Brown v. Zive CA2/5

Filed 4/16/15 Brown v. Zive CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

CHERIE BROWN, B250561

Plaintiff and Appellant, (Los Angeles County Super. Ct.

No. BC440484)

v.

YOUVAL ZIVE et al.,

Defendants and Appellants.

APPEAL from a judgment and orders of the Superior Court of Los Angeles

County, Victor E. Chavez, Judge. Affirmed in part, reversed in part, and remanded.

Cheong, Denove, Rowell & Bennett, John D. Rowell, for Plaintiff and Appellant.

Law Offices of Ilene Kurtzman, Ilene Kurtzman, Andrea Breuer, for Defendants

and Appellants.

________________________

Defendants and appellants Youval Zive and VACA Partnership (VACA), of which

Zive was a partner (collectively appellants), sold a home to plaintiff and respondent,

Cherie Brown. Brown brought several claims against Zive and VACA, including fraud,

negligent misrepresentation, and failure to disclose seller financing. She also brought

claims for legal malpractice and breach of fiduciary duty, as to Zive only.1

Appellants contend that the trial court erred in denying their motions for nonsuit

and judgment notwithstanding the verdict (JNOV) as to Brown’s cause of action for

failure to disclose seller financing, and that there was insufficient evidence to support the

jury’s verdict in favor of Brown and award of damages of $392,500 with respect to that

claim. Appellants argue that the evidence compels the conclusion that seller financing

was timely and properly disclosed, and that the damages award was unlawful and

excessive. Brown cross-appeals the trial court’s grant of nonsuit as to the fraud, negligent

misrepresentation, legal malpractice, and breach of fiduciary duty causes of action, and

the trial court’s ruling that there was no basis for an award of punitive damages.

We hold that substantial evidence supports a damages award of only $325,283 on

Brown’s failure to disclose seller financing claim and reduce the award accordingly. We

reverse the trial court’s order of nonsuit in favor of appellants on the fraud cause of

action, as well as its related ruling that there is no basis for the jury’s consideration of an

award of punitive damages as to the fraud cause of action. We remand for limited retrial

on Brown’s fraud claim. In all other respects, we affirm the judgment as modified.

FACTS2

1 Pacific

Holdings, another partnership in which Zive was a partner, was also

named as a defendant, but is not a party to this appeal.

2 Inaccordance with the applicable standards of review, we recite the facts in a

light most favorable to Brown.

2

On July 20, 2006, Brown entered into a purchase agreement with VACA for a

furnished home. The price was $1,207,500, including $57,000 for furniture.

Brown had never prequalified for a loan, owned a house, or had any dealings in

real estate transactions. She viewed the house for the first time on July 20, 2006. VACA

held title to the house, and the transaction was conducted by Zive. Brown had not

previously met Zive. Zive represented to Brown that he was a lawyer and a real estate

expert. He said that he had been involved in the sale and purchase of numerous houses,

and would represent them both and “do all of the transaction.” Zive questioned Brown

concerning her employment and salary, and proposed seller financing. Zive said his

payments on his mortgage were approximately $2,700 to $2,800 per month, and that

although the rate was variable the payments would not increase much over $200 to $300.

Zive would obtain a wrap-around note so that Brown could take over his mortgage.

Brown agreed, and said she could make the payments.

Zive handled the paperwork for the transaction. The purchase agreement provided

for a $25,000 cash deposit, which was nonrefundable and payable directly to Zive.

Brown paid the $25,000 the night she met Zive. Brown spent approximately 20 minutes

with Zive prior to signing the purchase agreement. The transaction did not go through

escrow, despite provisions for escrow in the purchase agreement. Brown’s entire down

payment was to be $155,000, also payable directly to Zive. Zive provided Brown with a

copy of the purchase agreement and a buyer’s inspection advisory. The purchase

agreement stated that there would be seller financing.

On July 31, 2006, Zive took out a second mortgage on the house for $46,142.

On November 1, 2006, Zive provided Brown with a seller financing disclosure

statement. The statement utilized a standard form that Zive had obtained from a lawyer

he consulted. Zive filled out the form by hand. The disclosure statement showed that

there were two mortgages on the house which would mature in 2036, with balances of

$993,843 and $40,000, respectively. It stated that the rates were “variable,” but did not

provide the specific interest rates or disclose any terms related to the interest rates. No

copies of the notes or further descriptions of their terms were attached. The disclosure

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statement advised that the credit extended provided for deferred interest, and warned that

if refinancing was required it might be difficult or impossible to obtain. It advised that

the transaction involved the use of an all-inclusive (wrap-around) deed of trust providing

that in the event of an acceleration of any senior encumbrance, Brown would be

responsible for payment. It did not disclose the limit on the deferred interest allowed

before a change in interest rates would occur on the first loan, or address the

ramifications of negative amortization. Zive told Brown that the second mortgage would

require that she pay $200 to $300 more per month. Brown signed the disclosure

statement.

As of November 1, 2006, Brown had paid $125,000 toward the purchase price of

the house, and made one payment of $3,030 on the underlying mortgage. She took

possession of the house, but because she had not made the full down payment, transfer of

title was delayed until the full down payment was made.

Title was transferred from VACA to Brown on January 3, 2007. Brown signed an

all-inclusive purchase money promissory note dated December 30, 2006, in the amount

of either $1,072,000 or $1,082,000, in favor of Zive.3 The note had a maturity date of

March 1, 2008. It stated that the total principal included a March 31, 2006 promissory

note given by Zive with an original amount of $980,000, and a July 31, 2006 promissory

note given by Zive with an original amount of $46,142. The note had an interest rate of

7.2 percent, which was “variable.” Beginning November 1, 2006, loan payments of

$3,030 per month “or more” were due at the start of each month. A late fee of 6 percent

would be assessed for payments made after the 10th of the month. The note provided for

a principal payment of $20,000, due December 31, 2006, with a late fee of $3,000 if

payment was more than 10 days late. An interest rate of 18 percent would be assessed

beginning January 10, 2007. The second page of the note provided that Brown would

pay all principal and interest installments due on the note that were due under the terms

3 The note references both amounts.

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of the underlying mortgages. There was no additional information about the terms of the

mortgages.

Per Zive’s instructions, Brown made note payment checks payable to Washington

Mutual, which held the underlying mortgages, and delivered the checks to Zive’s office.

Zive would then deliver the checks to Washington Mutual.

On January 4, 2007, Brown executed a second note secured by deed of trust in the

amount of $11,283. A single payment of $11,283 was due by March 1, 2008. No interest

would be charged if payment was timely. In the event of late payment the balance would

bear interest at a rate of 16 percent. Brown timely paid the second note.

Brown received a letter sent from Washington Mutual to Zive dated March 22,

2007. The letter stated that the payment on the first mortgage had been adjusted to

$2,906.86, based on an interest rate of 7.68 percent, there was a remaining term of 468

months, and projected principal balance of $1,015,681.13. The letter noted that the new

payment was determined by the payment amount adjustment limitation provision in the

promissory note. Without the limitation, the new payment would have been $6,848.38.

The letter contained a list of prior interest rate adjustments. The new payment rate would

take effect on May 1, 2007. A written note on the letter in Zive’s handwriting requested

that Brown make an additional $203 payment to add to the May payment, and also

requested that checks in the amount of $2,906 be prepared for June through August. This

was the first communication that Brown received from Zive which informed her of the

interest rate on the first loan.

On March 2, 2008, Zive and Brown executed an addendum to the all-inclusive

purchase money promissory note, which modified the note and extended the due date to

March 1, 2010. The addendum provided for additional payments totaling $30,000 on a

specified monthly schedule. The addendum stated that it would be void if Brown failed

to make timely payments or otherwise breached any of the terms of the note and/or deed

5

of trust, and that Zive would then have the option to file a notice of default.4

In a letter dated August 18, 2008, Washington Mutual informed Zive that it would

recast the first mortgage loan, increasing the payment to $5,380.89 as of February 2009,

unless the total amount of interest due was paid monthly. The previous payments made

on the loan were for less than the total amount of interest due. All unpaid interest had

been added to the principal, and the principal was soon to reach its limit. Only payments

of the full interest would prevent the recast.

In December 2008, Zive communicated to Brown that the first loan would be

recast to $5,380.89, although there would be no change in the payment due on the second

loan. Brown was distraught. Zive told her not to worry about the increase, but to

continue to make her regular payments to him. He assured her that he would attempt to

get a loan modification so that the payments would remain at around $3,000 per month.

Brown continued to make the payments in the amount she had previously.

Washington Mutual stopped accepting Brown’s checks on the underlying first

mortgage after the recast took effect in February 2009, because the payments were less

than the total monthly amount due. It continued to accept Brown’s payment on the

underlying second mortgage because payment was made in full. Zive deposited the

payments on the first mortgage into an escrow account. Brown was unaware that the

payments were not being accepted, and continued to make payments.

In September 2009, Zive asked Brown to meet him for dinner, and suggested that

she short-sell the house. An outside investor would purchase it, and the house would

come back to Zive. He would then try to get Brown back into possession of the house.

Brown refused. Zive instructed her to keep making payments.

A few days later, there was a notice of an auction sale on Brown’s door. She

called Zive, who assured her that he would get the sale delayed. Brown was confused

because she had not missed any payments. This was the first time she heard that her

4In her opening brief, Brown states that she executed the addendum, but the copy

admitted into evidence bears only Zive’s signature.

6

house was in foreclosure. Zive told Brown to contact a broker to whom he had paid

$4,000 to work on a loan modification. When Brown contacted the broker, he wanted an

additional $4,000.5

Brown stopped making payments on the promissory note and addendum in

September 2009. Since 2006, she had made a total of $115,000 in monthly payments.

She had also paid the full $155,000 down payment, paid $19,000 in payments per the

2008 addendum to the all inclusive purchase money promissory note, and made

approximately $25,000 in property tax payments to Zive. She made unspecified extra

payments on the second underlying mortgage, security alarm payments, insurance

payments, and payments to a gardener for an unspecified period of time. Brown

continued to live in the house after she ceased making payments under the note and

addendum.

Brown received a foreclosure notice from Zive. The house was auctioned on

September 12, 2011. Zive took the house as the beneficiary on the note. He transferred

ownership to Phoenix Realty Investment, LLC (PRI), in which he held 98 percent

ownership. PRI evicted Brown, and sued her for unlawful detainer, resulting in a

judgment against her for $11,000.

PROCEDURAL HISTORY

Brown brought suit against Zive, VACA, and Pacific Holdings, on June 25, 2010.

Relevant here, at the time of trial, the operative second amended complaint alleged fraud,

negligent misrepresentation, and failure to disclose seller financing as to VACA and

Zive, and legal malpractice and breach of fiduciary duty as to Zive alone.

After Brown concluded her case-in-chief, appellants moved for nonsuit.

Following oral argument by the parties, the trial court granted nonsuit in favor of

5 It does not appear from the record that Brown paid the $4,000.

7

appellants on Brown’s causes of action for fraud and negligent misrepresentation, and in

favor of Zive on Brown’s causes of action for legal malpractice and breach of fiduciary

duty. It also ruled there was insufficient basis to support an award of punitive damages

as to Brown’s fraud claim. The court denied the motion with respect to Brown’s cause of

action for failure to disclose seller financing, finding that there was sufficient evidence

for the issue to be presented to the jury.

Appellants were represented by counsel at trial. Brown appeared in pro per. On

May 1, 2013, the failure to disclose seller financing cause of action, and another cause of

action for conversion against Zive only, were submitted to the jury. Before the case was

submitted to the jury, the trial court directed the parties to confer on jury instructions and

special verdict forms. To the extent that there was disagreement, the trial court accepted

the relevant jury instructions and special verdict form requested by appellants. The jury

was instructed that Brown claimed general and special damages (CACI No. 3900), that

monies paid by Brown and special damages were recoverable only once under the two

remaining legal theories (CACI No. 3934), and that the economic damages Brown

claimed included mortgage payments, down payment, deed payment, Zive’s note, and

storage (CACI No. 3903). The special verdict form did not provide for itemization of the

damages award, and did not require the jury to find that respondent’s failure to disclose

seller financing, if any, was willful. The jury found in favor of Brown with respect to the

failure to disclose seller financing cause of action, and awarded her a total of $392,500 in

damages. It found in favor of Zive on the conversion cause of action.

On May 8, 2013, appellants moved for JNOV. The trial court denied the motion

and entered judgment on June 13, 2013. Appellants made an ex parte application for

clarification on the basis that the trial court did not include its reasoning in its minute

order denying JNOV. The trial court took the matter under submission, and issued its

order denying the ex parte application on June 28, 2013.

Appellants timely appealed, and Brown cross-appealed.

8

DISCUSSION

Standards of Review

A nonsuit is properly granted only when, disregarding conflicting evidence, giving

plaintiff’s evidence all the value to which it is legally entitled, and indulging in every

legitimate inference that may be drawn from the evidence, there is insufficient evidence

to support a verdict in the plaintiff’s favor. (Carson v. Facilities Development Co. (1984)

36 Cal.3d 830, 838-839 (Carson).) The de novo standard of review applies to an order

granting nonsuit. (CC–California Plaza Associates v. Paller & Goldstein (1996) 51

Cal.App.4th 1042, 1050-1051.)

“When considering a claim of insufficient evidence on appeal, we do not reweigh

the evidence, but rather determine whether, after resolving all conflicts favorably to the

prevailing party, and according the prevailing party the benefit of all reasonable

inferences, there is substantial evidence to support the judgment.” (Scott v. Pacific Gas

& Electric Co. (1995) 11 Cal.4th 454, 465, disapproved on other grounds in Guz v.

Bechtal Nat. Inc. (2000) 24 Cal.4th 317, 336.)

A judgment notwithstanding the verdict is proper only if there is no substantial

evidence to support the verdict and the evidence compels a judgment in favor of the

moving party as a matter of law. (Code Civ. Proc., § 629; Sweatman v. Department of

Veterans Affairs (2001) 25 Cal.4th 62, 68 (Sweatman).) The trial court must view the

evidence in the light most favorable to the verdict. (Sweatman, supra, at p. 68.) On

appeal, we must independently determine whether substantial evidence supports the

verdict and whether the moving party is entitled to judgment in its favor as a matter of

law. (Ibid.)

Failure to Disclose Seller Financing

Appellants contend that the trial court erred in denying their motion for nonsuit

9

with respect to Brown’s cause of action for failure to disclose seller financing, the

evidence is insufficient to support the jury’s verdict, and the trial court erred in denying

its motion for JNOV. These claims lack merit.

Civil Code section 29566 provides as follows: “In a transaction for the purchase

of a dwelling for not more than four families in which there is an arranger of credit,

which purchase includes an extension of credit by the vendor, a written disclosure with

respect to that credit transaction shall be made . . . .” Section 2963 outlines specific

disclosures that must be made, including:

“(b) A description of the terms of the promissory note or other credit

documents or a copy of the note or other credit documents.

“(c) Insofar as available, the principal terms and conditions of each

recorded encumbrance which constitutes a lien upon the property which is

or will be senior to the financing being arranged, including the original

balance, the current balance, the periodic payment, any balloon payment,

the interest rate (and any provisions with respect to variations in the interest

rate), the maturity date, and whether or not there is any current default in

payment on that encumbrance.

“(d) A warning that, if refinancing would be required as a result of lack of

full amortization under the terms of any existing or proposed loans, such

refinancing might be difficult or impossible in the conventional mortgage

marketplace.

“(e) If negative amortization is possible as a result of any variable or

adjustable rate financing being arranged, a clear disclosure of this fact and

an explanation of its potential effect.”

6 All further statutory references are to the Civil Code, unless stated otherwise.

10

Such disclosure must be made “as soon as practicable, but before execution of any note

or security documents.” (§ 2959.)

Here, Brown testified that she received and signed a California Association of

Realtors Seller Financing Disclosure Statement for the first time on November 1, 2006.

The disclosure statement provided the amounts and maturity dates of the underlying

loans, but disclosed only that the interest rates were “variable.” It did not contain the

specific interest rates or disclose any related provisions. The disclosure statement

advised that the credit extended to Brown provided for deferred interest, and warned that

if refinancing was required it might be difficult or impossible to obtain. It did not

disclose the limit on the deferred interest allowed before a change in interest rates would

be triggered on the first loan, or address the ramifications of negative amortization.

Brown testified that prior to providing her with the disclosure statement, Zive assured her

that her payments would not increase much over $200 to $300 per month, when in fact

they increased by over $2,000 a month.

Given the numerous omissions from the disclosure statement and Zive’s

misstatement regarding the monthly payments, substantial evidence supports the

conclusion that the disclosure was inadequate. Section 2963 requires that the loans be

described or attached, that the interest rates be specified, that the buyer be informed of

any provisions with respect to the interest rate, and be warned of the consequences of

negative amortization. Brown produced substantial evidence that none of these

disclosures were made prior to the execution of the note, and that the assurances she was

given were inaccurate, at best.

Additionally, Brown signed the purchase agreement, and made a partial down

payment of $25,000 on July 20, 2006. VACA’s expert witness testified that the

disclosure statement should have been given to her at that time or within a reasonable

time afterwards. Zive was making payments on the first loan when the purchase

agreement was executed, and was aware of the terms. He took the second loan out after

the purchase agreement was executed, and was ostensibly aware of its terms as well.

Despite this, Zive did not make any disclosures until several months later, on November

11

1, 2006. By that date, Brown had paid $125,000 toward the purchase price of the house,

made one payment of $3,030 on the underlying mortgage, and taken possession of the

house. Zive did not disclose further details of the loans until sometime after March 22,

2007, long after “execution of any note or security documents.” There is substantial

evidence to support the conclusion that the disclosures were not made “as soon as

practicable,” as required under section 2959.

Damages for Failure to Disclose Seller Financing

Section 2965 provides that actual damages may be awarded when a party willfully

fails to make required seller financing disclosures under section 2963.

Appellants contend that Brown should not have been awarded damages for failure

to disclose seller financing because the jury never found that they willfully failed to

disclose the statutorily required information. Alternately, appellants argue that the award

of $392,500 in damages was excessive. We conclude that appellants forfeited the

argument that damages in any amount are improper, but agree that damages must be

reduced to those supported by substantial evidence.

With respect to the first argument, appellants requested all instructions pertaining

to disclosure of seller financing and the special verdict on that cause of action. If

appellants wanted the jury to be instructed that a finding of willfulness was required to

impose liability, they had ample opportunity to request such an instruction, but failed to

do so. Appellants instead drafted and submitted instructions and a special verdict that

omitted any mention of willfulness and submitted them to the trial court. Appellants

cannot now complain about the instructions or special verdict form that they requested.

(Transport Ins. Co. v. TIG Ins. Co. (2012) 202 Cal.App.4th 984, 1000; Stevens v. Owens-

Corning Fiberglas Co. (1996) 49 Cal.App.4th 1645, 1653.)

As to the question of the amount of damages, the testimony of a single witness,

including the party, is ordinarily sufficient. (Jensen v. BMW of N. America, Inc. (1995)

35 Cal.App.4th 112, 134.) As appellants concede, Brown testified that she made

12

$115,000 in payments to Zive on the note, a $155,000 down payment, an $11,283

additional payment to Zive, and $25,000 in property taxes to Zive, for a total of

$306,283. Brown further testified that she made $19,000 in payments per the 2008

addendum to the all inclusive purchase money promissory note in addition to her

mortgage payment. She therefore provided substantial evidence of damages in the

amount of $325,283.

There is no basis for reducing the amount of damages based on the rent Brown

“should have paid” while living in the house or elsewhere, as appellants urge. The

burden of proving facts in mitigation of damages rests upon the defendant. (Jackson v.

Yarbray (2009) 179 Cal.App.4th 75, 97; Carnation Co. v. Olivet Egg Ranch (1986) 189

Cal.App.3d 809, 817-818, and cases cited therein.) In this case, appellants offered no

evidence by which the jury could estimate what Brown’s rental costs would have been,

and did not meet their burden.

Nor is there any basis for concluding that there was substantial evidence of other

expenses, as Brown argues. It does not appear from the record that Brown made more

than $25,000 in tax payments. Additionally, Brown offered no evidence that would allow

the jury to estimate the costs for which she gave no exact amounts or payment duration,

including extra payments on the second underlying mortgage, security alarm payments,

insurance payments, and payments to a gardener.

Finally, a plaintiff must prove a causal connection between the damages she seeks

and the defendant’s wrongful conduct, and demonstrate that the detriment she suffered

was a natural and probable consequence of the defendant’s conduct. (Chaparkas v. Webb

(1960) 178 Cal.App.2d 257, 260.) In this case, the unlawful detainer judgment was not a

natural and probable consequence of the failure to disclose seller financing, it was the

natural and probable consequence of Brown’s choice to remain in the house for two years

after it had been foreclosed.

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Fraud and Negligent Misrepresentation

Brown contends that the trial court erred in granting appellants’ motion for nonsuit

with respect to her claims for fraud and negligent misrepresentation. We agree.

Generally, “‘“[t]he elements of fraud, which give[ ] rise to the tort action for

deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b)

knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d)

justifiable reliance; and (e) resulting damage.”’ [Citation.]” (Small v. Fritz Companies,

Inc. (2003) 30 Cal.4th 167, 173 (Small).) Additionally, to establish fraud through

nondisclosure or concealment of facts, it is necessary to show the defendant “was under a

legal duty to disclose them.” (Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735.)

Claims for negligent misrepresentation deviate from this set of elements. “The

tort of negligent misrepresentation does not require scienter or intent to defraud.

[Citation.] It encompasses ‘[t]he assertion, as a fact, of that which is not true, by one who

has no reasonable ground for believing it to be true’ [citation], and ‘[t]he positive

assertion, in a manner not warranted by the information of the person making it, of that

which is not true, though he believes it to be true’ [citations].” (Small, supra, 30 Cal.4th

at pp. 173-174.)

Here, the first and last elements of fraud and negligent misrepresentation have

been established. There is more than sufficient evidence to support the conclusion that

appellants failed to disclose seller financing, which they were legally required to do, and

that Brown was damaged as a result.

There was also sufficient evidence to support a finding of scienter. Zive was

paying on the first mortgage at the time the parties entered into the purchase agreement,

and took out the second mortgage soon thereafter. He had access to the loan statements,

and thus was either aware (fraud) or should have been aware (negligent

misrepresentation) that his statements about the first mortgage payment were untrue and

that the information he provided was woefully incomplete.

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The requirement of intent to defraud or induce reliance to establish liability for

fraud was also supported by sufficient evidence to support a verdict in Brown’s favor.

Brown produced evidence that Zive knew she was making payments that would not cover

the interest on the first mortgage, and that the principal limit would be reached, causing

the loan to be recast. Despite this, he urged her to keep making her regular payments,

and assured her that making payment would keep the house in her possession.

Finally, Brown presented evidence that she justifiably relied on Zive’s

misrepresentations. To establish reliance was justifiable, a plaintiff must show the

“‘circumstances were such to make it reasonable for [her] to accept [the] defendant’s

statements without an independent inquiry or investigation.’ [Citation.] The

reasonableness of the plaintiff’s reliance is judged by reference to the plaintiff’s

knowledge and experience. [Citation.]” (OCM Principal Opportunities Fund v. CIBC

World Markets Corp. (2007) 157 Cal.App.4th 835, 864 (OCM).) “Generally, ‘[a]

plaintiff will be denied recovery only if his conduct is manifestly unreasonable in the

light of his own intelligence or information. It must appear that he put faith in

representations that were “preposterous” or “shown by facts within his observation to be

so patently and obviously false that he must have closed his eyes to avoid discovery of

the truth.” [Citation.] Even in case of a mere negligent misrepresentation, a plaintiff is

not barred unless his conduct, in the light of his own information and intelligence, is

preposterous and irrational. [Citation.]’ [Citation.]” (Id. at p. 865; see Beckwith v. Dahl

(2012) 205 Cal.App.4th 1039, 1067 (Beckwith).) Reasonable reliance is an inherently

factual inquiry rarely amenable to resolution as a matter of law. As the California

Supreme Court explained in Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226,

1239: “‘Except in the rare case where the undisputed facts leave no room for a

reasonable difference of opinion, the question of whether a plaintiff’s reliance is

reasonable is a question of fact.’ [Citations.]”

Brown testified to her complete lack of experience in real estate transactions, and

in her trust in Zive. “[T]he law is clear that ‘“‘[n]o rogue should enjoy his ill-gotten

plunder for the simple reason that his victim is by chance a fool.’”’ [Citation.] . . . .

15

‘“‘Nor is a plaintiff held to the standard of precaution or of minimum knowledge of a

hypothetical, reasonable man.’ [Citation.]”’” (Beckwith, supra, 205 Cal.App.4th at p.

1067; see also Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1666-1667;

Hartong v. Partake, Inc. (1968) 266 Cal.App.2d 942, 964-965 (Hartong).) In light of

Brown’s circumstances and inexperience, it would not be irrational for her to rely on the

disclosure statement. Brown testified that Zive told her he was a lawyer and real estate

expert. It would not be unreasonable for Brown to expect Zive to know what disclosures

were necessary and to timely make all required disclosures. There is substantial evidence

that the disclosure statement was incomplete in material respects, and a jury could

reasonably find that, considering Brown’s naiveté, her failure to investigate would not be

“preposterous.” (OCM, supra, 157 Cal.App.4th at p. 865.) Nothing on the face of the

disclosure statement was “so patently and obviously false” that she must have “‘closed

[her] eyes to avoid discovery of the truth.’” (Ibid.) Moreover, Zive’s false statements

regarding the possible fluctuation in interest rates on the first mortgage were plausible,

particularly in light of the other material information and warnings that were omitted

from the disclosure statement. (Hartong, supra, at pp. 965-966 [“If the defendant makes

a plausible explanation of fact, the plaintiff is not required to further investigate”].)

Taking into account the highly factual nature of the inquiry, there is sufficient evidence to

support a finding that Brown’s reliance was justifiable.

Because Brown provided sufficient evidence of all the elements of fraud and

negligent misrepresentation to support a verdict in her favor, the trial court erred in

granting nonsuit as to both causes of action. The error was harmless with respect to

Brown’s negligent misrepresentation cause of action, however, because the jury awarded

the maximum amount of actual damages supported by substantial evidence. (Cal. Const.,

art. VI, § 13; Code Civ. Proc., § 475 [“No judgment, decision, or decree shall be reversed

or affected by reason of any error, ruling, instruction, or defect, unless it shall appear

from the record that such error, ruling, instruction, or defect was prejudicial . . . and that a

different result would have been probable if such error, ruling, instruction, or defect had

not occurred or existed”].) A plaintiff may only recover actual damages for negligent

16

misrepresentation. (Fragale v. Faulkner (2003) 110 Cal.App.4th 229, 236-237.) Brown

cannot be prejudiced, because no other damages are available to her.

With respect to Brown’s fraud cause of action, section 3294, subdivision (a)

allows the recovery of punitive damages “[i]n an action for the breach of an obligation

not arising from contract, where it is proven . . . the defendant has been guilty of

oppression, fraud, or malice . . . .” As appellants concede, Brown’s complaint requested

punitive damages with respect to her fraud claim. We cannot conclude that the grant of

nonsuit as to her fraud claim was harmless. Brown is entitled to present her fraud claim

to the jury, and to recover punitive damages, if warranted by the evidence.

Legal Malpractice and Breach of Fiduciary Duty

Brown contends that the trial court erred in granting appellants’ motion for nonsuit

with respect to her legal malpractice and breach of fiduciary duty claims. Appellants

argue that the claims fail as a matter of law, and that Brown failed to properly state a

cause of action for punitive damages with respect to either claim.

Appellants are correct that Brown did not state a cause of action for punitive

damages as to the legal malpractice claim in the operative complaint. Moreover, she

failed to argue that punitive damages should adhere to the legal malpractice claim in her

opening brief, thus waiving the issue on appeal. (People v. Baniqued (2000) 85

Cal.App.4th 13, 29.) As we discussed above, Brown was awarded the maximum amount

of actual damages supported by substantial evidence, which are the only damages

available to her relating to her legal malpractice cause of action. As a consequence of

Brown’s failure to state a cause of action for punitive damages, any error that the trial

court might have made in granting nonsuit on the legal malpractice claim would be

harmless, because it would not affect Brown’s recovery. (Cal. Const., art. VI, § 13; Code

Civ. Proc., § 475.)

However, Brown’s contention that the trial court erred in granting nonsuit on her

breach of fiduciary duty cause of action cannot be resolved on this basis. Brown’s

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complaint stated a cause of action for punitive damages with respect to her claim for

breach of fiduciary duty, and section 3294, subdivision (a) allows for the recovery of

punitive damages as to that cause of action, if appropriate. (Scott v. Phoenix Schools, Inc.

(2009) 175 Cal.App.4th 702, 715.)

As stated above, in resolving the issue of whether nonsuit was properly granted,

we “must give . . . plaintiff’[s] evidence all the value to which it is legally entitled, . . .

indulging every legitimate inference that may be drawn from the evidence . . . .”

(Carson, supra, 36 Cal.3d at pp. 838-839.) “‘The rules governing the granting of a

nonsuit, however, do not relieve the plaintiff of the burden of establishing the elements of

his case. The plaintiff must therefore produce evidence which supports a logical

inference in his favor and which does more than merely permit speculation or conjecture.

[Citation.] If a plaintiff produces no substantial evidence of liability or proximate cause

then the granting of a nonsuit is proper. [Citation.]’ (Jones v. Ortho Pharmaceutical

Corp. (1985) 163 Cal.App.3d 396, 402.)” (Alvarez v. Jacmar Pacific Pizza Corp. (2002)

100 Cal.App.4th 1190, 1209.)

“‘The elements of a cause of action for breach of fiduciary duty are the existence

of a fiduciary relationship, its breach, and damage proximately caused by that breach.

[Citation.]’ [Citation.]” (Knox v. Dean (2012) 205 Cal.App.4th 417, 432.) A fiduciary

duty may arise as a consequence of either a fiduciary relationship or a confidential

relationship. “‘“[A] fiduciary relationship is a recognized legal relationship such as

guardian and ward, trustee and beneficiary, principal and agent, or attorney and client . . .

whereas a ‘confidential relationship’ may be founded on a moral, social, domestic, or

merely personal relationship as well as on a legal relationship.”’ [Citations.]” (Persson

v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1160.) “‘The essence of a

fiduciary or confidential relationship is that the parties do not deal on equal terms because

the person in whom trust and confidence is reposed and who accepts that trust and

confidence is in a superior position to exert unique influence over the dependent party.’

[Citation.]” (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 271

(Richelle L.).)

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Brown contends that she presented evidence of both a fiduciary relationship and a

confidential relationship between herself and Zive sufficient to withstand a motion for

nonsuit. We disagree.

Brown first asserts that she and Zive had a fiduciary relationship as attorney and

client. “‘“Except for those situations where an attorney is appointed by the court, the

attorney-client relationship is created by some form of contract, express or implied,

formal or informal. [Citation.]” [Citations.] . . . [¶] “An implied contract is one, the

existence and terms of which are manifested by conduct.” [Citation.] “The distinction

between express and implied in fact contracts relates only to the manifestation of assent;

both types are based upon the expressed or apparent intention of the parties.” [Citation.]

[¶] . . . [¶] . . . [I]n determining whether an attorney-client relationship exists . . . primary

attention should be given to whether the totality of the circumstances, including the

parties’ conduct, implies an agreement by the . . . attorney not to accept other

representations adverse to the [putative client’s] personal interests. (See Friedman, The

Creation of the Attorney-Client Relationship: An Emerging View [(1986)] 22 Cal.

W[estern] L.Rev. [209,] 231 suggesting that one of the most important facts involved in

finding an attorney-client relationship is “the expectation of the client based on how the

situation appears to a reasonable person in the client’s position.”) [¶] . . . [¶] The

question of whether an attorney-client relationship exists is one of law. [Citation.]

However, when the evidence is conflicting, the factual basis for the determination must

be determined before the legal question is addressed. [Citation.]’ [Citation.]”

(Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th

1399, 1404 (Strasbourger).) Because we review the grant of a motion for nonsuit, we do

not consider conflicting evidence, but rather resolve all conflicts in favor of Brown.

Here, the evidence of an attorney/client relationship consisted of Brown’s

testimony that Zive told her he was an attorney and that he would represent them both

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and handle the transaction.7 Even assuming the truth of Brown’s testimony, and drawing

all inferences in her favor, the totality of the circumstances do not imply an agreement in

which Zive would not “accept other representations adverse to [Brown’s] personal

interests,” nor would a reasonable person believe that to be the case. (Strasbourger,

supra, 69 Cal.App.4th at p. 1404.) It is undisputed that Brown met Zive approximately

20 minutes before she signed the purchase agreement. They met at the residence—not a

law office—for the sole purpose of transacting for the purchase of a house. As buyer and

seller, their postures were clearly adverse. Zive would unquestionably benefit from

selling the property to Brown and arranging financing, and could be expected to do so on

terms favorable to himself. Moreover, the buyer’s inspection advisory provided to

Brown by Zive that evening warned repeatedly that the interests of buyer and seller were

adverse. Finally, although neither a written contract nor compensation is required to

establish an attorney/client relationship, the absence of both militate against the

conclusion that Zive intended to act in Brown’s best interests rather than in his own.

Absent payment and written obligation, he had no obvious motivation to act as an

attorney representing Brown’s best interests. The trial court did not err in determining

that there was no attorney/client relationship as a matter of law.

“‘A “confidential relationship,” as that term is used in the cases, refers to an

unequal relationship between parties in which one surrenders to the other some degree of

control because of the trust and confidence which he reposes in the other. When a

confidential relationship is found to exist, the one in whom confidence was reposed may

be held to a higher standard of disclosure and fairness than in an arm’s-length

relationship . . . .’” (Richelle L., supra, 106 Cal.App.4th at p. 272, fn. 6.) The essential

elements of a confidential relationship are as follows: “‘1) The vulnerability of one party

to the other which 2) results in the empowerment of the stronger party by the weaker

which 3) empowerment has been solicited or accepted by the stronger party and 4)

7Zive testified that he was an Israeli attorney, and had registered with the

California Bar as a foreign legal consultant. He was not barred in California.

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prevents the weaker party from effectively protecting itself.’ [Citation.]” (Id. at p. 272.)

“The vulnerability that is the necessary predicate of a confidential relation, and which the

law treats as ‘absolutely essential’ (Bogert, Trusts & Trustees (2d ed. 1978) § 482, at pp.

288-289), usually arises from advanced age, youth, lack of education, weakness of mind,

grief, sickness, or some other incapacity.” (Id. at p. 273.)

In her opening brief on cross appeal, Brown alleges that, “[b]y telling Brown he

was an attorney and an expert in real estate finance, Zive fostered the impression that he

was much more knowledgeable than Brown.” The crux of her argument appears to be

that because Zive told her he had more education and experience than she did in the areas

of law and real estate, she was necessarily vulnerable. But a mere difference in degree of

experience or education does not create a fiduciary duty. Such differences abound. If

having less experience or education constituted incapacity, virtually every purchase and

sale transaction would give rise to a fiduciary duty, because people vary in their

experience and education and “[e]very contract requires one party to repose an element of

trust and confidence in the other to perform.” (Wolf v. Superior Court (2003) 107

Cal.App.4th 25, 31.) Absent a showing of vulnerability, which is an essential element of

her cause of action, Brown cannot demonstrate that she and Zive had a confidential

relationship. The evidence is necessarily insufficient to support a verdict in Brown’s

favor as to her breach of fiduciary duty cause of action. The trial court did not err in

granting the motion for nonsuit as to the claim.

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DISPOSITION

The judgment is modified to reduce the damages awarded to $325,283. The order

granting nonsuit as to the fraud cause of action and the related claim for punitive

damages is reversed. The cause is remand for limited retrial on Brown’s cause of action

for fraud, and if appropriate, punitive damages. In all other respects the judgment is

affirmed. Brown is awarded costs on appeal.

KRIEGLER, J.

We concur:

TURNER, P. J.

GOODMAN, J. *

*Judge of the Los Angeles County Superior Court, assigned by the Chief Justice

pursuant to article VI, section 6 of the California Constitution.

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