Opinion
H041209
11-28-2017
THE PEOPLE ex rel. DEAN D. FLIPPO, as District Attorney, etc., Plaintiff and Respondent, v. SUSANA SILVA et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Monterey County Super. Ct. No. M109797)
I. INTRODUCTION
Defendant Estates on the Bay, Inc., which advertised itself as a professional real estate company, was operated by defendant Susana Silva while her real estate broker's license was revoked. During that time, another real estate broker, her sister defendant Deanna Marie Gobert, was responsible for the corporation and its employees. Gobert improperly permitted Silva to engage in activity requiring a real estate license and to be compensated for such activity. Defendants' activities included grossly overstating a borrower's income on mortgage loan applications.
The Monterey County District Attorney, acting on behalf of and in the name of the People (plaintiff), filed a civil action under the false advertising law (Bus. & Prof. Code, § 17500 et seq.) and the unfair competition law (UCL; § 17200 et seq.). After a bench trial, the court found that both laws had been violated and awarded civil penalties, restitution, and injunctive relief.
All further statutory references are to the Business and Professions Code unless otherwise indicated.
On appeal, defendants contend that the trial court erred for numerous reasons in finding them liable for false advertising and unfair competition and that, even if liability is proper, various grounds exist for reversing some or all of the civil penalties, restitution, and injunctive relief.
For reasons that we will explain, we determine that no error has been shown regarding defendants' liability for false advertising and unfair competition. However, we will remand the matter for (1) a recalculation of a portion of the civil penalties imposed, (2) a reduction in the restitution award, (3) certain other recalculations in the judgment as necessary due to these changes, and (4) precise tailoring of the injunction regarding restrictions on references to Silva's broker's license and on real estate advertising.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Complaint
Plaintiff filed this action against defendants in 2010. In the operative first amended complaint, plaintiff alleged two causes of action.
The first cause of action alleged that defendants violated section 17500 by, among other conduct, advertising their real estate company with false or misleading statements that Silva was a licensed real estate professional.
The second cause of action alleged that defendants engaged in unfair competition under section 17200 by, among other acts: (1) violating the false advertising law; (2) paying an unlicensed person to engage in services requiring a real estate license in violation of the Business and Profession Code; (3) failing to properly supervise the activities of an unlicensed person in violation of the California Code of Regulations, (4) engaging in substantial misrepresentations, a course of misrepresentation through real estate agents or salespersons, and fraudulent or dishonest conduct in violation of the Business and Professions Code; and (5) failing to properly maintain documents.
Plaintiff sought a permanent injunction to enjoin the violations of law, as well as civil penalties and restitution.
B. The Trial
A bench trial was conducted in late 2013. The major factual issues included whether Silva, with Gobert's assistance, continued to engage in activity requiring a license after her broker's license was revoked. Defendants contended that Silva was working as an uncompensated employee under the proper supervision of Gobert, who at the time was the designated broker of Estates on the Bay. The other factual disputes included whether defendants disseminated false advertising regarding Silva's real estate license, and whether defendants engaged in fraudulent or illegal practices in brokering two mortgage loans on behalf of a client, Elvira Rosa. The evidence included the following.
1. Licensing
Silva obtained a real estate broker's license in 1995. She worked for an entity for a period of time before setting up her own business. In approximately June 2002, Silva changed the name of her business to Estates on the Bay.
In or about January 2004, the Department of Real Estate filed an accusation against Silva alleging two incidents in which she falsified bank account balances for borrowers on loan applications. Silva stipulated to entry of a revocation order, and her broker's license was revoked on or about June 2, 2004. She was issued a restricted salesperson's license in May 2008. Between 2004 and 2010, the Department of Real Estate denied petitions by Silva to reinstate her broker's license, finding that she had not demonstrated sufficient rehabilitation or correction of past business practices.
The Department of Real Estate is now known as the Bureau of Real Estate. (Ryan-Lanigan v. Bureau of Real Estate (2013) 222 Cal.App.4th 72, 74, fn. 1.) We will use the former name in this opinion, given that the relevant proceedings before that entity occurred under the former name.
Gobert, who is Silva's sister, was a licensed salesperson when she began working for Silva in 2002. In 2004, about one month after the Department of Real Estate filed the accusation against Silva, Gobert obtained her own broker's license.
In approximately May 2004, Gobert applied for a corporate broker's license for Estates on the Bay. At the time, Gobert and Silva were the sole shareholders and officers for Estates on the Bay. The Department of Real Estate refused to approve the corporate broker's license application in the absence of verification that Silva would have no role, as officer or shareholder, in Estates on the Bay. On or about January 9, 2006, Gobert represented in a letter to the Department of Real Estate that Silva had sold all corporate shares and had surrendered her corporate offices.
A few days later, on January 17, 2006, the Department of Real Estate granted the application for a corporate broker's license for Estates on the Bay. Gobert served as the designated officer of Estates on the Bay until surrendering that role in approximately January 2011. In that role, Gobert had statutory and regulatory duties to properly supervise employees and to maintain business policies and procedures sufficient to ensure compliance. Gobert did not adopt formal written policies and procedures other than a one-page document.
2. Business Activities
When Silva started her business in 2002, she opened a business bank account (Account 8038). The initial signature card for the account contained only Silva's signature. January bank statements for 2004 through 2009 were mailed to Silva's home and were addressed to "Susana Silva [¶] DBA Estates on the Bay." During the time that Silva's license was revoked, neither Gobert nor Estates on the Bay set up a separate account in the name of the corporation. Instead, Gobert continued to permit corporate income and expenses to be deposited into and withdrawn from Account 8038. During the time that Silva's broker's license was revoked, she signed more than 95 percent of all checks drawn on the account between 2006 and 2008.
While Silva's license was revoked, Estates on the Bay advertised its real estate services on its website. Silva continued working at Estates on the Bay during this time, including by using real estate forms and interacting with clients. She also represented on her own mortgage loan applications in 2006 that she was the owner of Estates on the Bay and earning more than $13,000 per month.
3. Elvira Rosa's Mortgage Loans
Defendants brokered the refinance of a home mortgage loan for Elvira Rosa, and they brokered a second loan for her to purchase a rental property. While Rosa earned approximately $3,000 per month as a home health aide in February 2006, the applications for the two loans overstated her monthly income by more than three times that amount. Rosa eventually lost both properties through foreclosure. Defendants received commissions and fees from Rosa's loans, and those commissions and fees were deposited into Account 8038 in June 2006. Silva used money that was deposited in Account 8038 in June 2006 to pay her car payment, auto insurance, and medical insurance.
C. The Statement of Decision and Judgment
In a detailed statement of decision filed in March 2014, the trial court found in favor of plaintiff on both causes of action based on three categories of violations. Regarding the first cause of action for false advertising, the court determined that defendants' website had the capacity to deceive a consumer that Silva was licensed as a broker when her license had in fact been revoked. The court determined that such advertising also constituted unfair competition under the second cause of action. The court referred to these as "Category 1 Violations."
The trial court further determined that several other practices by defendants constituted unfair competition under the second cause of action. Specifically, the court found that Silva, while her license was revoked, continued to operate Estates on the Bay "as a 'de facto' sole proprietorship" and engaged in activity requiring a real estate broker's license in violation of section 10130. In addition, Gobert permitted Silva to engage in acts requiring a license and to be compensated with loan commission income in violation of section 10137. Moreover, Gobert and Estates on the Bay violated their duties to exercise reasonable supervision over unlicensed personnel in violation of California Code of Regulations, title 10, section 2725. The court collectively referred to these practices and associated violations as "Category 2 Violations."
The trial court additionally determined that defendants engaged in unfair competition under the second cause of action by knowingly overstating Rosa's income on applications for two mortgage loans to induce the lenders to fund the loans, in violation of section 10176, subdivisions (a), (c), and (i). The court referred to this practice as "Category 3 Violations."
The trial court stated that it was unable to find, based on the evidence presented, that defendants failed to preserve documents in violation of their statutory duties.
In reaching its determinations, the trial court explained that it observed the demeanor of Silva and Gobert when they testified. The court specifically found certain portions of Silva's testimony not credible, including her testimony that she did not receive or benefit from commissions on Rosa's loans.
The trial court awarded civil penalties totaling $120,425, "mandatory restitution to Rosa totaling $29,975, and injunctive relief. The court suspended $60,000 of the civil penalties. The court stated that defendants would receive a credit toward the unsuspended portion of the civil penalties, depending on whether they paid the "mandatory" restitution within a specified timeframe and whether they paid additional "discretionary" restitution to Rosa. The court stated that the failure to pay any mandatory or unsuspended amount when due, or the failure to comply with the injunction, would cause the balance of any unpaid amount, whether suspended or not, to become immediately due and payable. The court further stated that defendants could seek modification or dissolution of any of the injunctive provisions after three years upon a showing of good cause.
On March 21, 2014, the trial court rendered judgment in accordance with the statement of decision.
III. DISCUSSION
Defendants contend that the trial court erred in finding them liable for false advertising and unfair competition and that, even if liability is proper, grounds exist for reversing some or all the civil penalties, restitution, and injunctive relief. We address each of defendants' contentions in more detail below.
A. False Advertising Cause of Action
Defendants contend that the trial court's finding that they violated the false advertising law must be reversed because (1) the cause of action is barred by the statute of limitations, and (2) their advertising did not violate the false advertising law.
1. Statute of Limitations
Defendants contend that a claim under the false advertising law is governed by a three-year statute of limitations under Code of Civil Procedure section 338. Citing to an answer that they filed in the trial court on May 19, 2011, defendants argue that they "properly raised a statute of limitations defense" below. According to defendants, the trial court found that they engaged in false advertising beginning on April 6, 2006, which is more than three years before plaintiff initiated the civil action on December 20, 2010. Defendants argue that two tolling agreements, which the parties executed before plaintiff filed the civil action, did not operate to revive the untimely claim. Defendants contend that plaintiff's first cause of action for false advertising therefore "was not timely filed," and that the court's ruling on the false advertising claim is "reversible as untimely filed."
Plaintiff responds that the May 19, 2011 answer cited by defendants, which contained affirmative defenses based on the statute of limitations, was superseded by another answer. Plaintiff argues that defendants' operative answer, which was filed on January 7, 2013, did not allege the statute of limitations as an affirmative defense and thus defendants waived the defense. Plaintiff also contends that, even if the false advertising cause of action was untimely despite the tolling agreements, "it has no substantive impact" because the trial court found that defendants' false advertising also violated the UCL, which has a longer, four-year limitations period. According to plaintiff, the court could therefore properly impose daily penalties for false advertising based on plaintiff's second cause of action under the UCL.
In reply, defendants contend that they did not waive the time-bar defense. Defendants observe that plaintiff brought a motion for judgment on the pleadings, which challenged the affirmative defenses in defendant's May 19, 2011 answer, including affirmative defenses based on the statute of limitations. The trial court granted the motion, and defendants did not continue to allege those affirmative defenses in an amended answer. Based on case law in the context of a demurrer, defendants contend that they were not required to re-allege the statute of limitations affirmative defenses in an amended answer, and that they could instead "rest on the prior Answer with their right to appeal intact."
Assuming defendants are correct that case law in the demurrer context is applicable in the context of a motion for judgment on the pleadings (see County of Orange v. Association of Orange County Deputy Sheriffs (2011) 192 Cal.App.4th 21, 32), such case law does not advance defendants' position in this case. In the demurrer context, "[w]hen a demurrer is sustained with leave to amend, and the plaintiff chooses not to amend but to stand on the complaint, an appeal from the ensuing dismissal order may challenge the validity of the intermediate ruling sustaining the demurrer. [Citation.]" (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 312, italics added.) Defendants in this appeal have not expressly challenged the validity of the trial court's ruling granting plaintiff's motion for judgment on the pleadings. Indeed, defendants fail to mention the motion for judgment on the pleadings in their opening brief on appeal, or the court's ruling on the motion, let alone articulate a challenge to the validity of the court's ruling on that motion. Although defendants' reply brief on appeal refers to plaintiff's motion for judgment on the pleadings and the court's ruling, defendants do not clearly articulate an argument as to why the court's granting of the motion was erroneous. Even if an argument in defendants' reply brief could be construed as a challenge to the court's ruling on the motion for judgment on the pleadings, appellate courts ordinarily will not consider a new issue that is raised for the first time in the reply brief. (Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3; Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764-765.)
Accordingly, as defendants (1) fail to demonstrate in their opening brief that the court's ruling on the motion for judgment on the pleading was erroneous with respect to their statute of limitations affirmative defense, and (2) failed to include the statute of limitations as an affirmative defense in their operative answer, we conclude that defendants have waived the defense. (Martin v. Van Bergen (2012) 209 Cal.App.4th 84, 91 ["The failure to properly plead the statute of limitations waives the defense"]; County of Los Angeles v. Commission on State Mandates (2007) 150 Cal.App.4th 898, 912 ["Forfeiture of a time-bar defense transpires by the failure to raise the applicable statute of limitations in the answer"].)
In addition to failing to show on appeal that the trial court's ruling on the motion for judgment on the pleadings was erroneous, we note that defendants in the trial court made no substantive argument in opposition to the motion for judgment on the pleadings with respect to their statute of limitations affirmative defense. Instead, the day after plaintiff filed the motion for judgment on the pleadings, defendants filed a motion for leave to file an amended answer. The proposed amended answer attached to defendants' motion did not allege the statute of limitations as an affirmative defense. In other words, defendants themselves sought to remove the statute of limitations affirmative defense from their answer. Defendants thereafter filed a two-page "opposition" to plaintiff's motion for judgment on the pleadings, contending that plaintiff's motion was "moot" in view of defendants' proposed amended answer. The court ultimately granted plaintiff's motion for judgment on the pleadings and granted in part defendants' motion for leave to file an amended answer. In sum, defendants never raised below any substantive opposition to plaintiff's motion for judgment on the pleadings with respect to the statute of limitations affirmative defense and, by their own motion, defendants sought and obtained leave to file an amended answer that eliminated the statute of limitations as an affirmative defense.
2. Whether Defendants Engaged in False Advertising
Defendants contend that no reasonable consumer could be misled by their advertising, and thus they did not engage in false advertising. In response, plaintiff contends that defendants' advertising could mislead a consumer to believe that Silva was licensed, and that therefore the trial court properly found defendants liable for false advertising.
In the statement of decision, the trial court found that defendants' advertising "had the capacity to deceive a consumer about Silva's status as a licensed professional" because the advertising "could lead a reasonable consumer to believe that [she] was licensed as a broker when in fact her broker's license had been revoked." In reaching this conclusion, the court cited three documents: webpages from 2006 and 2009 from the website of Estates on the Bay, and Silva's LinkedIn.com webpage from 2009. The court concluded that defendants engaged in false advertising between April 6, 2006 and May 8, 2008.
Plaintiff points to other trial evidence to support the court's finding of false advertising, but the court's statement of decision refers only to the content of the Internet advertising as the basis for its finding of false advertising. Plaintiff also argues that other advertisements by defendants support the court's finding of false advertising. It is not clear, however, that these other advertisements were admitted into evidence at trial.
In view of the trial court's determination that defendants engaged in false advertising for a period that ended on May 8, 2008, the subsequent content of webpages in 2009 do not support the finding of false advertising during the specified timeframe. We therefore turn to the question of whether the Estates on the Bay webpage from 2006 supports the finding of false advertising.
In 2006, the website had a page entitled "My Resume." The top of the webpage stated, "Estates on the Bay - A Professional Real Estate Company." (Italics added.) The body of the webpage stated:
"Estates on the Bay would like to thank you for visiting our web site. Our web site provides extensive community information with many useful resources for the buying and selling process. It's our job to provide the highest quality service available today, and this web site is only the beginning.
"Our experience in the Real Estate industry will provide you the knowledge and expertise that you need throughout the entire buying or selling process. As you choose one of our real estate agents, and/or loan agents our job to you is to price your home effectively from day one, so you will receive the highest possible value for your home.
"From conventional marketing to new and innovative types of marketing and advertising, We [sic] can provide the exposure and service that you need in today's Real Estate Market. Please feel free to contact Estates on the Bay if you have any questions or comments, or would like to setup a time that we can meet to discuss what we can do for you." (Italics added.) The webpage included the main phone number for Estates on the Bay.
Defendants contend that no reasonable consumer could be misled by the webpage. Defendants argue that the webpage identifies only Estates on the Bay, and that no reference is made to real estate "brokers" or to any individual by name, including Silva. Defendants also argue that the webpage's references to "[o]ur experience" and "our real estate agents, and/or loan agents" is not misleading because Gobert was the "designated broker" of Estates on the Bay, and at least five other agents were affiliated with the company during this general timeframe. According to defendants, "[n]othing on the website remotely gives an impression that [Silva] even exists, much less that she was a licensed broker or salesperson." Defendants contend that even if "the use of the first-person-plural to refer to a corporation and its agents is somehow flawed, it is at most the mildest of innocuous puffery posing none of the risks the [false advertising law] protects against."
Under California's Real Estate Law (§ 10000 et seq.), it is unlawful for a person "to engage in the business of, act in the capacity of, advertise as, or assume to act as a real estate broker or a real estate salesperson . . . without first obtaining a real estate license . . . ." (§ 10130.)
A "real estate broker" includes a person who, for compensation, "[s]ells or offers to sell, buys or offers to buy, solicits prospective sellers or pu[r]chasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property," or "[s]olicits 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." (§ 10131, subds. (a) & (d).)
A "real estate salesperson" includes a person who, for compensation, is employed by a licensed real estate broker to do any of the activities that brokers are authorized to perform. (§ 10132.)
A real estate license may be issued to a corporation. (§§ 10158, 10211.) "To operate as a corporate broker, . . . the corporation must designate a licensed individual broker as the entity's designated officer. [Citations.]" (Sandler v. Sanchez (2012) 206 Cal.App.4th 1431, 1437.)
The false advertising law prohibits "untrue or misleading" statements. (§ 17500.) In other words, the false advertising law precludes " ' "not only advertising which is false, but also advertising which[,] although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public." [Citation.] Thus, to state a claim under . . . the false advertising law, based on false advertising or promotional practices, "it is necessary only to show that 'members of the public are likely to be deceived.' " [Citations.]' [Citation.] This is determined by considering a reasonable consumer who is neither the most vigilant and suspicious of advertising claims nor the most unwary and unsophisticated, but instead is 'the ordinary consumer within the target population.' [Citation.] ' "Likely to deceive" implies more than a mere possibility that the advertisement might conceivably be misunderstood by some few consumers viewing it in an unreasonable manner. Rather, the phrase indicates that the ad is such that it is probable that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.' [Citation.]" (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 226 (Chapman).)
Section 17500 prohibits "any person, firm, corporation or association, or any employee thereof with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise, or anything of any nature whatsoever or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated before the public in this state, or to make or disseminate or cause to be made or disseminated from this state before the public in any state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, including over the Internet, any statement, concerning that real or personal property or those services, professional or otherwise, or concerning any circumstance or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, or for any person, firm, or corporation to so make or disseminate or cause to be so made or disseminated any such statement as part of a plan or scheme with the intent not to sell that personal property or those services, professional or otherwise, so advertised at the price stated therein, or as so advertised."
Whether consumers are likely to be deceived is a question of fact. (Chapman, supra, 220 Cal.App.4th at p. 226.) On appeal, " 'when "a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact." [Citations.]' [Citation.]" (Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 678 (Whiteley).)
A question of fact "becomes one of law where the facts are uncontroverted and only one deduction or inference may reasonably be drawn." (Fagerquist v. Western Sun Aviation, Inc. (1987) 191 Cal.App.3d 709, 719; accord, Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239; Whiteley, supra, 117 Cal.App.4th at p. 678.) In such a case, the trial court's finding as to whether an advertisement violated the false advertising law "is not binding on this court and our decision involves an independent judgment." (State Bd. of Funeral Directors v. Mortuary in Westminster Memorial Park (1969) 271 Cal.App.2d 638, 642.)
We believe the 2006 webpage of Estates on the Bay supports the trial court's finding that defendants' advertising had the capacity to deceive a reasonable consumer about Silva's status as a licensed real estate professional. (Chapman, supra, 220 Cal.App.4th at p. 226.) The webpage clearly seeks to solicit customers for real estate services that require a license, including buying or selling a home and obtaining a home mortgage loan. In this context, Estates on the Bay held itself out as "A Professional Real Estate Company," referred to its "experience in the Real Estate industry" and the "expertise" that the consumer would "need throughout the entire buying or selling process," and referred to its "real estate agents, and/or loan agents." In view of the content of the webpage, a member of the public would likely believe that both the company and its agents/employees were licensed as real estate professionals to the extent necessary to perform the real estate services that were being offered for "the entire buying or selling process."
We are not persuaded by defendants' argument that the webpage was too vague to imply that Silva was licensed as a real estate broker, or that the webpage contained only innocuous puffery regarding the licensing status of Estates on the Bay's agents/employees. We believe that a reasonable consumer would expect that a corporate entity holding itself out as a professional real estate company and offering real estate services requiring a license would in fact have the necessary license(s) to carry out those services, and specifically that all its agents/employees who were carrying out those services would be licensed to the extent necessary to lawfully conduct those services. In view of the court's other findings that Silva engaged in activity requiring a valid real estate license, that Silva was not licensed for the relevant timeframe, and that Gobert and Estates on the Bay permitted Silva to engage in activity requiring a license, we determine the 2006 webpage had " ' "a capacity, likelihood or tendency to deceive or confuse the public" ' " concerning Silva's real estate licensing status. (Chapman, supra, 220 Cal.App.4th at p. 226.) To conclude otherwise "would impair the ability of consumers to rely on [advertisements], place those businesses that do not engage in misrepresentations at a competitive disadvantage, and encourage the marketplace to dispense with accuracy in favor of deceit." (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 331 (Kwikset).)
Accordingly, we conclude that substantial evidence supports the trial court's finding of liability on the false advertising cause of action.
B. UCL Cause of Action
Defendants contend that the trial court's finding of liability under the UCL must be reversed for several reasons. First, defendants contend that the trial court erroneously admitted evidence that was subject to the litigation privilege. Second, defendants contend that the UCL claim involved real estate regulation issues, and that those issues "should have been left within the purview of the [Department of Real Estate]" and not pursued as a UCL claim. On this point, defendants rely on the doctrines of primary jurisdiction, equitable abstention, and collateral estoppel. Third, defendants contend there were prejudicial evidentiary errors. We first provide an overview of the UCL before considering each of defendant's contentions.
The UCL prohibits, and provides civil remedies for, "unfair competition," which includes "any unlawful, unfair or fraudulent business act or practice," and any act prohibited by the false advertising law (§ 17500 et seq.). (§ 17200; see Kwikset, supra, 51 Cal.4th at p. 320; Chapman, supra, 220 Cal.App.4th at p. 226.) Under the "unlawful" prong, "the UCL ' "borrows" ' rules set out in other laws and makes violations of those rules independently actionable. [Citation.]" (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370 (Zhang).)
1. Litigation Privilege Ruling
Defendants contend that the trial court erred by granting plaintiff's pretrial motion to admit evidence of statements by Silva. Defendants contend that Silva's statements during a Department of Real Estate investigation were covered by the litigation privilege (see Civ. Code, § 47, subd. (b)) and therefore should have been excluded from evidence.
Plaintiff contends that the trial court informed defendants that they could assert the litigation privilege during trial if they believed they had a basis for the objection, but defendants never actually made such an objection during trial. Plaintiff argues that defendants therefore waived the objection. Plaintiff also argues that the litigation privilege did not apply in this case because Silva's statements to the Department of Real Estate were not alleged to be the basis for liability on the false advertising and unfair competition claims.
Plaintiff's pretrial motion in limine No. 14 sought to admit evidence of statements against interest by Silva or Gobert. Plaintiff anticipated that defendants would seek to exclude the statements by Silva on the ground that the statements were made to the Department of Real Estate during an investigation of her license and were covered by the litigation privilege. In the motion to admit the statements into evidence, plaintiff contended that the litigation privilege did not apply.
Prior to trial, defendants filed written objections to anticipated evidence by plaintiff and a response to plaintiff's motions in limine. Defendants anticipated that plaintiff would seek to admit into evidence statements Silva made to a Department of Real Estate investigator, Robert Anderson, during an investigation of her 2005 petition for reinstatement of her broker's license. Silva's statements included admissions that she falsified loan documents early in her career when she worked with a broker and later when she started her own business. Defendants contended that the statements should be excluded based on the litigation privilege.
On the first day of trial, the court ruled on plaintiff's motions in limine. At the outset, the court explained that motions generally "need some supporting evidence as a general rule. You are talking about what people have said or have produced. And so . . . a lot of motions . . . get denied just because there is not a sufficient record to do that." Regarding plaintiff's motion in limine No. 14 to admit Silva's or Gobert's statements, including statements Silva made to the Department of Real Estate, the court found the motion "a little bit vague" and denied it without prejudice. The court explained to the parties that "[w]e need to take the statements one at a time." The court did not address the issue of litigation privilege at that time, and instead proceeded to rule on plaintiff's other motions in limine. Defense counsel thereafter confirmed to the court that defendants' written objections to evidence and response to plaintiff's motions in limine did not contain evidentiary motions by defendants, but rather set forth evidentiary issues that defendants intended to raise at trial.
The trial court then asked the parties whether they were ready to proceed with opening statements. Plaintiff's counsel raised the issue of litigation privilege and the fact that defendants were asserting the privilege. The court asked, "Briefly, how did it come up?" Plaintiff's counsel explained that plaintiff would be seeking to admit into evidence Silva's statements to the Department of Real Estate when she was trying to seek reinstatement of her broker's license. An investigator would testify as to the statements Silva made. Plaintiff contended that the litigation privilege was a "defense to a subsequent derivative tort action" and not an "evidentiary shield against statements made by a party in a previous matter."
The trial court stated that it was "going to overrule" the litigation privilege objection. Defense counsel requested that the court consider the privilege "as the issues are presented." Defense counsel argued that the privilege applied, and that the court should "take it up on a case-by-case basis as evidence is submitted." The court responded affirmatively and stated that defense counsel could "address it on an issue-by-issue basis."
The trial court and defense counsel subsequently discussed hypothetical factual situations, such statements to a police officer after a car accident, and whether the litigation privilege would apply. Defense counsel insisted that the hypotheticals posed by the court were "[n]ot our case" and attempted to explain why the litigation privilege did not apply to the court's hypotheticals but did apply in the case before it. Eventually, the following exchange took place between defense counsel and the court:
"[DEFENSE COUNSEL]: . . . I disagree with the court's ruling. I can make a continuing objection or I can make objections
"[COURT]: It will be noted. You don't have to keep objecting. But if you have a particular item that you think is subject to the litigation privilege, you should point it out. It will be hard for me to consider it if I don't know what it is.
"[DEFENSE COUNSEL]: I will do that."
" 'A party desiring to preserve for appeal a challenge to the admission of evidence must comply with the provisions of Evidence Code section 353, which precludes reversal for erroneous admission of evidence unless: "There appears of record an objection to or a motion to exclude or to strike the evidence that was timely made and so stated to make clear the specific ground of the objection or motion." ' [Citations.]" (People v. Ramos (1997) 15 Cal.4th 1133, 1171 (Ramos).)
" '[T]he general rule is that "when an in limine ruling that evidence is admissible has been made, the party seeking exclusion must object at such time as the evidence is actually offered to preserve the issue for appeal . . . ." ' " (People v. Letner and Tobin (2010) 50 Cal.4th 99, 159 (Tobin), italics omitted.) "[A]n in limine motion, without a contemporaneous objection at trial, is sufficient to preserve an objection for appeal only when '(1) a specific legal ground for exclusion is advanced and subsequently raised on appeal; (2) the motion is directed to a particular, identifiable body of evidence; and (3) the motion is made at a time before or during trial when the trial judge can determine the evidentiary question in its appropriate context.' " (Id. at p. 160.) "While 'Evidence Code section 353 does not exalt form over substance' [citation], it does require sufficient specificity of evidence and legal grounds for the opposing party to respond if necessary, for the trial court to determine the question intelligently, and for the appellate court to have a record adequate to review for error." (Ramos, supra, 15 Cal.4th at p. 1172.)
In this case, defendants appear to challenge the trial court's ruling on plaintiff's motion in limine No. 14, which sought to admit evidence of unspecified statements by Silva or Gobert, including unspecified statements by Silva to the Department of Real Estate during an investigation of her license. The trial court denied the motion without prejudice. The court indicated that the motion was vague and that the statements would be considered "one at a time" during trial.
When the trial court subsequently addressed whether the litigation privilege applied in the case, none of the parties identified any particular statement by Silva. Instead, the court and defense counsel discussed the litigation privilege generally in the context of hypothetical situations, such as statements to a police officer after a car accident. Defense counsel insisted that the hypotheticals posed by the court were "[n]ot our case," yet counsel never specified the statements by Silva that were at issue.
Further, defense counsel requested that the trial court consider the litigation privilege "on a case-by-case basis as evidence is submitted." The court agreed. Later, when defense counsel raised the issue of a continuing objection, the court stated, "It will be noted. You don't have to keep objecting. But if you have a particular item that you think is subject to the litigation privilege, you should point it out. It will be hard for me to consider it if I don't know what it is." Defense counsel responded, "I will do that."
The record thus reflects that the trial court's ruling on the litigation privilege was based on the application of the privilege in the abstract. None of the parties identified the particular statements by Silva that were at issue, or how the litigation privilege operated in the context of the causes of action alleged by plaintiff. The parties only indicated to the court that Silva had made some unspecified statements during the Department of Real Estate's investigation of her license. Moreover, defense counsel requested, and the trial court agreed that the litigation privilege could be raised "on a case-by-case basis as evidence is submitted." Although the court stated that defense counsel did not "have to keep objecting" based on the litigation privilege, the court made it clear that counsel had to make the objection to "a particular item that [counsel] think[s] is subject to the litigation privilege," because it would "be hard for [the court] to consider it if [the court didn't] know what it is." Defendants on appeal implicitly acknowledge that they did not thereafter object at trial to the admission of any evidence on the basis of litigation privilege.
Based on this record, we determine that defendants forfeited any evidentiary objection on the ground of litigation privilege. At the time the trial court ruled on the issue of the litigation privilege, neither the substance of Silva's statements nor their relevance to plaintiff's causes of action had been made clear to the court. As the court was not " 'directed to a particular, identifiable body of evidence' " and the court was not able to " 'determine the evidentiary question in its appropriate context,' " a contemporaneous objection was required at trial. (Tobin, supra, 50 Cal.4th at p. 160.) By failing to make any contemporaneous objection at trial on the ground of litigation privilege, defendants have failed to preserve the issue for appeal.
2. Failure to Defer to Department of Real Estate
Defendants contend that their alleged violations of real estate statutes and regulations "should have been left within the purview of the [Department of Real Estate], and not be pursued as a UCL claim." Defendants also argue that the trial court erred by "[r]evisiting" and "disregard[ing]" the Department of Real Estate's express ruling that Silva had not engaged as a broker or otherwise acted in a fiduciary capacity during most of the timeframe covered by the court trial. Defendants contend that reversal is required based on the doctrines of (a) primary jurisdiction, (b) abstention, and (c) collateral estoppel.
Defendants fail to provide a record citation establishing that they raised any of these doctrines in the trial court. An argument raised for the first time on appeal is generally deemed forfeited. (Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2006) 136 Cal.App.4th 212, 226; Franz v. Board of Medical Quality Assurance (1982) 31 Cal.3d 124, 143.) This rule applies to new theories of liability and new theories of defense. (Bardis v. Oates (2004) 119 Cal.App.4th 1, 13, fn. 6.) Permitting a party to adopt a new and different theory on appeal " 'would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.' [Citations.]" (Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313, 1339.)
In apparent recognition of their failure to raise the doctrines of (a) primary jurisdiction, (b) abstention, and (c) collateral estoppel below, defendants argue on appeal that "[p]ure questions of law can be considered even if raised for the first time on appeal." We consider this contention in the context of each of the three doctrines.
a. Primary jurisdiction
Defendants contend that under the doctrine of primary jurisdiction, the trial court should have "deferred" to a 2008 order by the Department of Real Estate, which purportedly found that Silva had not engaged in any broker or fiduciary transactions, and to the Department of Real Estate's audits of Estates on the Bay during 2006 to 2008. According to defendants, the Department of Real Estate's 2008 order and the "completed administrative audits" should have been treated by the court as "dispositive, not as 'advisory opinions' that could be retried and second-guessed by the court."
Plaintiff contends that defendants "misstate the nature and scope of the [Department of Real Estate] proceedings," and that there is no evidence of "a prior, fully litigated proceeding between the same parties involving the same factual and legal issues." Plaintiff further argues that the existence of a separate enforcement scheme does not preclude a parallel UCL action.
Primary jurisdiction " 'applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views.' [Citations.]" (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 390 (Farmers), italics omitted; accord, Jonathan Neil & Assoc., Inc. v. Jones (2004) 33 Cal.4th 917, 931-932 (Jonathan Neil).) The primary jurisdiction doctrine advances two policies: "it enhances court decisionmaking and efficiency by allowing courts to take advantage of administrative expertise, and it helps assure uniform application of regulatory laws. [Citations.]" (Farmers, supra, at p. 391.)
"No rigid formula exists for applying the primary jurisdiction doctrine [citation]. Instead, resolution generally hinges on a court's determination of the extent to which the policies noted above are implicated in a given case. [Citation.] This discretionary approach leaves courts with considerable flexibility to avoid application of the doctrine in appropriate situations, as required by the interests of justice." (Farmers, supra, 2 Cal.4th at pp. 391-392, fns. omitted.)
Defendants fail to demonstrate reversible error by the trial court in this case.
First, as we have explained, defendants fail to provide a record citation establishing that they raised the doctrine of primary jurisdiction in the trial court. Although defendants raised below the issue of the Department of Real Estate's exclusive jurisdiction, defendants fail to show that they raised the issue of primary jurisdiction. (See Farmers, supra, 2 Cal.4th at pp. 390-391 [" 'Exhaustion applies where an agency alone has exclusive jurisdiction over a case; primary jurisdiction where both a court and an agency have the legal capacity to deal with the matter.' "].) A trial court's refusal to stay a proceeding and refer the matter to an administrative agency pursuant to the primary jurisdiction doctrine is reviewed for abuse of discretion. (Jonathan Neil, supra, 33 Cal.4th at p. 935.) In this case, however, "[s]ince the trial court was not asked to exercise its discretion in this manner, it could not have abused its discretion" as defendants now claim. (People v. Spirlin (2000) 81 Cal.App.4th 119, 128 (Spirlin); accord, Agricultural Labor Relations Bd. v. Laflin & Laflin (1979) 89 Cal.App.3d 651, 666, fn. 16 (Agricultural Labor Relations Bd.) ["It would be both inappropriate and futile for us to attempt to review for abuse a discretion the court was never requested to exercise and did not purport to exercise."]; Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1149 (Samaniego) [where a party failed to ask the trial court to exercise its discretion, the party could not complain on appeal that the trial court's decision was erroneous].)
Second, even if defendants had raised the primary jurisdiction doctrine in the trial court, they fail to establish that the doctrine applies in this case. As the basis for their contention that the primary jurisdiction doctrine applies, defendants rely on an order that the Department of Real Estate issued in 2008 as well as "administrative audits" that were purportedly completed in 2008, all of which were well before the trial in this case in 2013. Where, however, the administrative agency has, as in this case, "already rendered whatever decision might be relevant to the present suit, there [is] no need to stay the action for further action by some administrative body." (AICCO, Inc. v. Insurance Co. of North America (2001) 90 Cal.App.4th 579, 595 (AICCO).)
Third, even if defendants had raised the primary jurisdiction doctrine in the trial court and even if the administrative agency had not yet rendered a decision, the doctrine would have supported, at most, a stay of trial court proceedings and not the relief defendants now seek, that is, barring a UCL claim against them. The primary jurisdiction doctrine " ' "requires the court to enable a 'referral' to the agency, staying further proceedings so as to give the parties reasonable opportunity to seek an administrative ruling." ' [Citations.]" (Blue Cross of California, Inc. v. Superior Court (2009) 180 Cal.App.4th 1237, 1260 (Blue Cross); accord, Farmers, supra, 2 Cal.4th at p. 390.) After an administrative determination, a court may still entertain a civil suit. (Farmers, supra, at p. 387, fn. 7; AICCO, supra, 90 Cal.App.4th at p. 594.) In other words, application of "[t]he doctrine does not foreclose judicial action." (Cundiff v. Verizon California, Inc. (2008) 167 Cal.App.4th 718, 722, fn. 2.)
Lastly, we are not persuaded by defendants' citation to Walker v. Allstate Indemnity Co. (2000) 77 Cal.App.4th 750 (Walker), to support the proposition that the primary jurisdiction doctrine precludes the UCL claim in this case. Walker did not involve the primary jurisdiction doctrine. In Walker, the appellate court concluded that the plaintiffs could not bring a UCL claim to recoup insurance premiums charged pursuant to rates that had been approved by the Insurance Commissioner of the State of California. The court observed that the Insurance Code provided the commissioner with exclusive original jurisdiction over issues related to ratemaking, and that no challenges had been brought in court to the commissioner's decisions as specifically permitted by the governing statutes. (Walker, supra, at pp. 755, 759-760.) In the instant appeal, defendants do not claim that the Department of Real Estate or the Real Estate Commissioner has exclusive original jurisdiction over the issues that formed the basis for defendants' liability under the UCL.
Accordingly, defendants fail to establish that the primary jurisdiction doctrine provides a basis for reversing the trial court's decision on the UCL claim.
b. Abstention
Defendants contend that the trial court abused its discretion by allowing the UCL claim to proceed instead of abstaining from adjudicating the claim.
"[B]ecause the remedies available under the UCL, namely injunctions and restitution, are equitable in nature, courts have the discretion to abstain from employing them." (Desert Healthcare Dist. v. PacifiCare FHP, Inc. (2001) 94 Cal.App.4th 781, 795, disapproved on another ground in Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1014, fn. 10.) "Case law states that a court may abstain from adjudicating a suit that seeks equitable remedies if 'granting the requested relief would require a trial court to assume the functions of an administrative agency, or to interfere with the functions of an administrative agency.' [Citation.] Abstention may also be appropriate if 'the lawsuit involves determining complex economic policy, which is best handled by the Legislature or an administrative agency.' " (Blue Cross, supra, 180 Cal.App.4th at p. 1258.) We review a trial court's decision whether to abstain from adjudicating a lawsuit for abuse of discretion. (Id. at p. 1257; Alvarado v. Selma Convalescent Hospital (2007) 153 Cal.App.4th 1292, 1297.)
Defendants fail to establish an abuse of discretion in this case.
First, defendants fail to provide a citation to the record showing that they raised the issue of abstention in the trial court. In the absence of a request to the trial court to exercise its discretion to abstain from adjudicating plaintiff's UCL claim, the court could not have abused its discretion. (Spirlin, supra, 81 Cal.App.4th at p. 128; Agricultural Labor Relations Bd., supra, 89 Cal.App.3d at p. 666, fn. 16; Samaniego, supra, 205 Cal.App.4th at p. 1149.)
Second, even if trial court had denied a request by defendants to abstain from adjudicating the matter, we would find no abuse of discretion. Defendants contend that the UCL claim involved (a) the determination of which activities fall within licensing requirements and (b) the extent of a broker's responsibility to supervise staff. According to defendants, these issues required the court to assume, or interfere with, the functions of an administrative agency, and implicated matters of economic policy.
We do not believe the issues raised by plaintiff's UCL claim required the trial court to abstain from adjudicating the matter. "[I]n resolving UCL claims, courts . . . are called upon to decide whether an alleged business practice is made unlawful by an underlying statute." (Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 500.) In this case, the basis for defendants' UCL liability included: (1) violation of section 10130, for Silva engaging in activity requiring a real estate license; (2) violation of California Code of Regulations, title 10, section 2725, for Gobert and Estates on the Bay failing to exercise reasonable supervision over unlicensed personnel; and (3) violation of section 10137, for Gobert and Estates on the Bay permitting Silva to be compensated with loan commission income for acts requiring a license. These violations may form the basis for injunctive relief and a restitution award by the court separate and apart from the UCL. (§ 10081 [Real Estate Commissioner may seek an injunction and restitution in superior court for violations of Real Estate Law (§ 10000 et seq.)].) Moreover, the district attorney may prosecute violations of section 10130 in the county in which the violations occur. (§ 10130; see also GreenLake Capital, LLC v. Bingo Investments, LLC (2010) 185 Cal.App.4th 731, 736 ["an unlicensed person who acts as a real estate broker is subject to penal consequences"].)
Thus, in adjudicating plaintiff's UCL claim in this case, the trial court had to make factual and legal determinations regarding certain violations of the Real Estate Law (§ 10000 et seq.), just as (1) a court would be obligated to do if those same Real Estate Law violations had formed the basis for a request for an injunction or restitution under section 10081 instead of under the UCL, or (2) a court or jury would be obligated to do if the same violation of section 10130 had been prosecuted directly under that statute instead of under the UCL. The trial court in the instant UCL action was therefore just as equipped and capable of making the relevant factual and legal determinations. Further, in adjudicating the UCL claim, the court was not required " 'to assume the functions of an administrative agency, or to interfere with the functions of an administrative agency' " (Blue Cross, supra, 180 Cal.App.4th at p. 1258) any more so than if those same violations had been pursued directly under sections 10130 and 10137. Moreover, the UCL claim did "not call upon the court to determine complex economic policy. The Legislature has already made the relevant policy determinations by defining and outlawing [the real estate practices at issue]. The court is, in the main, merely being called upon to enforce those statutory prohibitions." (Blue Cross, supra, at p. 1259, fn. omitted.)
Accordingly, defendants fail to establish that the abstention doctrine provides a basis for reversing the trial court's decision on the UCL claim.
c. Collateral estoppel
As with the doctrines of primary jurisdiction and abstention, defendants fail to provide a citation to the record showing that they raised the doctrine of collateral estoppel below. Although a new theory on appeal is generally deemed forfeited, an exception may be presented " 'where the theory . . . involves only a legal question determinable from facts which not only are uncontroverted in the record, but which could not be altered by the presentation of additional evidence. [Citation.] And whether the general rule shall be applied is largely a question of the appellate court's discretion.' [Citation.]" (In re Marriage of Priem (2013) 214 Cal.App.4th 505, 511 (Priem).) "The general rule that a legal theory may not be raised for the first time on appeal is to be stringently applied when the new theory depends on controverted factual questions whose relevance thereto was not made to appear at trial. [Citation.]" (Bogacki v. Board of Supervisors (1971) 5 Cal.3d 771, 780 (Bogacki).) With these principles in mind, we turn to the question of whether defendants' collateral estoppel theory involves legal questions on uncontroverted facts.
Collateral estoppel, or issue preclusion, "prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action. [Citation.] Under issue preclusion, the prior judgment conclusively resolves an issue actually litigated and determined in the first action. [Citation.]" (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824 (DKN Holdings).) "In summary, issue preclusion applies (1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party. [Citations.]" (Id. at p. 825.)
In this case, the parties dispute whether the facts in the record establish that identical issues were previously litigated before the Department of Real Estate. Defendants contend that the trial court determined that Silva was impermissibly performing licensed activities between April 6, 2006 and May 8, 2008, and that the Department of Real Estate had previously determined in an order effective May 6, 2008, that Silva had not engaged in broker activities or otherwise acted in a fiduciary capacity. Defendants also contend that the issue of income falsification on loan documents for Rosa, and whether Gobert failed to supervise Silva, both of which were issues arising in the instant action, were previously addressed in prior Department of Real Estate proceedings as part of an investigation initiated after Silva petitioned for reinstatement of her license. The People contend that there was not prior litigation before the Department of Real Estate involving the same issues as the instant case.
"For purposes of collateral estoppel, an issue was actually litigated in a prior proceeding if it was properly raised, submitted for determination, and determined in that proceeding. [Citation.] In considering whether these criteria have been met, courts look carefully at the entire record from the prior proceeding . . . . 'The "identical issue" requirement addresses whether "identical factual allegations" are at stake in the two proceedings, not whether the ultimate issues or dispositions are the same. [Citation.]' [Citation.]" (Hernandez v. City of Pomona (2009) 46 Cal.4th 501, 511-512.)
The record reflects that Silva's real estate broker's license was revoked in 2004, upon allegations that she falsified bank account balances for borrowers on loan applications. Silva thereafter petitioned for reinstatement of her broker's license twice - once in 2005, and again in 2008. The 2005 petition for reinstatement was denied by the Department of Real Estate by an order effective in 2007 (2007 order). The 2008 petition for reinstatement was denied by the Department of Real Estate by an order effective May 6, 2008 (2008 order).
In the latter 2008 order, the Real Estate Commissioner observed that one of the criteria for evaluating whether an applicant seeking reinstatement of a license has been rehabilitated is the applicant's "correction of business practices resulting in injury to others or with the potential to cause such injury." (Cal. Code Regs., tit. 10, § 2911, former subd. (k) [now subd. (a)(11)].) In the 2008 order, the Real Estate Commissioner stated that Silva had "submitted no evidence showing correction of the deficient loan origination practices that resulted in the revocation of [her] license. [¶] Given the violations found and the fact that [Silva] has not engaged as a broker in the operation of a real estate brokerage business or otherwise acted in a fiduciary capacity, [Silva] has not established that [she] has complied with [this criterion]." (Italics added.) In the 2008 order, the Real Estate Commissioner also concluded: "I am not satisfied that [Silva] is sufficiently rehabilitated to receive an unrestricted real estate broker license. Additional time and evidence of correction as a restricted real estate salesperson is necessary to establish that [she] is rehabilitated." In the 2008 order, Silva was denied reinstatement of her broker's license but allowed a restricted salesperson's license subject to her satisfying certain conditions.
It is not apparent from defendants' record citations whether the Real Estate Commissioner's statement in the 2008 order that Silva "has not engaged as a broker in the operation of a real estate brokerage business or otherwise acted in a fiduciary capacity" was an issue that was actually litigated and necessarily decided in connection with that 2008 order. (See DKN Holdings, supra, 61 Cal.4th at p. 825.) The sentence referring to Silva's lack of activity as a broker is confusingly worded in the 2008 order, and there is no other reference in the order to her engaging or not engaging in broker activities. Further, one of the criteria for determining whether a petition for reinstatement of a license should be granted is whether the applicant has shown correction of the business practices that originally resulted in the revocation of the license. (See Cal. Code Regs., tit. 10, § 2911, former subd. (k) [now subd. (a)(11)].) The Real Estate Commissioner indicated in the 2008 order that Silva's rehabilitation needed to be evaluated in the future after she was issued a restricted salesperson's license. In view of this language, and in view of the criteria for reinstatement, the Real Estate Commissioner's statement about Silva's lack of activity as a broker or other fiduciary may simply reflect an assumption by the Real Estate Commissioner that Silva was not engaged in such activity because she was not licensed, rather than an actual litigated finding that Silva had in fact not engaged in such activities while unlicensed.
To support their contention that Silva's lack of activity as a broker was actually litigated and necessarily decided, defendants point to an investigation conducted by an investigator for the Department of Real Estate in 2006. The investigator stated in a memorandum to his supervisor that he did not find anything to indicate that Silva was performing licensed activities for the business she and Gobert once shared.
However, this 2006 investigation and the memorandum and reports generated by the investigator were in connection with Silva's first reinstatement petition, which was denied in the earlier 2007 order. Defendants fail to persuasively link the 2006 investigation underlying Silva's first petition for reinstatement with the language that they rely on in the later 2008 order which denied her second petition for reinstatement. Moreover, the investigator testified in the instant case that, with respect to Silva's first petition for reinstatement, his investigation of whether Silva was engaged in unlicensed activity was not "thorough and complete." The investigator prepared a memorandum for his supervisor regarding the need for further investigation. The record on appeal therefore does not contain uncontroverted facts establishing that Silva's inactivity as a broker was an issue actually litigated and necessarily decided by the Department of Real Estate. (Bogacki, supra, 5 Cal.3d at p. 780; Priem, supra, 214 Cal.App.4th at p. 511; DKN Holdings, supra, 61 Cal.4th at p. 825.)
Factual issues similarly arise as to whether income falsification on Rosa's loan documents and Gobert's supervision of Silva were issues actually litigated and necessarily decided in prior Department of Real Estate proceedings. The Department of Real Estate investigator for Silva's first petition for reinstatement testified that during his 2006 inspection of the office of Estates on the Bay, he saw the Rosa loan files. Parts of the files caught his attention and raised red flags, so he made copies. The investigator did not ask Gobert, who was present during the office inspection, about the files because he believed the loan documents warranted another investigation being opened, and he "didn't feel that it would be appropriate to alert her to that fact by asking questions about those documents at that time." Defendants do not point to any evidence indicating that the issues of income falsification on the Rosa loan documents and Gobert's supervision of Silva was actually litigated and necessarily decided thereafter in Department of Real Estate proceedings. Indeed, defendants acknowledge in their reply brief that the Department of Real Estate "chose not to take action on" the Rosa loan transactions.
In sum, defendants fail to point to uncontroverted facts in the record establishing that the issues of (1) improper unlicensed activity by Silva, (2) income falsification on the Rosa loan documents, and/or (3) the sufficiency of Gobert's supervision were "actually litigated and necessarily decided" before the Department of Real Estate in the proceedings involving Silva's petitions for reinstatement. (DKN Holdings, supra, 61 Cal.4th at p. 825.) Given that defendants' collateral estoppel theory is not based on uncontroverted facts, we adhere to the rule that this new theory may not be raised for the first time on appeal. (Bogacki, supra, 5 Cal.3d at p. 780; Priem, supra, 214 Cal.App.4th at p. 511.)
In their reply brief, defendants quote the following from Frommhagen v. Board of Supervisors (1987) 197 Cal.App.3d 1292 (Frommhagen): " 'The collateral estoppel aspect of res judicata will apply as to all issues which were involved in the prior case even though some factual matters or legal arguments which could have been presented in the prior case in support of such issues were not presented. [Citation.] Thus, where two lawsuits are brought and they arise out of the same alleged factual situation, and although the causes of action or forms of relief may be different, the prior determination of an issue in the first lawsuit becomes conclusive in the subsequent lawsuit between the same parties with respect to that issue and also with respect to every matter which might have been urged to sustain or defeat its determination. [Citation.]' " (Id. at p. 1301, italics omitted.) Frommhagen does not advance defendants' position. As we have explained, factual issues exist as to whether the Department of Real Estate actually made a " 'prior determination of [the] issue' " of Silva not acting as a broker, income falsification on the Rosa loan documents, and the sufficiency of Gobert's supervision. (Id. at p. 1301.)
Accordingly, we determine that defendants have forfeited the issue of whether collateral estoppel applies in this case.
3. Evidentiary Issues
In their opening brief on appeal, defendants contend that the trial court committed the following prejudicial evidentiary errors: (a) admitting into evidence an accountant's worksheet that was protected by the tax return privilege, (b) relying on the testimony of plaintiff's accounting expert Cynthia Healy whose conclusions were not supported by substantial evidence, and (c) allowing plaintiff's real estate expert John Sweeney to testify on issues of law. In their reply brief on appeal, defendants also contend that the trial court made an erroneous ruling regarding a bank account signature card. We will consider each contention in turn.
a. Tax return privilege
Defendants contend that the trial court prejudicially erred by admitting an accountant's worksheet into evidence. They argue that the document falls within the tax return privilege, and that there was no waiver of the privilege.
The two-page document at issue, entitled "California K-1 Reconciliation Worksheet" on the first page, and "California K-1 Reconciliation Worksheet - Summary" on the second page (collectively "accountant's worksheet"), was apparently prepared by Silva's accountant for 2007. The accountant's worksheet refers to Estates on the Bay as an "S Corporation" and includes various dollar amounts.
"The Internal Revenue Code and related regulations require partnerships to prepare Schedule K-1 forms that report each partner's share of partnership income and losses. [Citations.]" (Katz v. Commissioner of Internal Revenue (10th Cir. 2003) 335 F.3d 1121, 1123.) The Schedule K-1 "is used as part of the tax return" and is filed with the federal government. (Hansen v. Commissioner of Internal Revenue (9th Cir. 2006) 471 F.3d 1021, 1026, fn. 6; accord, Ranger Panama Fund, LLC v. Keamy (M.D. Fla. Sept. 20, 2016, No: 2:15-cv-413-FtM-38CM) 2016 U.S. Dist. LEXIS 127929, pp. *5-*6, fn. 5.) "State-specific K-1 forms are used to report capital income of shareholders of an S-Corporation, which should be sourced to that particular state." (Newhall v. Posner (D. Mass. Mar. 4, 2004, No. 03-11279-PBS) 2004 U.S. Dist. LEXIS 3257, p. *5, fn. 2.)
Upon defendants' objection to the accountant's worksheet at trial, plaintiff's counsel explained how he had obtained the document. A deposition subpoena was issued to the bank where Silva obtained a mortgage loan, seeking all documents related to the loan. In response, the bank provided documents regarding the original mortgage loan application, as well as regarding Silva's subsequent petition for modification of the loan, which included financial hardship statements, profit and loss statements from Silva, and her tax returns for 2007 through 2009. Plaintiff's counsel further stated: "That's how we came into possession of [the worksheet]. As far as I know, there was no subpoena issued by [the bank] to Ms. Silva compelling her to produce any of this information. She initiated the request for the modification, and the bank wants to see evidence of hardship."
The trial court recognized that a privilege against disclosure applied to tax returns, but observed that the worksheet at issue was not an Internal Revenue Service form. The court noted that "it's an open question whether an accountant's work paper[s] used in preparing a tax return are discoverable, i.e., within the privilege." The court stated that, based on Fortunato v. Superior Court (2003) 114 Cal.App.4th 475 (Fortunato), submitting a tax return to a bank in connection with a loan application is not necessarily a waiver of the tax return privilege. The trial court believed, however, that submitting a worksheet to the bank was "different." The court concluded that, "while it may be an open question as to whether the accountant's worksheet is privileged, once that is submitted to the bank, I think there is probably a waiver."
The accountant's worksheet was admitted into evidence. Plaintiff's expert Sweeney also relied on the accountant's worksheet in forming his opinions. The trial court in its statement of decision found that the accountant's worksheet "show[ed] a K-1 distribution of 2007 corporate income from [Estates on the Bay] to Silva," and determined that the worksheet was one of three categories of documentary evidence that provided "[t]he clearest picture of the extent of control and operation of [Estates on the Bay] by Susana Silva."
"We review a trial court's evidentiary rulings for abuse of discretion. [Citation.] . . . Discretion is abused only when in its exercise, the trial court 'exceeds the bounds of reason, all of the circumstances before it being considered.' [Citation.] . . . A trial court will abuse its discretion by action that is arbitrary or ' "that transgresses the confines of the applicable principles of law." ' [Citations.] In appeals challenging discretionary trial court rulings, it is the appellant's burden to establish an abuse of discretion. [Citations.]" (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 281.)
"California courts . . . have interpreted state taxation statutes as creating a statutory privilege against disclosing tax returns. [Citations.]" (Weingarten v. Superior Court (2002) 102 Cal.App.4th 268, 274.) For example, former Revenue and Taxation Code section 19282 generally made it " 'a misdemeanor for the Franchise Tax Board . . . to disclose in any manner information as to the amount of income or any particulars set forth or disclosed in any report or return required under this part.' " (Webb v. Standard Oil Co. (1957) 49 Cal.2d 509, 512 (Webb); see Rev. & Tax. Code, § 19542.) Although this former section appeared to prohibit disclosure of tax returns by only tax officials, the California Supreme Court interpreted it "to establish an implied privilege against forced disclosure in civil discovery proceedings." (Schnabel v. Superior Court (1993) 5 Cal.4th 704, 719 (Schnabel).) The court explained that the purpose of such taxation statutes "prohibiting disclosure is to facilitate tax enforcement by encouraging a taxpayer to make full and truthful declarations in his [or her] return, without fear that his [or her] statements will be revealed or used against him [or her] for other purposes. If the information can be secured by forcing the taxpayer to produce a copy of his [or her] return, the primary legislative purpose of the secrecy provisions will be defeated. The effect of the statutory prohibition is to render the returns privileged, and the privilege should not be nullified by permitting third parties to obtain the information by adopting the indirect procedure of demanding copies of the tax returns." (Webb, supra, at p. 513.) The court held that the privilege against forced disclosure applies to both state and federal tax returns. (Id. at pp. 513-514.)
Revenue and Taxation Code section 19542 generally provides that "it is a misdemeanor for the Franchise Tax Board or any member thereof, or any deputy, agent, clerk, or other officer or employee of the state (including its political subdivisions), or any former officer or employee or other individual, who in the course of his or her employment or duty has or had access to returns, reports, or documents required to be filed under this part, to disclose or make known in any manner information as to the amount of income or any particulars (including the business affairs of a corporation) set forth or disclosed therein."
In addition to protecting the tax return themselves, the privilege also protects "the information contained in the returns." (Sav-On Drugs, Inc. v. Superior Court (1975) 15 Cal.3d 1, 7.) For example, a party may not propound an interrogatory "seek[ing] information concerning specific entries in the return" (ibid.), such as "what specific deductions or adjustments [were] made in respect to sales tax returns for the years 1967- 1971, inclusive" (id. at p. 4). Requiring a response to such an interrogatory "would render meaningless the privilege." (Id. at p. 7.) For similar reasons, the privilege also encompasses W-2 forms, "which are required to be attached to a taxpayer's state and federal income tax returns" and "constitute an integral part of the return." (Brown v. Superior Court (1977) 71 Cal.App.3d 141, 143.)
The privilege does not apply where there is an intentional relinquishment of the privilege. (Schnabel, supra, 5 Cal.4th at p. 721.) In Fortunato, supra, 114 Cal.App.4th 475, the appellate court expressed disagreement with a practice guide that had concluded that a person who provides a copy of his or her tax return with a loan or credit application waives the privilege, based on Evidence Code section 912, subdivision (a), which generally provides that a statutory privilege is waived if a significant part of the privileged communication is disclosed to a third party. (Fortunato, supra, at p. 480, citing Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2003) ¶ 8:113.3.) The appellate court observed that " '[f]or all practical purposes, the disclosure by individuals or business firms of their financial affairs to a bank is not entirely volitional, since it is impossible to participate in the economic life of contemporary society without maintaining a bank account.' [Citation.]" (Fortunato, supra, at pp. 481-482.) Consequently, the appellate court did not "view compliance with a bank's requirement of submitting tax returns with a loan application to be an entirely voluntary relinquishment, since that . . . is a fact of economic life, to which any home or business owner can attest." (Id. at p. 482.) The appellate court reasoned that "[t]he purpose of the tax-return privilege is to encourage voluntary filing of tax returns and truthful reporting of income, and thus to facilitate tax collection. [Citation.] It does this by assuring the taxpayer that such voluntary filing and truthful reporting will not result in a loss of confidentiality. [Citation.] Routinely forcing a taxpayer to produce a copy of his or her tax returns in litigation would effectively defeat the legislative purpose. [Citation.] Given the well-recognized practice of requiring tax returns as part of a loan application, it follows that forcing a bank to produce those returns routinely in litigation would have the same effect as forcing the taxpayer to produce them directly, and that, too, would effectively defeat the legislative purpose." (Ibid., italics added.)
In this case, the trial court did not decide whether the accountant's worksheet is covered by the tax return privilege. The court instead determined that, even if the accountant's worksheet is privileged, Silva waived the privilege by providing the worksheet to a bank in connection with her petition for modification of a mortgage loan. Defendants failed to establish below or on appeal that banks require an accountant's worksheet as part of a loan modification petition, or that submission of an accountant's worksheet to a bank under such circumstances is not otherwise "an entirely voluntary relinquishment." (Fortunato, supra, 114 Cal.App.4th at p. 482.) Accordingly, we determine that the trial court did not abuse its discretion in determining that Silva waived the tax return privilege with respect to the accountant's worksheet.
b. Expert Healy's testimony
Cynthia Healy, a certified public accountant, testified on behalf of plaintiff as an expert in accounting practices, forensic accounting, and financial fraud. Healy provided opinions regarding Silva's control over Account 8038, which was used for operating Estates on the Bay, including during the period when Silva's broker's license was revoked.
On appeal, defendants contend that "Healy's analysis was based on conjecture, surmise, incomplete data and inaccurate information, and does not provide substantial evidence." Defendants argue that "[t]he court's reliance on Healy's analysis fatally infects the judgment, and requires reversal." Generally referring to "[e]videntiary errors" and "evidentiary rulings," defendants contend that "[e]xclusion of this improper evidence reasonably would produce a more favorable result."
Plaintiff contends that there was other evidence, in addition to Healy's testimony, establishing that the bank account at issue was Silva's sole proprietor account and not a corporate account, that Silva exercised complete control over the account, and that Silva received "illegal" compensation from loan commissions.
Healy testified that she reviewed the financial records for Account 8038. The account was originally set up by Silva in 2002 as a sole proprietor, business account. By January 2006, Estates on the Bay was purportedly incorporated in California. Healy reviewed Account 8038 for the period of 2006 through 2008. Silva's broker's license was revoked during this timeframe, and Gobert had represented herself as the sole officer and shareholder of Estates on the Bay during this period.
For the 2006 through 2008 timeframe, Healy opined that Silva "exercised primary control" over Account 8038. In forming this opinion, Healy relied on several things. First, Silva signed the majority, or approximately 95 percent, of the checks on the account. Second, the account was held in Silva's social security number, rather than a corporate tax identification number. Third, there was "a fairly large volume of monies transferred" in and out of the account. The transfers were "direct transfers, which means that Susana Silva had control over the accounts on the receiving and disbursing end of those transactions." Healy found that to be "another indication of the percentage of control in that account." Although Healy was not able to determine the owner of all the other accounts, one "common account" was Silva's revocable trust account, according to the title on the account. Fourth, the bank statements were addressed to "Susana Silva, DBA Estates on the Bay," instead of a name indicating that it was a corporate account, such with the designation "Inc." or "Co."
Healy also opined that there was a "substantial amount of personal transactions" in Account 8038. In reaching this opinion, she relied on the fact that money was transferred in from, and out to, "related" parties, which included (a) parties who were related to Silva and (b) other accounts that Silva had control over. Healy also testified that there were "questionable expenses that would indicate they were more personal in nature than business." Healy believed that Silva used business income to support personal expenses, and that Silva conducted business activities as a sole proprietor as opposed to a corporation.
Healy prepared worksheets reflecting the monthly financial activity in Account 8038 for the 2006 through 2008 timeframe. Another worksheet contained a summary of the financial transactions in the account for the entire three-year period. The worksheets were admitted into evidence. The summary worksheet referred to Silva's "monetary benefit" from the account, which included (a) more than $52,000 that was paid directly to Silva, (b) approximately $26,000 that was paid to Mercedes Benz, and (c) more than $171,000 that was paid to "[r]elated [p]arties."
Although the legal basis for defendants' challenge to Healy's testimony on appeal is somewhat unclear, it does not appear that defendants are contending that the trial court erroneously admitted her testimony over their objection. Indeed, in their opening brief on appeal defendants do not identify, with a supporting citation to the record, a particular evidentiary ruling regarding Healy's testimony that they seek to challenge. Rather, we understand defendants to contend that, because Healy's analysis of Account 8038 was flawed, substantial evidence does not support one or more of her opinions and therefore liability on the UCL cause of action should be reversed.
" 'In general, in reviewing a judgment based upon a statement of decision following a bench trial, "any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision. [Citations.]" [Citation.] In a substantial evidence challenge to a judgment, the appellate court will "consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the [findings]. [Citations.]" [Citation.] We may not reweigh the evidence and are bound by the trial court's credibility determinations. [Citations.] Moreover, findings of fact are liberally construed to support the judgment. [Citation.]' [Citation.]" (Cuiellette v. City of Los Angeles (2011) 194 Cal.App.4th 757, 765 (Cuiellette).)
On appeal, " 'error must be affirmatively shown.' " (Denham v. Superior Court (1970) 2 Cal.3d 557, 564; accord, In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) Accordingly, where the sufficiency of the evidence is challenged on appeal, "the reviewing court must start with the presumption that the record contains evidence sufficient to support the judgment; it is the appellant's burden to demonstrate otherwise. [Citation.] The appellant's brief must set forth all of the material evidence bearing on the issue, not merely the evidence favorable to the appellant, and it also must show how the evidence does not sustain the challenged finding. [Citations.]" (Baxter Healthcare Corp. v. Denton (2004) 120 Cal.App.4th 333, 368 (Baxter Healthcare).)
Defendants challenge Healy's "analysis" on seven grounds. Defendants fail to establish that reversal is warranted.
First, some of these seven grounds simply reflect defendants' disagreement over the inferences to be drawn from the evidence underlying Healy's opinion. However, the inferences that defendants contend should have been drawn from the evidence are contrary to the trial court's factual findings.
For example, we understand defendants to contend that Healy should have treated the amounts paid to Mercedes Benz for Silva's car loan as a business expense, rather than as a personal benefit to Silva. Defendants cite testimony by Silva and Gobert that Silva's car was used at times for business purposes. However, the court expressly found that Silva and Gobert were not credible as to certain testimony. In particular, the court determined that the car payments, along with other payments from Account 8038 for Silva's car insurance and medical insurance were made for her own benefit.
Similarly, defendants contend that Healy was unaware that Gobert was the registered broker for Estates on the Bay, that Gobert had check-signing authority for Account 8038, and that Gobert had the authority to permit Silva to write checks. We understand defendants to contend that if Healy had known this information, she would have reached a different conclusion as to whether Silva exercised primary control over the account. The court, however, received the testimony and documentary evidence cited by defendants concerning the circumstances under which Silva was writing the checks on Account 8038, and the court impliedly rejected the defense position that Silva was doing all the check writing under Gobert's direction and supervision.
Second, even assuming one or more of Healy's opinions was not supported by substantial evidence, defendants fail to articulate a legal basis for reversing the trial court's finding of liability on the UCL cause of action. "[W]hen an expert bases his or her conclusion on factors that are 'speculative, remote or conjectural,' or on 'assumptions . . . not supported by the record,' the expert's opinion 'cannot rise to the dignity of substantial evidence' and a judgment based solely on that opinion 'must be reversed for lack of substantial evidence.' [Citations.]" (Wise v. DLA Piper LLP (US) (2013) 220 Cal.App.4th 1180, 1191-1192, italics added (Wise).)
In this case, defendants do not point to a finding by the trial court that was based "solely on [Healy's] opinion." (Wise, supra, 220 Cal.App.4th at p. 1192, italics added.) Rather, it is apparent from the statement of decision that Healy's testimony and the exhibits she prepared were among many pieces of evidence that the court relied on in reaching its findings.
For example, the trial court determined that Gobert and Estates on the Bay permitted Silva to engage in activity requiring a license and to be compensated for such activity. In making this determination, the court stated: "The clearest picture of the extent of control and operation of [Estates on the Bay] by Susana Silva is shown by the documentary evidence presented, particularly (a.) the bank records for the account ending in 8038, showing that Silva had near complete, if not complete, control over the funds of [Estates on the Bay] and in its account, and the use of these funds for her benefit despite a contention that she was an 'uncompensated employee'; (b.) [Silva's] accountant's worksheet ([trial exhibit] 75) showing a K-1 distribution of 2007 corporate income from [Estates on the Bay] to Silva; and (c.) loan applications signed by Susana Silva at different times in 2006 representing herself as owner of [Estates on the Bay] and as earning over $13,000 per month as such . . . . The testimony of plaintiff expert Cynthia Healy reinforces this conclusion. The Court is convinced that despite the July 2004 revocation order, Silva continued to function as a broker and to operate [Estates on the Bay] as a de facto sole proprietorship during a period which included 4/6/06 to 5/8/08." (Italics added.)
Defendants make no contention that the other pieces of evidence relied on by the trial court, particularly (a) the bank records, (b) the K-1 worksheet, and (c) Silva's loan applications, are insufficient to support the court's findings that Silva exercised control over the operation of Estates on the Bay and that she was compensated for activity requiring a license. Thus, even assuming one or more of Healy's opinions was not supported by substantial evidence, defendants fail to affirmatively show that the court's findings are not supported by substantial evidence. Accordingly, defendants fail to establish that their liability on the UCL cause of action should be reversed. (See Baxter Healthcare, supra, 120 Cal.App.4th at p. 368; Wise, supra, 220 Cal.App.4th at pp. 1191-1192.)
c. Bank account signature card
In the statement of decision, the trial court determined that Silva "exercised nearly complete, if not complete, control over . . . 'corporate' income." In making this finding, the court relied on, among other evidence, a 2002 signature card for Account 8038 that contained only Silva's signature.
In their reply brief on appeal, defendants include a section entitled, "The signature card ruling was erroneous." (Bold and some capitalization omitted.) Defendants observe that the trial court admitted into evidence a defense exhibit that was purportedly a later signature card from 2004. This defense exhibit purportedly reflects Silva's and Gobert's authority, as of 2004, to sign checks for Account 8038. In considering whether to admit this defense exhibit into evidence, the court stated that it had "some reservations about whether . . . the business records exception [to the hearsay rule] has been established, namely that the sources of information and method and time of preparation were such as to indicate its trustworthiness." (See Evid. Code, § 1271, subd. (d).) Although the court had "serious reservations" about the trustworthiness of the defense exhibit, the court ultimately admitted the defense exhibit into evidence, after plaintiff indicated that there was not "much prejudice" to plaintiff if the document was admitted. However, the court also stated that it was "not going to give [the defense exhibit] much weight." In the statement of decision, the court did not expressly discuss the purported 2004 signature card containing Silva's and Gobert's signatures, and instead relied on the signature card from 2002 that contained only Silva's signature.
We understand defendants to contend that the trial court erred in relying on the 2002 signature card, instead of the purported later 2004 signature card containing both Silva's and Gobert's signatures. As we stated above, " '[w]e may not reweigh the evidence and are bound by the trial court's credibility determinations. [Citations.] Moreover, findings of fact are liberally construed to support the judgment. [Citation.]' [Citation.]" (Cuiellette, supra, 194 Cal.App.4th at p. 765.) In this case, the statement of decision reflects that the court impliedly found the purported 2004 signature card untrustworthy, and that it relied on the 2002 signature card instead. We may not reweigh that determination on appeal. (Ibid.)
d. Expert Sweeney's opinions
Defendants contend that the trial court allowed plaintiff's expert witness, John Sweeney, "to provide opinions on issues of law" over defense objection, and that the error was prejudicial. In response, plaintiff contends that the trial court "properly limited expert opinion testimony to issues of fact," and that the court indicated at the outset of Sweeney's testimony that it would not consider opinions on issues of law.
Sweeney testified that he obtained a real estate broker's license in 1973. He worked at the Department of Real Estate from 1987 to 2009, where he was a deputy commissioner, now known as an investigator, and he ultimately retired as a district manager. While working at the department, Sweeney was involved with about 5,000 investigations, either in conducting the investigation or as a supervisor. After voir dire by the defense, the trial court ruled that Sweeney could testify as an expert, but indicated that Sweeney could not "opine there was a violation" of the law because "that is exclusively within the purview of the trier of fact." The court also observed that opinion testimony is not "inadmissible simply because it . . . reaches an ultimate question of fact in the case." (See Evid. Code, § 805.)
"[O]pinion testimony may encompass 'ultimate issues' within a case." (People v. Prince (2007) 40 Cal.4th 1179, 1227.) Evidence Code section 805 provides that "[t]estimony in the form of an opinion that is otherwise admissible is not objectionable because it embraces the ultimate issue to be decided by the trier of fact." "However, the admissibility of opinion evidence that embraces an ultimate issue in a case does not bestow upon an expert carte blanche to express any opinion he or she wishes. [Citation.] There are limits to expert testimony, not the least of which is the prohibition against admission of an expert's opinion on a question of law." (Summers v. A. L. Gilbert Co. (1999) 69 Cal.App.4th 1155, 1178 (Summers).)
"A trial court's determination that expert testimony is admissible is reviewed for an abuse of discretion. [Citations.]" (Summers, supra, 69 Cal.App.4th at p. 1168.) "The erroneous admission of evidence requires reversal of a judgment only when it results in a 'miscarriage of justice.' [Citation.] The admission of improper evidence results in a miscarriage of justice only if ' "it is reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error." ' [Citation.]" (Rappaport v. Gelfand (2011) 197 Cal.App.4th 1213, 1229 (Rappaport).)
Defendants fail to demonstrate reversible error. Assuming, without deciding, that Sweeney's opinions (which defendants do not expressly identify) concern issues of law, defendants do not provide a meaningful analysis of prejudice, that is, demonstrate a reasonable probability that they would have obtained a more favorable result if Sweeney's opinions had been excluded. (Rappaport, supra, 197 Cal.App.4th at p. 1229.) Defendants argue that the admission of Sweeney's (unidentified) opinions was prejudicial, because (1) his opinions were "on core legal issues in the case," (2) his "testimony was emphasized during Plaintiff's closing arguments," and (3) his "opinions are mirrored in the court's decision" (without expressly identifying which factual finding or legal conclusion by the court "mirrored" Sweeney's opinions). These arguments by defendants boil down to a contention that Sweeney's opinions were relevant to the issues in the case. Defendants fail, however, to provide any meaningful analysis of the other evidence presented at trial, and whether it is reasonably probable the court would have found in their favor on the UCL claim in the absence of Sweeney's opinions. No basis for reversal has been shown.
C. Remedies
Defendants challenge certain aspects of the civil penalties, restitution, and injunctive relief ordered by the trial court for the violations of the false advertising law and the UCL. We will consider each contention in turn.
1. Civil Penalties
a. False advertising violations
Defendants contend that the statute of limitations for the false advertising cause of action commenced on April 6, 2007, as determined by the trial court, but that the court erroneously used an earlier date - April 6, 2006 - to calculate civil penalties. Defendants contend that the civil penalties for the false advertising cause of action "should only be assessed back to the court's limitation date of April 6, 2007."
Plaintiff contends that defendants' false advertising was determined by the trial court to violate the false advertising law and the UCL. According to plaintiff, the trial court declined to "stack penalties under both statutes" and only imposed civil penalties under the UCL, which has a limitations period that is one year longer.
In the statement of decision, the trial court determined that the parties executed two tolling agreements which extended the statute of limitations on the first cause of action under the false advertising law to April 6, 2007, and extended the statute of limitations on the second cause of action under the UCL to April 6, 2006. The court found that defendants engaged in deceptive advertising between April 6, 2006 and May 8, 2008. The court concluded that defendants' deceptive advertising violated the false advertising law under the first cause of action and constituted an illegal business practice in violation of the UCL under the second cause of action. The court refused, however, to " 'stack' " the statutory penalties for the two causes of action. Instead, the court only imposed the statutory penalty under the second cause of action for violation of the UCL. In calculating a civil penalty of $7,630 for defendants' false advertising, the court relied on the limitations period for the UCL claim and determined that the violations occurred for 763 days, between April 6, 2006, and May 8, 2008.
Under the UCL, "unfair competition" includes "unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false advertising law]." (§ 17200.) Thus, " '[a]ny violation of the false advertising law . . . necessarily violates' the UCL. [Citation.]" (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950-951.) The false advertising law and the UCL provide for civil penalties in a civil action brought in the name of the people of the State of California by a district attorney. (§§ 17536, subd. (a), 17206, subd. (a).) The statute of limitations for a UCL claim is four years pursuant to section 17208. "[T]he language of section 17208 admits of no exceptions. Any action on any UCL cause of action is subject to the four-year period of limitations created by that section." (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179 [rejecting a claim that "the shorter periods of limitation applicable to contractual or statutory wage claims govern a UCL action based on failure to pay wages"].)
Section 17208 states: "Any action to enforce any cause of action pursuant to this chapter shall be commenced within four years after the cause of action accrued. No cause of action barred under existing law on the effective date of this section shall be revived by its enactment."
It is apparent from the statement of decision that the trial court imposed civil penalties for defendants' deceptive advertising under the second cause of action for violation of the UCL, and not under the first cause of action for violation of the false advertising law. As the court imposed the civil penalties under the UCL and not under the false advertising law, defendants fail to demonstrate error by the court's use of the limitations period applicable to the UCL when calculating the penalties.
b. UCL violations
The trial court imposed civil penalties for other violations of the UCL by defendants. Relevant here, the court determined that defendants violated the UCL in connection with two mortgage loans that they brokered for Rosa, by violating section 10176, subdivisions (a) (making a "substantial misrepresentation"), (c) (continued course of misrepresentation or making of false promises), and (i) (any other conduct involving "fraud or dishonest dealing").
Section 10176 states in relevant part: "The [Real Estate] commissioner may, upon his or her own motion, and shall, upon the verified complaint in writing of any person, investigate the actions of any person engaged in the business or acting in the capacity of a real estate licensee within this state, and he or she may temporarily suspend or permanently revoke a real estate license at any time where the licensee, while a real estate licensee, in performing or attempting to perform any of the acts within the scope of this chapter has been guilty of any of the following: [¶] (a) Making any substantial misrepresentation. [¶] . . . [¶] (c) A continued and flagrant course of misrepresentation or making of false promises through real estate agents or salespersons. [¶] . . . [¶] (i) Any other conduct, whether of the same or a different character than specified in this section, which constitutes fraud or dishonest dealing. . . ."
In particular, the trial court found that defendants deliberately and knowingly overstated Rosa's income on mortgage loan applications to induce the lenders to fund the loans. The court determined that the "gross overstatement of Rosa's income" occurred "on multiple occasions and transactions." The court stated that "these serious violations" took place for 86 days between April 6, 2006, and July 1, 2006, which the court indicated was the period between the opening of a mortgage loan application for Rosa's Lowell Street residence, and the close of a mortgage loan associated with Rosa's purchase of a rental property on Wilson Street. The court further found that the practices unjustly enriched defendants at Rosa's expense, and that the practices were "a repeat by Silva of the very conduct which led the [Department of Real Estate] to revoke her license." The court concluded that "the equities warrant a daily penalty of $250 for a total penalty of $21,500." The court indicated that it had "carefully considered the circumstances presented, including the factors which the Court must weigh" under section 17206.
On appeal, defendants characterize the trial court's imposition of a daily penalty for 86 days as a finding of "86 violations." According to defendants, "two false loan applications" cannot be converted into 86 violations "merely because 86 days passed between the two violations." Defendants also contend that, even if a daily penalty is proper, the loan on the Wilson Street property closed on June 16, 2006, and not July 1, 2006, as indicated by the court.
Plaintiffs contend that the trial court acted within its discretion in imposing a civil penalty of $21,500.
Section 17206 provides that, in an action brought in the name of the people of the State of California, a defendant who "has engaged . . . in unfair competition shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation." (Id., subd. (a).) Section 17206 further provides that "[t]he court shall impose a civil penalty for each violation" of the UCL. (Id., subd. (b).) "In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth." (Ibid.)
"The amount of the penalty depends in the first instance on the number of violations committed. [Citation.] It is up to the courts to 'determine what constitutes a "violation" . . . ' [Citation.] '[Business and Professions Code] [s]ection[] 17206 . . . fail[s] to specify what constitutes a single violation, leaving it to the courts to determine appropriate penalties on a case-by-case basis. [Citation.]' [Citation.]" (People ex rel. Kennedy v. Beaumont Investment, Ltd. (2003) 111 Cal.App.4th 102, 127-128 (Kennedy).) "[D]etermining what qualifies as a single violation 'depends on the type of violation involved, the number of victims and the repetition of the conduct constituting the violation—in brief, the circumstances of the case.' [Citations.]" (Id. at p. 129.) Depending on the case, it may be proper to calculate violations on a "per victim" basis or a "per act" basis. (Id. at pp. 128, 129.) For example, on a "per act" basis, " 'a single act in violation of regulations may constitute an unlawful business practice—a "violation" for which a penalty of up to $2,500 may be imposed. [Citations.]' [Citations.]" (Id. at p. 129, italics omitted.)
We review the amount of the civil penalty imposed by the trial court under an abuse of discretion standard. (People v. JTH Tax, Inc. (2013) 212 Cal.App.4th 1219, 1250.) The abuse of discretion standard " 'asks in substance whether the ruling in question "falls outside the bounds of reason" under the applicable law and the relevant facts [citations].' [Citation.]" (People v. Giordano (2007) 42 Cal.4th 644, 663.)
In this case, the trial court's statement of decision reflects that Rosa and two lenders were victims. The conduct at issue was defendants' misrepresentations overstating Rosa's income on two loan applications for the Lowell Street property and on two loan applications for the Wilson Street property. Assuming, without deciding, that it would have been proper for the court to determine that there were two violations based on income misrepresentations in loan applications that induced the funding of two loans, or that there were three violations based on three victims (Rosa and the two lenders), or that there were four violations based on income misrepresentations affecting Rosa and a lender as to each of the two properties, multiplying even four violations by the maximum civil penalty of $2,500 (§ 17206, subd. (a)) totals only $10,000.
A handwritten loan application and a typewritten loan application were apparently submitted to a lender regarding each property. Although two loan applications were submitted for each property, the representations regarding Rosa's income are consistent between the handwritten and typewritten applications as to each property and resulted in only one loan for each property.
Plaintiff does not expressly dispute that the loan on the Wilson Street property closed on June 16, 2006, as argued by defendants, rather than on July 1, 2006, as indicated by the court. However, plaintiff contends that the civil penalty of $21,500 imposed by the trial court was well within the court's discretion. Plaintiff argues that the court "found 3 daily violations" of section 10176 "affecting not just Rosa, but her 2 lenders." Plaintiff contends that the loan transactions involved an appraisal, loan applications, communications with escrow officers, and manipulation of Rosa, which led the court "to conclude that the 3 separate Section 10176 violations took place on a daily basis" from the start to the close of the loan transactions. Plaintiff argues that the court's "use of 86 days as the proverbial yardstick is well supported by all of this evidence and a proper exercise of discretion." Alternatively, plaintiff contends that the court could have conservatively estimated that six lender employees (three employees at each lender) likely read and relied on the false income information and, along with the effect of the violations on Rosa, the court could have calculated a total of eight violations. Plaintiff observes that this would result in a penalty of $20,000 (eight times $2,500), which is "the approximate equivalent of the actual penalty" of $21,500 imposed by the court.
We are not persuaded by plaintiff's arguments. The trial court's statement of decision reflects that the false income representations on the loan applications were the basis for the court's finding that defendants violated multiple subdivisions of section 10176. Plaintiffs do not point to any evidence in the record or in the court's statement of decision that would support a conclusion that those false income representations were made to one or more victims on a daily basis for 86 days. Plaintiffs also do not provide any legal authority to support the proposition that a loan application to one lender may generate multiple violations based on the number of employees of the lender who viewed and relied on the application, nor does plaintiff point to evidence in the record that would support a factual finding in this regard.
We conclude that the $21,500 civil penalty for the loan application income misrepresentations "does not appear to be tethered" (People ex rel. Harris v. Sarpas (2014) 225 Cal.App.4th 1539, 1567 (Sarpas)) to the requirement of section 17206 that a civil penalty of up to $2,500 be imposed for "each violation" of the UCL. (§ 17206, subds. (a) & (b).) We will therefore strike $21,500 from the total civil penalty imposed, which represents the civil penalty for the Category 3 Violations as termed in the court's statement of decision, and remand with directions to recalculate the amount of the civil penalty for these violations.
2. Restitution
a. Rosa's bankruptcy
The trial court determined that defendants violated the UCL by, among other acts, grossly overstating Rosa's income on mortgage loan applications. The court ordered defendants to pay restitution to Rosa in the amount of $29,575.
Defendants contend that Rosa filed for bankruptcy, and that she failed in the bankruptcy proceeding to list her claim against them as an asset of the bankruptcy estate. Defendants argue that a cause of action not properly disclosed in the bankruptcy proceeding remains the property of the bankruptcy estate and that only the bankruptcy trustee may pursue the cause of action. Defendants contend that Rosa consequently lacks standing to pursue a restitution claim against them, that the district attorney could not pursue such a claim on behalf of Rosa, and that the bankruptcy trustee was the "only one with a right to restitution." Defendants also argue that the doctrine of judicial estoppel precludes restitution to Rosa.
Plaintiff contends that it had standing to pursue the UCL action under section 17204, and that the action was "exempt from the bankruptcy stay." Plaintiff further argues that Rosa's conduct in connection with the bankruptcy proceeding has "no significance" in this case.
We review a trial court's restitution award for abuse of discretion. (See Kennedy, supra, 111 Cal.App.4th at p. 135.) " 'The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason.' [Citation.] Under the abuse of discretion standard, '[w]here there is a [legal] basis for the trial court's ruling and it is supported by the evidence, a reviewing court will not substitute its opinion for that of the trial court.' [Citation.]" (Sarpas, supra, 225 Cal.App.4th at p. 1552.)
Defendants fail to demonstrate that the restitution order must be reversed.
First, defendants do not provide adequate record citations for their factual assertions regarding Rosa's bankruptcy. For example, defendants assert that Rosa was granted a bankruptcy discharge, but they fail to provide a record citation showing that evidence was admitted at trial concerning the bankruptcy discharge. The disposition of Rosa's bankruptcy petition is relevant to whether she may thereafter assert causes of action against defendants or whether judicial estoppel applies. (See Hamilton v. State Farm Fire & Cas. Co. (9th Cir. 2001) 270 F.3d 778, 783-785; Crawford v. Franklin Credit Management Corp. (2d Cir. 2014) 758 F.3d 473, 484-485; Menk v. Lapaglia (In re Menk) (Bankr. 9th Cir. 1999) 241 B.R. 896, 911-912; Circle Star Center Associates, L.P. v. Liberate Technologies (2007) 147 Cal.App.4th 1203, 1209; Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 137-138.) Although the trial court apparently excluded some evidence concerning Rosa's bankruptcy and denied one or more of defendants' requests for judicial notice concerning the bankruptcy, defendants have not expressly or adequately challenged any of those evidentiary rulings on appeal by showing prejudicial error, nor have they argued that the judgment should be reversed and remanded for a new trial because of any such prejudicial evidentiary error regarding the bankruptcy issue. Rather, we understand defendants to only contend that the order of restitution should be reversed/stricken by this court. In the absence of sufficient evidence admitted at trial concerning Rosa's bankruptcy however, defendants fail to demonstrate that the trial court abused its discretion in ordering restitution payable to Rosa.
Second, to the extent defendants provide a citation to the record concerning a purported ruling by the trial court regarding the issue of Rosa's bankruptcy or equitable estoppel, defendants fail to demonstrate error.
For example, defendants cite to a statement by the trial court after they made an evidentiary objection during plaintiff's examination of Silva. The court stated that whatever Rosa said to the bankruptcy court is "really not in issue." Defendants fail to explain why this was an erroneous "ruling." We observe that the court further stated, "I am working through this," before the court finally concluded, "Since it's raised as an affirmative defense [Rosa] committed bankruptcy fraud, I suppose it is at issue in this action." (Italics added.) The court ultimately overruled defendants' objection and allowed plaintiff to ask Silva whether she had an opinion about Rosa's reputation in the community for honesty and trustworthiness. Silva responded, "I don't." Defendants fail to demonstrate prejudicial error by the court concerning this ruling.
As another example, defendants cite to a portion of the trial record after plaintiff made an evidentiary objection during defendants' examination of Silva. Defense counsel had asked Silva about her "understand[ing]" of Rosa's claim for damages. The trial court asked defense counsel to explain the relevance of the question. Defense counsel referred to Rosa, judicial estoppel, and the district attorney's prosecution of the action. The court stated that Rosa was not a party to the action and asked defense counsel to provide legal authority to the effect that estoppel applies to nonparties. Defense counsel indicated that he would provide such authority. On appeal, defendants fail to demonstrate prejudicial error by the court in this portion of the record.
In another example, defendants cite to a part of the record, early in the trial, where all counsel and the court were discussing remedies. The court stated, "Well we'll address the scope of any remedy in the event liability is found, again, later in the case. I think I understand the parties' position and it is not really judicial estoppel it's what's the amount of restitution or a remedy that would be available if liability is established." Defendants fail to articulate why this constituted an erroneous and prejudicial "ruling" in the context in which the court made the statement.
In sum, defendants fail to demonstrate that the trial court abused its discretion in requiring them to pay restitution to Rosa.
b. Mortgage prepayment penalty
As we have explained, the trial court determined that defendants violated the UCL by, among other acts, grossly overstating Rosa's income on mortgage loan applications, which induced the lenders to fund the loans. One of the loans was a refinance of Rosa's existing mortgage on the Lowell Street property. The court found that, as a "consequence" of the loan transaction involving defendants, Rosa incurred a pre-payment penalty of $9,950 or $9,500.69 in connection with her paying off the existing mortgage on the Lowell Street property. The court determined that defendants were unjustly enriched at Rosa's expense and ordered defendants to pay restitution to Rosa, including $9,950 for the prepayment penalty.
On appeal, defendants contend that the prepayment penalty constitutes damages, which are not recoverable under the UCL.
Plaintiff contends that Rosa would not have incurred the pre-payment penalty "had she not agreed to Silva's recommendations to invest her equity into a loan obligation she could not afford." To the extent the order of restitution for the prepayment penalty was erroneous, plaintiff argues that the matter should be remanded so that the trial court may consider increasing the civil penalty instead.
A UCL action is equitable in nature, and a plaintiff may recover restitution but not compensatory damages. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144 (Korea Supply); Zhang, supra, 57 Cal.4th at p. 371.) Section 17203 of the UCL authorizes a trial court to make an order or judgment of restitution "as may be necessary to restore to any person in interest any money . . . which may have been acquired by means of such unfair competition." (Italics added.) " 'A restitution order against a defendant thus requires both that money or property have been lost by a plaintiff, on the one hand, and that it have been acquired by a defendant, on the other.' [Citation.]" (Zhang, supra, at p. 371, italics added; accord, Korea Supply, supra, at p. 1149; Shersher v. Superior Court (2007) 154 Cal.App.4th 1491, 1498 (Shersher) [restitution is "the return of money or property the defendant acquired through its unfair practices"].)
In this case, the prepayment penalty was paid to the lender of the prior mortgage loan on the Lowell Street property. Plaintiff does not make any contention that defendants, who were involved in Rosa's application for the new mortgage loan on the property, received any portion of the prepayment penalty. We conclude that the prepayment penalty may not be awarded as restitution. (Zhang, supra, 57 Cal.4th at p. 371; Korea Supply, supra, 29 Cal.4th at p. 1149; Shersher, supra, 154 Cal.App.4th at p. 1498.) We will therefore strike $9,950 from the restitution award for the prepayment penalty.
We have already concluded that the matter must be remanded for recalculation of the amount of the civil penalty for the UCL violations arising out of defendants' misrepresentations on Rosa's loan applications. We express no opinion as to whether the civil penalty may be increased by at least the amount of the prepayment penalty as plaintiff now contends. We simply observe that a defendant who "has engaged . . . in unfair competition shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation." (§ 17206, subd. (a); see id., subd. (b).)
c. Commissions and premium
In addition to the prepayment penalty, the trial court also ordered defendants to pay restitution of approximately $20,000 to Rosa for (a) the commissions defendants received for brokering the loans on the Lowell Street and Wilson Street properties, and (b) a yield spread premium defendants received on the Lowell Street loan.
Defendants contend that Rosa is not entitled to restitution for these amounts. According to defendants, Rosa "engaged [them] to help her refinance and acquire rental property, and that is exactly what she got." Defendants argue that "[t]here was no showing that the fees charged were unfair," and they contend that the court was unable to conclude that Rosa's eventual loss of the properties was the result of unfair competition by them.
Plaintiff contends that the lenders relied on defendants' false income information about Rosa in funding the loans, and that defendants earned the commissions and premium as a result of the loans. Given that defendants derived the amounts through their unlawful conduct, plaintiff argues that the court did not error in awarding those amounts as restitution. Plaintiff also argues that defendants' argument is "moot" because the court could have instead awarded higher civil penalties "to ensure that the [defendants] did not retain profits earned through unfair competition."
As we set forth above, section 17203 of the UCL authorizes a trial court to make an order or judgment of restitution "as may be necessary to restore to any person in interest any money . . . which may have been acquired by means of such unfair competition." In this case, the trial court expressly found that defendants' misrepresentations regarding Rosa's income induced the lenders to fund the loans, and that defendants were unjustly enriched in receiving the commissions and fees at Rosa's expense. Given that defendants "acquired" the commissions and fees from Rosa "by means of . . . unfair competition" (§ 17203), that is, by making misrepresentations on the loan applications to induce the lenders to make the loans, we determine that the trial court did not abuse its discretion in ordering defendants to pay the amounts as restitution to her.
We are not persuaded by defendants' reliance on Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350 (Durell), for the proposition that restitution is not available when the complainant " ' "gets the exchange which he [or she] expected." ' " (Id. at p. 1371.) In Durell, the plaintiff sued the defendant for deceptive and unfair practices in billing uninsured patients. A judgment of dismissal was entered after the plaintiff failed to sufficiently allege a UCL violation or other claim. (Id. at p. 1355.) The appellate court affirmed the judgment. (Ibid.)
In contrast, in the present case, defendants were able to induce the lenders to make the loans to Rosa only by making misrepresentations in her loan applications, which violated the UCL. Under the circumstances, the restitution award to Rosa was proper.
3. Injunction
The trial court issued several injunctive orders based on defendants' violations of the false advertising law and the UCL. Defendants contend that some of the injunctive orders must be reversed. We consider each of their contentions in turn.
a. Recordkeeping requirements (paragraph Nos. 6.B. and D.)
Paragraph No. 6 of the judgment contains the following orders:
"B. Defendants shall, for any actual or proposed transactions, comply with . . . section 10148(a) and maintain all records defined by that statute, and shall also maintain copies of any documents submitted to lenders, title companies or clients for a period of no less than three years from the date of close of escrow or last activity on the file by any Defendant, whichever occurs later. [¶] . . . [¶]
"D. With respect to the documents identified in Paragraphs 6(B) . . . herein, the Court orders that the Defendants shall make these documents and related information available for inspection by the Monterey County District Attorney's Office, with leave of Court first obtained."
Defendants contend that, because the trial court found that they did not violate section 10148, subdivision (a), it is error for the court to require compliance with that subdivision and to impose related recordkeeping requirements as part of its injunctive orders.
The UCL and the false advertising law provide for equitable remedies, including injunctive relief. Specifically, the trial court "may make such orders or judgments . . . as may be necessary to prevent the use or employment . . . of any practice" which constitutes unfair competition or false advertising. (§ 17203; see § 17535.) "An action filed by the People seeking injunctive relief . . . is fundamentally a law enforcement action designed to protect the public . . . . The purpose of injunctive relief is to prevent continued violations of law and to prevent violators from dissipating funds illegally obtained." (People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 17 (Pacific Land Research).) "Injunctive relief 'may be as wide and diversified as the means employed in perpetration of the wrongdoing.' [Citation.]" (Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 540.) A court's grant of injunctive relief is reviewed for abuse of discretion. (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 701 (Colgan); see Zhang, supra, 57 Cal.4th at p. 371.)
In People v. Toomey (1984) 157 Cal.App.3d 1 (Toomey), the trial court determined that the defendant violated the false advertising law and the UCL based on the defendant's sale of coupons for use at casinos. (Toomey, supra, at pp. 6, 10.) Among the evidence presented was evidence that buyers did not always receive what was represented in the advertisements, some of the coupons were for businesses that were no longer operating, and dissatisfied customers found it difficult to get a refund from the defendant. (Id. at p. 9.) The trial court's injunctive order included (1) a requirement that the defendant maintain "records of complaints, refunds and customer correspondence," (2) a requirement that the defendant submit to warrantless searches and seizures, and (3) a prohibition on the defendant from using any business name without first notifying the Attorney General's office. (Id. at p. 21.)
On appeal the defendant contended that the injunction was overbroad and that it prohibited otherwise lawful conduct. (Toomey, supra, 157 Cal.App.3d at p. 20.) The appellate court disagreed. The court determined that "the challenged provisions of the permanent injunction are necessary to the objective of preventing future violations. . . . The recordkeeping, search and business-name notification provisions are important to monitor [the defendant's] business and thereby encourage compliance with the substantive terms of the judgment." (Id. at p. 21.) The court concluded that "the provisions of the permanent injunction [were] properly designed to prevent unfair trade practices and deter [the defendant] and others from future misconduct." (Ibid.)
In this case, regarding plaintiff's UCL cause of action, the trial court stated in the statement of decision that it was "unable to find, from the evidence presented, that the Defendants had engaged in violations of [section] 10148(a) or Penal Code . . . section 135 based upon allegations that they failed to maintain certain business records, particularly client files." Although the court did not find a violation of section 10148, subdivision (a) as a basis for UCL liability, we believe that the court could properly require defendants to comply with section 10148, subdivision (a), as well as other recordkeeping requirements. The recordkeeping requirements in the judgment require defendants to maintain records in connection with any transactions for which a real estate broker's license is required (§ 10148, subd. (a)), to "maintain copies of any documents submitted to lenders, title companies or clients," and to make the documents available for inspection by the district attorney upon leave of court. As defendant's UCL violations arose out of (1) Silva's operation of a real estate business and activity requiring a license that she did not possess and (2) defendants' misrepresentations on loan applications, compliance with these recordkeeping provisions "are important to monitor [the defendant's] business and thereby encourage compliance with the substantive terms of the judgment." (Toomey, supra, 157 Cal.App.3d at p. 21.) Accordingly, we find no abuse of discretion by the trial court in requiring defendants to comply with these recordkeeping requirements.
Section 10148, subdivision (a) states: "A licensed real estate broker shall retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transactions for which a real estate broker license is required. The retention period shall run from the date of the closing of the transaction or from the date of the listing if the transaction is not consummated. After notice, the books, accounts, and records shall be made available for examination, inspection, and copying by the commissioner or his or her designated representative during regular business hours; and shall, upon the appearance of sufficient cause, be subject to audit without further notice, except that the audit shall not be harassing in nature. . . ."
At all relevant times in this action, former Penal Code section 135 provided: "Every person who, knowing that any book, paper, record, instrument in writing, or other matter or thing, is about to be produced in evidence upon any trial, inquiry, or investigation whatever, authorized by law, willfully destroys or conceals the same, with intent thereby to prevent it from being produced, is guilty of a misdemeanor." (Enacted 1872.)
b. Restrictions on real estate activities (paragraph No. 6.E.)
Paragraph No. 6.E. of the judgment states: "Silva and Gobert shall not jointly engage in the sale (this specifically includes acting as real estate agents or brokers) or financing (specifically including, but not limited to, originating, negotiating or soliciting loans) of real estate. The Court notes that this prohibition does not prevent Silva and/or Gobert from managing, acquiring or disposing of real property held jointly by them for their own, sole benefit. However, they are ordered to maintain all documents relating to such transactions and make them available for inspection by the Monterey County District Attorney's Office, with leave of Court first obtained."
Defendants contend that the trial court does not have jurisdiction to "enjoin a person from engaging in activities which are constitutionally or statutorily authorized," citing People v. Kelley (1977) 70 Cal.App.3d 418 (Kelley). Defendants argue that Silva and Gobert were licensed and authorized to work with each other, and thus the injunction impairs their " 'constitutional right to engage in lawful work activity' " and "interfere[s] with their constitutional rights to free association and noninterference with their family relationship as sisters," citing City of Los Altos v. Barnes (1992) 3 Cal.App.4th 1193 (City of Los Altos), among other authorities. Defendants also argue that the requirements that they maintain and make certain documents available for inspection are improper.
We determine that defendants do not establish a basis for striking these provisions in the injunction.
First, defendants fail to provide legal authority for the proposition that Silva and Gobert have a constitutional or statutory right to work with each other in real estate. (See Kenneally v. Medical Board (1994) 27 Cal.App.4th 489, 496 [" 'there is no fundamental constitutional right to work for, or to have continued employment with, a particular public or private employer' "]; City of Los Altos, supra, 3 Cal.App.4th at p. 1201 [ordinance restricting home occupations was constitutional where it did "not intrude into [the defendant's] private affairs" nor "regulate with whom she resides, inquire into whom she employs or force her to divulge information about whom her associates are"].)
Second, assuming Silva and Gobert each has a constitutional right to engage in lawful work activity, and a constitutional right to associate with each other as sisters, the injunction does not completely bar the exercise of either right. Silva and Gobert may each individually work in real estate (as long as they comply with the other provisions of the injunction), and they are free to associate with each other. The only limitation provided by paragraph No. 6.E. of the judgment is that they may not "jointly engage in the sale . . . or financing . . . of real estate" (italics added), and even this provision is subject to an exception for property "held jointly by them for their own, sole benefit." We also observe that the judgment allows Silva and Gobert to seek "modification or dissolution of one or more of the injunctive terms on a date that is three (3) or more years after entry of Final Judgment, upon a showing of good cause that the injunctive provision[] in question is no longer necessary and that all the Defendants have complied with [the] terms of that injunctive provision[] and/or Final Judgment."
Third, to the extent the injunctive provision impairs a constitutional right of Silva or Gobert, defendants fail to provide persuasive legal authority establishing that the provision must be stricken from the judgment.
In this case, the trial court explained the basis for injunctive relief in the statement of decision. The court found that Silva stipulated to the entry of a June 2004 order revoking her broker's license, after the Department of Real Estate had filed an accusation alleging two incidents in which she falsified bank account balances for borrowers on loan applications. The court found that both Silva and Gobert knew about the existence and meaning of the revocation order. The court observed, however, that Gobert at trial believed the revocation of Silva's license was based on a misunderstanding with Silva's prior broker, and that Gobert did not believe the accusation arose from the allegation that Silva had falsified borrower information on two loan applications. The court also observed that Silva testified at trial that she did not believe it was illegal to falsify borrower information on a loan application. The court further found that Silva, with Gobert's "active assistance, and despite the June 2004 revocation order, continued to manage the loan brokerage and act as a broker without being so licensed," and that Gobert permitted Silva to compensate herself from loan commission income. Further, Gobert failed to implement procedures as required to ensure that Silva did not engage in licensed activity. The court determined that Silva acted at all times as a principal of Estates on the Bay.
The court further stated in the statement of decision: "The totality of the evidence at trial demonstrates a reasonable likelihood that the . . . unfair business practices could recur, and consequently the need for injunctive relief to protect consumers." The court stated: "[T]he Court is sensitive to the Defendants' argument that they dissolved their business shortly after this case was filed in 2010 and their argument that there was no evidence of violations of law in the past 3 years. That said, the Court finds that the totality of proof, including the Defendants' apparent disregard for a June 2004 revocation order, demonstrates a reasonable risk that Silva and Gobert, both of whom remain licensed in California, could continue to engage in the same conduct to the detriment of consumers and/or clients. [Citation.] Further, the Defendants appear to only have ceased the aforementioned Category 1, 2 & 3 Violations after this present action was filed in December 2010."
"An injunction may not burden the constitutional right of association more than is necessary to serve the significant governmental issue at stake. [Citation.]" (People v. Englebrecht (2001) 88 Cal.App.4th 1236, 1262 (Englebrecht).) An action under the false advertising law and the UCL "filed by the People seeking injunctive relief . . . is fundamentally a law enforcement action designed to protect the public . . . . The purpose of injunctive relief is to prevent continued violations of law . . . ." (Pacific Land Research, supra, 20 Cal.3d at p. 17.) Based on (a) the compelling interest in protecting the public, and (b) the court's findings regarding Silva and Gobert's violations of the law while working together and the reasonable risk that they would continue to engage in the same conduct to the detriment of consumers and/or clients, we determine that the injunction prohibiting them from working together in real estate except under specified conditions was "necessary to serve the significant governmental issue at stake." (Englebrecht, supra, at p. 1262, italics added; see Toomey, supra, 157 Cal.App.3d at p. 21 [injunctive provision prohibiting the defendant's employment relationship or association with a category of people was "necessary to the objective of preventing future violations"].)
Further, as we have explained, the injunction does not preclude Silva or Deana from engaging in real estate work or from associating with each other, except to the extent the association involves real estate work on property not jointly owned by them for their own, sole benefit. "Although [the injunction] places an incidental burden on familial relationships, such burden is necessary under the circumstances in order for the injunction to be effective. The injunction does not burden associational rights more than is necessary to serve the significant governmental interests at stake." (People ex rel. Reisig v. Acuna (2010) 182 Cal.App.4th 866, 886.) "Any attempt to limit the familial associational impact of the injunction would make it a less effective device for dealing with the collective nature of [Silva's and Gobert's] activity." (Englebrecht, supra, 88 Cal.App.4th at p. 1263.)
Defendants' citation to Kelley, supra, 70 Cal.App.3d 418, does not persuade us to reach a contrary conclusion in this case. In Kelley, a district attorney brought a civil action seeking to enjoin the defendants from engaging the practice of dentistry without a license. (Id. at p. 420.) The trial court issued a preliminary injunction prohibiting defendants from practicing dentistry without a license. The appellate court determined that the injunction was overbroad because it also prohibited certain dental practices that were exempt from the licensure requirement. (Id. at pp. 421-422.)
In Kelley, however, the district attorney in support of the injunction made no contention that the broad interpretation was necessary under the facts of the case. Rather, the district attorney argued that "because of [the defendants'] many years' experience as dental technicians, they were fully aware of what was intended to be prohibited by the injunction," that is, only certain activities. (Kelley, supra, 70 Cal.App.3d at p. 422.) The appellate court was unpersuaded, stating "an injunctive order which is overly broad cannot be cured by reference to the 'context' in which it issues [citation]. The injunction must stand or fall on the basis of what it purports to enjoin; the fact that it literally prohibits more than the practice of dentistry[], i.e., [the defendants'] lawful activity as unlicensed dental technicians, cannot be overcome by speculation that [the defendants] subjectively understood what was intended by the injunction." (Id. at pp. 422-423.) The appellate court concluded that the preliminary injunction was invalid because it "prohibit[ed] [the defendants] from engaging in a constitutionally protected and statutorily authorized activity." (Id. at p. 423.)
In contrast, as we have explained, the injunction prohibiting certain real estate activities by the defendant sisters in this case was necessary to protect the public. We conclude that the injunction does not impermissibly burden Silva's or Gobert's constitutional rights.
Fourth, we also conclude that defendants' contention regarding the recordkeeping and inspection requirements of paragraph No. 6.E. of the judgment is without merit. In this regard the injunction requires them to maintain all documents relating to transactions involving the disposition of real property held jointly by them for their own, sole benefit, and to make them available for inspection by the district attorney upon leave of court. Defendants contend that their "UCL violations are entirely unrelated to [Silva's] and [Gobert's] jointly-held real estate ventures." However, similar to the requirements of paragraph No. 6.B., these recordkeeping and inspection requirements are "important to monitor" Silva's and Gobert's real estate activities and "thereby encourage compliance with the substantive terms of the judgment" (Toomey, supra, 157 Cal.App.3d at p. 21), including that any joint real estate activities by them involve only property jointly held by them for their own, sole benefit.
c. Advertising consent (paragraph Nos. 6.F. and G.)
Paragraph No. 6 of the judgment contains the follow orders:
"F. Silva and Gobert shall exercise their best efforts to remove any reference to Susana Silva's broker's license from all media, including electronic media and social or business websites, such as LinkedIn, Facebook and Google. . . . This order shall not prevent Silva from disclosing such broker license information in any employment application so long as the starting and ending dates of licensure are set forth as well.
"G. The Court does order that, in order to protect the public from future false or deceptive advertising, Silva and/or Gobert, prior to advertising to the public, in any form, their products or services in any field related to real estate services, property management, or real estate financing, must first submit a complete and accurate copy, by certified mail, of the proposed advertising to the Monterey County District Attorney's Office. This submittal must be made at least fifteen (15) days in advance of publication or dissemination of the same. Without prior, written consent by the Monterey County District Attorney and/or a Court order in this case, the Defendants are ordered not to publish or disseminate that advertising. In the event of a dispute over the content or wording of proposed advertising, either party may submit the issue to the Court for approval, with calendaring to be in accordance with the notice requirements of the California Code of Civil Procedure."
Defendants contend that paragraph Nos. 6.F. and G. are unconstitutional prior restraints that violate their free speech rights.
" ' "[P]rior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights." [Citation.] "The term prior restraint is used 'to describe administrative and judicial orders forbidding certain communications when issued in advance of the time that such communications are to occur.' [Citation.] . . . [P]ermanent injunctions—i.e., court orders that actually forbid speech activities—are classic examples of prior restraints." ' [Citation.] ' "The special vice of a prior restraint is that communication will be suppressed, either directly or by inducing excessive caution in the speaker, before an adequate determination that it is unprotected by the First Amendment." ' [Citations.]" (In re Marriage of Evilsizor & Sweeney (2015) 237 Cal.App.4th 1416, 1427.)
However, "an injunctive order prohibiting the repetition of expression that ha[s] been judicially determined to be unlawful [does] not constitute a prohibited prior restraint of speech." (Balboa Island Village Inn, Inc. v. Lemen (2007) 40 Cal.4th 1141, 1153 (Balboa Island Village Inn).) For example, "an injunction issued following a trial that determined that the defendant defamed the plaintiff that does no more than prohibit the defendant from repeating the defamation, is not a prior restraint and does not offend the First Amendment." (Id. at p. 1148.)
Nonetheless, "a court must tread lightly and carefully when issuing an order that prohibits speech." (Balboa Island Village Inn, supra, 40 Cal.4th at p. 1159.) " 'An order issued in the area of First Amendment rights must be couched in the narrowest terms that will accomplish the pin-pointed objective permitted by constitutional mandate and the essential needs of the public order. In this sensitive field, the State may not employ "means that broadly stifle fundamental personal liberties when the end can be more narrowly achieved." [Citation.] In other words, the order must be tailored as precisely as possible to the exact needs of the case.' [Citations.]" (Ibid.) Thus, an injunction may not be "broader than necessary to provide relief to plaintiff while minimizing the restriction of expression." (Id. at p. 1160.)
In this case, defendants violated the false advertising law by disseminating advertising that implied Silva was a licensed real estate broker when in fact her license had been revoked. Paragraph No. 6.G. of the judgment prohibits defendants from issuing any advertising regarding real estate services, property management, or real estate financing unless they first obtain written consent from the district attorney or a court order. The injunction sweeps more broadly than necessary, because it requires preapproval of (1) advertising that may be unrelated to activities requiring a real estate license, and (2) advertising that does not contain any reference, express or implied, to Silva's licensing status. The injunction should be "tailored as precisely as possible" to preventing the false advertising violation that occurred in this case. (Balboa Island Village Inn, supra, 40 Cal.4th at p. 1159.)
Paragraph No. 6.F. of the judgment, which requires the removal of any reference to Silva's broker's license from all media, also sweeps more broadly than necessary. For example, to the extent the reference to her license includes the start and end dates of her licensure, the representation might not be false or misleading depending on the context.
We will remand the case to allow the trial court an opportunity to precisely tailor these provisions to the underlying false advertising violation.
d. Notification regarding Estates on the Bay (paragraph No. 6.H.)
Paragraph No. 6.H. of the judgment requires defendants "to notify the Monterey County District Attorney in writing, by certified mail, if any interest in [Estates on the Bay] is sold, transferred, licensed or conveyed to another person or entity. This notice must be mailed no less than 30 days prior to such transfer, sale, licensure or assignment, and shall include the name, address and telephone number of the transferee, together with a brief description of the proposed transaction."
Defendants contend that "[t]his order should be reversed for mootness" because "[Estates on the Bay] corporation was dissolved prior to the time of trial." In support of this argument, defendants cite Giles v. Horn (2002) 100 Cal.App.4th 206, 228 (Giles).
"[I]n order to grant injunctive relief under [the UCL] or [the false advertising law], there must be a threat that the wrongful conduct will continue. 'Injunctive relief will be denied if, at the time of the order of judgment, there is no reasonable probability that the past acts complained of will recur, i.e., where the defendant voluntarily discontinues the wrongful conduct.' [Citations.]" (Colgan, supra, 135 Cal.App.4th at p. 702, fn. omitted.)
In this case, the trial court found in the statement of decision that Silva and Gobert were aware of Silva's broker's license being revoked. The court also found that Gobert represented to the Department of Real Estate that Silva would have no role as officer or shareholder in Estates on the Bay, and that Gobert had statutory and regulatory duties to properly supervise employees, whether they were licensed or not. The court determined that Silva nevertheless continued to operate Estates on the Bay as a sole proprietorship and engage in activity requiring a license, and that Gobert enabled this conduct to take place.
The trial court acknowledged in the statement of decision that defendants "closed their business in 2011." However, in ordering permanent injunctive relief, the court explained in the statement of decision as follows: "[T]he Court is sensitive to the Defendants' argument that they dissolved their business shortly after this case was filed in 2010 and their argument that there was no evidence of violations of law in the past 3 years. That said, the Court finds that the totality of proof, including the Defendants' apparent disregard for a June 2004 revocation order, demonstrates a reasonable risk that Silva and Gobert, both of whom remained licensed in California, could continue to engage in the same conduct to the detriment of consumers and/or clients. [Citation.] Furthermore, the Defendants appear to only have ceased the aforementioned Category 1, 2 & 3 Violations after this present action was filed in December 2010."
In view of the trial court's factual findings, including the manner in which Estates on the Bay was operated after Silva's broker's license was revoked, it was rational for the court to conclude that there was a reasonable risk that Silva and/or Gobert would resume operating Estates on the Bay in the future, either by themselves or with someone else, as Silva had done with Gobert. Indeed, defendants themselves have contended that other real estate agents worked at Estates on the Bay, and some of those individuals are apparently family relatives. Under the circumstances, in order to monitor and ensure compliance with the judgment by defendants with respect to future real estate activities, it was not an abuse of discretion for the court to require defendants to provide notice if any interest in Estates on the Bay was sold, transferred, licensed or conveyed to another person or entity. (Toomey, supra, 157 Cal.App.3d at p. 21.)
We are not persuaded by defendants' reliance on Giles. In Giles, the plaintiffs sought, among other relief, to enjoin the expenditure of public funds for certain contracts. Those contracts were fully performed and expired and, by the time of appeal, the defendant had undertaken action that rendered the plaintiffs' claim concerning the contracts moot. (Giles, supra, 100 Cal.App.4th at pp. 228-229.) The appellate court disposed of the plaintiffs' claim upon the ground of mootness and without reaching the merits. (Id. at p. 229.) The appellate court relied on the rule that a court " 'cannot render opinions " '. . . upon moot questions or abstract propositions, or . . . declare principles or rules of law which cannot affect the matter in issue in the case before it.' " ' " (Id. at p. 227.)
In contrast, in the present case, the trial court found a reasonable risk that defendants would continue to engage in the same unlawful conduct to the detriment of consumers and/or clients, notwithstanding the fact that defendants claimed to have closed or dissolved Estates on the Bay. Defendants fail to persuasively demonstrate that the injunctive order concerning Estates on the Bay is moot.
IV. DISPOSITION
The judgment in favor of plaintiff is reversed. The case is remanded to the trial court for the limited purposes of:
(1) striking from the total award of civil penalties the amount of $21,500, which represents the amount imposed for "Category 3 Violations" under paragraph No. 63 of the trial court's statement of decision, and recalculating the amount of civil penalties for such "Category 3 Violations" in accordance with Business and Professions Code section 17206, which provides for a civil penalty of up to $2,500 for "each violation" of the UCL;
(2) reducing the restitution to Elvira Rosa by $9,950, for a total restitution award of $19,625;
(3) recalculating the amount and/or payment of mandatory restitution, discretionary restitution, unsuspended civil penalties, and suspended civil penalties as necessary, in view of the changes to the total amount of civil penalties and restitution as set forth in the preceding two paragraphs; and
(4) precisely tailoring to the false advertising violation in this case the restrictions on references to Susana Silva's broker's license and on advertising (paragraph Nos. 6.F. and G. of the judgment).
The parties are to bear their own costs on appeal.
/s/_________
BAMATTRE-MANOUKIAN, J. WE CONCUR: /s/_________
ELIA, ACTING P.J. /s/_________
MIHARA, J.