Opinion
B213216
12-06-2011
HOUSING AUTHORITY OF THE CITY OF LOS ANGELES, Plaintiff and Respondent, v. DONALD J. SMITH, Defendant and Appellant.
Rehm & Rogari and Joanna Rehm, for Defendant and Appellant. Burke, Williams & Sorensen, Charles E. Slyngstad and Sanaea H. Daruwalla, for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC361111)
APPEAL from a judgment of the Superior Court of Los Angeles County. Michael L. Stern, Judge. Affirmed.
Rehm & Rogari and Joanna Rehm, for Defendant and Appellant.
Burke, Williams & Sorensen, Charles E. Slyngstad and Sanaea H. Daruwalla, for Plaintiff and Respondent.
Appellant Donald J. Smith's former employer, the Housing Authority of the City of Los Angeles (HACLA), sued Smith and others for fraud by intentional misrepresentation and concealment. A jury found Smith liable for fraud, and judgment was entered in favor of HACLA. Smith now appeals from the judgment and from the order denying his motion for judgment notwithstanding the verdict. Smith contends (1) his posttrial motion should have been granted because the trial court denied him a fair trial on his statute-of-limitations defense, and (2) there was insufficient evidence to support the jury's verdict. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The Parties
HACLA is a state-chartered public housing agency that provides affordable housing and related services to lower income residents in the City of Los Angeles. It receives most of its funding from the Federal Department of Housing and Urban Development (HUD). HACLA is governed by a seven-member Board of Commissioners (the Board) appointed by the Mayor of the City of Los Angeles.
Smith worked for HACLA from 1971 through 1980, and from 1994 until his retirement in 2004. During his second term of employment, Smith served as HACLA's executive director, secretary and treasurer. As executive director, Smith was HACLA's highest officer. His employment agreement with HACLA stated that in his capacity as executive director, Smith's duties included budgeting and accounting; public relations; planning projects and general policies; explaining, advising and making recommendations on matters before the Board; and keeping the Board informed of problems with HACLA's activities. As secretary to the Board, Smith was required to direct the preparation of the agenda; record, certify and maintain the Board's minutes; and attend all Board meetings. As treasurer of HACLA, Smith was responsible for supervising all funds and assets of HACLA; maintaining correct accounts for all property and public transactions; and rendering to the Board an account of all transactions and the financial condition of HACLA.
During Smith's tenure as executive director, HACLA employees could not answer a question from a Board member without Smith's permission, and employees had to go through Smith's office if they had a question for the Board. Smith also expressed to Board members that he did not want them talking directly to HACLA staff without first speaking to him.
Lucille Loyce was hired by HACLA in 1992 as head of the housing management department. Her primary responsibility was to oversee the maintenance of the housing developments, which consisted of approximately 10,000 units. In 2000, with the Board's approval, Smith promoted her to the position of assistant executive director, reporting directly to him. Prior to her employment with HACLA, Loyce worked for the Milwaukee Housing Authority (MHA), where she met Dwayne Williams. Williams obtained a contract with the MHA to provide consulting services to assist minority businesses in bidding on public housing contracts. Williams also worked on income properties that were owned by Loyce's mother and managed by Loyce. After Loyce moved to San Diego to work for the Urban League, Williams followed. He invested with her in a restaurant and subleased her apartment in San Diego when she moved to Los Angeles to work for HACLA. Loyce told Smith in 1996 that she knew Williams from her days at the MHA working with him as a business consultant.
Loyce was a codefendant at trial, and the jury also found her liable for fraud. We dismissed her appeal after notice of default.
In our prior opinion in this case filed on October 28, 2008, Housing Authority of the City of Los Angeles v. Dwayne E. Williams (nonpub. opn. B199852), we reversed the trial court's order dismissing HACLA's complaint against Williams following the sustaining of a general demurrer without leave to amend. Williams was not a defendant at trial and is not a party to this appeal.
The Resident Management Corporations
Each housing development was permitted to form a Resident Management Corporation (RMC) to encourage increased resident management and participation, and to develop resident-owned businesses. The RMC's are nonprofit corporations with an elected board composed of residents. Using HUD funds, HACLA entered into contracts with many of the RMC's, pursuant to which the RMC's would provide services to the housing developments through residents or vendors. HACLA also entered into contracts with Williams as an outside consultant to provide training to the RMC's to execute their HACLA contracts and to assist them in running their resident-owned businesses.
In February 2000, Loyce asked HACLA's contract administrator Denise Spencer-Watkins to include language in the RMC contracts that allowed HACLA to have control and monitoring power over the RMC contracts. The language was adopted by the Board, and allowed HACLA to attend quarterly meetings in which the RMC presidents would advise it on the state of the contracts with HACLA, business activities, and profits and losses.
Williams and the RMC's
Loyce introduced Williams to HACLA's director of resident relations, and helped him obtain his first contract with HACLA. Smith, as executive director, had authority to sign HACLA contracts for $25,000 or less; contracts in larger amounts required Board resolution and approval. From 1993 through 2003, Williams obtained several contracts with HACLA for $25,000 each, which were later increased to substantially higher amounts. HACLA's financial expert testified that, based on his review of HACLA's records, Williams was paid $1.2 million in consulting fees from two RMC's (Jordan Downs and Pueblo Del Rio) for the five-year period of 2000 through 2004, which represented 18 percent of the combined funds those RMC's received from HACLA.
Beginning in 1995, Spencer-Watkins became suspicious that Loyce was improperly steering contracts to Williams by defining the scope of work under the request for proposals so narrowly that no one but Williams could perform it, by not soliciting sufficient bids, and by soliciting them only from non-qualified vendors. She also suspected that the $25,000-and-under threshold provision was being abused, because Williams routinely secured amendments to his contracts for larger amounts on the ground he had already begun the work. She raised her concerns with Loyce in a series of written correspondence from 1995 through 2000. At one point, Loyce angrily confronted Spencer-Watkins in her office, and told her she was an "Uncle Tom" for not trying to help "my own people." Spencer-Watkins reported this to her department head, soon refused to work on any contracts involving Loyce, and left HACLA about a year later.
Loyce pressured the RMC's to hire Williams as their consultant. In his opening brief, Smith states: "Once hired, Williams received payments over the contract price, double-billed, did not maintain records, and achieved little success."
Smith and the RMC's
Smith reviewed and approved the oversight clause placed in the RMC contracts beginning in February 2000. Smith also signed each contract and contract amendment between HACLA and the RMC's and between HACLA and Williams; each contract specified the amount to be paid and the scope of work. Smith received reports and briefings from Loyce regarding her work overseeing and monitoring the Jordan Downs and Pueblo Del Rio RMC's, and briefings regarding Williams's activities as the RMC's consultant. Smith saw the budget which would show how much was being paid to the consultant, and he knew that around $2 million was being paid by HACLA to the Jordan Downs and Pueblo Del Rio RMC's from 2000 through 2004. Smith visited the housing developments once or twice a week from 2000 through 2003.
At a board meeting on March 22, 2002, Smith told the Board that "we" closely monitor all the RMC contracts. Smith was present when Loyce told the Board, at that same meeting, that Williams was receiving no more than ten percent of the value of the RMC contracts. Smith did not ask Loyce how she arrived at this figure and never sought to confirm whether her statement was true. Not only was Smith aware of the amount of money HACLA paid to the RMC's, he also knew Williams's hourly rate, which Smith considered excessive, and that it increased over time. HACLA's financial expert testified that in 2002 Williams received 32 percent of the funds paid by HACLA to the Pueblo Del Rio RMC, 47 percent in 2001, and 25 percent in 2000.
The Ochoa Complaint
In October 2000, various RMC board members and residents sued HACLA, Smith, Loyce and Williams, alleging that Loyce and Williams, with Smith's help, engaged in a fraudulent operation to misappropriate millions of dollars that were intended for the residents' benefit through the RMC contracting process (the Ochoa complaint). The Ochoa complaint was served on Smith on behalf of HACLA. It was then sent to HACLA's risk manager and the City Attorney, who acted as general counsel to HACLA. Smith testified that he asked his staff to send copies to the Board. After discussions in closed session with Smith and the City Attorney, the Board decided to defend the lawsuit. Smith made the decision to hire Martha Shen as outside counsel to represent him, Loyce and HACLA.
The Ochoa complaint was discussed again by the Board in open and closed sessions on March 22, 2002, with Smith, Loyce, Shen and the City Attorney also present. The issue was whether the Board should pay Williams' legal fees. The Board ultimately agreed to do so. Shen was successful in eventually having the lawsuit dismissed.
The trial court took judicial notice of the fact the Ochoa complaint was filed, but not of its allegations. At trial, six of the seven commissioners who were Board members when the Ochoa complaint was filed testified about it. Commissioners Michael Banner and John Steven Schafer recalled receiving copies of the Ochoa complaint and discussing the allegations in closed session. Commissioner Ozie Gonzaque, who was then Board chair, also recalled receiving a copy of the Ochoa complaint, discussing it in open and closed sessions, and that there were allegations of wrongdoing against Loyce and Williams. She also recalled the Board directing that an internal investigation be made, and attorney Shen reporting to the Board that the allegations lacked merit. Commissioner Maria Del Angel did not recall Board members receiving copies of the Ochoa complaint or being told that Smith was being sued in the lawsuit, but she did recall questioning why HACLA should pay Williams's legal fees. Commissioner Lovie Jackson did not recall the Board discussing the Ochoa complaint. Commissioner Michael Nogueira did not recall that the Ochoa complaint involved allegations that Loyce and Williams were engaged in wrongdoing.
Smith's Letter to the Mayor and Board
In February 2002, Smith sent a letter to Mayor James Hahn, with copies to the Board, United States senators, and many other elected officials. Smith wrote the letter in response to a newspaper article discussing the allegations of the Ochoa complaint. He stated that "at no time was the Housing Authority ever involved in the decision-making or the approval of any consultant hired on behalf of the RMC's nor were any resident jobs lost due to the cancellation of the contracts."
The Audits
Following the filing of the Ochoa complaint, the Office of the Inspector General of HUD (OIG) conducted an audit of HACLA's contracting activities from late 2001 through November 2002 involving Williams. The audit results were complete by December 2004. One of OIG's auditors testified that he would have spoken to Smith regarding the allegations related to the audit, but he could not recall any such conversation. In 2003, Smith did not inform the Board chair that OIG was conducting an investigation relating to Loyce and Williams, only that OIG "had been there."
The OIG found that HACLA had expenditures of $1.7 million of HUD funds that were either unsupported or ineligible costs. The unsupported costs included the lack of time cards, and the ineligible costs consisted of overpayments on contracts and payments on contracts that the OIG concluded were improperly awarded in a noncompetitive bid process when they should have been submitted for bid under a different regulation. The Board's then chair, Rudolf Montiel, did not dispute the audit findings, and the Board agreed to repay the money.
HUD recommended that HACLA conduct a further audit of ongoing contracts involving Williams. In early 2005 HACLA hired an outside firm, KPMG, to conduct an audit covering the period of 2000 to 2004. In early 2006, KPMG used a statistical sample to project that an additional $3 million was due HUD. The audit results were given to the OIG, which recommended that HACLA pursue recovery of the funds directly from Smith, Loyce and Williams.
The Pleadings
HACLA filed this lawsuit against Smith, Loyce and Williams on October 30, 2006. The second amended complaint alleged breach of fiduciary duty, intentional and constructive fraud, conversion, unjust enrichment, and conspiracy to defraud. In his answer, Smith raised the statute of limitations as an affirmative defense. He continued to raise the limitations defense throughout the case, including by motion for judgment on the pleadings, motion for summary judgment, motion for bifurcation, trial brief, motion for nonsuit, and posttrial motions (discussed below), all of which were denied.
The Trial
Jury trial commenced on September 16, 2008, against Smith and Loyce. The trial lasted five weeks, more than 30 witnesses testified, and more than 200 documents were introduced. Throughout the trial, the court and counsel conferred on jury instructions and a special verdict form. Both Smith and HACLA submitted special instructions on the limitations issue. According to Smith, the trial court stated that it would decide the limitations issue and instructed counsel not to discuss the issue during closing argument.The court did not instruct the jury on the limitations issue. Instead, the jury was asked to answer a question on the joint special verdict form on this issue as an "advisory finding." Question No. 46 asked: "Was the Board of Commissioners of [HACLA] prior to October 30, 2003, aware of the facts that would cause a reasonable person to suspect that Donald Smith was engaged in wrongful conduct harmful to it regarding Dwayne E. Williams/ D.E. Williams & Associates?"
Smith does not cite any particular pages in the record containing the court's statements. Instead, he cites generally to portions of the record that are more than 100 pages long. HACLA does not dispute Smith's assertions.
On November 3, 2008, the jury returned its special verdict, finding that Smith and Loyce committed fraud by intentional misrepresentation and concealment. In response to Question No. 46, the jury answered "no." The jury found that both Smith and Loyce caused damages to HACLA of $528,000 each. After discharging the jurors the next day on November 4, 2008, the court informed counsel that it would hear the statute of limitations issue by motion for judgment notwithstanding the verdict (JNOV). The same day, on November 4, 2008, the court issued a judgment on special verdict, and ordered that the damages of $528,000 be paid jointly and severally by Smith and Loyce.
In response to Question No. 17, the jury found that Smith falsely represented to the Board an important fact to be true "regarding the oversight and monitoring of the resident management corporations contracting activities or regarding Dwayne E. Williams/D.E. Williams & Associates." In response to Question No. 27, the jury found that Smith intentionally failed to disclose to the Board an important fact "regarding the oversight and monitoring of the resident management corporation contracting activities or regarding Dwayne E. Williams/D.E. Williams & Associates that it did not know or could not reasonably have discovered."
The Post-Trial Motions
On November 14, 2008 Smith filed his JNOV motion on the ground there was no substantial evidence to support the finding that HACLA was unaware of facts giving rise to a suspicion of wrongdoing in the three years before it filed its lawsuit for fraud. Smith also filed a motion for new trial on the grounds of insufficiency of the evidence and irregularity in the proceedings by the court entering a final judgment disposing of all issues without giving Smith a fair trial on his limitations defense, before either the jury or the court. HACLA opposed both motions. The motions were heard on December 19, 2008 and denied. The trial court stated: "[I] would not overturn the jury's verdict, nor do I think differently about the statute of limitations, the implications of the statute of limitations as one draws from the jury's verdict." This appeal followed.
DISCUSSION
I. Statute of Limitations
Smith contends the judgment must be reversed because he was deprived of a fair trial by either the court or the jury on the limitations issue.
An action for fraud must be brought within three years of the fraud, but the cause of action is "not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." (Code Civ. Proc., § 338, subd. (d).) Cases applying this section declare the statute of limitations commences "when the plaintiff suspected or should have suspected that an injury was caused by wrongdoing." (Kline v. Turner (2001) 87 Cal.App.4th 1369, 1374.) "The statute of limitations begins to run when the plaintiff has information which would put a reasonable person on inquiry. A plaintiff need not be aware of the specific facts necessary to establish a claim since they can be developed in pretrial discovery. Wrong and wrongdoing in this context are understood in their lay and not legal senses." (Ibid., citing Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110-1111.)
Smith correctly points out that while the statute of limitations is an affirmative defense that must be proven by the defendant, where an action for fraud is commenced more than three years after the fraud occurred, the burden is on the plaintiff to prove that it did not discover the facts constituting the fraud within three years before filing the action. (Bond v. DeWitt (1954) 126 Cal.App.2d 540, 547; Shapiro v. Equitable Life Assurance Soc. (1946) 76 Cal.App.2d 75, 94-95.) Smith persuasively argues that "by requiring [him] to use the JNOV procedure, the trial court impermissibly lifted [HACLA's] burden to prove delayed discovery while putting a burden on Smith to show there was no substantial evidence to support the judgment." "'A motion for judgment notwithstanding the verdict of a jury may properly be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence to support the verdict. If there is any substantial evidence, or reasonable inferences to be drawn therefrom, in support of the verdict, the motion should be denied.' [Citation.]" (Hauter v. Zogarts (1975) 14 Cal.3d 104, 110.)
We agree with Smith that the trial court erred. The trial court should have either submitted the limitations issue to the jury with proper instructions and argument by counsel, or the trial court should not have resolved the limitations issue prior to entering judgment on the special verdict, which incorporated the jury's advisory finding on Question No. 46. But we disagree that it is reasonably probable that if the error had not occurred, a different result would have followed. (College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 715.) Substantial evidence supports a finding that HACLA was not on notice of its claims against Smith until the audit results were complete, which was less than three years prior to commencement of this lawsuit on October 30, 2006.
Smith argues that to the Ochoa complaint, filed in October 2000 and discussed by the Board as late as 2002, put the Board on notice more than three years before filing this lawsuit that there were allegations of wrongdoing by Williams that implicated HACLA, Smith and Loyce. But the testimony about the Ochoa complaint was conflicting. While Commissioners Banner, Schafer and Gonzaque all recalled receiving copies of the Ochoa complaint and discussing the allegations in closed session, Commissioners Del Angel, Jackson and Nogueira did not recall either receiving copies of the complaint or discussing it at Board meetings. A jury could easily infer that the Board as a whole did not have notice of wrongdoing against Smith based on the Ochoa complaint.
Moreover, even though some Board members did recall the complaint and its allegations, Board chair Gonzaque testified that the Board directed an internal investigation to be conducted. Smith repeatedly asserts in his brief that HACLA had a duty to "go find the facts." The record reveals that HACLA did so. Outside attorney Shen reported to the Board that she conducted an investigation and that the allegations lacked merit. She was ultimately successful in having the Ochoa complaint dismissed. Smith argues that an entity is bound by the knowledge of its agents, including attorneys (Civ. Code, § 2332). But there was no evidence that Shen or the City Attorney had any knowledge or suspicion that the allegations against Smith had merit.
Smith also argues that the trial court erred in taking judicial notice of the filing of the Ochoa complaint but not its allegations. He points out that the complaint was not being offered to prove the truth of the allegations, but rather the effect of those allegations on the Board's knowledge of wrongdoing. We are satisfied that any error in refusing to take judicial notice of the allegations of the Ochoa complaint was harmless. Numerous witnesses testified about the Ochoa complaint. It is true that Commissioner Schafer was not allowed to testify as to whether he thought the allegations in the Ochoa complaint had merit. But Board chair Gonzaque testified she was of the opinion that the Ochoa plaintiffs were "crooks," and the results of the formal investigation were that the allegations lacked merit.
Smith points to no other evidence or "facts" showing that HACLA had notice or suspicion of Smith's wrongdoing more than three years before filing this lawsuit against him. We are satisfied substantial evidence supports the finding that HACLA's lawsuit was not time-barred.
II. Sufficiency of the Evidence
Smith contends there was insufficient evidence to support the jury's verdict that he engaged in fraud through intentional misrepresentation and concealment. We disagree.
A. Standard of Review
When the finding of a trier of fact is attacked as not being based on substantial evidence, "the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination, and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. If such substantial evidence be found, it is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion." (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874, italics omitted.) We therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor. (Escamilla v. Department of Corrections & Rehabilitation (2006) 141 Cal.App.4th 498, 514.) '"It is not our task to weigh conflicts and disputes in the evidence; that is the province of the trier of fact.' [Citation.]" (Ibid.) We do not evaluate the credibility of the witnesses, but defer to the trier of fact on issues of credibility. (Id. at pp. 514-515.) "Defendants raising a claim of insufficiency of the evidence assume[] a 'daunting burden.' [Citation.]" (Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 678.)
B. Evidence Supporting Misrepresentation and Concealment
The jury found that Smith falsely represented an important fact to be true to the Board "regarding the oversight and monitoring of the resident management corporations contracting activities or regarding [Williams]" (Special Verdict Question No. 17). The jury also found that Smith intentionally failed to disclose an important fact to the Board "regarding the oversight and monitoring of the resident management corporations contracting activities or regarding [Williams] that it did not know or could not reasonably have discovered" (Special Verdict Question No. 27). Substantial evidence supports these findings.
The jury was instructed that HACLA had to prove all of the following to establish its claim for intentional misrepresentation: 1. Smith represented to HACLA that an important fact was true; 2. Smith's representation was false; 3. Smith knew that the representation was false when he made it, or that he made the representation recklessly and without regard for its truth; 4. Smith intended that HACLA rely on the representation; 5. HACLA reasonably relied on Smith's representation; 6. HACLA was harmed; and 7. HACLA's reliance on Smith's representation was a substantial factor in causing it harm. (CACI No. 1900.)
The jury was also instructed that HACLA had to prove all of the following to establish its claim Smith concealed certain information: 1. (a) Smith and HACLA were in a fiduciary relationship; and (b) Smith intentionally failed to disclose an important fact to HACLA; or (c) Smith actively concealed an important fact from HACLA or prevented it from discovering that fact; 2. HACLA did not know the concealed fact; 3. Smith intended to deceive HACLA by concealing the fact; 4. HACLA reasonably relied on Smith's concealment; 5. HACLA was harmed; and 6. Smith's concealment was a substantial factor in causing it harm. (CACI No. 1901.)
1. Intentional misrepresentation.
Smith told the Board that he was closely monitoring the RMC's contracting activities. There is substantial evidence in the record from which the jury could infer that Smith made this misrepresentation intentionally or without regard for its truth. For example, Smith saw the budget, which would show how much the RMC's were paying to Williams, but he never asked for any special accounting by Loyce. Starting in 2001 or 2002, the Board approved budgets two years in a row which included a position for someone to look into the books and records of the RMC's, but Smith would not authorize filling the position. And despite being told by Loyce in 1999 that there was a misuse of funds at Jordan Downs, Smith praised the Jordan Downs group to the Board, which then approved an increase in its contract with HACLA on which Williams consulted.
The evidence also showed that Smith was aware Williams was not properly performing his job for the RMC's. Smith testified that when he drove by the housing developments once or twice a week he never saw Williams. Helen Young, a HACLA employee and former vice-president of the Pueblo Del Rio RMC sent a letter to Smith complaining about Williams verbally demeaning RMC employees during his trainings. Yet, Smith continued to present contracts and contract amendments to the Board for approval that allowed the RMC's to continue paying Williams consulting fees for years.
2. Concealment.
There was also substantial evidence to support the jury's finding that Smith intentionally failed to disclose important facts to the Board. The evidence showed that Smith failed to disclose OIG's investigation of Loyce and Williams in relation to the RMC contracts. He also failed to disclose that Williams was receiving far more than 10 percent of the RMC contract amounts, as represented by Loyce at a Board meeting in 2002 at which Smith was present. While Smith claims he was unaware of the actual amount of money paid to Williams, Smith was aware of the amount of money being paid to the RMC's through his review and signature of their contracts with HACLA. Smith was also aware of Williams's hourly rate, which he considered excessive, and that Williams received around $2 million in consulting fees from 2000 to 2004. HACLA's financial expert testified that Williams was paid $1.2 million in consulting fees just from the Jordan Downs and Pueblo Del Rio RMC's during 2000 through 2004, which represented 18 percent of the combined funds of $6.86 million these two RMC's received from HACLA.
Smith spends much of his reply brief attacking the evidence presented by HACLA and providing alternative explanations. But it is not our role to reweigh the evidence on appeal or make credibility findings; those determinations are the exclusive province of the trier of fact. (Escamilla v. Department of Corrections & Rehabilitation, supra, 141 Cal.App.4th at pp. 514-515.) We construe the evidence in the light most favorable to HACLA. We are satisfied substantial evidence supports the jury's findings that Smith made false representations to, and concealed important facts from, the Board, and that he did so either knowingly or with reckless disregard for the truth.
C. Reliance on Smith's Misrepresentation and Concealment
Contrary to Smith's assertion, substantial evidence supports the jury's findings that the Board reasonably relied on Smith's misrepresentations and concealments, which caused it harm. In response to Special Verdict Question No. 6, the jury found that Smith was "an officer who exercised some discretion in management of [HACLA]." Simply put, the jury found that Smith was a fiduciary of HACLA.
When a fraud claim is based upon a misrepresentation or nondisclosure by a fiduciary, the reliance element is relaxed and reasonable reliance can be presumed absent direct evidence of a lack of reliance. (Estate of Gump (1991) 1 Cal.App.4th 582, 601; Edmunds v. Valley Circle Estates (1993) 16 Cal.App.4th 1290, 1302 ["a representation in the context of a trust or fiduciary relationship creates a rebuttable presumption of reasonable reliance subject to being overcome by substantial evidence to the contrary"].)
The Board relied on Smith in deciding whether to approve contracts and amendments between HACLA and the RMC's and Williams. Every contract that went before the Board was reviewed by Smith before it was included on the Board's agenda. The contracts funded the RMC's with millions of HACLA dollars. The jury could readily find that this allowed the RMC's to continue paying Williams unearned consulting fees for years.
Substantial evidence also supports the finding that the Board's reliance on Smith's misrepresentation and concealment was reasonable. As executive director, Smith was HACLA's highest officer, and was also HACLA's treasurer and secretary. In these capacities, as Smith admitted, he was required to oversee budgeting and accounting of HACLA's funds and assets and to render to the Board an account of all transactions and the financial condition of HACLA. He was also responsible for advising and making recommendations to the Board, and preparing and recommending policy statements for consideration by the Board. Smith was also required to keep the Board informed of problems that affected HACLA. He directed the preparation of the Board meeting agendas and attended all meetings. And he was HACLA's contracting officer. These duties and obligations were spelled out in Smith's employment contract, signed by Board chair Gonzaque. Given these duties, it was reasonable for the Board to rely on Smith's representations and recommendations, particularly his misrepresentation that he was closely monitoring the RMC's contracting activities. Furthermore, there was substantial evidence that others were not allowed to speak to or advise the Board without Smith's approval, making the Board's reliance on Smith even more necessary.
Without Smith's misrepresentations and concealments, millions of dollars from HACLA would not have been paid to the RMC's, who were essentially cheated out of their money by Williams.
DISPOSITION
The judgment is affirmed. HACLA is entitled to recover its costs on appeal. NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______, Acting P. J.
DOI TODD
We concur:
______, J.
ASHMANN-GERST
______, J.
CHAVEZ