Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County Super. Ct. No. BC287492 Michael L. Stern, Judge.
Zimmermann, Koomer, Connolly & Finkel and Scott Z. Zimmermann for Defendants, Cross-Complainants and Appellants.
Hillel Chodos and Diane L. Fella for Plaintiff, Cross-defendant and Respondent.
COOPER, P. J.
The dispute leading to this appeal involved a business venture operated by Zareh Narghizian and Luciano Fabbio where luxury automobiles were purchased by the business and then sold. In a complaint by respondent Fabbio against appellants Zareh and Aida Narghizian and a cross-complaint filed by the Narghizians against Fabbio, the parties accused each other of diverting profits and essentially cheating each other. The jury awarded $310,000 in compensatory damages and $290,000 in punitive damages to Fabbio for Zareh’s fraud and conversion in taking Fabbio’s money in 2001 and using it as partial payment on an unimproved lot on Mt. Olympus in Los Angeles.
We shall use their first names, Zareh and Aida, to differentiate appellants. No disrespect is intended.
The trial court denied the Narghizians an accounting of the business affairs; granted a directed verdict in favor of Fabbio on the cross-complaint; and imposed a constructive trust in favor of Fabbio on the real property purchased by the Narghizians aided by a third party (Amirvand), in part with the diverted funds. The Narghizians were ordered to provide a grant deed as well as a quitclaim deed to Fabbio. The Narghizians appeal the judgment and the order. We shall affirm the award of compensatory damages and imposition of constructive trust on the Mt. Olympus property; reverse the award of punitive damages, the failure to order an accounting, and the directed verdict on the cross-complaint; and shall remand to the trial court for further proceedings.
STATEMENT OF FACTS
Prior litigation
Fabbio sued the Narghizians and Amirvand in February 2002 (Fabbio v. Amirvand BC 26836) based on conduct also alleged in the case at bench. Zareh’s motion for an accounting referee was granted in that matter. Fabbio dismissed that action without prejudice, under circumstances that the parties dispute. The Narghizians believe Fabbio was judge shopping after the previous judge made rulings unfavorable to Fabbio; when the instant lawsuit was filed, Fabbio successfully filed a motion pursuant to Code of Civil Procedure section 170.6 against that judge. Fabbio claims the action was dismissed solely because Amirvand was arrested on state and federal criminal charges and was going to claim the Fifth Amendment, potentially delaying the civil trial until his criminal proceedings were terminated.
The operative pleadings
The gravamen of Fabbio’s complaint in the case at bench, to which Amirvand is not a defendant, was that in 1994 Fabbio both established a sole proprietorship, Modena Motorcars (“Modena”), and “entered into an oral joint venture” with Zareh, who years later fraudulently induced Fabbio to pay funds totaling $310,000 to Amirvand. Zareh represented that the $310,000 was going to be used to purchase automobiles for resale; but there were no car deals and Amirvand paid the money to or for the benefit of the Narghizians, who used it to buy the unimproved real property on Mt. Olympus. Fabbio sought compensatory and punitive damages and a constructive trust on the Mt. Olympus property.
The Narghizians alleged in their first amended cross-complaint that Fabbio converted and kept for himself in excess of $317,000 owed to Zareh as his share of the joint venture distributions and profits due him through their oral joint venture agreement, which originated in 1994. The Narghizians sought inter alia damages, an injunction prohibiting defendants from using the name Modena Motorcars, and a constructive trust on the real property, which the Narghizians claim was purchased with funds to which Zareh was entitled to 60 percent. The parties do not dispute that the net profits of the sale of each car were to be split 60 percent to Zareh and 40 percent to Fabbio.
As they did in the earlier, related action, the Narghizians asked for both for an accounting referee and, in their cross-complaint, for an accounting.
The Narghizians admitted Fabbio was owed an amount of money, and that Zareh diverted a large sum of money to help pay for real property on Mt. Olympus but also maintained that Fabbio had earlier helped himself to well over his share of the profits on the cars so that they owed little if anything and Fabbio likely owed money to Zareh. Much of the evidence at trial involved the amount of profits and net profits from the business and how the profits were managed by the parties.
The Narghizians’ trial counsel replaced previous counsel and repeatedly, but belatedly, sought the automobile “jacket files” in order to settle the issue of who owed whom what amount. There was a “car jacket” with a folder for each of the approximately 1400 cars sold from 1994 to 2001. At one of the final status conferences, the trial court stated defense counsel would be able to view those files before trial started.
Testimony at trial
Fabbio and Zareh met in the Los Feliz area, walking after dinner with their wives and talking when they ran into each other. According to Zareh, Fabbio invited Zareh to “come in and join him” at Modena Motorcars and Zareh did so in June 1994 as Fabbio’s previous partner was leaving. Zareh initially signed an independent contractor agreement with Fabbio’s former partner. There was no such agreement or any other written agreement with Fabbio or with other partners of Fabbio. Zareh, who filed a fictitious business name for Modena Motors in 1994, was to get 60 percent of the net profit on each car he located and sold. The sales were mostly dealer to dealer, not retail.
We shall refer to the business as “Modena.” Aida signed (and misspelled) Fabbio’s name on the form; the Narghizians claimed it was with Fabbio’s permission, which Fabbio denied. The form was necessary to get a bank checking account. In 1997, an overdraft feature was added, for which Fabbio and not Zareh had to sign. The parties used this and similar facts to argue whether they were partners in Modena and who had cheated whom.
Zareh testified he had no doubt that he and Fabbio were partners and that Fabbio led him to believe they were partners. Zareh and Fabbio agreed that Fabbio would put up the money to pay for the cars; and Zareh would do the purchasing, selling, and at least at the beginning, the paperwork. They agreed that Zareh would find and buy the car; Fabbio would get 10 percent interest on his money until the car sold; and they would figure the net profit after various expenses, including traveling to another state to buy the car; and then split the net profit with 60 percent to Zareh and 40 percent to Fabbio.
Appellants’ opening brief contends that 10 percent was a “plainly usurious” rate, but that issue was not raised at trial. In their reply brief, the Narghizians concede the constitutional argument was incorrect, but still assert Fabbio was improperly awarded prejudgment interest of 10 percent (the rate for contract damages) instead of 7 percent for tort damages. This issue can be presented to the trial court upon reversal and remand.
“What are ‘net profits’ depends greatly upon the circumstances of a particular case.” (Axell v. Axell (1952) 114 Cal.App.2d 248, 253.) The parties differed on which expenses were to be deducted from gross profits and which were to be attributed to Zareh or Fabbio.
Zareh maintained that the money belonged to Modena and thus to both men and was not Fabbio’s money. There was no accounting done before 1997, nor did the men have any agreement as to how often the profit would be split, though originally it was to be split after each car was sold. Instead, every few weeks they would sit down and write each other checks. Both men, and sometimes Aida, drove cars purchased by the business. To say the least, there was sloppy bookkeeping and to some extent the families of both men personally used resources of the business.
Zareh started investigating when he was not getting checks at the beginning of 2001. Concerned about no money in the Modena account, Zareh and Fabbio had investigated through their bank to see if anyone had gotten money from their account. Accountant Al Ullman, who was Zareh’s personal accountant, came over and talked to the two men. He told them that he found double payments to Fabbio and inconsistencies between Fabbio’s tax records and the business. Ullman also pointed out that their method of accounting was out of the norm.
Zareh characterized the discovery of the double payments in August or September 2001 as “the straw that broke the camel’s back.” Fabbio explained that the bank statements show he merely was repaid money he had put into a deal. Fabbio recently checked the files and believed he did not receive a double payment that was not just a refund of a double deposit.
Evidence relating to payment of accountant Ullman for these services was used to demonstrate Zareh’s involvement in the business and payment of a Modena business debt. Ullman was under the impression that Modena would pay his fees. A bill was sent for services in October and November of 2001, which Ullman testified was for the bookkeeper’s services, not his. He first received 60 percent from Zareh with the understanding Fabbio would pay 40 percent. When Fabbio did not, Zareh paid it.
Zareh admitted doing “some side deals” with Amirvand, with no profits going to Fabbio. He reasoned that he was not able to get any money and had to support his family. Ephemeral car deals in 2001 and dissatisfaction between the parties led to the breakup and this lawsuit. As a result of complicated transactions, Fabbio and/or Modena paid $430,000 and was paid back $120,000, for a loss of $310,000, the amount awarded by the jury as compensatory damages. The compensatory damages awarded in the case at bench are solely for Fabbio’s loss in the 2001 automobile transactions, money then used by the Narghizians to purchase the Mt. Olympus property.
Amrivand helped the Narghizians buy the Mt. Olympus property in 2001. The purchase price was $550,000. Appellants used $16,500 from Amirvand to open an escrow account to buy the land on Mt. Olympus. Escrow required them to pay $250,000, with the seller carrying back $300,000. The balance of the purchase price not carried back by the seller was paid into escrow by Amirvand; appellants put no money into that escrow out of their pocket. One can infer from the evidence that the funds held by Amirvand were those diverted from the checks received from Fabbio/Modena; it is assumed Amirvand kept a small portion of the $310,000 not used in the property transaction. Aida, a licensed real estate salesperson, received a commission of $7,751.24 on the Mt. Olympus sale. Zareh did not mention any of this to Fabbio until later. Appellants contend on appeal that only $80,000 of the $310,000 came directly from Fabbio’s funds and that the rest was from the Modena bank account.
Zareh testified he got $27,500 back from Amirvand and does not know where the rest of the money is.
Fabbio does not dispute that representation but contends all the Modena money was his.
Zareh left the business in October 2001. Fabbio did not know about the payments to Westland Escrow for the Mt. Olympus property even in December or January when he visited Amirvand’s office in Orange County and was told that Zareh said the money belonged to Zareh. No one told him about the transactions where the Zareh accumulated $310,000. Fabbio testified he did not find out about the deception and money going to Westland Escrow until discovery in this lawsuit. At the time of trial appellants still had the property on Mt. Olympus.
Zareh conceded on the stand that it was wrong to keep Fabbio’s money rather than sue him. Nevertheless, Zareh believed Fabbio owed him the money because of the double payments, checks to the former partner and Fabbio’s personal accountant, significant improvements to Fabbio’s building, and property taxes and insurance on that building. Moreover, Zareh believed the profits of the business justified a higher payment to him than he was getting in 2000 and 2001; he estimated he should have received $80,000 to $100,00 more. Furthermore 60 percent of the $175,000 that was in the Modena account in September 2001 should have been his. Zareh tallied $310,000 owed to him. Moreover, Zareh claimed Fabbio inflated his claim of loss. According to Fabbio, Zareh never complained he was not getting his fair share of the profits and received more than his 60 percent on many occasions. Zareh did not bring his spread sheet to Fabbio’s attention.
Special interrogatories
The jury, which reached its verdict in slightly more than one hour, answered special interrogatories, finding Fabbio proved Zareh committed intentional fraud and was damaged in the amount of $310,000 in compensatory damages; that Modena Motorcars was at all times a business solely owned by Fabbio and that Zareh was not an owner; that the Mt. Olympus property was purchased by the Narghizians and placed in their names, with “money belonging to Fabbio and obtained by the Narghizians from him by fraud . . .;” and that Zareh committed a conversion of Fabbio’s property, with out-of-pocket losses of $310,000. Moreover, by a vote of 11 to 1 the jury decided that Fabbio proved by clear and convincing evidence that punitive damages should be awarded.
In a bifurcated proceeding on punitive damages, Zareh was called under Evidence Code section 776 and examined very briefly about his assets. The jury awarded Fabbio $290,000 in punitive damages.
The trial court denied a request for an accounting, taking judicial notice that the cost of an accounting is expensive. The court dismissed the remaining unfair business practice cause of action on the cross-complaint and imposed a constructive trust on the Mt. Olympus property.
The judgment and post-judgment proceedings
The judgment reiterated the jury’s findings and added: “the evidence submitted at trial established without dispute that of the $310,000 obtained by defendants from plaintiff, the sum of $252,803.03 was used by them to purchase the [Mt. Olympus] property through Westland Escrow, which amount consisted of a $250,000 down payment plus escrow charges. The balance of the total purchase price of $550,000 was provided through a first trust deed carryback by the seller, George Furla,” which was paid off some months later for $270,000, obtaining a discount of $30,000, with the Narghizians paying $200,000 of their own through the sale of another piece of real property and from the net proceeds of a new loan from Washington Mutual secured by a new first deed. The Washington Mutual trust deed remains as a first lien against the property.
The trial court ordered that Fabbio was entitled to impress a constructive trust on the Mt. Olympus property, subject to the Washington Mutual first trust deed and subject to a credit in favor of the Narghizians for the $200,000 utilized as part of the amount required to pay off Furla. The Narghizians were ordered to execute quitclaim deeds in favor of Fabbio “together with such other instruments as may be necessary to vest title in him subject to the [Washington Mutual] encumbrance.” The constructive trust was “an alternative remedy . . . for $252,802.03 of the money judgment awarded as compensatory damages . . . .” Moreover, Fabbio was entitled to a money judgment for $57,196.97 (plus 10 percent interest from the date the funds were transferred in 2001 to the date of judgment), the difference between the $310,000 award and the $252,803.03 being satisfied by the constructive trust. Punitive damages of $290,000 were an additional money judgment against Zareh Narghizian. Taking the credit and constructive trust into account, Fabbio was awarded a money judgment for $167,388.20, plus costs and interest.
The Narghizians moved for a new trial or remittitur regarding punitive damages. The trial court upheld the punitive damages as “the voice of this community regarding this conduct” and denied the motion for new trial. The Narghizians appeal from the judgment.
In proceedings detailed below, the court ordered appellants to produce a grant deed as well as a quitclaim deed. The Narghizians filed a second notice of appeal, from the order regarding the grant deed. This court decided that both appeals would be heard together.
CONTENTIONS ON APPEAL
The Narghizians contend: 1. Fabbio was awarded excessive compensatory damages in that the evidence was that $80,000 was taken from Fabbio personally and the balance belonged to the joint venture, which did not sue. 2. The directed verdict should not have been granted against Zareh. 3. The punitive damages were the result of passion or prejudice, were more than 100 percent of Zareh’s net worth, and need to be retried because of the significantly inflated compensatory damages awarded to Fabbio. 4. Evidence does not support the trial court’s imposition of a constructive trust on the Mt. Olympus Property. 5. The trial court erred in requiring appellants to provide both a quitclaim deed and a grant deed to the Mt. Olympus property.
The Narghizians add that an accounting, the denial of which is an issue they raise on appeal, could demonstrate the amounts due and owing Zareh “offset or even exceed the $80,000.” Their request for an accounting referee was denied by the trial court, largely as untimely, and this panel denied a petition for writ of mandate challenging that decision.
DISCUSSION
1. Substantial evidence supports a finding that Fabbio was defrauded out of $310,000 by the Narghizians, who invested the money in the Mt. Olympus property.
The Narghizians contend that Fabbio was awarded excessive compensatory damages in that the evidence was that only $80,000 of the diverted funds was taken from Fabbio personally and the balance belonged to the joint venture, which did not sue. Moreover, because appellants were denied their requested accounting, they contend that Fabbio did not and cannot demonstrate that in the overall joint venture he was shorted by $310,000.
The dispute at trial was limited to the one episode in 2001 in which cars were not purchased, so there was no profit to be allocated between the parties from those funds. Fabbio limited his litigated claim to those funds diverted to Amirvand and the Mt. Olympus property purchased by the Narghizians. Substantial evidence supports the jury’s determination that $310,000 was diverted from Fabbio to the Mt. Olympus property by the Narghizians. On the evidence before it, the jury could find that the money belonged to Fabbio either individually or as owner of Modena.
2. Zareh was entitled to an accounting so the directed verdict on the cross-complaint must be reversed.
Fabbio’s motion for a directed verdict on both the complaint and the cross-complaint was based on the testimony of Zareh regarding his scheme to take money from Fabbio for Fabbio’s supposedly depriving him of his 60 percent of the profits. He contended that Zareh’s liability was clear and that the jury need decide only the amount taken from Fabbio.
The court denied Fabbio’s motion as to the complaint for fraud and conversion, deciding the “elements are present and the defenses have been asserted.” However, Fabbio’s motion was granted as to the Narghizians’ cross-complaint causes of action for breach of a joint venture agreement or breach of fiduciary duty, leaving the causes of action for an accounting and unfair business practices, which were reserved for determination by the court and eventually denied in the judgment. The court initially ruled that only the Amirvand deal and that amount could be argued and not the rent checks, double payments, and tax matters, but then decided the “offset” or “defense” could be argued.
In the case at bench, the jury found that Modena “was at all times a business solely owned by Fabbio, and that Zareh Narghizian was not an owner of Modena Motorcars.” As we now explain, Zareh was entitled to an accounting as a joint venturer, even if Fabbio owned the business and he was not Fabbio’s partner. A relationship where one provides financing and the other contributes services, and both share in the profits can be a joint venture. (Elias v. Erwin (1954) 129 Cal.App.2d 313, 317.)
The existence or nonexistence of a joint venture is usually a question of fact. (Kaljian v. Menezes (1995) 36 Cal.App.4th 573, 586.) However, unlike the situations in Enos v. Picacho Gold Min. Co (1943) 56 Cal.App.2d 765, 771, and People v. Hotz (1927) 85 Cal.App. 450, the “owner” of the Modena business, in his operative complaint, characterized his relationship with the person who shared net profits with him from the purchase and sale of automobiles as a “joint venture.” To complicate matters, in the case at bench there was no mention of “joint venture” in the instructions, so the jury’s finding that Fabbio was the “owner” of Modena holds little weight in determining the relationship of these parties or negating the joint venture Fabbio pleaded in his complaint, an allegation supported by substantial evidence at trial.
As explained in Weiner v. Fleischman (1991) 54 Cal.3d 476, 482 -483, “A joint venture is ‘an undertaking by two or more persons jointly to carry out a single business enterprise for profit. [Citations.]’ (Nelson v. Abraham (1947) 29 Cal.2d 745, 749 [177 P.2d 931].) ‘Like partners, joint venturers are fiduciaries with a duty of disclosure and liability to account for profits.’ (9 Witkin, Summary of Cal. Law (9th ed. 1989) Partnership, § 19, p. 418.) [¶] The distinction between joint ventures and partnerships is not sharply drawn. A joint venture usually involves a single business transaction, whereas a partnership may involve ‘a continuing business for an indefinite or fixed period of time.’ (9 Witkin, Summary of Cal. Law, Partnership, supra, § 17, at p. 416, italics deleted.) Yet a joint venture may be of longer duration and greater complexity than a partnership. From a legal standpoint, both relationships are virtually the same. Accordingly, the courts freely apply partnership law to joint ventures when appropriate. (Orlopp v. Willardson Co. (1965) 232 Cal.App.2d 750, 754 [43 Cal.Rptr. 125].)”
The test for joint venture is less precise than we might prefer. (See Boyd v. Bevilacqua (1966) 247 Cal.App.2d 272, 285 [a joint venture agreement may be implied; “‘The law requires little formality in the creation of a joint venture and the agreement is not invalid because it may be indefinite with respect to its details.’”]) However, there are elements that must be proved. “The common definition of a joint venture is a special combination of two or more persons, where in some specific venture a profit is jointly sought without any actual partnership or corporate designation, or as an association of persons to carry out a single business enterprise for profit, for which purpose they combine their property, money, effects, skill, and knowledge. [Citation.] In most cases the courts have not established any very fixed or certain boundaries, but have been content to determine merely whether the proven or conceded facts in the particular case constituted the relationship of joint adventurers. [Citation].” (People v. Miller (1961) 192 Cal.App.2d 414, 418.)
Given the representation of “joint venture” in his complaint, Fabbio is not free to deny that relationship, whether or not in other respects he “owned” Modena. Moreover, whether Zareh’s relationship with Fabbio was that of a joint venturer or only someone with a right to a share of the net profits, which both men agree was part of their arrangement, Zareh had a right to an accounting. (See Nelson v. Abraham (1947) 29 Cal.2d 745, 750-754, cited with approval in Foley v. U.S. Paving Co. (1968) 262 Cal.App.2d 499, 505; see also Kessloff v. Pearson (1951) 37 Cal.2d 609, 613 [employee with compensation of salary and portion of net profits was entitled to an accounting].)
Appellants’ burden in proving damages for breach of a joint venture agreements or breach of fiduciary duty would require proof of the profits, expenses, and draws by both men during their business relationship from 1994 to 2001. Given their sloppy method of writing checks not based on the sale of each car and unclear allocation of costs of the business, making that determination would understandably be difficult. As noted above, Zareh was entitled to an accounting and sought one both in his cross-complaint and by motions before the trial court. Upon reversal and presumably an accounting, Zareh will be in a better position to prove the allegations in his cross-complaint. Therefore, the directed verdict must be reversed.
The jury determined the transactions which resulted in the constructive trust on the Mt. Olympus property and those which would be reviewed as a result of the Narghizian’s request for an accounting arose from separate and distinct events. On this point, we agree with the jury and do not find that these issues are intertwined in any manner which would require the determination of issues relating to the constructive trust to await the results of the accounting.
It is the considered decision of this court to decline to provide any specific direction to the trial court regarding the manner in which the accounting is to be carried out. We feel that this decision-making is more appropriately managed at the trial level where the parties can effectively participate in a full discussion of all relevant issues. Additionally, the trial court can provide a venue for the prompt consideration and resolution of problems that may arise in the course of the accounting. The only direction we provide is to direct that the court should decide issues regarding responsibility for the cost of the accounting prior to the commencement of any such efforts. We make this direction because although we held that the trial court erred in failing to order the accounting, we would be remiss to ignore that we reversed the punitive damage award against Narghizian as excessive given evidence of his limited assets. The accounting, if it goes forward, will cover business transactions over an eight-year business relationship and could be costly to conduct. If the Narghizians are determined to be responsible for some, or all, of the initial costs of the accounting, their ability to cover these costs should be ascertained.
The record does not justify a similar recommendation directing inquiry into Fabbio’s ability to contribute to the cost of the accounting. We also leave the issue of Fabbio’s payment, if any, of the cost of the accounting, up to the trial court.
3. The punitive damages award must be reversed.
The Narghizians contend that the punitive damages were the result of passion or prejudice, were more than 100 percent of Zareh’s net worth, and need to be retried because of the significantly inflated compensatory damages awarded to Fabbio.
In the punitive damages stage, Zareh Narghizian was the only witness called by plaintiff. He testified that he and his wife have paid off the $300,000 loan to the seller of the Mt. Olympus property, George Furla. In 2002, they gave him $200,000 of their own money and Furla gave them about a $30,000 discount; they took a new loan for $70,000 from Washington Mutual. In order to pay Furla, they sold their home of 30 years and gave all the equity to Furla to pay off the debt.
According to Zareh, they own no other property and live with his mother. He drives one of the cars he buys and sells; his wife and daughter both lease Mercedes automobiles. Other than about $400 in the bank, he has no savings accounts or stocks and bonds. His furniture is worth about $15,000.
Fabbio asked the jury for at least $50,000 in punitive damages. The jury asked if it could order the Mt. Olympus property sold and determine the disposition of the net proceeds. The court replied “No. You should fix an amount, if any.” The jury answered the special interrogatory regarding the amount of punitive damages with an 11 to 1 finding of $290,000.
Punitive damages are appropriate for intentional torts such as fraud and conversion. (Lackner v. North (2006) 135 Cal.App.4th 1188, 1212, Civ. Code 3294, subd. (a) [“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.])” An appellate court will not reverse the jury’s determination unless the award as a matter of law is excessive or appears so grossly disproportionate to the relevant factors that it raises a presumption it was the result of passion or prejudice. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 927-928; Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1257-1259.)
“In reviewing the verdict the appellate court is guided by three main factors: the reprehensibility of the defendant’s conduct, the actual harm suffered by the victims, and the wealth of the defendant. (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d [910] 928; [citation].)” (Rufo v. Simpson (2001) 86 Cal.App.4th 573, 623, fn. omitted.) Ability to pay is usually proved by net worth, but a jury may consider other factors. (Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577, 583 [jury considered net worth and a variety of other factors included on the financial documents presented to conclude defendant had the ability to pay a punitive damage award of $300,000].)
Our Supreme Court in Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1179-1180, recently set forth the federal constitutional guidelines for awards of punitive damages: “‘(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. [Citations.]” The Simon court, id. at page 1182, added that except on very rare occasions, the ratio of punitive to compensatory damages “significantly greater than nine or 10 to one are suspect and, absent special justification (by, for example, extreme reprehensibility or unusually small, hard-to-detect or hard-to-measure compensatory damages), cannot survive appellate scrutiny under the due process clause.” (Fn. omitted.)
“‘[P]unitive damage awards should not be a routine cost of doing business that an industry can simply pass on to its customers through price increases, while continuing the conduct the law proscribes.’ [Citation.] On the other hand, ‘the purpose of punitive damages is not served by financially destroying a defendant.’ (Adams v. Murakami [(1991) 54 Cal.3d 105,]112.)” (Simon v. San Paolo U.S. Holding Co., Inc., supra, 35 Cal.4th 1159, 1185.)
“A court of review must intervene when the award is so disproportionate as to raise the presumption that it was the product of passion or prejudice, even though deference is due a trial court's approval of a punitive damage award. [Citation.] Punitive damages constitute a windfall. [Citation.] Such awards generally are not allowed to exceed 10 percent of the net worth of the defendant. [Citation].” (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596; Boeken v. Philip Morris Inc. (2005) 127 Cal.App.4th 1640, 1697 [California courts have routinely upheld punitive damage awards not exceeding 10 percent of net worth].)
Plaintiff and not defendant has the burden of proving the state of defendant’s finances for the purpose of proving financial wealth as part of the determination of punitive damages. (See, e.g., Adams v. Murakami (1991) 54 Cal.3d. 105, 120-121, [declining to burden defendant with proving the state of his own finances when punitive damages are in issue], cited with approval in Samuels v. Mix (1999) 22 Cal.4th 1, 19.)
The examination of Zareh in the punitive damages phase was brief, taking fewer than four pages in the reporters transcript. All that Fabbio proved was that appellants own a vacant lot worth $550,000 when purchased, which had been proved in the first phase of trial; sold their residence in order to pay the seller; used all their $200,000 equity for that purpose and have a $70,000 mortgage with Washington Mutual on the Mt. Olympus property; live with Zareh’s mother, have small bank account(s) of $200 or $400; own no stocks or bonds; and lease two Mercedes automobiles for Aida and their daughter. Zareh drives a “car that I buy and sell” and does not own a car. Their furniture was worth no more than $10,000 or $15,000. Zareh has credit card debts, the mortgage, attorney debts, and the debt to Fabbio. There was no inquiry into Zareh’s or Aida’s current earnings, the cost of leasing the automobiles, or the extent of debts appellants may have. Aida, their children, and Zareh’s mother were not called regarding the Narghizians’ assets, earnings, expenses, or net worth.
Neither side produced evidence of its present value.
Fabbio now complains that the Narghizians did not produce adequate records for him to make a proper inquiry regarding Zareh’s net worth or ability to pay. If the Narghizians did not produce requested documentation, legal remedies were available to Fabbio. There is no indication that other documentation exists. (Compare with Mike Davidov Company v. Issod (2000) 78 Cal.App.4th 597, 608-609, where, after being ordered to do so, defendant failed to bring in “any records which would reflect his financial condition . . . .” (Italics added.) In the case at bench, Zareh brought in bank statements; he was not specifically asked if there were any other documents. However, he testified that his assets were minimal bank accounts, no more than $15,000 in furniture; and the Mt.Olympus lot minus the mortgage. His attorney represented that “any examination of him will reveal that’s all he’s got.”
Especially if Fabbio were to have a constructive trust on the Mt. Olympus property, the principal asset owned by the Narghizians, at best the credit for the $200,000 they paid from the equity in their home would theoretically be available for punitive damages – and that has been credited against the judgment. As stated above, “‘[T]he purpose of punitive damages is not served by financially destroying a defendant.’ (Adams v. Murakami, supra, at p. 112.)” (Simon v. San Paolo U.S. Holding Co., Inc., supra, 35 Cal.4th 1159, 1185.) Punitive damages of $290,000 on the record before us are excessive, and that award must be reversed and can be retried upon remand.
4. Evidence supports the trial court’s imposition of a constructive trust on the Mt. Olympus Property.
The Narghizians contend that a constructive trust is inappropriate where “mixed” monies are used to purchase a property and, in the absence of their requested accounting, Fabbio cannot show the percentages of ownership of the diverted monies. (in Efron v. Kalmanovitz (1967) 249 Cal.App.2d 187, 198.) Despite the jury’s finding, they argue that Fabbio failed to trace the money used for the Mt. Olympus property, via Amirvand’s Auto Market, as his. The Narghizians again rely on their contention that Fabbio proved that at most $80,000 of the purchase money came directly to him; the rest was from the Modena account, which potentially belonged 60 percent – or some other undetermined amount -- to Zareh. Moreover, they argue that Fabbio could be given only a money judgment or at most an equitable lien for $80,000 or whatever figure remains after an accounting. Furthermore, even if all the $310,000 belonged to Fabbio and could be traced, the Narghizians argue that Fabbio at most was entitled to $252,833.03, not 100 percent of the property, which constitutes an unjust windfall to Fabbio. Finally, they argue that no constructive trust should have been awarded against Aida’s interest in the property in the absence of proof she had any knowledge of the fraud or conversion.
We disagree. Zareh testified at trial that he then realized it was wrong to keep Fabbio’s money, either $261,000 or $275,000. Reasonable inferences can be drawn from this and other parts of his testimony that the checks produced by Fabbio were used by Amirvand as payments for the Mt. Olympus property.
If the Narghizians were to receive only a credit, they argue they are entitled not only to the $200,000 they paid the seller but also any mortgage, tax, and insurance payments, as well as the $30,000 credit given by the seller.
Fabbio concedes that the Narghizians purchased the Mt. Olympus property with some ($252,803.03), but not all, of the money obtained from Fabbio by fraud and conversion. Moreover, Fabbio’s money was not the only money used; the balance of the $550,000 purchase price was covered by a first trust deed carryback by the seller, George Furla. Aida received a commission of $7,751.24 in cash out of the purchase price. Fabbio claims that the “Mt. Olympus property was purchased altogether with plaintiff’s money, and plaintiff is entitled to impress a constructive trust on the property” and the court need not be concerned that the property may have since appreciated in value.
In the trial court, Fabbio argued there “can be no question that plaintiff is entitled to a money judgment, plus interest, for that portion of the sums which the Narghizians took from him by fraud and conversion, and which exceed the amount which they put into the Mt. Olympus property.” Fabbio claimed the judgment he proposed affords the Narghizians full credit for the $200,000 they actually put into the property when they paid off the seller’s carryback note and deed of trust.
The propriety of granting equitable relief by way of impressment of a constructive trust “generally rests upon the sound discretion of the trial court.” (David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 894.) The remedy is available “‘“in practically any case where there is a wrongful acquisition or detention of property to which another is entitled.”’” (Ibid.; citing Martin v. Kehl (1983) 145 Cal.App.3d 228, 238; 13 Witkin, Summary of Cal. (10th ed. 2005) Trusts, § 319, p. 892; see also Civ. Code, §§ 2223, 2224.) Such an equitable remedy does not depend on the absence of an adequate legal remedy. (Heckman v. Ahmanson (1985) 168 Cal.App.3d 119, 134.)
If the Mt. Olympus property had been purchased totally with Fabbio’s funds, a constructive trust clearly could be impressed on the entire property. (Jud Whitehead Heater Co. v. Obler (1952) 111 Cal.App.2d 861, 873 [wronged person can either enforce an equitable lien upon the property bought with his stolen funds or enforce a constructive trust of the property].) Church v. Bailey (1949) 90 Cal.App.2d 501, is also instructive. A trusted employee embezzled substantial funds and placed them in a bank account, which he replenished with some of his own funds. When he died and the embezzlement was discovered, his employers sued decedent’s wife and administrator of his estate, seeking to impress a trust upon real property purchased by decedent with part of the misappropriated money. The replenished money was deemed a restoration of the trust funds which were used for the purchase price and payments upon encumbrances. (Id. at p. 505.) Decedent’s wife had since paid $273.38 with her own funds, a very small percentage of the $4,668.57 paid for with embezzled funds. The property, markedly increased in value, was awarded to the employers, subject to existing encumbrances, and decedent’s wife was to receive any sums of money she may have paid with her own separate funds subsequent to her husband’s death. (Id. at p. 550.)
Although the Narghizian’s acquired the Mt. Olympus property as joint tenants, Mrs. Narghizian does not have any separate interest in the property due to purported status as a bona fide purchaser. “‘“The elements of bona fide purchase are payment of value, in good faith, and without actual or constructive notice of another's rights. [Citation.]” [Citation.]’ [Citation.]” (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1251; see also, Reiner v. Danial (1989) 211 Cal.App.3d 682.) Mrs. Narghizian does not qualify because there is a total lack of proof that she paid anything of value for the property. The jury found that Fabbio proved that the Mt. Olympus property “was purchased by Zareh Narghizian and Aida Narghizian, and placed in their names with money belonging to Fabbio and obtained by the Narghizians from him by fraud. . . .” The evidence established that neither Zareh nor Aida Narghizian personally contributed any money for the down payment. Further, Aida Narghizian confirmed that she did not contribute any money to the purchase of the property and in fact, obtained a real estate commission of $7,751.24 from the transaction. Under these circumstances, no valid claim can be made to qualify Aida Narghizian as a bona fide purchaser.
The fact that after the purchase was completed, payments from community sources of income may have been made on the property might strengthen an argument for credits against the constructive trust. This fact cannot however transform Aida Narghizian into a bona fide purchaser in the first instance.
The trial court could in its discretion have imposed the constructive trust proportionately. (See Martin v. Kehl, supra, 145 Cal.App.3d 228, 238-238, 243-244 [plaintiff who contributed one-half of the down payment on property that increased in value is entitled to a resulting trust or a constructive trust in one-half of the proceeds, as against defendant who contributed the other half of the down payment and later, after living in the house and making rent payments, wrongfully held the property].) But equity does not demand a proportional imposition.
After the jury’s verdicts, the trial court initially directed the parties to attempt to agree on the terms of the constructive trust. The parties were unable to do so. Instead, they filed memoranda with the court setting out their positions regarding the terms of the trust. Most of the issues discussed in their memorandum and raised in this appeal have been addressed. However, the issue of what credits, if any, should be allowed against the constructive trust, was not fully developed. Narghizian’s Supplemental Brief re Constructive Trust argues that Fabbio “must reimburse . . . their $200,000 investment in the property as well as all sums they paid for maintenance and expenses of the property, such as taxes, and for debt service on loans encumbering the property, and must pay his share of such expenses and debt service until sold . . . .”
Fabbio’s Memorandum re Terms of Constructive Trust states that “the judgment proposed by plaintiff affords the Narghizians full credit for the $200,000 they actually put into the property when they paid off the seller’s carryback note and deed of trust. No additional credit has been provided for interest on the $200,000, nor for any claimed amounts supposedly paid by them for ‘maintenance’ of the Mt. Olympus property, because the Narghizians have not provided any evidence whatsoever of any such expenses.
The judgment imposed a constructive trust subject to “the existing first trust deed in favor of Washington Mutual, and further subject to a credit in favor of the defendants Narghizian for the $2000,000 which they utilized as part of the amount required to pay off the original seller carryback first trust deed in favor of the seller, George Furla.” The judgment did not mention any of the remaining credits requested. We find that the Narghizians request for credits for the $30,000 reduction in payment to Furla as well as sums they paid, if any, for taxes and debt service on loans encumbering the property should have been granted equal status and credit awarded. It should not be a difficult effort for the Narghizians to identify and verify such amounts. However, other than discussed herein, no other unidentified “sums they paid for maintenance and expenses of the property” should be allowed credit. Lastly, we see no equitable reason to extend the obligation to include as credits amounts identified as “interest” on any source of funds.
5. The trial court did not err in requiring the Narghizians to provide both a quitclaim deed and a grant deed to the Mt. Olympus property.
The Narghizians state this is the “least important of the ‘principal’ issues on appeal.”
Following the jury’s verdicts and the court’s decision regarding the constructive trust, Fabbio asked for issuance of a clerk’s deed on real property after judgment, contending that the Narghizians had not executed either a quitclaim deed or a grant deed. Fabbio’s counsel admitted to “a slight disagreement as to whether or not both a quitclaim deed and grant deed were needed.”
In addition, contrary to Zareh’s trial testimony, a title report showed the $300,000 carryback mortgage had never been reconveyed and that back property taxes since 2002 had not been paid. The Narghizians agreed to bring a quitclaim deed to the hearing but not a grant deed, which they contended is inconsistent with the judgment. They later proffered both a quitclaim deed and a grant deed. The Narghizians’ counsel agreed ultimately “to submit a deed in the form that the court requires.”
The court granted Fabbio’s motion for issuance of a clerk’s deed. This court granted a Palma notice (Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 180) regarding the granting of the clerk’s deed.
After extensive briefing, the trial court ordered that a grant deed and quitclaim deed, in specified form and satisfying the requirements of the judgment, were to be executed and deposited with the clerk of the court, to be held pending final determination on appeal. If the Narghizians failed to comply, the clerk would issue a clerk’s deed. Both a quitclaim deed and grant deed were deposited pursuant to the order.
The Narghizians contend that the judgment referenced only a quitclaim deed and that the grant deed deposited with the clerk should be returned to them. To the extent the grant deed is necessary to imposition of the constructive trust that is part of the judgment, the order was appropriate.
DISPOSITION
The award of compensatory damages and imposition of a constructive trust, with modifications, are affirmed. The award of punitive damages is reversed; the directed verdict is reversed; and the matter is remanded for proceedings consistent with this opinion. The parties are to bear their own costs on appeal.
I concur: RUBIN, J.
There was evidence Zareh was not treated as a partner, particularly Zareh’s 1099 income tax returns and the lack of partnership returns. Fabbio started writing the business checks in 1997, the same year a line of credit was established. Fabbio had two lines of credit, with his old house and his new house as collateral. The tax registration for the business was in Fabbio’s name; the vehicle dealer license is in the name of “Modena Motorcars.” Fabbio and not Zareh put money into the business and signed on the line of credit and the eventual overdraft protection extended by the bank.
In contrast, Modena paid $8,500 for 1994-1999 bills from Fabbio’s personal accountant, whose only task for Modena was to prepare its 1099s. Zareh believed 60 percent of that money, not used for Modena, was his. Fabbio explained that his personal accountant had not billed Modena for accounting from 1994 to 1999 and, when the accountant finally billed the business, Fabbio paid it in increments from the Modena account, with no objection from Zareh. Zareh thought that $20,974 paid from Modena funds to Fabbio’s former partner was also 60 percent Zareh’s.