Opinion
A148625
04-17-2018
FLETCHER TYLER et al., Plaintiffs and Respondents, v. JAMES T. HARO, Defendant and Appellant. KALYANI PATEL, Plaintiff and Respondent, v. JAMES T. HARO, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Contra Costa County Super. Ct. No. MCS09-03085) (Contra Costa County Super. Ct. No. MSC13-00333)
Plaintiffs Fletcher Tyler, Nancy Tyler, and Kalyani Patel (collectively plaintiffs) filed suit against defendant James T. Haro, a real estate agent and mortgage loan broker, and Alamo Mortgage Corporation (Alamo), alleging Haro fraudulently induced plaintiffs to loan him and Alamo substantial sums of money as "bridge loans," when in fact Haro used the funds to invest in a risky real estate venture. The loans were never repaid. After a bench trial, the trial court found in plaintiffs' favor on causes of action for breach of fiduciary duty, intentional misrepresentation, and concealment.
Haro contends the trial court erred in applying the wrong legal standard to resolve plaintiffs' breach of fiduciary duty claim, and alternatively, the evidence did not support the trial court's finding Haro owed plaintiffs a fiduciary duty. Haro further asserts the judgment in plaintiffs' favor on their intentional misrepresentation and concealment causes of action must be reversed because plaintiffs' own testimony showed they did not rely on Haro's misrepresentations or omissions. We reverse with respect to the breach of fiduciary duty claim, but otherwise affirm the judgment.
I. BACKGROUND
A. The Tylers
Fletcher Tyler and Nancy Tyler (the Tylers) first met Haro and his wife when their children were young, approximately 30 years ago, and subsequently became friends. Haro is a licensed California real estate broker, and has worked as a mortgage loan officer since 1985. In 2002, the Tylers worked with Haro and Alamo to refinance their primary residence and a second home in Yosemite. Around the same time, Haro assisted the Tylers with obtaining mortgages on a couple of houses for their sons. The Tylers later purchased two properties in Pittsburg, California and purchased and sold three properties in Baypoint, California. Haro, in his capacity as a mortgage broker, helped the Tylers arrange loans for the purchase of the properties. The Tylers testified that after he assisted them with these transactions, they developed a level of trust in Haro.
When we refer to the Tylers individually, we use their first names to avoid confusion. We intend no disrespect in doing so.
In early 2006, Haro approached the Tylers about establishing a $250,000 home equity line of credit on their principal residence. Haro told the Tylers the money could be used "[f]or a rainy day" or for an emergency. He directed them to open the credit line at Washington Mutual bank with Marian Aldridge. Shortly after the Tylers established the line of credit, Haro approached Fletcher about making a "bridge loan" to a client of his. Haro told Fletcher it would be an opportunity to put the funds from the credit line to use and make a little money. Nancy wrote a check to Alamo in February 2006 for $175,000. By late October 2006, the loan had been repaid in full with interest.
Within days of receiving the final payment on the February 2006 loan, Haro again contacted Fletcher to tell him he had another "bridge loan" opportunity just like the previous one, this time for $200,000. The loan was to be repaid in two months. Fletcher had several phone conversations with Haro about the second bridge loan, and in early November 2006, Haro told Fletcher he was ready for the funds and needed them immediately. After speaking with her husband, Nancy wrote out a check for $200,000 to Alamo. At Haro's instruction, Nancy wrote "Secured by Lighthorse Ventures assets" in the memo line of the check. The Tylers both testified they did not receive anything from Haro prior to making the $200,000 bridge loan indicating they had any type of security in LightHorse Ventures' assets.
By January 2007, the loan had not been repaid. Sometime after 60 days had passed without repayment, Fletcher called Haro to ask when the Tylers would be paid. Haro indicated there might be a delay, but it should not be too long and promised Fletcher he would be able to repay him. In response to numerous further inquiries by fax and phone, Haro continually reassured Fletcher he would be paid, their money was safe, and he was "working on it."
Sometime in the first quarter of 2007, Haro provided the Tylers with a promissory note in the amount of $210,000 from LightHorse Ventures, LLC (LightHorse). Prior to receiving the promissory note, Fletcher had never heard of LightHorse. The promissory note, which was dated November 7, 2006, stated Alamo would receive a $5,000 broker's fee on the loan, information previously unknown to the Tylers. The promissory note further stated: "INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THESE SECURITIES ARE OFFERED ONLY BY MEANS OF THE LightHorse Ventures, LLC, CONFIDENTIAL MEMORANDUM TO INVESTORS WHO ARE EXPERIENCED AND KNOWLEDGEABLE WITH RESPECT TO INVESTMENTS OF THIS KIND, AND ARE ABLE TO UNDERSTAND AND BEAR THE RISKS OF AN INVESTMENT IN THESE SECURITIES." Fletcher testified when he received the note he was "shocked" because neither he nor his wife "ever would dream . . . of investing in anything involving a high degree of risk." Nancy testified Haro did not give her the promissory note or mention anything about "a high degree of risk" when she wrote the $200,000 check for the bridge loan.
When Fletcher inquired about the "high degree of risk" warning, Haro told him not to worry. Fletcher testified Haro told him: "They are a very substantial company. They have millions and millions of dollars in real estate and they are just property rich and cash poor and so you're going to get your money. We just have to wait a little bit." The Tylers continued to ask questions about when they would be repaid, and continually received assurances from Haro that payment was forthcoming. Though they were paid $16,000 in interest on the second bridge loan, the Tylers were never repaid the principal or any further interest payments. B. Kalyani Patel
Kalyani Patel's (Patel) experience with Haro has close parallels to that of the Tylers. Patel first met Haro in 2004, when she and her husband, Ashok Patel (Ashok), were interested in buying a condominium. Haro had previously assisted Ashok with obtaining mortgages to purchase four or five properties for his business between 1986 and 2000. Haro acted as Patel's real estate agent and mortgage broker in her search for a condominium. Haro lent her the $46,000 down payment, allowing Patel to buy the condominium in her name. She later repaid the loan. Patel testified she appreciated what Haro had done for her, trusted him, and felt he was looking out for her best interests.
Though Kalyani Patel and Ashok Patel were married during all times relevant to this litigation, Kalyani used her separate property to purchase a condominium for the couple, establish a credit line, and make the bridge loans discussed herein. Ashok was not a party to the lawsuit. We use Ashok Patel's first name to avoid confusion, but again, intend no disrespect.
In 2005, Haro approached Patel about applying for a home equity line of credit, suggesting it could be used for a "rainy day." As with the Tylers, Haro told Patel to contact the same bank officer, Marian Aldridge, at the Washington Mutual bank in Walnut Creek. After Patel established the credit line, Haro suggested she increase the amount of the line of credit from $46,500 to $115,000.
A few months later, in February 2006, Haro approached Patel asking for a bridge loan like the one he had done for her condominium. Haro did not tell her who the bridge loan was for or bring any papers with him when he asked for the money. Patel wrote a check to Alamo for $105,000. As with the Tylers, the bridge loan was repaid in full, with interest, in October 2006.
Shortly after the $105,000 loan was repaid, Haro approached Patel about a second bridge loan, this time for $100,000, to be repaid in 60 days. Patel wrote a check to Alamo for $100,000, but as with the Tylers, the loan was not paid back in that time.
Ashok primarily handled the dealings with Haro with respect to repayment of the second bridge loan. After the $100,000 bridge loan was not repaid within the promised 60 days, Ashok contacted Haro multiple times, asking where their money was. Haro told Ashok to be patient and promised the "money is coming." In February or March 2007, Haro gave Ashok a promissory note, like the one given to the Tylers, from LightHorse in the amount of $105,000. The promissory note, which was also dated November 7, 2006, referenced a broker fee to Alamo and contained identical language to the Tylers promissory note, warning that "INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK." Ashok had never heard of LightHorse before receiving the promissory note.
Ashok met with Haro approximately half a dozen times between March and December 2007, and another 15 or 16 times over the course of the next two years, sometimes with Patel. Each time he met with Haro, Ashok raised the issue of repayment of the $100,000 bridge loan. Haro repeatedly told Ashok to be patient and assured him he and Patel would be repaid. Patel eventually received one payment for $5,000 in interest, but never received the principal back on her $100,000 loan or further interest payments. C. Trial
After a nine-day bench trial, the trial court issued a tentative decision pursuant to Code of Civil Procedure section 632, finding in favor of plaintiffs on their claims. No party contested any part of the tentative decision, which became the final decision of the court (hereafter statement of decision). The trial court entered judgment in favor of plaintiffs on their claims against Haro, awarding the Tylers $389,767 plus interest and Patel $188,871 plus interest. The court entered judgment in favor of defendant Alamo.
II. DISCUSSION
A. Breach of Fiduciary Duty
1. Procedural Background
Plaintiffs' second cause of action in their consolidated first amended complaint (FAC) alleged Haro (and Alamo) owed plaintiffs a fiduciary duty based on the parties' prior business (and in the case of the Tylers, personal) relationships and Haro's representations to plaintiffs regarding the safe nature of the loans they were about to make. Haro and Alamo demurred to the FAC on the ground plaintiffs failed to state a cause of action because they alleged only a debtor-creditor relationship, which does not give rise to a fiduciary relationship. In response, plaintiffs argued they had sufficiently alleged facts showing plaintiffs reposed trust and confidence in Haro and Alamo based on their prior relationships, and the investment adviser/client relationship is one giving rise to a fiduciary duty as a matter of law, citing Hasso v. Hapke (2014) 227 Cal.App.4th 107, 140 (Hasso). The trial court apparently sustained defendants' demurrer to the breach of fiduciary duty cause of action without leave to amend, but without prejudice to plaintiffs reasserting a cause of action for breach of fiduciary duty at trial.
The record does not contain the trial court's signed order on the demurrer, but only an unsigned proposed order served on December 3, 2014, with a copy of the court's tentative ruling attached. The entry in the register of actions from the day of the hearing on the demurrer states: "There being oral argument requested, the court hears argument regarding fiduciary duty. The court confirms its tentative ruling as modified. The Demurrer is sustained without leave to amend. Leave to amend is reserved and may be addressed at trial if approved by the trial judge and there is a finding of fiduciary duty." The statement of decision references an order on the demurrer that was filed December 11, 2014, modifying the tentative ruling "to the extent it was without prejudice 'to plaintiffs advancing a cause of action at trial for breach of fiduciary duty in the event that defendants claim that the sums ($100,000 and $200,000, respectfully [sic]) provided by plaintiffs to defendants are characterized by defendants as an [']investment.['] "
After trial, the trial court's statement of decision acknowledged with approval defendants' posttrial argument that plaintiffs failed to timely move to amend their pleading with respect to their breach of fiduciary duty claim. Nonetheless, the court concluded plaintiffs "gave notice in their trial brief as well as various times during trial that they would be resurrecting [their breach of fiduciary duty] cause of action" and found defendants were not prejudiced because plaintiffs were "thoroughly cross-examined regarding their relationship with Mr. Haro and their level of sophistication regarding investments." The trial court found the claim was properly before the court, and noted "contra to the Defendants' assertions, the evidence established Mr. Haro was treating the Plaintiffs' loans as investments, a fact Mr. Haro himself finally acknowledged." The trial court's judgment stated simply, "defendant James T. Haro, a real estate broker, breached his fiduciary duty to Plaintiffs."
2. Analysis
Haro contends the trial court erroneously applied the incorrect legal standard when it concluded his treatment of plaintiffs' loans as investments was an adequate basis for finding he owed them a fiduciary duty. He argues whether an alleged adviser treats a client's money as an "investment" is not the proper test for whether that person is acting as an investment adviser; rather, the appropriate test is set forth in Corporations Code section 25009, subdivision (a) and Hasso, supra, 227 Cal.App.4th 107. In any event, Haro contends, there is no evidence in the record Haro was acting as an investment adviser to plaintiffs or owed them a fiduciary duty.
The parties also disagree about whether the trial court improperly amended the pleadings to conform to proof at trial and erred in its ruling on the demurrer allowing the breach of fiduciary duty claim to be resurrected at trial. We do not address these alleged procedural errors, because, as discussed below, we conclude no evidence supports the existence of a fiduciary duty.
Preliminarily, we reject plaintiffs' argument Haro forfeited this issue by failing to raise it below. Plaintiffs themselves cited Hasso and relied on the investment adviser argument in their opposition to Haro's demurrer. Further, Haro is not required to object below to preserve his argument no substantial evidence supports the finding Haro owed plaintiffs a fiduciary duty. (Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, 23, fn. 17 [contention that a judgment is not supported by substantial evidence is "an obvious exception" to general forfeiture rule].)
To the extent the trial court found Haro was acting as an investment adviser only because he treated the bridge loans as "investments," we agree it applied an incorrect legal standard to determine whether Haro owed plaintiffs a fiduciary duty. (See Hasso, supra, 227 Cal.App.4th at pp. 141-144, 146-149 [assessing whether individuals and entities owed the plaintiffs a fiduciary duty as "investment advisers" within meaning of Corp. Code, § 25009, subd. (a)].) An "investment adviser" is "any person who, for compensation, engages in the business of advising others . . . as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of a regular business, publishes analyses or reports concerning securities." (Corp. Code, § 25009, subd. (a).) The legal basis of the trial court's ruling is ambiguous, however, because the statement of decision states only "the evidence established [Haro] was treating the Plaintiffs' loans as investments" and does not indicate whether the trial court assessed any other factors. In the absence of a clear record to the contrary, we presume the trial court applied the correct law. (People v. Mack (1986) 178 Cal.App.3d 1026, 1032.)
Even assuming, however, the trial court applied the correct legal standard, the evidence adduced at trial does not support a finding Haro was acting as an investment adviser to the Tylers and Patel. Plaintiffs repeatedly testified they were making bridge loans to Haro and Alamo, and were unaware their loans were investments in a high-risk real estate venture. They did not have investment accounts with Haro or Alamo. Haro testified he was not an investment adviser, did not give clients investment advice, and did not have a securities license. No evidence was introduced that Haro was compensated for providing investment advice. In sum, there was no showing Haro was acting in a fiduciary capacity as an investment adviser.
Indeed, on appeal plaintiffs do not contend Haro was an investment adviser, but argue his fiduciary duty arose from the fact he was a real estate agent and mortgage broker, and approached plaintiffs in that capacity. Plaintiffs contend such a finding is supported by evidence Haro (1) sought funds for "real estate 'bridge loans,' " (2) had plaintiffs make their checks out to Alamo, (3) repaid the February 2006 loans on checks drawn on the Alamo account, and (4) was identified as the "Broker" on the LightHorse promissory notes.
It is well established both real estate agents and mortgage loan brokers owe fiduciary duties of " 'the highest good faith' " toward their principals. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 782; Barry v. Raskov (1991) 232 Cal.App.3d 447, 455.) Such duties terminate, however, once the subject transaction is completed. (See Civ. Code, § 2355; Robinson v. Grossman (1997) 57 Cal.App.4th 634, 646 [real estate agent's fiduciary duties terminate when the subject matter of the agency is sold or otherwise disposed of]; Stephens, Partain & Cunningham v. Hollis (1987) 196 Cal.App.3d 948, 954 [loan broker's bid for property at foreclosure sale two years after loan was made did not violate fiduciary duty to former principal].) Though Haro previously helped the Tylers obtain mortgage loans and purchase several properties, Fletcher testified Haro was not acting as a real estate broker or a broker of any kind for him at the time of the November 2006 bridge loan. And while Patel testified Haro acted as her real estate agent and mortgage broker when she purchased her condominium in 2004, that transaction had long since concluded when he approached her about the second bridge loan in November 2006.
We asked the parties to file supplemental briefs discussing whether Business and Professions Code section 10131, subdivisions (d) and (e), have any application to this case. Under those subdivisions, "A real estate broker . . . is a person who, for compensation or in expectation of compensation . . . [¶] . . . [¶] (d) Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity [or] [¶] (e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof." (Bus. & Prof. Code, § 10131, subds. (d) & (e).) In Montoya v. McLeod (1985) 176 Cal.App.3d 57, 60-61, the court determined a real estate salesperson owed investors a fiduciary duty when she unlawfully solicited them as lenders for unsecured real estate loans. In Montoya, however, unlike here, the lenders were promised a secure investment based on quality second deeds of trust, but were provided unsecured notes instead. (Id. at p. 61.) In this case, there is no evidence Haro approached plaintiffs to solicit loans secured by real estate or a business opportunity. Though plaintiffs argue Haro's representation the loans were " 'bridge loans' . . . would reasonably imply that such loans would be secured by the real property subject to those loans or, at a minimum, that there was a specific loan or real estate contract in place," they point to no evidence supporting that bare conclusion.
A "business opportunity" includes "the sale or lease of the business and goodwill of an existing business enterprise or opportunity." (Bus. & Prof. Code, § 10030.)
At oral argument, plaintiffs' counsel suggested recovery on the breach of fiduciary duty claim is important to his clients because Haro has represented he has no funds to pay the judgment and the "BRE" has a fund that allows judgment creditors to recover in such situations. We infer counsel may have been referring to the California Bureau of Real Estate, but the issue was not raised in respondents' brief, and accordingly, we will not consider it. (Kinney v. Vaccari (1980) 27 Cal.3d 348, 356-357, fn. 6 [appellate court need not consider point first raised at oral argument].) In any event, Haro's ability to pay the judgment is irrelevant to whether plaintiffs proved their claim.
None of the evidence cited by plaintiffs supports a finding Haro was acting as a real estate broker or mortgage loan broker in the November 2006 transactions. As there is no substantial evidence in the record to support the existence of a fiduciary duty to plaintiffs, the judgment must be reversed as to that claim. B. Intentional Misrepresentation
Haro next contends the trial court erred in finding for plaintiffs on their intentional misrepresentation claims. He argues because the Tylers and Patel essentially testified they did not care what Haro did with their money as long as they were repaid, they could not have relied on any of his false representations with respect to the bridge loans.
Reliance is an essential element of fraud. (Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1110-1111 (conc. & dis. opn. of Kennard, J.); Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 228.) To prove reliance, a plaintiff must show the defendant's misrepresentation or nondisclosure was " 'an immediate cause' " of the plaintiff's injury-producing conduct. (Mirkin, at p. 1111.) A plaintiff need not prove a defendant's misrepresentation was the only, or even the decisive, factor influencing his or her conduct, only that it played a substantial part in influencing his or her decision. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 976-977.)
Substantial evidence supports the trial court's implied finding Haro's misrepresentation to both the Tylers and Patel that the subject transactions were "bridge loans" was a substantial factor influencing their respective decisions to lend the money to Haro and Alamo. Shortly after encouraging the Tylers and Patel to establish home equity lines of credit, Haro approached plaintiffs in February 2006 asking them to use their credit lines to make "bridge loans" to an undisclosed third party. The loans were repaid on time, with interest. Almost immediately after the first set of bridge loans were repaid, Haro again approached the Tylers and Patel about another "bridge loan" opportunity. Haro told both the Tylers and Patel the second bridge loan would be repaid within 60 days. Based on Haro's representation the transaction was a "bridge loan" and their prior positive experience with Haro, plaintiffs made the loans. Such evidence sufficiently supports a finding plaintiffs relied on Haro's misrepresentations.
Though the statement of decision does not make any specific findings with respect to reliance, we infer the trial court made all findings necessary to support the judgment. (See Code Civ. Proc., § 634; Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58-60 [when litigants fail to object to statement of decision or bring ambiguities and omissions to attention of the trial court, reviewing court will infer trial court made implied factual findings to support the judgment and review findings for substantial evidence].)
We find unavailing Haro's argument that plaintiffs' own testimony conclusively establishes their lack of reliance on his misrepresentations. Haro points to Nancy's testimony (1) it did not matter to whom Haro lent the money, as long as the Tylers were repaid; (2) she understood Haro would personally repay the $200,000 loan; and (3) she was not depending on Haro to do due diligence and investigation of LightHorse to enable the Tylers to make an informed decision about whether to make a loan. Haro notes Fletcher (1) had an MBA from Stanford University, (2) believed Haro had sufficient financial resources to repay the loan, and (3) testified it was Haro's business what he did with the money they lent him in February and November 2006. Haro further points to Patel's testimony (1) her husband told her she should look to Haro and Alamo for repayment, (2) Haro had sufficient property to cover their loan, and (3) they were expecting Haro to pay back the money. Haro argues such evidence shows it did not matter to plaintiffs what Haro did with the money—whether he used it for a "bridge loan" or invested it in LightHorse. But plaintiffs' statements they looked to Haro and Alamo for repayment and did not care to whom he loaned the funds do not show they did not rely on Haro's express statement the transaction was a "bridge loan" and his representation, implied by statements and conduct, that the second bridge loan was just like the first. Drawing all inferences in support of the judgment, as we must, we conclude substantial evidence supports the finding plaintiffs relied on Haro's misrepresentations in making the second set of bridge loans. C. Concealment
For similar reasons, Haro's challenge to plaintiffs' concealment claim also fails. To prove reliance on an omission, plaintiffs must prove had the omitted information been disclosed, they would have been aware of it and behaved differently. (Mirkin v. Wasserman, supra, 5 Cal.4th at p. 1093.) As with the intentional misrepresentation claim, Haro argues plaintiffs' testimony it was Haro's business what he did with the money and they were expecting Haro to pay them back proves they did not actually rely on his failure to disclose material information about the purported loans.
Contrary to Haro's argument, however, substantial evidence supports the trial court's implied finding of reliance on his omissions. Both the Tylers and Ashok testified they were not presented with promissory notes describing their "bridge loans" as high-risk investments until months after they lent the money. Plaintiffs were also not aware Haro or Alamo earned a commission on the loans as stated in the promissory notes. Further, Haro testified at the time he sought the second bridge loans from plaintiffs, he had received a copy of a letter written by Donald Tenconi, counsel for LightHorse, stating (1) LightHorse had a pending lawsuit filed against it; (2) owed $85,277 in unpaid legal fees and expenses; and (3) had at least two individuals dissatisfied with delay in repayment of sums they had loaned LightHorse who were considering initiating litigation. Haro could not recall whether he disclosed any of the information in the letter to the Tylers or Patel when he asked them to write their checks for the bridge loans.
Though Haro later testified he discussed the letter with the Tylers, the trial court found he was not a credible witness. --------
Nancy testified when she wrote the check for $200,000, she told Haro: "We are old. We cannot afford anything risky. We want to know that you will repay us." Fletcher testified the couple "never, ever would dream . . . of investing in anything of a high degree of risk." Nancy said knowing what she knows now, she would not have made the loan.
Like the Tylers, both Ashok and Patel testified Haro told them the money was for a "bridge loan." Haro did not bring any papers with him at the time he picked up the check from Patel, and did not provide Patel or Ashok with any information about LightHorse. Ashok testified he and Patel had income only from Patel's salary as a salesperson at Macy's department store and his Social Security disability payments, and they had no source of funds to invest in "high-risk securities" in November 2006. The court could reasonably infer from plaintiffs' testimony they would not have lent money to Haro and Alamo had they known the facts concealed by Haro. Substantial evidence supports the trial court's implied finding plaintiffs relied on Haro's omissions.
III. DISPOSITION
The judgment in favor of plaintiffs on their breach of fiduciary duty claim is reversed. The judgment is otherwise affirmed. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
/s/_________
Margulies, Acting P.J. We concur: /s/_________
Dondero, J. /s/_________
Banke, J.