an attempt to compromise a dispute are
inadmissible at the trial of the dispute. (Caira v. Offner (2005) 126 Cal. App. 4th 12, 35-
36.) The trial court’s decision to admit evidence over an objection based on Evidence
5
Code section 1152 is reviewed on appeal for abuse of discretion. (Hawran v. Hixson
(2012) 209 Cal. App. 4th 256, 296.)
5
As is relevant here, Evidence Code section 1152 provides: “(a) Evidence that a person
has, in compromise or from humanitarian motives, furnished or offered or promised to
furnish money or any other thing, act, or service to another who has sustained or will
sustain or claims that he or she has sustained or will sustain loss or damage, as well as
any conduct or statements made in negotiation thereof, is inadmissible to prove his or her
liability for the loss or damage or any part of it. [¶] . . . [¶] (c) This section does not
affect the admissibility of evidence of any of the following: [¶] . . . [¶] (2) A debtor’s
payment or promise to pay all or a part of his or her preexisting debt when such evidence
is offered to prove the creation of a new duty on his or her part or a revival of his or her
preexisting duty.” (Id., subds. (a), (c)(2).)
15
Evidence relating to the negotiations between Broidy and Tony to resolve
the claims for breach of the securities purchase agreement and for fraud was offered not
to prove those claims, but to establish the separate claim for breach of oral contract.
“Accepting defendants’ evidence that Nicholas and Paul were negotiating a compromise
of a wrongful termination claim asserted by Hawran, the statements of Hawran and
Nicholas at issue were admitted not to demonstrate defendants’ liability for wrongful
termination, but to establish a binding agreement had been reached regarding the terms of
Hawran’s resignation for purposes of a different, subsequent, breach of contract claim.
Evidence Code section 1152 only prohibits ‘the introduction into evidence of an offer to
compromise a claim for the purpose of proving liability for that claim.’” (Hawran v.
Hixson, supra, 209 Cal.App.4th at pp. 296-297.)
III.
THE TRIAL COURT’S FAILURE TO FORCE AN ELECTION OF REMEDIES BY F&M TRUST DID
NOT PREJUDICE THE VANETIKS.
The Vanetiks argue that the trial court erred by entering judgment both on
F&M Trust’s claim for breach of the written securities purchase agreement and its
fraud-based claims.
A leading treatise describes the rule and rationale for the election of
remedies doctrine as follows: “Under traditional doctrine . . . a plaintiff who has two
‘inconsistent’ remedies must ‘elect’ between them and pursue only one of them. . . .
Remedies are traditionally found to be ‘inconsistent’ when one of the remedies results
from ‘affirming’ a transaction and the other results from ‘disaffirming’ a transaction.
Most typically the plaintiff has elected, or is forced to elect, between rescission and
damages remedies, but the election rule may apply to any pair of affirming or
disaffirming remedies . . . .” (2 Dobbs, Law of Remedies (2d ed. 1993) § 9.4,
pp. 603-604.)
16
In this case, F&M Trust did not seek relief based on a disaffirmance of the
securities purchase agreement. The cause of action for breach of written contract sought
damages for the breach of the securities purchase agreement—damages which resulted
from the affirmance of the contract. The causes of action for fraud sought damages due
to F&M Trust’s investment in Terra becoming valueless—damages which also resulted
from the affirmance of the contract. Therefore, the breach of contract and fraud claims
did not present an issue of seeking relief based on theories that both affirmed and
disaffirmed the contract. The election of remedies doctrine was never implicated, and the
trial court did not err in denying the requests to force F&M Trust to make an election of
remedies.
“The doctrine of election of remedies, often invoked in the earlier cases,
has been repeatedly criticized and seems to be falling into disfavor. Later California
decisions illustrating binding election are comparatively rare, and the bar to a remedy is
sustained on the principles of estoppel or res judicata rather than election. ‘At best this
doctrine . . . is a harsh, and now largely obsolete rule, the scope of which should not be
extended.’ [Citations.] [¶] Modern writers have contended that the only sound
explanation for a doctrine of election of ‘remedies’ is that, in some situations, there may
be a required choice of substantive rights. Thus, no person would be entitled to claim
two inconsistent rights [citation], but a person would be free to select and change his or
her alternative remedies or legal theories of recovery, by amending the complaint or by
filing a new action, until such time as one of the inconsistent rights was finally vindicated
by the satisfaction of a judgment or by the application of the doctrine of res judicata or
estoppel.” (3 Witkin, Cal. Procedure (5th ed. 2008) Actions, § 180, pp. 260-261.)
In this case, the jury was asked to make a single determination of the
damages to be awarded to F&M Trust if they found liability under any or all causes of
action. The jury awarded $750,000 in damages. Even if there was some theoretical
difference between the damages resulting from breach of the securities purchase
17
agreement and the damages resulting from fraud, the Vanetiks fail to show how they
were prejudiced by the judgment.
IV.
THE JURY’S VERDICT THAT THE VANETIKS WERE LIABLE FOR BREACHING THE SECURITIES
PURCHASE AGREEMENT WAS SUPPORTED BY SUBSTANTIAL EVIDENCE.
Tony argues that F&M Trust failed to introduce any evidence supporting
holding him liable for breaching the securities purchase agreement. We review the jury’s
factual findings for substantial evidence. (Piedra v. Dugan (2004) 123 Cal. App. 4th 1483,
1489.)
It is undisputed that Tony did not sign the securities purchase agreement.
The securities purchase agreement was signed by Miller on behalf of seller KLEL, and by
Broidy on behalf of buyer F&M Trust. It is further undisputed that Tony was not an
officer or director of KLEL. Broidy testified that the purchase of stock from “KLEL was
just an accommodation.” Broidy further testified: “I was told that the Vanetiks
controlled KLEL, and that Dean Miller was operating as the managing member at their
request.” Broidy had been told Miller was a longtime friend and business associate of the
Vanetiks.
In denying the Vanetiks’ motions for JNOV and for a new trial, the trial
court found: “Nor does their contention that they should not be personally liable for this
claim do any more than fill some of their available fifteen pages. They were the artful
puppeteers who masterminded the scam that relieved the plaintiff of $750,000. That
money was used to personally enrich these defendants and enable them to travel the
world trolling for more big fish. Not a spoonful of dirt was turned in any Russian oil
field. As near as the court can recall, there was no testimony that either of these
defendants ever even visited the oil fields with any of the plaintiff’s money in their
pockets. The jury surely had little trouble concluding that the Vanetiks should be
personally liable for the misdeeds committed behind the screen of some corporate name.”
18
In this case, the jury was correctly instructed regarding the Vanetiks’
liability under theories of partnership and joint venture. Under either of those theories,
the jury could have found the Vanetiks were parties to the securities purchase agreement.
(Deicher v. Corkery (1962) 205 Cal. App. 2d 654, 662 [each partner or joint venturer is the
agent of the others in entering contracts benefitting the partnership or joint venture].)
The jury was not asked in the special verdict whether it had found one or both of those
theories to be true.
V.
THERE WAS SUBSTANTIAL EVIDENCE OF F&M TRUST’S DAMAGES
ON THE FRAUD-BASED CLAIMS.
The Vanetiks argue that F&M Trust failed to prove damages on the fraud
causes of action. We review the jury’s factual findings regarding the amount of
compensatory damages for substantial evidence. (Piedra v. Dugan, supra, 123
Cal.App.4th at p. 1489.)
One who is defrauded in connection with the purchase or sale of property
may “recover the difference between the actual value of that with which the defrauded
person parted and the actual value of that which he received, together with any additional
damage arising from the particular transaction.” (Civ. Code, § 3343, subd. (a).)
The Vanetiks rely primarily on Zinn v. Ex-Cell-O Corp. (1944) 24
Cal. 2d 290, in which the California Supreme Court held that under Civil Code
section 3343, the value of stock is “determined by the worth of the corporate assets, not
the ‘market value’ of the stock.” (Zinn v. Ex-Cell-O Corp., supra, at p. 297.) The
American Law Reports, on which Zinn relies, does not apply to fraud actions similar to
the one in this case. “[T]he measure of damages recoverable for misrepresentations
affecting the value of corporate securities which one is induced to purchase in reliance
upon the representations made is the difference between the true and actual value of the
stocks or bonds purchased (usually determined as of the time of the purchase) and their
19
value had the facts been as represented—the difference between the value thereof in the
actual financial condition of the corporation at the time, and its value had the corporation
been in the condition represented.” (Annot., Measure of Damages for Fraud Inducing the
Purchase of Corporate Securities (1928) 57 A.L.R. 1142, 1143.) The Vanetiks did not
misrepresent to Broidy the value of the stock F&M Trust was purchasing. Rather, the
Vanetiks misrepresented how they would use the money being invested, claiming it
would be used to uncap oil wells, when in fact they intended to use it to pay off existing
debts. (See Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977)
66 Cal. App. 3d 101, 145 [Civ. Code, § 3343 “must be applied realistically so as to give
the defrauded person his actual out-of-pocket loss and where necessary to reach that
result, courts must consider subsequent circumstances”].)
VI.
THE PUNITIVE DAMAGES AWARDS AGAINST YURI AND TONY
6
WERE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.
The jury awarded F&M Trust $1.25 million in punitive damages against
Tony, and $2 million against Yuri. Yuri and Tony argue that the punitive damages
awards must be reversed because F&M Trust failed to offer sufficient evidence of their
7
respective financial conditions. We agree.
6
After oral argument, we asked F&M Trust, Yuri, and Tony to brief nine questions
relating to the law and the evidentiary record on the issue of punitive damages. Each of
these parties filed two extensive supplemental briefs. We have considered all the
arguments made in those briefs.
7
On appeal, Yuri and Tony argue both that (1) F&M Trust failed to present sufficient
evidence of their respective financial conditions, and (2) the punitive damages awards
against them were excessive as a matter of law in light of their financial conditions and
their alleged wrongdoing. Because we reverse the punitive damages awards against both
Yuri and Tony based on the first argument, we need not reach the second.
20
A.
Applicable Law
“Evidence of a defendant’s financial condition is a legal precondition to the
award of punitive damages. [Citation.] We examine the record to determine whether the
challenged award rests upon substantial evidence. [Citations.] If it does not, and if the
plaintiffs had a full and fair opportunity to make the requisite showing, the proper remedy
is to reverse the award.” (Soto v. BorgWarner Morse TEC Inc. (2015) 239
Cal. App. 4th 165, 195.)
“‘The California Supreme Court has declined to prescribe any particular
standard for assessing a defendant’s ability to pay punitive damages [citation], but it has
held that actual evidence of the defendant’s financial condition is essential.’” (Morgan v.
Davidson (2018) 29 Cal.App.5th 540, 551.) “A reviewing court cannot make a fully
informed determination of whether an award of punitive damages is excessive unless the
record contains evidence of the defendant’s financial condition.” (Adams v. Murakami
(1991) 54 Cal. 3d 105, 110 (Adams).) The plaintiff has the burden to establish a
defendant’s financial condition. (Id. at p. 120; Morgan v. Davidson, supra, 29
Cal.App.5th at p. 551.)
While “there is no rigid formula and other factors may be dispositive
especially when net worth is manipulated and fails to reflect actual wealth,” net worth is
often described as “the critical determinant of financial condition.” (County of San
Bernardino v. Walsh (2007) 158 Cal. App. 4th 533, 546.)
A plaintiff seeking punitive damages must provide a balanced overview of
the defendant’s financial condition; a selective presentation of financial condition
evidence will not survive scrutiny. (See Baxter v. Peterson (2007) 150 Cal. App. 4th 673,
676; id. at p. 681 [record “silent with respect to . . . liabilities” is insufficient]; Kelly v.
Haag (2006) 145 Cal. App. 4th 910, 916-917 [no evidence (1) the defendant still owned
the property, (2) of what encumbrances were on the property, and (3) of the value of the
21
property]; Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal. App. 4th 1141,
1151-1153 [evidence only of the defendant’s income or the profits the defendant
wrongfully gained is not meaningful evidence that can support an award of punitive
damages]; Lara v. Cadag (1993) 13 Cal. App. 4th 1061, 1063-1065 [evidence of income
only is insufficient].) We may not infer sufficient wealth to pay a punitive damages
award from a narrow set of data points, such as ownership of valuable assets or a
substantial annual income.
B.
Evidence of Financial Condition of the Vanetiks
F&M Trust’s expert witness testified as to his methods for determining an
individual’s net worth: “It’s just simply the . . . fair value of the individual’s assets that
they own or have control over or rights to . . . less the fair value of the debts or
obligations that they have. That difference, that net amount is considered an entity’s or
an individual’s net worth. [¶] In addition, you also have to look at an individual’s cash
flow or sources of income. For example, an individual may not own any assets because
perhaps they are renting everything that they are using, but they may be generating a lot
of cash flow that would enable them also to pay a judgment.”
F&M Trust’s expert witness testified that Yuri had a net worth of $411,000,
8
and an annual income of $5,925,000. The expert also testified that Tony had a net worth
8
The basis of this opinion was that Yuri was manager of four corporations. Terra paid
him $30,000 annually in compensation for serving on its board of directors. Yuri also
served on the board of directors for several other for profit companies; one of these
business had annual revenues in excess of $500 million. Terra claimed to own oil
reserves worth $11 billion.
Yuri also managed a real estate company that flipped 40 to 50 properties annually. He
was the owner and sole employee of Vanetik International, which had revenues of
$900,000 per year.
Yuri owned multiple expensive cars. Yuri claimed he had sold the bulk of his extensive
wine collection (which included bottles worth $20,000); he maintained wine in lockers in
various restaurants. He also bought, sold, and traded high-end watches, and he currently
22
9
of $1,440,400, and no annual income. Although the expert purported to consider Yuri’s
and Tony’s respective net worths, in actuality he considered only their assets, without any
consideration of liabilities (on those assets or otherwise). As to Yuri’s income, the expert
testified Yuri had an annual income of $5,000,000 from Vanetik International. The
expert obtained that figure from checking and savings account applications submitted by
the company to Wells Fargo in 2007 and in 2012, which claimed the company’s gross
sales were $5,000,000. In addition to the remoteness in time of these applications, their
use of gross sales and their lack of any supporting documentation makes them virtually
useless for determining Yuri’s financial condition at the time of the trial. The expert also
testified that Yuri had an annual income of $925,000 from a company called Dominion
Partners. That figure was based on Dominion Partners’ profits from 2008 through 2010.
Nothing in the appellate record supports that figure.
The expert valued Tony’s home at $900,000, based on the halfway point
between the value on the Zillow Website and the assessed property tax value. The expert
admitted that he did not know who actually owned the home, or whether there were any
owned three such watches with an average value of $30,000 to $40,000; one watch had
been acquired shortly after Broidy invested $750,000 in Terra, at a price of $57,000.
Yuri, on average, charged $48,200 per month on an American Express black card. He
had a social membership at the Shady Hills Golf Club.
9
The basis of this opinion was that Tony was the chairman of the board of Turan
Petroleum, owned Vanetik Engineering Consultants, was a partner in Darby Holdings,
owned an interest in Archer Resources, and was a manager and 20 percent owner of
Presidio Partners; Presidio owned 325 acres of oceanfront property in Hawaii which was
scheduled for residential development. F&M Trust’s expert witness testified that Tony’s
interest in the Hawaiian property was worth $500,000. Tony owned a Mercedes, a
Mazda, and a Porsche, and drove a Bentley on which Archer Industries was paying
$1,600 per month. Tony’s house, sculptures, jewelry, and diamonds were all held in his
wife’s name. The sculptures included six or seven sculptures by Richard MacDonald that
were purchased for $3,000 to $10,000 each. Tony’s personal charges on the American
Express black card averaged $13,540 per month.
23
liens against it. The expert also valued Tony’s interest in a piece of real property in
Hawaii at $500,000, based on a real estate appraisal that was not admitted in evidence.
Finally, the expert offered circumstantial evidence of Yuri’s and Tony’s
incomes based on their monthly American Express statements. Yuri’s expenditures were
$48,200 per month in 2011; Tony’s American Express expenditures were $13,540 per
month at that time. Because those figures were from 2011, four years before trial, they
were not relevant to a determination of Yuri’s and Tony’s current financial conditions.
In short, there was insufficient admissible evidence of Yuri’s and Tony’s
current financial conditions to support the award of punitive damages. F&M Trust had a
full and fair opportunity to make the requisite showing and failed to do so. Accordingly,
we will reverse the awards of punitive damages. There shall be no new trial. (McCoy v.
Hearst Corp. (1991) 227 Cal. App. 3d 1657, 1661.)
C.
Estoppel Theory
F&M Trust argues that Yuri and Tony should be estopped from
complaining about the absence of evidence regarding their financial condition because
they failed to timely produce evidence of their finances. “[I]f a plaintiff is unable to
provide the court with evidence due to the defendant’s failure to comply with discovery
obligations, then punitive damages may be awarded without the requisite evidence.”
(Morgan v. Davidson, supra, 29 Cal.App.5th at p. 551.) Because the burden was on
F&M Trust to present evidence of Yuri’s and Tony’s financial conditions (Adams, supra,
54 Cal.3d at pp. 119-123), it was also incumbent on F&M Trust to show why that burden
should be excused. In the absence of such a showing, we are compelled to conclude that
the award of punitive damages cannot stand.
Initially, we note that F&M Trust did not raise the issue of estopping Yuri
and Tony from challenging the sufficiency of the evidence of their financial conditions
until F&M Trust filed its opposition to the Vanetiks’ JNOV motion.
24
F&M Trust did not file a motion for pretrial discovery of a defendant’s
financial condition pursuant to Code of Civil Procedure section 3295, subdivision (c)
with respect to Yuri or Tony. F&M Trust argues that it sought such evidence through
other means of pretrial discovery, which the Vanetiks “vociferously” fought. F&M Trust
therefore argues Yuri and Tony should be estopped from arguing F&M Trust did not
provide sufficient evidence of their financial conditions. F&M Trust’s argument flies in
the face of Code of Civil Procedure section 3295, subdivision (c), which precludes such
pretrial discovery in the absence of a valid court order. “Section 3295 was enacted . . . to
protect defendants from the premature disclosure of their financial condition when
punitive damages are sought.” (Medo v. Superior Court (1988) 205 Cal. App. 3d 64, 67.)
In Mike Davidov Co. v. Issod (2000) 78 Cal. App. 4th 597, the appellate
court held that a trial court may permit the discovery of a defendant’s financial condition
after liability has been determined, even if the plaintiff did not file a motion for pretrial
discovery of financial condition. (Id. at p. 609.) After the trial court ruled in favor of the
plaintiff in a bench trial, it ordered the defendant to bring records regarding his net worth
to the court the next day. (Id. at p. 603.) The defendant failed to do so, and the trial court
awarded punitive damages to the plaintiff using a multiplier of the compensatory
damages. (Id. at p. 604.) “So long as the trial court allows the defendant sufficient time,
following a determination of liability, to collect his or her financial records for
presentation on the issue of the amount of such damages to be awarded, there is nothing
prejudicial or unfair about using such a process to try the issue of the amount of punitive
damages.” (Id. at p. 609.)
In this case, the trial court did not order Yuri or Tony to produce documents
or other evidence of their financial condition, but rather to make their “best efforts” to
25
provide the requested information before the punitive damages portion of the trial
10
began.
Morgan v. Davidson, supra, 29 Cal.App.5th 540, cited by F&M Trust, is
distinguishable. In that case, the plaintiff served written notice on the defendant’s
attorney for attendance at a court hearing under Code of Civil Procedure section 1987,
subdivision (b), to obtain evidence relating to the defendant’s financial condition.
(Morgan v. Davidson, supra, 29 Cal.App.5th at p. 551.) Because the defendant failed to
appear at the hearing, and therefore failed to comply with his discovery obligations, the
plaintiff was excused from providing evidence of the defendant’s financial condition.
(Id. at p. 552.) But in the present case, F&M Trust’s failure to timely serve any type of
punitive damages discovery on Yuri or Tony means that this estoppel theory is
inapplicable and F&M Trust was not relieved of its burden of offering admissible
evidence of Yuri’s and Tony’s financial conditions.
F&M Trust’s failure to offer substantial evidence of Yuri’s and Tony’s
current financial conditions, therefore, cannot be excused by the Vanetiks’ alleged failure
to provide evidence of their respective financial worth.
Finally, we wish to make clear that we are not holding that F&M Trust’s
decision to not seek discovery under Code of Civil Procedure section 3295 would have
barred it from recovery of punitive damages. We do conclude that F&M Trust did not
offer admissible evidence supporting a punitive damages award and there is no legal
excuse that relieves them from that burden.
10
The hearing at which this “order” was made was not on the record, and there is no
transcript of what was said. The parties, however, do not dispute this was the substance
of what Yuri and Tony were ordered to do in terms of their financial information.
26
VII.
AWARD OF ATTORNEY FEES AGAINST THE VANETIKS
The trial court found that F&M Trust was the prevailing party in the
litigation and awarded it attorney fees. The securities purchase agreement contains a
prevailing party attorney fees clause.
Both Tony and Yuri argue that the awards of attorney fees against them
must be reversed because F&M Trust failed to prove that either Tony or Yuri breached
the securities purchase agreement. If a judgment is reversed, the attorney fee award must
also be reversed. (Friends of the Hastain Trail v. Coldwater Development LLC (2016)
1 Cal.App.5th 1013, 1037.) Neither Tony nor Yuri addresses any specific portion of the
attorney fees award.
Because we affirm the breach of written contract claim against the
Vanetiks, we also affirm the trial court’s award of attorney fees against them. The
reversal of the punitive damages award does not affect the attorney fees analysis, and
neither Yuri nor Tony argues that it does.
VIII.
THE TRIAL COURT PROPERLY GRANTED THE WEED DEFENDANTS’ MOTION FOR JNOV
BASED ON THE LACK OF EVIDENCE OF A CONSPIRACY BETWEEN THE WEED DEFENDANTS
11
AND THE VANETIKS.
The trial court granted the Weed defendants’ motion for JNOV based on
Civil Code section 1714.10. “A motion for judgment notwithstanding the verdict may be
granted only if it appears from the evidence, viewed in the light most favorable to the
party securing the verdict, that there is no substantial evidence in support.” (Sweatman v.
11
In its opening brief, F&M Trust argued that the Weed defendants’ motion was not
filed in compliance with the Code of Civil Procedure. The Weed defendants countered
that the their papers had been properly filed and served, pursuant to Code of Civil
Procedure section 629, and that F&M Trust was citing to outdated statutes and treatises.
F&M Trust’s failure to respond to this argument in its reply brief indicates its concession
that the JNOV motion was properly filed and served.
27
Department of Veterans Affairs (2001) 25 Cal. 4th 62, 68.) On appeal, “we apply the
substantial evidence test to the jury verdict, ignoring the judgment.” (Hasson v. Ford
Motor Co. (1977) 19 Cal. 3d 530, 546, overruled on other grounds in Soule v. General
Motors Corp. (1994) 8 Cal. 4th 548.)
There was no evidence at trial that the Weed defendants made any
fraudulent misrepresentations to Broidy. Therefore, the Weed defendants’ liability
depended on F&M Trust establishing that the Vanetiks and the Weed defendants were
members of a conspiracy. The jury’s verdict shows it found the existence of such a
conspiracy. In granting the Weed defendants’ JNOV motion, the trial court concluded
that a conspiracy involving the Weed defendants could not be established by operation of
Civil Code section 1714.10. The court’s minute order granting the JNOV reads in
relevant part as follows:
“A principal contention of the Weeds is that defendant Richard Weed acted
throughout this extended transaction solely in his capacity as attorney for the Vanetiks
and that there was no basis for making him personally liable for the Vanetiks’ misdeeds.
It is easy to understand why the jury would fault lawyer Weed for this fraud. The simple
fact that he was counsel for the Vanetiks made it easy to find guilt by association. Weed
submitted a very opaque bill to the Vanetiks for his services and thereby apparently got
$50,000 of the funds that the Vanetiks extracted from the plaintiff. Because Weed was
the escrow holder in this transaction, the plaintiffs’ money passed through his hands in
transit to the Vanetiks’ pockets.
“Attorney Weed’s principal attack upon this verdict is based upon the terms
of Civil Code section 1714.10, which limits the liability of an attorney to a third party for
actions taken in the course of his/her representation of a client. In the present case, Weed
was counsel for the Vanetiks. The plaintiff does not contend that Weed ever represented
either the plaintiff bank or its depositor Broidy. In fact, the plaintiff had its own counsel
(David Camel) who negotiated with Weed in an adversarial position while documenting
28
the oil investment. However, that does not necessarily exculpate Weed. Section
1714.10(c) deprives an attorney of any potential shield of this statute ‘where (1) the
attorney has an independent duty to the plaintiff or (2) the attorney’s acts go beyond the
performance of a professional duty to serve the client and involve a conspiracy to violate
a legal duty in furtherance of the attorney’s financial gain.’ The court has concluded that,
in this transaction, Weed came within the protective scope of section 1714.10 and that his
work did not expose him to liability to Broidy or the plaintiff. These points may be
pertinent:
“— The Vanetiks and the plaintiff each had their own attorney. Nothing
here could have led the plaintiff to believe that Weed represented it or Broidy. Weed
owed no independent legal duty to the plaintiff or to Broidy.
“— There was minimal actual contact between Weed and Broidy.
Anything Weed then did or said could only reasonably be understood as actions taken on
behalf of the Vanetiks.
“— The $50,000 fee the Vanetiks paid to Weed was for the latter’s
professional services. As such, it is not evidence of action ‘beyond the performance of a
professional duty . . . in furtherance of the attorney’s financial gain.’ There is no question
that Weed performed professional services for the Vanetiks, for which he was entitled to
be paid. The skimpy nature of his billing may have aroused the plaintiff’s suspicions, but
this is not evidence of actionable misdeeds by Weed. Remember that the Vanetiks could
document virtually none of their dubious expenditures; if they thought that Weed’s bill
was adequate, this is a matter between lawyer and client and not proof of fraud.
“— The court has previously ruled that Weed’s actions as escrow holder in
this doomed stock sale did not violate any of the terms of the parties’ escrow agreement.
He obeyed the instructions that were given him by the parties to the escrow. The plaintiff
could point to no contractual term that he breached.
29
“The sanctity of the professional relationship between lawyer and client has
led the [L]egislature to promulgate section 1714.10. The present claim is barred by that
statute. The Weeds’ motion for judgment notwithstanding the verdict is therefore
granted. One day, even the attorneys representing this plaintiff may invoke this code
section when a zealous adversary challenges their representation of a client who is
alleged—or even proven—to be a scoundrel.”
Civil Code section 1714.10 provides, in relevant part, as follows: “(a) No
cause of action against an attorney for a civil conspiracy with his or her client arising
from any attempt to contest or compromise a claim or dispute, and which is based upon
the attorney’s representation of the client, shall be included in a complaint or other
pleading unless the court enters an order allowing the pleading that includes the claim for
civil conspiracy to be filed after the court determines that the party seeking to file the
pleading has established that there is a reasonable probability that the party will prevail in
the action. . . .
“(b) Failure to obtain a court order where required by subdivision (a) shall
be a defense to any action for civil conspiracy filed in violation thereof. The defense
shall be raised by the attorney charged with civil conspiracy upon that attorney’s first
appearance by demurrer, motion to strike, or such other motion or application as may be
appropriate. Failure to timely raise the defense shall constitute a waiver thereof.
“(c) This section shall not apply to a cause of action against an attorney for
a civil conspiracy with his or her client, where (1) the attorney has an independent legal
duty to the plaintiff, or (2) the attorney’s acts go beyond the performance of a
professional duty to serve the client and involve a conspiracy to violate a legal duty in
furtherance of the attorney’s financial gain.” (Id., subds. (a)-(c).)
Civil Code section 1714.10 is inapplicable in this case for two reasons.
First, F&M Trust did not assert a cause of action against the Weed defendants “arising
from any attempt to contest or compromise a claim or dispute.” (Civ. Code, § 1714.10,
30
subd. (a).) Second, the Weed defendants raised the provisions of Civil Code section
1714.10 for the first time in their motion for JNOV. The express language of
section 1714.10, subdivision (b) requires that the defense be raised in the attorney’s “first
appearance” in the case. The Weed defendants’ failure to do so waived their right to
assert the defense under that statute. (Villa Pacific Building Co. v. Superior Court (1991)
233 Cal. App. 3d 8, 12; see Vallbona v. Springer (1996) 43 Cal. App. 4th 1525, 1535
[applying Villa Pacific’s analysis to Code Civ. Proc. § 425.13].)
Nevertheless, the exceptions set forth in Civil Code section 1714.10,
subdivision (c) are consistent with common law. “An attorney may be held liable for
conspiring with his or her client to commit actual fraud or for the intentional infliction of
emotional distress. [Citations.] But plaintiffs can state a viable claim only if the
attorneys’ actions went beyond their role as attorneys acting on behalf of [their clients].”
(Panoutsopoulos v. Chambliss (2007) 157 Cal. App. 4th 297, 306.)
“To be sure, an attorney, acting in the scope of his or her official duties, and
not for individual gain, can be liable to third parties in certain circumstances. But those
circumstances will always require that the attorney have a duty to the third party. For
example, if an attorney commits actual fraud in his dealings with third parties, the fact
that he did so in the capacity of attorney does not relieve him of liability. [Citations.]
Similarly, where an ‘attorney gives his client a written opinion with the intention that it
be transmitted to and relied upon by the plaintiff in dealing with the client[,] . . . the
attorney owes the plaintiff a duty of care in providing the advice because the plaintiff’s
anticipated reliance upon it is “the end aim of the transaction.”’” (Pavicich v. Santucci
(2000) 85 Cal. App. 4th 382, 395.)
F&M Trust argues that the Weed defendants owed it an independent legal
duty because Weed was the escrow agent for the securities purchase agreement. An
escrow agent is a “fiduciary of the parties to the escrow.” (Summit Financial Holdings,
Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal. 4th 705, 711.) F&M Trust fails to
31
explain how Weed’s role as the escrow agent could create a legal duty in connection with
a separate contract to which the Weed defendants were not parties. F&M Trust also fails
to address the trial court’s contrary ruling after the bench trial in favor of the Weed
defendants and against F&M Trust on the causes of action for breach of fiduciary duty
and breach of the escrow agreement.
The trial court correctly concluded there was insufficient evidence of
(1) the existence of a conspiracy between the Weed defendants and the Vanetiks, (2) an
independent duty to F&M Trust on the part of the Weed defendants, or (3) that the Weed
defendants’ acts went beyond the performance of a professional duty to serve their
clients.
IX.
BECAUSE THE TRIAL COURT PROPERLY GRANTED THE JNOV IN FAVOR OF THE WEED
DEFENDANTS, THE PUNITIVE DAMAGES AWARD AGAINST THEM WAS NECESSARILY
REVERSED. IN ANY EVENT, THE TRIAL COURT WOULD HAVE CORRECTLY REVERSED THE
PUNITIVE DAMAGES AWARDS AGAINST THE WEED DEFENDANTS.
The trial court’s ruling on the JNOV motion resolved all remaining claims
against the Weed defendants; the punitive damages awards against the Weed defendants
were necessarily vacated as well. Even if the JNOV had not been granted in favor of the
Weed defendants, insufficient evidence supported the jury’s award of punitive damages
against them.
The trial court included an analysis of these punitive damage awards: “It is
not now necessary to address a secondary issue raised by the Weeds. But the court will
nevertheless express its view on the award of punitive damages against the Weeds.
Succinctly, there was inadequate evidence to support any such award. The burden rests
upon a claimant to present evidence of the amount that would be a fair and just award of
such damages. No one can confidently claim to know exactly where the line is drawn
between sufficient and insufficient competent evidence of the defendant’s ability to pay
such damages. In regard to the Vanetiks, the court has already determined that the many
32
bits of information cobbled together by the plaintiff presented an adequate picture of their
net worth. Here, the plaintiff fell well short of that dividing line. The failure to get any
pretrial discovery of relevant information or to present such in either the first or second
phase of this trial required the plaintiff’s expert witness to hazard unsupported guesses
about critical facts. This failure of proof undermined the award and would require that it
be vacated.”
F&M Trust’s expert testified that Weed lived in a house worth about
$1.997 million, and earned $223,000 from his law practice in 2014. The expert conceded
he did not know whether Weed owned the house, whether there were any encumbrances
on the house, or whether the value as stated on Zillow was accurate. The expert testified
that Weed & Company, LLP and Weed & Company, L.C. had no value; counsel
conceded during closing argument in the second phase of the trial that the law firms had
“no net worth.”
In Lara v. Cadag, supra, 13 Cal.App.4th at page 1064, the court held that
evidence of the defendant’s income, without more, was “wholly inadequate” to support
an award of punitive damages against the defendant. Absent any admissible evidence
that the house in which Weed lived was actually his property or that it had a net positive
value, the only evidence supporting the punitive damages award was the evidence of
Weed’s annual income. This is legally insufficient.
F&M Trust argues on appeal that net worth need not be proven, and that
“evidence of the profit of ill gotten gains can be enough,” citing Cummings Medical
Corp. v. Occupational Medical Corp. (1992) 10 Cal. App. 4th 1291, 1299-1300. The
problem with this argument is that F&M Trust fails to cite to anything in the appellate
record showing “ill gotten gains” by the Weed defendants.
F&M Trust also argues that the Weed defendants presented no evidence
regarding encumbrances against the property. A plaintiff bears the burden of proving its
claim for punitive damages. (Adams v. Murakami, supra, 54 Cal.3d at p. 119.) F&M
33
Trust failed to do so here, and the Weed defendants had no obligation to counter its
evidentiary offerings. (Evid. Code, § 500; Mathis v. Morrissey (1992) 11 Cal. App. 4th
332, 346; Vaughn v. Coccimiglio (1966) 241 Cal. App. 2d 676, 678.)
X.
THE TRIAL COURT DID NOT ERR IN NONSUITING THE BREACH OF CONTRACT CLAIM
AGAINST THE WEED DEFENDANTS.
At the conclusion of the jury trial, the Weed defendants orally moved for
nonsuit on the breach of written contract claim against them. The Weed defendants
argued that they were not parties to the securities purchase agreement, and therefore
could not be held liable for any breach of that agreement. The trial court granted the
nonsuit motion.
“We review a grant of nonsuit de novo, applying the same standard
governing the trial court. [Citation.] As the Supreme Court has explained, ‘A defendant
is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence
presented by plaintiff is insufficient to permit a jury to find in his favor. [Citation.] “In
determining whether plaintiff’s evidence is sufficient, the court may not weigh the
evidence or consider the credibility of witnesses. Instead, the evidence most favorable to
plaintiff must be accepted as true and conflicting evidence must be disregarded.”’
[Citation.] Consequently, the reviewing court ‘will not sustain the judgment “‘unless
interpreting the evidence most favorably to plaintiff’s case and most strongly against the
defendant and resolving all presumptions, inferences and doubts in favor of the plaintiff a
judgment for the defendant is required as a matter of law.’”’” (Brand v. Hyundai Motor
America (2014) 226 Cal. App. 4th 1538, 1544-1545.)
In its opening brief on appeal, F&M Trust argued that the Weed defendants
and the Vanetiks were members of a joint venture, and that the securities purchase
agreement was a contract reasonably necessary to carry out their enterprise. Missing
from F&M Trust’s argument is a citation to any evidence in the appellate record relevant
34
to whether a joint venture involving the Weed defendants was ever formed. In the
absence of such evidence, the trial court correctly granted the nonsuit motion.
XI.
THE WEED DEFENDANTS’ APPEAL FROM THE JUDGMENT.
The trial court denied the Weed defendants’ motion for a new trial by
operation of law when it failed to rule on the motion after having granted the JNOV
motion. (Code Civ. Proc., § 660, former subd. (c); see generally In re Marriage of Liu
(1987) 197 Cal. App. 3d 143, 149.) The Weed defendants filed a protective appeal from
the judgment. (Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal. App. 4th 212, 240
[order denying motion for new trial is nonappealable and must be reviewed on appeal of
underlying judgment].)
Because we have affirmed the trial court’s order granting the JNOV
motion, we dismiss as moot the Weed defendants’ appeal from the judgment.
XII.
AWARD OF ATTORNEY FEES AGAINST F&M TRUST
AND IN FAVOR OF THE WEED DEFENDANTS.
After the trial court entered judgment in their favor, the Weed defendants
filed a motion for attorney fees. The Weed defendants argued that the securities purchase
agreement and the escrow agreement, both of which they were alleged to have breached,
contained provisions authorizing the recovery of attorney fees by a prevailing party in
litigation involving the agreements. The trial court granted the Weed defendants’ motion.
F&M Trust argues that the award of attorney fees against it and in favor of
the Weed defendants must be reversed if this court reverses the judgment in favor of the
Weed defendants. (Friends of Hastain Trail v. Coldwater Development LLC (2016)
1 Cal.App.5th 1013, 1037 [reversal of judgment requires reversal of attorney fee award].)
F&M Trust does not otherwise challenge the Weed defendants’ entitlement to attorney
fees, nor does it challenge any specific portion of the attorney fees award.
35
Because we have affirmed the trial court’s order granting the JNOV
motion, we also affirm the court’s award of attorney fees against F&M Trust.
DISPOSITION
The awards of punitive damages against Yuri Vanetik and Anatoly Vanetik
are reversed and there shall be no new trial. In all other respects, the April 15, 2016,
judgment in favor of F&M Trust and against Yuri Vanetik and Anatoly Vanetik is
affirmed. Because all parties prevailed in part in appeal Nos. G053688 and G053689, in
the interests of justice no party shall recover costs on those appeals.
The August 29, 2016, postjudgment order awarding attorney fees to F&M
Trust and against Yuri Vanetik and Anatoly Vanetik is affirmed. F&M Trust to recover
costs in appeal No. G054218.
The July 8, 2016, judgment in favor of the Weed defendants and against
F&M Trust is affirmed. The August 29, 2016, postjudgment order awarding attorney
fees to the Weed defendants and against F&M Trust is affirmed. The Weed defendants to
recover their costs on appeal. The Weed defendants’ cross-appeal in appeal
No. G053978 is dismissed as moot.
FYBEL, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
THOMPSON, J.
36
Filed 3/27/19
CERTIFIED FOR PARTIAL PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
FARMERS & MERCHANTS TRUST
COMPANY, as Trustee, etc.,
G053688 (consol. with G053689,
Plaintiff and Respondent, G054218)
v. (Super. Ct. No. 30-2013-00688150)
YURI VANETIK et al., ORDER MODIFYING OPINION AND
GRANTING REQUEST FOR
Defendants and Appellants. PARTIAL PUBLICATION; NO
CHANGE IN JUDGMENT
FARMERS & MERCHANTS TRUST
COMPANY, as Trustee, etc., G053978
Plaintiff and Appellant, (Super. Ct. No. 30-2013-00688150)
v.
RICHARD WEED et al.,
Defendants and Appellants.
Defendants and Appellants Richard Weed, Weed & Co., L.C., and Weed &
Co. LLP and their appellate counsel, White & Reed and Michael R. White, have
requested that our opinion, filed on February 27, 2019, be certified for partial publication.
It appears that portions of our opinion meet the standards set forth in California Rules of
Court, rule 8.1105(c)(2)-(4). The request for partial publication is GRANTED pursuant
to California Rules of Court, rule 8.1110.
This opinion is ordered published in the Official Reports with the exception
of parts I, II, III, IV., V., VII., X., XI., and XII. of the Discussion, and their subparts.
FYBEL, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
THOMPSON, J.
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