Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Appeal from a judgment and an order of the Superior Court of Orange County, Kirk H. Nakamura, Judge. Super. Ct. No. 04CC04895
Law Offices of Edwin Paul, Edwin Paul and Margie L. Jesswein for Defendants and Appellants.
George D. Straggas for Plaintiffs and Respondents.
OPINION
SILLS, P. J.
I. INTRODUCTION
Mark Twain once said, “Water, taken in moderation, cannot hurt anybody.” This case, however, involves more than a moderate amount of water, rendering a private residence not quite as stable or as usable as its buyers had thought.
There is a water accumulation problem concerning some residential properties on Ashland Drive in Laguna Hills, including the house that is the subject of this litigation. The problem may not be the result of a full-fledged “aquifer,” but there was certainly enough evidence at trial to show problematic accumulating ground water. The extent of this water accumulation problem was never disclosed to the buyers because the disclosure statement signed by the Dawkins was affirmatively misleading. While the form did say that the sellers were aware of “Flooding, drainage or grading” problems, the form included a handwritten statement from the sellers’ adult son saying, “The only problem that I am aware of is that during heavy rains water pools in backyard and in front yard.” The parents signed the disclosure statement after the son had written his comment on it, essentially adopting it as their own.
The buyers sued, and obtained (a) compensatory damages of $97,500, (b) punitive damages of $20,000 against one of the sellers (the wife) and $2,000 against another (the son), and (c) attorney fees of about $223,000. The sellers now appeal from the judgment awarding damages and the attorney fee order.
The sellers’ appeal is massive. The opening brief is, literally, three-quarters of an inch thick when squeezed together -- in size more reminiscent of death penalty cases than buyer-seller disputes. Evidently, as our Supreme Court once said in another context, counsel did not have the “time to prepare a short brief.” (King v. Gildersleeve (1889) 79 Cal. 504, 507, italics in original.)
That was partially our fault. This court granted appellant’s request to file an oversize brief.
Supersized as the opening brief is, the issues presented can be made manageable by grouping them into six discrete legal categories -- four involving liability and two involving damages.
Let us now summarize our conclusions as to the six categories, as they are presented in the opening brief:
The four liability categories:
A. Miscellaneous evidentiary issues:
None of these merit reversal because, at root, they assume their conclusion, which is that the property’s water problems were not of an ongoing geological nature -- systemic water accumulation -- but simply the results of abnormal rain in wet years. But the jury rejected that conclusion and there was substantial evidence for the jury to reject it.
B. Jury instruction issues:
Since these are fundamentally attacks on the sufficiency of the buyers’ evidence rather than true instructional errors, they do not merit reversal. Substantial evidence supports the jury’s conclusion that the property suffered systemic water accumulation.
C. Substantial evidence regarding misrepresentation, breach of contract, and negligence:
This is a classic instance where the appellant loses because conflicts and reasonable inferences must be drawn in favor of the trial court judgment. The question whether the property’s water problem was the result of abnormal rain or a structural groundwater accumulation problem was decided by the jury against appellants, and, again, there is substantial evidence to sustain that finding.
D. The problem of inconsistent jury verdicts:
This is the one issue that is meritorious. The jury found that the sellers were liable for both intentional misrepresentation and negligent misrepresentation, and, in regard to the negligence, found that the Johnsons were 25 percent contributorily negligent. The same affirmative misrepresentation, however -- the “only problem” statement -- forms the only possible basis for both the intentional and a negligent misrepresentation claim. The buyers invite us to parse the facts so as to hold that the “only problem” statement was intentional, but the sellers’ failure to correct that misstatement was negligent. But this proposed parsing just doesn’t work. It is equivalent to saying that every fraud claim also entails a negligence claim based on the failure to correct the fraud.
The case will thus have to be reversed and remanded for the very limited purpose of having a jury determine whether the “only problem” statement, as it was ultimately conveyed to the Johnsons, was (a) intentional or (b) negligent. If intentional, then the punitive damage awards already made will be reinstated. If negligent, the ultimate judgment should not include those punitive awards.
But we also note: Because the compensatory damage award can also be based on breach of contract, there will be no need to reverse that award. The intentional versus negligent issue will go only to the existence of the punitive damages.
The two damage issues:
E. Damages:
The buyers’ testimony valuing their home at the time they bought it at $150,000 less than they paid for it is substantial evidence of the damages, and there was an appraiser’s evidence that supported an even higher figure.
F. Attorney fee issues:
Since the case involved a standard form real estate contract, there was a contractual attorney fees clause. Such clauses are governed under section 1717 of the Civil Code, and that section allows for a “lodestar enhancer” in order to calculate a reasonable fee award. Hence the fact that the buyers’ attorneys may have cut their bill (and thus the court awarded more fees (about $223,000) against the sellers than the buyers were billed for ($170,873)) does not show legal error. And when we look at whether there was an abuse of discretion in fixing the amount of fees, the answer to that is clearly no. The size of the appellants’ opening and reply briefs speak -- literally -- volumes as to the complexity of the case and arduousness of the litigation.
The fees were the subject of an order separately appealed, hence the consolidated appellate docket numbers.
We will not, however, deal with the issues in precisely this order. (And we note there is some grousing in the reply brief that the respondent’s brief does not follow the order of organization set out in the opening brief.) The nub of the case is whether there was substantial evidence, based on the “only problem” statement, to support (a) a breach of contract award and (b) what must be either a (i) fraud verdict or (ii) a negligent misrepresentation verdict. Therefore the issue of the substantial evidence will be the first one addressed when we discuss the legal implications of the facts. Also, the sellers’ evidentiary arguments are largely based on relevance, so a discussion of substantial evidence should logically precede the discussion of evidentiary objections. And, since the jury instruction arguments are interwoven with the issue of substantial evidence (as the opening brief itself tells us on page 67 and indeed, several of the points are duplicative), likewise discussion of the jury instructions should follow the substantial evidence issue.
II. FACTS
A. Events Prior to Purchase
by the Johnsons
The Dawkins -- the sellers -- initially purchased the property in July 2001 from the Riveras. At the time of this purchase, the Riveras’ agent had mentioned on the transfer disclosure statement that the neighbor to their west had complained of “trouble with her drains.” And the statement also advised the Dawkins to have a soils and geology expert inspect the property.
Major Egbert Dawkins, now the owner of the house, could not stay in it for long. He had to leave for a three-year military duty in Okinawa, Japan in December 2002. With Major Dawkins out of the picture, his wife, Carola Dawkins, and his son, Nathaniel Dawkins, stayed back. Carola Dawkins stayed until about January 2003, and Nathaniel Dawkins stayed the entire time, until the subsequent sale of the property to the Johnsons in mid-2003.
During their time in the residence, Dora Marchese, the “neighbor to the west” had complained of drainage trouble and showed Carola Dawkins the “soggy and wet” conditions of her backyard. Later, Mr. and Mrs. Marchese would testify that their water problem had existed for over 15 years. Dora Marchese also testified that she had complained of the water problem to the City of Laguna Hills and the city had put a French drain in the street, but not in her backyard.
A French drain is a gravel filled ditch that redirects surface and ground water.
Norberto Villegas had been a gardener with the Riveras for almost nine years before the Dawkins purchased the property, and with the Marcheses for about 15 years. The Dawkins too retained his services. He would visit the property weekly. Villegas testified that on all of these weekly visits, even during sunny days, he would see water seeping up through the cement, or pooled in the backyard, causing him to occasionally fall. Villegas showed the problem to Carola Dawkins on at least two occasions.
Marcelino Hazelwood (Major Dawkins’ nephew) and Anita Washington, a long time family friend, both testified that they never saw any water pooling in the backyard. However, there is some indication that on these occasions the water, if present, might have been “swept” into the drains by Carola or Nathaniel Dawkins to make the place more hospitable. In any event, given the jury’s verdict, any conflict goes to the Johnsons.
After Carola Dawkins moved to Japan in January 2003, and because Nathaniel Dawkins was planning to leave for Argentina for a year due to work commitments, the Dawkins decided to sell the house. Carol Meyers -- who was their real estate agent when they had purchased the property from the Riveras -- was retained to help them sell it. As the only family member living in the house, the responsibility of filling out the transfer disclosure statement fell on Nathaniel, though the papers were then sent to Egbert and Carola Dawkins in Japan for their signatures. (Nathaniel, as well as his parents, were the sellers of the property.) Egbert and Carola signed the transfer disclosure statement on April 21, 2003; Nathaniel had already signed it himself on February 19, 2003.
The transfer disclosure statement that Nathaniel had filled out indeed affirmatively indicated that the property had: “Flooding, drainage or grading problems.”
But Nathaniel didn’t stop there. He handwrote under the box: “The only problem that I am aware of is that during heavy rains water pools in back yard and in front yard. There is no impact on the house.” (Italics added.)
On February 24, 2003, an offer to purchase was made by James and Jeanette Allan (before Egbert and Carola Dawkins had signed the documents).
The Allans’ offer, however, contemplated that the buyers would “pay for a report from a geologist to determine why water is coming up through the rear corner of the house through the patio slab.” (Italics added.) This offer was rejected by the Dawkins. We do not know exactly why -- the Allans would later testify that it was on an “incorrect form.”
But the Allans tendered a second offer. That offer required the seller to “pay for a report from a geologist to determine the cause and extent of drainage problems on this lot.”
The Dawkins rejected this offer too and made a counter offer. However, when the Allans visited the property, they saw that water “squirted up” from the seam beneath the slab when the cement in the backyard would be stepped on. The Allans, subsequently decided not to purchase the property.
After the deal with the Allans fell through, David and Karen Johnson attended an open house at the property.
B. The Purchase by the Johnsons
And it was David and Karen Johnson who would purchase the property. On their first visit to the property, David Johnson noticed some water on the patio. But a representative of Coldwell Banker (the brokers) was heard to explain that the water puddle was due to sprinkler over-spray.
A deal was struck subsequently and escrow closed in May of 2003. Before escrow closed, however, Mark Marchese had the opportunity to speak to Major Dawkins. On that occasion, he had asked Major Dawkins “if he had told the new owners that [they had] this terrible water problem.”
Marchese would later testify that Dawkins replied, “No one told me, so I’m not telling anyone.”
Dora Marchese also showed Carol Meyers (the Dawkins’ real estate agent) the water that was seeping onto her backyard even when it had not rained in the previous few days.
On their third visit to the property, this time with a home inspector, Karen Johnson again noticed water on the patio. Again, the real estate agents for the Dawkins said that the water puddles were caused due to sprinkler overspray. Thus, being led to believe that this was only a minor problem (sprinkler overspray), and in any case, given the disclosure statement that water accumulated only during heavy rains, the Johnsons bought the property and moved in June 2003.
It was not an entirely pleasant move in. Right from the first day, the Johnsons realized that water came up continuously from underneath the ground. Water had to be vacuumed out even when it had not rained.
To find the source of this water problem, the Johnsons hired Norcal Engineering to investigate the soil conditions. Tellingly, Norcal’s first attempt to dig out a soil sample from beneath the slab failed because water filled into the hole just dug!
Norcal’s report concluded that there was a continuous water problem which could affect the residence in future. Keith Tucker, an engineer with Norcal testified that the rear portion of the house was higher than the front portion due to moisture and expansion of the soil. (To be sure, that would be contradicted later at trial, where Douglas Moran, Dawkins’ expert, suggested that the water problem was only due to record rainfall in the 2004-2005 season, but, again, on appeal from a jury trial conflicts in the evidence go to the winners, here the Johnsons.)
Norcal recommended digging 10-feet-deep holes to construct steel-reinforced concrete piles (apparently to prevent further subsidence) and installing a drainage system (apparently to get rid of the water pooling on the patio). The total cost of these repairs was $91,500.
III. The Lawsuit
A. Liability
This lawsuit followed. The jury found breach of contract, fraud, and negligence, giving a blanket single-figure damage award of $155,000. On the negligence finding, the jury declared the plaintiff Johnsons to be 25 percent contributorily negligent. (The percentage of fault among the other defendants was: Carola and Nathaniel each were 30 percent negligent, Egbert Dawkins was at 15 percent, and the 25 percent balance was attributed to the real estate brokers (with whom the Johnsons had already settled).)
B. Damages
The Johnsons purchased the property for $505,000. The sale price of comparable properties from the same general area, sold around the same time, but without the water problem, was about $525,000. David Johnson estimated that there would likely be a diminution in value to the tune of about $50,000-$60,000 due to the persistent water problem. He also wanted to add $5,000-$15,000 for loss of use and enjoyment of the patio for the two months when construction would be under way.
Those two deductions from value, coupled with repair costs of about $90,000, served as the basis for a claim by the Johnsons for damages of about $150,000. Johnsons’ damages expert, using a capitalization of income approach, valued the property at the time of sale at $335,000, which was a diminution in value $15,000 greater than owner Johnson’s own valuation. (The expert’s figure was $335,000, which subtracted from $505,000 equals $170,000.)
Surprisingly, Dawkins’ expert never valued the property at the time of sale with the water problem factored in. (We may therefore summarily reject any claims of error based on disallowance of his testimony.)
The Dawkins argue that their expert was not allowed to testify as to value at the time of sale. This, however, is not true. Johnsons’ motion in limine had not sought to exclude all testimony related to the value of the property, as the Dawkins would want us to believe. Rather, the motion was to “exclude testimony and/or any evidence regarding property value except the value at the close of escrow.” (Italics added.) Apparently, the Dawkins wanted to introduce evidence that a “refinance appraisal performed in 2006” showed the property to be worth $900,000 which was way above the sale price of $505,000 in 2003. But this figure was surely due to the value of improvements and the real estate bubble that ensued in the next years.
The jury awarded $155,000 as compensatory damages and did not segregate contract from tort causes of action. Since the Johnsons had already settled with the real estate agents and the brokers, the compensatory damages were reduced by $57,500. The Johnsons thus got $97,500 in hand. The jury also awarded $20,000 as punitive damages against Carola Dawkins and $2,000 against Nathaniel Dawkins.
C. Attorney Fees
The court awarded attorney fees to the Johnsons after judgment on the jury verdicts was entered. Though Johnsons’ attorneys had billed them only $170,873, the court awarded $223,157, based on a lodestar enhancement factor.
IV. DISCUSSION
A. Sufficiency of the Evidence
1. The Merits
Preliminarily, we should note that the opening brief’s segregation of the substantial evidence issue into three categories (misrepresentation, contract, and negligence) appears to be an attempt to create the optical illusion of making the evidence seem less impressive than it is, since things taken in parts generally tend to appear less formidable than when assembled all together. From our point of view, though, the breakdown is academic, since, if the trial court’s judgment is correct on any theory, we must uphold it. (E.g., Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1377.)
Turning to the merits, the transfer disclosure form has a yes box checked by the question: “Are you (Seller) aware of any of the following: [¶] 8. Flooding, drainage or grading problems.”
That would have been enough by itself: It would have put the buyers on notice of the need to do their own investigation prior to sale, and would have told any reasonable person that the property might have an ongoing, accumulating water or water accumulation problem.
Except for one thing. Nathaniel just could not resist the impulse to add, in his own handwriting, his statement that the only problem of which he was aware was flooding and pooling “during heavy rains.”
Big mistake. The “only problem . . . during heavy rains” statement would have misled a reasonable buyer into thinking that the property did not have any flooding or drainage problems apart from heavy rain. That affirmatively misleading statement distinguishes this case from Robinson v. Grossman (1997) 57 Cal.App.4th 634, 644 [buyers should investigate after sellers make required disclosures] and Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 411 [savings and loan disclosed existence of construction defect litigation by homeowners’ association but was not required to provide copy of complaint in that litigation].
The Dawkins suggest that Nathaniel’s words “I am aware of” provided them cover from the idea that they were representing the water problem as confined to rainy days only. The statement was adopted by both Carola and Major Egbert, who signed the disclosure form at least a month after Nathaniel wrote the words. For Carola in particular, her signature at the point was, in context, an affirmation that the only water problem she was aware of was one that happened after heavy rains. But, as we are about to recount, there was plenty of evidence that she was aware (or should have been aware) of much more than that. Hence, Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 306, where there was a genuine lack of awareness of any foundation problems, is distinguishable.
There was plenty of evidence that well before the Johnsons offered to buy the property that the Dawkins -- particularly Carola -- knew that there was a water accumulation problem that transcended rain and sprinklers. Let us recount that evidence: The Dawkins knew of their neighbors continuing complaints about water trouble. The disclosure statement the Dawkins received when they bought the property advised them to have a soils expert inspect the property. There were wet, soggy conditions in the neighbors’ backyard that had existed for over 15 years (including, obviously, some very dry years). The gardener saw water seeping up through the cement on dry days and called that fact to Carola’s attention. The Allans’ offer directly told the Dawkins that “water” was “coming up through the rear corner of the house through the patio slab.” And when the Allans visited the property, water “squirted up” from beneath the slab when the seam of the cement in the backyard would be stepped on.
All of this evidence belies the “heavy rain” theory of the case proffered by the Dawkins. While the form disclosure statement may not itself be a “warranty,” it states (tracking prescribed language from Civil Code section 1102.6) that “prospective Buyers may rely on this information in deciding whether and on what terms to purchase the subject property.” With its “only during heavy rains” statement, the disclosure form was affirmatively stating something that the jury ultimately concluded was false. The water problems at the property were not just the result of heavy rains, but of a systemic water accumulation condition.
2. Contract Liability, At Least
To be sure, the disclosure statement was not, strictly speaking, a part of the contract. But-- the contract itself (Exhibit 25) specifically incorporated the disclosure statement by reference. That is, the contract had a term requiring the sellers to “promptly provide a subsequent or amended disclosure or notice, in writing, covering” any “adverse conditions materially affecting the Property or any material inaccuracy in disclosures, information, or representations previously provided to Buyer of which Buyer is otherwise unaware.” (Italics added.) Since the evidence (read in favor of the judgment) was that the buyers were not “otherwise unaware” of the extent of the water accumulation problem, i.e., that it went beyond rain and sprinklers, the failure to disclose that defect, known to the sellers, was a breach of contract.
B. Evidentiary Issues
The argument portion of the opening brief begins with a series of attacks on the trial court’s evidentiary rulings.
1. Condition of the Property After Sale
The trial court allowed the jury to hear evidence regarding the condition of the subject property after the date of sale. The Dawkins argue that such evidence was irrelevant to prove that Dawkins failed to disclose conditions occurring at the time of sale. No. In the case of geological conditions, a condition at “time two” may reasonably cast light on conditions at “time one.” The jury could infer from photographs and testimony regarding water pooling in the backyard that these problematic conditions likely existed during the time of the sale. (See Slovick v. James I. Barnes Constr. Co. (1956) 142 Cal.App.2d 618, 624 [testimony that catwalk was unsafe two or three days before accident properly allowed in to prove that catwalk was unsafe at the time of the accident].) Remoteness in time is, of course, a matter of trial court discretion (e.g., Casey v. Casey (1950) 97 Cal.App.2d 875, 882) and there is nothing here that required the jury to speculate retroactively. There is no evidence that anything geologically changed in the interim. Also, the evidence was properly admitted to contravene the Dawkins’ evidence the property was generally dry. (See People v. Cunningham (2001) 25 Cal.4th 926, 1025; People v. Lang (1989) 49 Cal.3d 991, 1017.)
2. The Drainage System
Installed in the Street Years Before
The Johnsons introduced evidence concerning a drainage system installed in the street years before the Dawkins owned the property. Again, we reject the Dawkins’ remoteness argument. This case involves a continuing geological condition as distinct from a discrete event in an artificial system. (Cf. Goebel v. City of Santa Barbara (2001) 92 Cal.App.4th 549, 557 [evidence of water main break eight years before not admissible because conditions under which previous accidents occurred were not “the same or substantially similar” to the accident from which the homeowners filed suit].)
Here, testimony about the drainage system installed by the city logically tended to show that the water conditions on the property arose out of the same systemic underground water conditions that caused the problems in neighboring backyards and on the street. Dora Marchese, one of the owners of the neighboring lot, testified that before 1996, when the city installed a drainage system in the street in front of the house, water would seep out of cracks in the street. Although the problem in the street was fixed after the drainage system was fixed, the water problem in her own backyard was not. The obvious and common sense implication from that evidence is that the water problem was endemic to the area. (In fact, the Dawkins’ own expert testified that the water problems affecting the property were consistent with the conditions in neighboring lots as well as the condition in the street before the drainage system was installed.)
3. Water Problems on
Other Properties
Dora Marchese was also allowed to testify about repaired water problems on neighboring properties uphill, and also on a hospital uphill. Again, because the nature of the Johnsons’ claim was that water accumulation on their property was an endemic, “structural” problem of a geological nature, evidence of other properties would be relevant to show that particular kind of problem on the Johnsons’ newly acquired property. Accumulated groundwater, after all, does not respect lines drawn on a map.
4. And Next Door
The same applies to the argument that the trial court erred in admitting evidence relating to water problems on the property of the Marcheses. An endemic, structural geological problem would be even more likely to manifest itself on the next door neighbors’ property, so Dora Marchese’s evidence that during the time the Dawkins owned the subject property, there was a similar water problem on the Marcheses’ property, just located downhill from the Dawkins, was clearly relevant.
5. And Their Relation
to a Duty to Disclose
The Dawkins cite Civil Code section 2079.3 for the proposition that a seller does not have an obligation to disclose problems on other properties. That’s true, but it does not help them. Just because a seller has no obligation to disclose problems on other properties does not mean that problems on other properties may not be relevant to establish the existence of a problem on the seller’s own property, particularly if the problem is of an endemic, continuing, area-wide geological nature.
6. The Allans’ Offer
The provision in the prior offer from James and Jeanette Allan that the Dawkins pay for a geotechnical investigation to determine the cause of water coming up from between the seams of concrete in the backyard was also highly probative, including its importance as direct evidence that the Dawkins knew or should have known and accurately disclosed the water problems on their own property.
C. Jury Instruction Issues
(Except Damage Issues)
We now come to a myriad of jury instruction quibbles, except we will consider those instructions dealing with damages later.
Instructions that the Dawkins claim were error:
1. CACI 300 (defendants breached contract by selling home with undisclosed defects).
We have already dealt with this one in the context of substantial evidence. The Dawkins’ theory here is that the “only . . . during heavy rains” language was not part of the contract. Not exactly. The disclosure statement might not have been itself part of the contract, but the contract itself provided that any material adverse conditions not otherwise disclosed in the statement were to be divulged to the buyers. To reiterate, the contract had a term requiring the sellers to “promptly provide a subsequent or amended disclosure or notice in writing, covering” any “adverse conditions materially affecting the Property, or any material inaccuracy in disclosures, information or misrepresentations previously provided to Buyer of which Buyer is otherwise unaware.” Since the evidence (read in favor of the judgment) was that the buyers were “otherwise unaware” of the extent of the water accumulation problem, i.e., that it went beyond rain and sprinklers -- the sellers’ failure to disclose that defect was a breach of contract.
2. CACI 1907 (if the plaintiffs had known about the defects, they would not have bought the house).
The Dawkins complaint here is a reiteration of the idea that the Johnsons were under a duty to do their own investigation. Given the affirmatively misleading language of the disclosure statement, the Johnsons were not under such a duty. They had been effectively assured that the water problems on the property were not endemic or geological in nature -- just temporary depending on heavy rains. (And in any event to the extent the error was an incompleteness in an otherwise facially correct instruction, the objection to the instruction was waived by failing to add qualifying language. (See Agarwal v. Johnson (1979) 25 Cal.3d 932, 948-949.))
Instructions that the Dawkins claim should have been given, but weren’t:
1. An instruction that “Once the sellers and their agents make the required disclosures, it is incumbent upon potential purchasers to investigate and make an informed decision based thereon.” (Proposed Instruction 15). This language was too broad. It omitted the “reasonable” limitation on the buyers’ duty (see Civ. Code, § 2079.5) and erroneously implied that the purchasers had an independent duty to investigate the accuracy of the actual disclosures. (See Robinson, supra, 57 Cal.App.4th at p. 643 [no support for idea that there is “a duty to independently verify or disclaim the accuracy of the seller’s representations”].)
2. An instruction that “After a buyer or prospective buyer is informed of sufficient information to put him or her on notice of the existence of a defect,” the buyer is under a duty to hire professionals to “further advise him” and the seller is not “responsible for any adverse consequences . . . that such further investigation may have avoided.” (Proposed instruction 14.) Same problem as with the immediately previous proposed instruction: The proposed instruction was much too broad. It fixed a duty to investigate without regard to the reason upon the buyer, and without regard to the nature of the defect. And it would have confused the jury in the context of this case by requiring it to speculate as to what was “sufficient information.”
3. An instruction that “conclusions as to how the legal or practical ramifications of disclosed facts may adversely impact the value of the residential property which is the subject of this trial” are “not facts which [the sellers] had a duty to disclose.” (Proposed Instruction 7.) In the context of this case, the instruction would have been confusing, since the case was about whether the Dawkins should have disclosed the water accumulation problem, a question that in part entailed expert opinions about whether the property had a water accumulation problem in the first place. The jury could have scratched its collective head for hours on end as to the precise meaning of the phrase “practical ramifications of disclosed facts.” The phrase appears to be an effort to tell the jury that the disclosure of “Flooding, drainage or grading problems” was ipso facto enough to absolve the Dawkins of further responsibility, and we have already seen that that was not the case at all.
4. CACI 451 (standard express assumption of the risk) (Proposed Instruction 9). This is totally inapplicable to a case involving the selling of residential property, and (again) appears to be an effort to have insinuated to the jury that what the Dawkins did disclose was enough to shift to the Johnsons the responsibility to verify whether there was a water accumulation problem. (Once again, the Dawkins’ theory runs aground on that “only problem” language that the whole family signed onto in the disclosure statement.)
5. An instruction that “When the truth or falsity of a representation, or the presence of a material defect may be determined with a reasonable inspection [and if the buyers] had the opportunity to perform the inspection, the law presumes they relied on their own investigation and not upon the representations or any concealment of the [sellers] . . . .” (Proposed instruction 6.) This instruction was not correct because it would have told the jury that any water accumulation was so obvious that it would have been discovered upon a reasonable inspection, despite the “only problem” language in the disclosure statement. Cases where problems were obvious to a buyer on inspection (e.g., Oppenheimer v. Clunie (1904) 142 Cal. 313 [insufficient exits in a theater]) are thus inapplicable. And Gagne v. Bertran (1954) 43 Cal.2d 481 [seller liable for fraud for not disclosing seller’s inability to properly conduct agreed upon fill test] runs affirmatively counter to the Dawkins’ theory,
6. An instruction that “The seller of real estate must have actual knowledge in order to be liable for failing to disclose a material fact.” (Proposed instruction 13.) This one was too narrow, falsely implying that the Dawkins needed to have verified absolutely that the property’s problems were the result of a water accumulation problem, as distinct from having needed to refrain from affirmatively telling the buyers that the property’s water woes weren’t the result of a water accumulation problem.
7. An instruction that “A seller of residential real property is not liable for any error, inaccuracy or omission of information delivered on the transfer disclosure statement if the error, inaccuracy, or omission was not within the personal knowledge of the seller.” (Proposed instruction 1.) This one makes the same error as the immediately preceding proposed instruction. It would have incorrectly told the jury that unless all the Dawkins absolutely knew that the property’s problems were structural water accumulation problems, they were absolved of any responsibility for the affirmatively misleading “only problem” disclosure.
D. The Problem of Inconsistent Verdicts
The jury found that the Dawkins were liable for intentional misrepresentation and for negligent misrepresentation. Either liability would have been supported by substantial evidence, since a reasonable jury could conclude that (a) the Dawkins, particularly Carola and Nathaniel, actually knew about water problems that transcended rain and sprinklers and were of a geological nature (remember the Allans’ revised offer) and were willing to deliberately mislead the Johnsons, or (b) were careless in filling out the forms and, basically, stumbled into misrepresenting the nature of the property’s water accumulation problem. But not, as the Dawkins correctly argue, both.
The problem is: Given that the Dawkins did check the “Flooding, drainage or grading” box, all the actionable concealment in this case stems from Nathaniel’s “only problem” statement. It’s just one statement. It was either made intentionally or negligently, but not both intentionally and negligently.
The Johnsons have two conceptual responses to the problem of inconsistent verdicts, but neither are availing. First, they note that the text of Civil Code section 1102.13 allows for damages for either intentional or negligent misrepresentation. The problem is: The statute doesn’t say the same statement can be both intentional and negligent at the same time.
The statute provides: “No transfer subject to this article shall be invalidated solely because of the failure of any person to comply with any provision of this article. However, any person who willfully or negligently violates or fails to perform any duty prescribed by any provision of this article shall be liable in the amount of actual damages suffered by a transferee.”
Here, the jury found intentional misrepresentation and assessed $20,000 in punitive damages against Carola, and that fact cannot be squared with its finding of 25 percent contributory negligence on the part of Johnsons (on the theory they could have done more to investigate the property) based on the same misrepresentation.
The second (conceptual) response of the Johnsons (found on page 128 of the respondent’s brief) is to suggest that the “only problem” statement was fraudulent, but that the Dawkins were “negligent” in not sufficiently collaborating with each other at the time of sale to update the disclosure statement. Hence, the Johnsons argue that the lack of collaboration was “distinct” from “the initial fraudulent act” (italics deleted) of the “only problem” statement.
This idea is, however, a variation on the idea that someone who makes a fraudulent statement can also commit culpable negligence by failing to cure the earlier fraudulent statement. The problem is, the idea is sophistry, amounting to an artificial multiplication of claims. Looking to the substance of what actually misled the Johnsons, it wasn’t the failure of the Dawkins to get their act together and coordinate their actions so as to cure Nathaniel Dawkins’ untrue “only problem” statement. It was the “only problem” statement itself. Lack of collaboration and failure to update, as presented to the jury, were simply internal management matters amongst the members of the Dawkins family, of no significance in themselves. They were only meaningful to the buyers as they related to the “only problem” statement.
Case law allows us no room to maneuver here. In Shaw v. Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, for example, the jury found that there had been no breach of an employment contract, yet awarded more than $405,000 for breach of the implied covenant of good faith. This court noted that “Inconsistent verdicts are ‘“against the law,’” and the proper remedy is a new trial.” (Id. at p. 1344, quoting Morris v. McCauley’s Quality Transmission Service (1976) 60 Cal.App.3d 964, 970.) In Shaw, this court found it could not affirm either the defense verdict on the contract or the award on the breach of the implied covenant, and had to reverse and remand for a retrial on those causes of action.
The same thing happened in the very recent case of Stillwell v. The Salvation Army (2008) 167 Cal.App.4th 360 [2008 WL 4457011], another instance of what was essentially a defense verdict on a contract (there, a written contract) and a plaintiff’s verdict on the breach of the implied covenant of good faith and fair dealing inherent in that contract. The court reasoned that one party is no more entitled than the other to have its evidence credited and, as in Shaw, sent the matter back for a retrial on both issues. (See 2008 WL 4457011 at p. 9.)
Another case, City of San Diego v. D. R. Horton San Diego Holding Co., Inc. (2005) 126 Cal.App.4th 668 stands for the same rule, except that in that case the trial court granted a new trial, so the appellate court affirmed the new trial order. In D.R. Horton, interestingly enough, the inconsistency, involving the value of a piece of property where there was severance damages to a remaining parcel, had to be teased out of the facts by calculating a per acre value of the part taken and the implied per acre value of the part remaining given the severance damages. That is, the jury might easily have gotten lost in its calculations. If anything, the inconsistency in the present case is more apparent.
We therefore have no choice but to reverse and remand as to that limited issue. But an important caveat should be noted at this point: Since we have already determined that the damage award can be upheld on a contract theory, so the 25 percent contributory negligence assessment against the Johnsons does not actually affect the fact of a damage award. (We discuss the amount of the damages in the next part of this opinion.) What will be at stake in the retrial is not the compensatory damage award, but the punitive damage award, which cannot stand if the misrepresentation was merely negligent.
E. The Damage Award and Instruction
Both sides correctly recognize that the measure of damages in this case is the difference in value between what the Johnsons got at the date of sale (a nice house in a good area, but with a systemic water problem) and what the Johnsons were supposed to get at the date of sale (the same house with “only” a water pooling problem in heavy rains). The Dawkins, however, suggest that the compensatory damage award (based on a $155,000 reduction in value, offset by other settlements of $57,500, so $97,500 net) was improperly based on costs of repair.
There are two aspects of the argument.
1. CACI 1920
First, the Dawkins assert that the additional language which the trial court allowed to be tacked on to CACI 1920 was error. As given, the instruction read: “Although cost of repair is not the proper measure of damages, cost of repair can be considered in your determination of market value at the time of the transaction.” The Dawkins attack the “can be considered” language, positing that it gave the jury the misimpression that that costs of repair are separately awardable.
Now, as every homeowner who ever contemplated a remodeling job knows, there is no necessary one-for-one correlation between a given improvement to a property (e.g., a new kitchen) and an increase in value.
But the principle also works the other way. Failure to complete a given “repair” project might detract only marginally from the value of a house, depending on the precise nature of the “defect.” Some people might prefer to live with peeling paint on an outside patio cover and not care about getting much of a price reduction for it.
On the other hand, just because there is no necessary correlation between repair cost and value does not mean there cannot be, in some instances, a one-for-one correlation based on repair costs. For example, when repairs are required by law, they can act as a kind of lien against what any buyer would receive upon taking title. (E.g., Mola Development Corp. v. Orange County Assessment Appeals Bd. (2000) 80 Cal.App.4th 309 [fair market value could be based on fair market value of property as unpolluted, less cleanup costs required by federal law].)
The point is, as given, CACI 1920 was correct because costs of repair can, indeed, affect market value, which is only common sense anyway. Everyone who has ever house hunted is familiar with what the realtors call “carpet allowances,” which essentially is a one-for-one de facto price reduction to accommodate the anticipated costs of replacing a worn carpet. This case is only quantitatively different; a reasonable jury could conclude that any willing buyer with full knowledge of the facts would want a discount in the price to eliminate the problem, which, after all, might have threatened the house’s very foundation as well as simply inconveniencing use of the patio.
2. Evidence of Damages
The other aspect of the damages argument is a variation on the attack on CACI 1920, but goes to the actual proof offered. David Johnson testified, as an owner may (Evid. Code, § 813, subd. (a)(2)) to his opinion of the value of the property as of the date of the sale in light of the discovery of the accumulating water problem. We should note there that, as owners go, Johnson would appear to be unusually well qualified to give an opinion of the value of his property. He is an accountant with degrees in economics and business management. That education showed in his methodology, which was to collect “comps” of similar properties that sold at the time of sale that did not have similar water problems, review his own appraisal, and then take into account the costs of repair. That’s simple classic valuation.
The argument that Johnson should have been designated as an expert witness (and therefore it was unfair to allow him to testify) is (a) incorrect -- the Dawkins provide no authority for the idea that an owner comes within the expert witness designation rule, but (b) ironical -- this owner was far better qualified and had done far more homework than usual owner-witness.
And, in any event, the $150,000 diminution figure was also supported by the testimony of plaintiffs’ appraiser Thomas Kenster, who also used a comparable sales analysis and income capitalization. He concluded that $170,000 in diminution was appropriate. That is, the jury had substantial evidence on which to predicate the $150,000 diminution figure independent of a simple dollar-for-dollar repair deduction method. We should also note here that the Dawkins’ argument that Kenster’s testimony should have been excluded because of the absence of a license from the California Department of Real Estate borders on the frivolous. Kenster has an MAI designation from the Appraisal Institute. (Usually cases involving appraiser’s qualifications turn on whether an appraiser is good enough without an MAI designation!) He holds an MBA from Stanford in real estate and finance, and an advanced certificate in real estate valuation from UCLA. The absence of a license at best went to the weight of his testimony; there is no requirement that one be licensed in California to give expert testimony as an appraiser -- the Dawkins merely point to a statute (Bus. & Prof. Code, § 11320), which only refers to “federally related real estate activity.”
F. Attorney Fees
The trial court used a lodestar “enhancer” to determine what were the “reasonable” fees to be assessed against the Dawkins. The fact that the use of this enhancer increased fees (to $223,157) beyond what the Johnsons’ attorneys had actually billed (they cut their bill from $242,091.50 to $170,873) is of no legal significance by itself. Contractual attorney fees are governed by section 1717 of the Civil Code, and our high court has made it clear that lodestar enhancers are permissible under section 1717. (See PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 [permitting enhancers for contractual attorney fees under section 1717].)
The real issues are whether there was some abuse of discretion, either because fees were awarded based on work not directed at the Dawkins, or because the trial court had some desire to “punish” the Dawkins. Neither, however, can be answered positively.
Fees incurred against the real estate brokers necessarily involved the same work on the misrepresentation claim, and the court’s actual enhancer (or “multiplier” as it is sometimes called) amounted to no more than 1.31 ($223,000 divided by $170,000), which, given the complexity of the litigation, seems extraordinarily modest. We note: The opening brief in this case, which is 16 words short of 28,000 -- which is double the allowed maximum, and which throws in a seemingly endless stream of issues (some borderline, some arguable, one actually meritorious) -- thunders a very great “volume” of support of the soundness of the trial court’s exercise of discretion. The reply brief -- even larger -- speaks literally another volume.
V. INSTRUCTIONS ON REMAND
Given that the case must go back for a very limited purpose, we will try to be as specific as possible as to where the case goes from here.
First, because the compensatory damages can be upheld on a contract theory, the compensatory damage judgment of $97,500 is affirmed. It is only whether that award might also be upheld on a fraud basis that remains to be determined. If the jury on remand decides that the “only problem” misrepresentation was only negligent, it makes no difference what percentage of the Johnsons contributory negligence it assesses, because the full judgment would still stand as a matter of breach of contract. (I.e., the sellers simply didn’t deliver what they had promised.)
Second, because, on this record, we cannot uphold the compensatory damages on a fraud theory, the $20,000 punitive damages assessed against Carola Dawkins and the $2,000 punitive damages assessed against Nathaniel Dawkins are now reversed. If, on remand, the jury determines that the “only problem” misrepresentation was fraudulent, those damages will be reinstated -- there is no need to retry the punitive damages aspect of the case again. If the jury determines that the “only problem” misrepresentation was only negligent, then no punitive damages shall be awarded against either. Major Egbert Dawkins need not fear any punitive damages, since the jury did not assess any against him the first time.
The attorney fee award of $223,157 is affirmed.
We reiterate: The only issue that should be retried is very narrow indeed: Whether the “only problem” misrepresentation in the disclosure statement was made intentionally or negligently. We have already established that the statement was a misrepresentation and that issue (whether it was or was not a misrepresentation) will not be retried. The trial court will tell the jury, on remand, that liability under either fraud or negligence has been decided as a matter of law of the case, and its job is simply to choose what theory of liability applies.
VI. DISPOSITION
The judgment is affirmed, except insofar as, and only insofar as, the punitive damage awards. As to those awards, the judgment is reversed and the cause remanded to the trial court for a new trial limited to the question of whether the “only problem” statement was made intentionally or negligently.
As the substantively prevailing parties, the Johnsons will also recover their costs on this appeal.
WE CONCUR: O’LEARY, J., FYBEL, J.