Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of Riverside County. Ct.No. INC037361, Douglas P. Miller and Harold W. Hopp, Judges.
Daniels, Fine, Israel, Schonbuch & Lebovits, Paul Fine, Scott Brooks; The Law Offices of Ian Herzog, Evan D. Marshall, Ian Herzog and Justin Ehrlich for Plaintiff and Appellant.
Reed Smith, Margaret M. Grignon, James C. Martin, Robert D. Phillips, Jr., Kevin W. Wheelwright and Zareh Jaltorossian for Defendant and Appellant and for Defendant and Respondent.
OPINION
McKinster, Acting P.J.
North American Company for Life and Health Insurance (hereafter NAC), appeals from the judgment entered against it and in favor of Ernst Hammermueller (hereafter plaintiff), following a jury trial in plaintiff’s action for fraud, negligent misrepresentation, and financial abuse of an elder. Plaintiff’s causes of action stem from his purchase of $350,000 in deferred annuities from NAC. Plaintiff was 82 years old when he purchased the deferred annuities through Frank Manfred, an independent insurance agent. In the relevant portions of his complaint plaintiff alleged that he was born in Hungary, still has difficulty understanding English, and suffers from various illnesses including advanced dementia/Alzheimer’s disease. Plaintiff also claimed that at the time he purchased the deferred annuities, Manfred did not fully explain or disclose the nature of the investment and represented that they would meet plaintiff’s financial needs. Plaintiff relied on Manfred’s representations and purchased the NAC deferred annuities. Once he realized that he would be unable to withdraw his money without incurring significant penalties, plaintiff demanded that NAC rescind the transactions and return his money. NAC declined plaintiff’s request, and plaintiff filed his lawsuit. A few months after plaintiff served NAC with the complaint, NAC learned that Manfred had been under criminal investigation at the time he acted as NAC’s agent and sold the deferred annuities to plaintiff. Based on that information, NAC returned plaintiff’s money, along with the accrued interest.
Plaintiff nevertheless pursued his action to trial in order to recover damages for the emotional distress he suffered as a result of NAC’s conduct. In a jury trial on plaintiff’s causes of action for fraud, negligent misrepresentation, and elder abuse, the jury found in favor of plaintiff on all three causes of action, awarded him damages of $4.5 million for noneconomic injury including emotional distress, and punitive damages of $14 million. NAC moved both for judgment notwithstanding the verdict and for a new trial. The trial court denied the former but granted the new trial motion, unless plaintiff agreed to a reduction in the damages. Plaintiff agreed to the remittitur, and as a result, the trial court reduced the compensatory damage award to $2 million and reduced the punitive damage award to $6 million. In a postjudgment proceeding, the trial court granted plaintiff attorney’s fees motion under Welfare and Institutions Code section 15657.5, but awarded plaintiff only $1 million of the $2,491,436 plaintiff had requested.
In its appeal, NAC raises various claims challenging both the fact and the amount of the jury’s compensatory and punitive damage awards. We agree with NAC’s initial claim, that because plaintiff did not present evidence to show that he suffered actual injury or loss, he may not recover compensatory damages for noneconomic injury under any of the three theories of liability he pursued at trial. Therefore, we will reverse the judgment and remand the matter to the trial court with directions to enter judgment in favor of NAC. Our resolution of the first issue renders moot the remaining issues NAC raises on appeal and also renders plaintiff’s cross-appeal moot.
FACT SUMMARY
The pertinent facts are undisputed. In May 2002, plaintiff, who was 82 years old, purchased $350,000 of NAC Market Choice III deferred annuities through Frank Manfred. The annuities matured at the end of 15 years and included significant penalties for early withdrawal. At the time of the purchase, Manfred was not an authorized NAC agent. NAC recruits its agents through Roster Financial (sometimes also referred to as Roster), a national marketing organization (NMO) that specializes in recruiting agents. Manfred became an affiliate of Roster in late 2001. Plaintiff met Manfred in April 2002, at a seminar Manfred presented at the retirement community in Oceanside where plaintiff and his wife lived. After several meetings with Manfred, plaintiff purchased two deferred annuities issued by another company, American Equity, each in the amount of $100,000. On May 14, 2002, plaintiff purchased a third American Equity deferred annuity in the amount of $50,000, and also applied to purchase $350,000 in NAC Market Choice III annuities. Manfred submitted his application to become an NAC agent through Roster Financial, and at the same time, submitted directly to NAC plaintiff’s applications to purchase the Market Choice III deferred annuities, accompanied by plaintiff’s check for $350,000. In a handwritten note, Manfred instructed NAC to use the money to purchase three annuities, one in the amount of $50,000 and two in the amount of $100,000.
The fee for early withdrawal or surrender of the annuities was 22 percent for the first five years, decreasing two percent each year over the next 10 years. After the first year, the annuitant could make one withdrawal each year of up to 10 percent of the accumulation value, i.e., initial premium and accrued interest, without paying a penalty.
NAC sells its annuities through independent life insurance agents, who must be licensed in the state where the sale occurs.
NAC’s Market Choice III annuity pays a commission of 17.5 percent, the highest commission offered by NAC on its products. The commission is shared by the agent and the NMO, in this case Roster. However, when the purchaser is over 81 years of age NAC reduces the agent’s commission by 25 percent. NAC initially rejected Manfred’s application to become an agent because his credit report revealed he had debts of nearly $900,000, which included tax liens, unpaid child support, and debts to other insurers. Under NAC’s appointment standards for agents, an applicant could have no more than $10,000 in debt, none of which can be owed to another insurer. After Roster interceded on his behalf, NAC agreed to appoint Manfred but only for the transaction with plaintiff, and with the understanding that NAC would pay the commission to Roster so that Roster would be responsible for repayment if the transaction with plaintiff fell through. Although NAC had requested a criminal background check on Manfred, it appointed him an agent and issued the annuities to plaintiff before it received the results of that inquiry. In any event, that search did not reveal any criminal history because NAC apparently had not requested that it include aliases Manfred had used. If a search under aliases had been conducted, it would have revealed that Manfred had recently been indicted for federal tax evasion and mail fraud.
Plaintiff purchased a total of $600,000 in deferred annuities through Manfred. The money had been in an account plaintiff and his wife maintained with Charles Schwab. Plaintiff attended Manfred’s investment seminar because his Schwab investment account advisor had recently passed away, and plaintiff was interested in finding another investment that might pay more than the Schwab account. Manfred met with plaintiff several times, and under circumstances that led plaintiff to believe that he and Manfred were friends. In the course of those meetings, Manfred advised plaintiff not only to purchase the deferred annuities but also to establish a living trust, which Manfred helped plaintiff set up for a fee of about $5,800.
The money represented the proceeds from the sale of real property that plaintiff’s wife had inherited.
During this same time, plaintiff had been caring for his wife, Irmgard, who suffered from Alzheimer’s disease. Plaintiff was having difficulty providing the necessary care, and decided, at the urging of the couple’s daughter, to sell their home in Oceanside and move to a retirement community closer to where their daughter lived. Plaintiff and his wife moved to an apartment in an assisted living community in Palm Desert in July 2002 before escrow closed on the sale of their Oceanside home. Irmgard’s health immediately deteriorated and as a result she was moved to a facility that provided more intensive care while plaintiff continued to live in assisted living.
Because he was under stress as a result of his wife’s illness, and because he too apparently was suffering from the onset of dementia, plaintiff believed, after he purchased the annuities, that he did not have any available cash and that he could not pay his monthly living expenses. Plaintiff had forgotten that he had approximately $80,000 in a savings account at Downey Savings. As a result of distress over his financial situation, and because he believed that he did not have any money, plaintiff made two withdrawals from the American Equity annuities and paid early withdrawal penalties. When his daughter became aware of the situation and asked plaintiff what had happened to his money, plaintiff could not recall. Eventually, plaintiff’s daughter discovered the annuity purchases. Plaintiff’s son-in-law contacted NAC to demand return of plaintiff’s money. In the interim, Irmgard passed away in September 2002.
The deferred annuities plaintiff purchased through Manfred represented more than 70 percent of plaintiff’s wealth, and an even greater percent of his liquid assets.
Plaintiff’s financial stress eased in December 2002, when escrow closed and he received the proceeds from the sale of his Oceanside home. In December 2002, plaintiff’s son-in-law wrote a letter to NAC at plaintiff’s direction demanding repayment of the money plaintiff had invested in the NAC deferred annuities. Among other things, plaintiff said in that letter that he did not know what an annuity was and had relied on Manfred’s representation that it would provide him and his wife with sufficient monthly income on which to live. Manfred had not explained the penalties plaintiff would have to pay for withdrawing his money, and did not tell plaintiff that the annuities would not pay monthly income. Plaintiff also explained that he and his wife were born in Hungary and that he does not understand English “as well as he should.” Plaintiff claimed that he only had $5,000 in the bank, an assertion which should have put NAC on notice that plaintiff’s annuity purchase involved more than 30 percent of his liquid assets. NAC investigated plaintiff’s complaint by asking Manfred to respond to plaintiff’s claims. After receiving Manfred’s response, which effectively stated that everything had been above-board and fully explained to plaintiff, NAC denied plaintiff’s request to return his money. In denying that request, NAC relied in part on Manfred’s response, and in part on the fact that plaintiff had signed all the disclosure documents in which he acknowledged that the NAC annuities were appropriate for his investment needs.
A year later, in December 2003, and after plaintiff filed his lawsuit, NAC learned that at the time he sold the annuities to plaintiff, Manfred had been the subject of a criminal investigation. NAC notified plaintiff by letter that it would not have contracted with Manfred had it known about the criminal investigation, and NAC returned plaintiff’s annuity premiums ($350,000), with the accrued interest.
Additional facts will be recounted below as pertinent to the issues raised in this appeal.
DISCUSSION
NAC first contends that the judgment must be reversed because emotional distress damages are recoverable only when the plaintiff has suffered some actual physical injury or financial loss, and plaintiff did not present evidence to show that he suffered either in this case. In fact, the trial court only instructed the jury on damages based on compensation for “[p]ast and future mental suffering, loss of enjoyment of life, inconvenience, grief, anxiety, humiliation, and emotional distress,” and the special verdict form only asked the jury to specify the total amount of noneconomic damage plaintiff suffered, an implicit acknowledgement that plaintiff did not suffer economic loss.
As set out in the special verdict, the jury in this case found NAC liable to plaintiff on all three theories plaintiff relied on at trial, namely, fraud, negligent misrepresentation, and financial abuse of an elder. In order to recover for fraud and negligent misrepresentation, a plaintiff must prove actual monetary loss. (Civ. Code, §§ 1709 & 1710; Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239-1240; Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1108; Gagne v. Bertran (1954) 43 Cal.2d 481, 487-488; Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 100-101.) Plaintiff did not present evidence at trial to show he suffered actual monetary loss as a result of NAC’s alleged fraud or negligent misrepresentations. Plaintiff’s evidence was all directed at recovering for the mental suffering and emotional distress he experienced as a result of NAC’s action. Emotional distress resulting from fraud and negligent misrepresentation is not compensable unless it is accompanied by an actual economic injury because, as previously noted, monetary loss is an essential element of causes of action for fraud and negligent misrepresentation. Consequently, neither the fraud nor the negligent misrepresentation theories of recovery support the jury’s compensatory damage award.
Plaintiff contends that emotional distress damages are recoverable for financial abuse of an elder, the only other theory of liability plaintiff presented to the jury, without the need to show actual injury or financial loss because such a cause of action is in effect one for intentional infliction of emotional distress. Plaintiff’s cause of action for financial abuse of an elder is based on Welfare and Institutions Code section 15610.30, which states: “(a) ‘Financial abuse’ of an elder or dependent adult occurs when a person or entity does any of the following: [¶] (1) Takes, secretes, appropriates, or retains real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud, or both. [¶] (2) Assists in taking, secreting, appropriating, or retaining real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud, or both. [¶] (b) A person or entity shall be deemed to have taken, secreted, appropriated, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates or retains possession of property in bad faith. [¶] (1) A person or entity shall be deemed to have acted in bad faith if the person or entity knew or should have known that the elder or dependent adult had the right to have the property transferred or made readily available to the elder or dependent adult or to his or her representative. [¶] (2) For purposes of this section, a person or entity should have known of a right specified in paragraph (1) if, on the basis of the information received by the person or entity or the person or entity’s authorized third party, or both, it is obvious to a reasonable person that the elder or dependent adult has a right specified in paragraph (1). [¶] (c) For purposes of this section, ‘representative’ means a person or entity that is either of the following: [¶] (1) A conservator, trustee, or other representative of the estate of an elder or dependent adult. [¶] (2) An attorney-in-fact of an elder or dependent adult who acts within the authority of the power of attorney.”
Unless otherwise indicated, all further statutory references are to the Welfare and Institutions Code.
Section 15610.30 only defines financial abuse of an elder; it does not create a new tort or independent theory of liability under which plaintiff may recover damages. Financial abuse of an elder, when proven, entitles a litigant to recover the additional, or enhanced, remedies specified in section 15657.5, subdivision (a), which states, “Where it is proven by a preponderance of the evidence that a defendant is liable for financial abuse, as defined in Section 15610.30, in addition to all other remedies otherwise provided by law, the court shall award to the plaintiff reasonable attorney’s fees and costs. The term ‘costs’ includes, but is not limited to, reasonable fees for the services of a conservator, if any, devoted to the litigation of a claim brought under this article,” including the right to recover attorney’s fees in a civil action.
Under the statute, an elder is a person 65 years of age or older. (§ 15610.27.)
A statutory right to recover attorney’s fees is in keeping with the purpose of the elder abuse law, which as the Supreme Court explained in Delaney v. Baker (1999) 20 Cal.4th 23, “is essentially to protect a particularly vulnerable portion of the population from gross mistreatment in the form of abuse and custodial neglect.” (Id. at p. 33.) In accordance with that purpose, as enacted in 1982, the Legislature initially focused on “measures designed to encourage the reporting of such abuse and neglect. (§ 15601 et seq.) Subsequent amendment refined the 1982 enactment, but the focus remained on reporting abuse and using law enforcement to combat it [citation]. Also, Penal Code section 368 was enacted, making it a felony or misdemeanor (depending on the circumstances), for, among other things, a custodian of an elder or dependent adult to willfully cause or permit various types of injury. [Citation.]” (Ibid.) “In the 1991 amendments [pursuant to which the Legislature added section 15657] at issue here, the focus shifted to private, civil enforcement of laws against elder abuse and neglect. ‘[T]he Legislature declared that “infirm elderly persons and dependent adults are a disadvantaged class, that cases of abuse of these persons are seldom prosecuted as criminal matters, and few civil cases are brought in connection with this abuse due to problems of proof, court delays, and the lack of incentives to prosecute these suits.” (§ 15600, subd. (h), added by Stats. 1991, ch. 774, § 2.) It stated the legislative intent to “enable interested persons to engage attorneys to take up the cause of abused elderly persons and dependent adults.” (Id., subd. (j))’ [Citation.]” (Delaney v. Baker, supra, 20 Cal.4th at p. 33.)
Although Delaney v. Baker involves physical abuse resulting from medical malpractice and concerns the application of section 15657, it nevertheless is equally pertinent to financial abuse and section 15657.5 at issue in this appeal. The Legislature enacted section 15657.5 and amended section 15657 in 2004, among other things, to lower the burden of proof from clear and convincing evidence to preponderance of the evidence in order to recover attorney’s fees and costs in a civil action based on financial abuse of an elder. (See Sen. Com. on Public Safety, Analysis of Assem. Bill No. 2611 (2003-2004 Reg. Sess.) as amended June 16, 2004.) Section 15657.5 includes not only the right to recover attorney’s fees and costs (§ 15657.5, subd. (a)), but also provides that the right to recover for pain, suffering, and disfigurement survives the death of the elder, and therefore the limitation in Code of Civil Procedure section 377.34 does not apply, if the plaintiff proves financial abuse as defined in section 15610.30, and also shows by clear and convincing evidence, that the defendant was guilty of recklessness, oppression, fraud, or malice in the commission of that financial abuse. (§ 15657.5, subd. (b)(1).) In addition, section 15657.5, subdivision (b)(2) states, “The standards set forth in subdivision (b) of Section 3294 of the Civil Code regarding the imposition of punitive damages on an employer based upon the acts of an employee shall be satisfied before any damages or attorney’s fees permitted under this section may be imposed against an employer.”
In short, section 15657.5 creates additional or enhanced remedies that are recoverable if the conduct underlying a claim for financial abuse of an elder constitutes a tort, and thus gives rise to a right to recover damages. In this case, for example, if plaintiff had suffered actual injury or financial loss and as a result had established a claim for fraud or negligent misrepresentation, then in addition to the damages recoverable for those torts, he would be entitled to recover his attorney’s fees and costs from NAC under section 15657.5, subdivision (a), if plaintiff also met the standards set out in Civil Code section 3294.
Plaintiff argues, as an alternative claim, that he did suffer financial loss as a result of NAC’s conduct and that loss consists of the surrender fees totaling $3,562 that he incurred when he made two early withdrawals from the American Equity deferred annuities in order to pay his bills, and the $40,000 in credit card debt he incurred because he did not have enough cash available to pay his bills. There are several defects in plaintiff’s assertion, the most significant of which is that the jury did not make any finding on the economic damages plaintiff suffered. Nor can we say that a jury faced with the issue necessarily would have identified those expenses as losses attributable to NAC’s conduct. The evidence presented in the trial court included the undisputed evidence that, at the time plaintiff purchased the NAC annuities, he had $80,000 on deposit in a savings account at Downey Savings. Although plaintiff apparently did not recall that he had that money, and instead believed that all his money was tied up in deferred annuities, we cannot say that a jury presented with the issue would necessarily have found that the surrender fees and credit card debt were losses plaintiff incurred as a result of NAC’s actions. The jury did not make such a finding in this case, and therefore plaintiff did not prove he suffered any actual loss or injury that would support recovery of any damages in this action.
Plaintiff also notes that because he was so depressed a friend insisted on taking him to her doctor for an evaluation, and as a result he incurred the expense of a doctor’s visit. Although plaintiff and his friend both testified that plaintiff had an appointment with the friend’s doctor, plaintiff did not present any evidence at trial to establish the cost of that doctor’s visit.
NAC raised plaintiff’s failure to prove actual injury or financial loss as one of the grounds upon which it moved in the trial court for judgment notwithstanding the verdict. The trial court should have granted that motion. Therefore, we will reverse the judgment and direct the trial court to enter judgment in favor of NAC. (Code Civ. Proc., § 629 [“If the motion for judgment notwithstanding the verdict be denied and if a new trial be denied, the appellate court shall, when it appears that the motion for judgment notwithstanding the verdict should have been granted, order judgment to be so entered on appeal from the judgment or from the order denying the motion for judgment notwithstanding the verdict”].)
Because we are reversing the judgment in favor of plaintiff, the remaining issues NAC raises in its appeal, and the issues plaintiff raises in his cross-appeal, are moot.
DISPOSITION
The judgment is reversed, and the case remanded to the trial court with directions to enter judgment in favor of NAC.
NAC to recover its costs on appeal.
We concur: Gaut J., King J.