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Kelly v. Arias

California Court of Appeals, Second District, Seventh Division
Nov 6, 2007
No. B189264 (Cal. Ct. App. Nov. 6, 2007)

Opinion


ELAINE KELLY, as Trustee of the ELAINE KELLY TRUST Plaintiffs and Appellants, v. JAMES ARIAS et al., Defendants and Appellants. B189264 California Court of Appeal, Second District, Seventh Division November 6, 2007

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

APPEALS from a judgment of the Superior Court of Los Angeles County, Patrick Madden, Judge, Los Angeles County Super. Ct. No. NC035340

Kring & Chung and Laura C. Hess for Plaintiff and Appellant Elaine Kelly as Trustee of the Elaine Kelly Trust.

Law Offices of Barak Lurie, Barak Lurie and Amy C. Vanderwood for Defendants and Appellants James Arias and IN-CO Financial, Inc.

PERLUSS, P. J.

James Arias, a real estate agent, and his employer, IN-CO Financial, Inc., appeal from the judgment entered in favor of Elaine Kelly as trustee of the Elaine Kelly Trust on her claim Arias negligently prepared an agreement in connection with Kelly’s sale of real property. Kelly has cross-appealed from the damages portion of the judgment. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

As we must, we state the facts in the manner most favorable to the judgment. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925; Aceves v. Regal Pale Brewing Co. (1979) 24 Cal.3d 502, 507, overruled on other grounds by Privette v. Superior Court (1993) 5 Cal.4th 689, 696; Thompson v. Miller (2003) 112 Cal.App.4th 327, 330.)

1. The Retention of Arias; the Sale of Kelly’s Property

In November 2001 Kelly, a widow in her late 60’s, approached Arias to help her sell the property on which she had been operating a preschool. Kelly entered into an open listing agreement with Arias.

Because any liability of IN-CO Financial in this matter is vicarious, based entirely on the actions of its employee Arias, for simplicity we will refer throughout the opinion only to Arias.

In January 2002 Kelly received a written offer to purchase the property for $1.5 million from Gregory Randle, a developer with whom Arias had previously worked, who wanted to build 16 single family homes on the land. The offer disclosed that Arias was acting as a dual agent for Kelly and Randle in the transaction.

In March 2002 Randle accepted Kelly’s counter-offer of $1.6 million. Shortly thereafter, however, Kelly became suspicious Arias had not obtained full value for her property and, on her own initiative, obtained two offers from developers for $1.7 and $1.9 million. When Kelly confronted Arias, he was angry she had solicited the offers and insisted they were illusory because the developers could not afford to pay that much for the land. Nevertheless, Kelly “wanted out.” To preserve the deal, Randle proposed to make $100,000 worth of improvements to Kelly’s home. Kelly agreed. As a result, Arias prepared a new agreement, identified as a “Purchase Agreement of Trade Fixtures, Inventory and Equipment,” which provided, in return for $100,000 of in-kind improvements to Kelly’s home, Randle would purchase the preschool’s fixtures, inventory and equipment -- of which many items were from 25 to 45 years old.

Notwithstanding the express terms of the new agreement, Kelly did not intend to sell the preschool fixtures to Arias; she had planned to give them to her daughter, who operated a nearby preschool, and had already begun moving them to her site. According to Kelly, Arias told her she could ignore the reference to selling the preschool fixtures and assured her it was only in the agreement “because by law you can’t just do $100,000 without a reason, and so this is a reason that they’re going to put in so this document can be done.”

After two meetings with Randle to discuss the proposed improvements to her home, Kelly concluded obtaining the improvements “would be really troublesome”; Randle appeared angry and they disagreed about the scope of the work. In June 2002 Kelly and Randle executed an amendment to the preschool fixtures purchase agreement, also prepared by Arias, which provided Randle would pay Kelly $100,000 in cash after Randle sold and closed escrow on the sixth unit to be developed on the property and, “[f]or the above consideration, [Kelly] agrees to” “[c]ooperate with [Randle] in any way possible to expedite the obtaining of permits for the subject project[.]” The amended agreement further provided the $100,000 obligation was to be secured with an unrecorded deed of trust against the property to be retained by the escrow company and recorded after Randle had received authorization from the Department of Real Estate to sell the developed units. Arias told Kelly he would prepare the deed of trust and submit it to the escrow company and the escrow company would automatically record the deed of trust after Randle obtained permission for the proposed development. Arias explained the deed could not be immediately recorded because Randle would not be able to get a loan if the bank knew the property was encumbered by a deed of trust and assured Kelly he would personally see to it that the deed of trust was recorded.

2. Randle’s Failure To Pay the $100,000

Escrow closed in June 2002, and Kelly received $1.6 million for the property as provided in the purchase agreement. On October 30, 2003 Kelly sent Randle a letter requesting payment of the additional $100,000 she was owed because Randle had sold six units. Randle refused to pay, asserting Kelly had failed to give him the preschool fixtures, which she had removed before escrow closed. Kelly later learned the escrow company had never been provided with the amended preschool fixtures agreement and no deed of trust had been prepared.

3. The First Amended Complaint; Arias’s Motion for Summary Judgment

On June 9, 2004 Kelly filed a first amended complaint against Arias alleging he had been negligent and had breached his fiduciary duties to Kelly by failing to adequately investigate the value of her property, market it or obtain the best price and had failed to exercise due care in the drafting, negotiating and handling of the amended preschool fixtures agreement.

Although Kelly brought her action individually and as trustee of the Elaine Kelly Trust, she ultimately elected to proceed only in her capacity as trustee.

On January 11, 2005 the trial court denied Arias’s motion for summary judgment or, in the alternative, summary adjudication.

4. The Bench Trial

After a five-day bench trial the court found Arias did not have a fiduciary duty to determine the value of Kelly’s property or market it because, among other reasons, Kelly had only entered into an open listing agreement with Arias rather than an exclusive listing agreement. As explained by the trial court, “An open listing is nothing more than an agreement by the seller to take an offer for the sale of a property. It does not require the owner to sell the property, and it does not give a broker any right to a commission if another broker finds the ‘right’ buyer for the owner/seller. In the context of an open listing, it would be financial suicide for Inco to market the Property.” Similarly, the court found “[i]t would not be reasonable or fair to impose a duty on a broker to determine the fair market value of a property when that broker was given nothing more than a handshake agreement to sell the Property (i.e. an open listing).”

In fact, there was no written listing agreement of any sort.

Although ruling against her on her primary claims regarding the sale of the real property, the trial court found in favor of Kelly on her claim Arias had been negligent in the drafting and handling of the amended preschool fixtures agreement. The court concluded Arias was not obligated to prepare the amended agreement. However, once he undertook to do so, he had a duty to exercise reasonable care in the drafting of the agreement to protect Kelly’s rights. The court found Arias also had a duty to ensure the deed of trust was signed by Randle and deposited into escrow. Arias’s breach of those duties caused Kelly’s damages: “If Arias had competently drafted the deed of trust for the benefit of Kelly, prepared the escrow instruction that would require escrow (F&M) to record the deed of trust after the sale of the sixth unit, then it is certain that Kelly would have received the additional $100,000.”

Although finding in favor of Kelly, the court limited her damage recovery to $80,000 -- the amount of Arias’s commission -- pursuant to the limitation-of-liability provision in the purchase agreement, applicable “to any breach of duty, error or omission relating to this Agreement” that was not the product of the broker’s gross negligence or willful misconduct. Judgment was entered on November 10, 2005.

5. The Trial Court’s Denial of Arias’s Motion for Attorney Fees

On January 24, 2006 the trial court denied Arias’s motion for attorney fees in which he had argued, notwithstanding the judgment in favor of Kelly, he was the prevailing party within the meaning of the real estate purchase agreement’s attorney fee provision and Civil Code section 1717 because he had successfully defended against Kelly’s claim that he had failed to adequately value and market the property.

CONTENTIONS

Arias contends he owed no duty to Kelly in connection with the amended preschool fixtures agreement; substantial evidence does not support the trial court’s findings Arias breached a duty owed to Kelly and the breach caused Kelly’s damages; Kelly failed to include Randle, who is an indispensable party, in the action; the trial court erred in granting Kelly’s motion to strike Arias’s expert’s testimony; the trial court erred in denying Arias’s motion for summary judgment; and the trial court erred in denying Arias’s motion for attorney fees. Kelly contends the trial court erred in reducing her damages award to the amount of Arias’s commission.

DISCUSSION

Arias’s Appeal

1. The Judgment in Favor of Kelly on Her Negligence Claim Was Proper

a. Arias had a duty to competently represent Kelly in connection with the amended preschool fixtures agreement

The elements of any negligence cause of action are duty, breach of duty, proximate cause and damages. (Artiglio v. Corning Inc. (1998) 18 Cal.4th 604, 614.) Whether a duty exists and the scope of that duty in a given factual context are questions of law subject to de novo review. (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 674.) Although duty is a legal question, to the extent its determination rests on factual findings, we review those for substantial evidence. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632 [“[w]hen the trial court has resolved a disputed factual issue, the appellate courts review the ruling according to the substantial evidence rule”].)

“Substantial evidence” in this regard does not mean “any evidence.” Rather, to be “substantial,” the evidence must be “‘of ponderable legal significance, . . . reasonable in nature, credible, and of solid value.’” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873, italics omitted.) If there is substantial evidence, contradicted or uncontradicted, that will support the finding, it must be upheld regardless of whether the evidence is subject to more than one interpretation. (Western States Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559, 571 [“‘[w]hen two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court’”]; Von Beltz v. Stuntman, Inc. (1989) 207 Cal.App.3d 1467, 1481 [reviewing court may not reweigh the evidence].) “[T]he testimony of a single witness, even [a] party . . ., may be sufficient.” (Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 134.)

A real estate broker’s duties derive from regulatory statutes and the general law of agency applied to the agreement between the principal and agent. (Carleton v. Tortosa (1993) 14 Cal.App.4th 745, 755 [“‘[t]he existence and extent of the duties of the agent to the principal are determined by the terms of the agreement between the parties, interpreted in light of the circumstances under which it is made, except to the extent that fraud, duress, illegality, or the incapacity of one or both of the parties to the agreement modifies it or deprives it of legal effect’”]; see also Padgett v. Phariss (1997) 54 Cal.App.4th 1270, 1279-1280 [same].) Arias contends that, because Kelly did not allege any breach of statutory duties, the scope of Arias’s duty begins and ends with the terms of the real estate purchase agreement. He argues the duties enumerated in that agreement are inapplicable to his conduct in connection with the preparation of the amended preschool fixtures agreement because he merely typed the latter agreement in accordance with written instructions from Kelly and, in any event, the amended preschool fixtures agreement was not executed in conjunction with the real estate purchase agreement.

Arias’s duties enumerated in the purchase agreement, owed to both Kelly and Randle as their dual agent, included “[d]iligent exercise of reasonable skills and care in performance of the agent’s duties.”

Substantial evidence supports the trial court’s findings Arias agreed to assist Kelly and Randle complete their transaction through a side agreement to provide additional compensation to Kelly and was an active participant both in advising Kelly regarding the terms of the amended preschool fixtures agreement and in drafting its language. Kelly testified Arias drafted and explained to her both the initial preschool fixtures purchase agreement and the amended agreement and repeatedly assured her she would not have to deliver the preschool fixtures to Randle. Arias also persuaded Kelly to sign the amended agreement notwithstanding her misgivings the deed of trust was not to be recorded until after Randle received approval for the development. Kelly’s daughter, Heather Carlisle, who was present at several meetings with Kelly and Arias, also testified Arias had explained the deed of trust would be automatically recorded pursuant to the terms of the amended agreement and Kelly need not take any further action to ensure she collected the $100,000.

Having agreed to draft the side agreement -- a responsibility the trial court noted Arias did not need to assume -- the court properly found Arias had a duty to draft it proficiently, which included ensuring the deed of trust was signed by Randle and deposited into escrow. Even though a dual agent acting for both Kelly and Randle, Arias had a duty to exercise “utmost care” in his dealings with both, which included his preparation of the amended preschool fixtures agreement. Although this duty finds expression in the statutes regulating real estate agents (see Civ. Code, § 2029.16), “[t]he duty of a real estate agent to faithfully represent the interests of his or her principal . . . long antedated this statute.” (Brown v. FSR Brokerage, Inc. (1998) 62 Cal.App.4th 766, 777; see Rest.2d Agency, §§ 376, 379; Rest.3d Agency, § 8.08 [“[s]ubject to any agreement with the principal, an agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents in similar circumstances”].)

The trial court stated, “Once Randle accepted Kelly’s counteroffer, there was probably an enforceable purchase and sale agreement regarding the Property; therefore, Randle had no obligation to renegotiate the deal or acquiesce to Kelly’s demand for more money.”

Arias mischaracterizes the trial court’s finding he had a duty to prepare a deed of trust and to instruct escrow to record the deed after the Department of Real Estate authorized the development of the property as a finding Arias had a duty to record the side agreement. It is clear from the court’s statement of decision it did not find any such duty.

Rather than focus directly on the law of agency as governing Arias’s duty of care to Kelly in preparing the amended preschool fixtures agreement, the trial court looked more generally at the law of negligence and, in particular, to the Supreme Court’s analysis in Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja), in which the Court, balancing a number of factors, found a defendant’s negligent performance of a contractual obligation resulting in damage to the property or economic interests of a person not in privity could support recovery by that third party. Arias contends the balancing test in Biakanja is inapplicable because Kelly was not a third party beneficiary to a contract, but a party to the very contract that is the source of her claim, and Biakanja does not stand for the proposition that a nonparty who drafts an agreement will guarantee its subject matter or that payment will occur.

We, of course, review the trial court’s ruling, not its reasoning. (See, e.g., Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.) Accordingly, even if the general third-party negligence principles discussed by the trial court are not directly applicable to the facts of this case, well-established law recognizing an agent’s duty of care to his or her principal requires affirmance of its ultimate conclusion Arias had a duty to draft the amended preschool fixtures agreement in a competent manner. Moreover, although Arias is correct Biakanja arose in the context of a contracting party’s liability to a third party beneficiary, in Rowland v. Christian (1968) 69 Cal.2d 108, 113 (Rowland), the Supreme Court articulated a more general, seven-factor balancing test, overlapping many of the Biakanja factors, to determine the existence of duty in a wide variety of factual scenarios. “As [the Supreme Court] has explained, ‘duty’ is not an immutable fact of nature ‘“but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection.’” [Citation.] In California, the general rule is that all persons have a duty ‘“to use ordinary care to prevent others being injured as the result of their conduct. . . .’” (Rowland[, at p. 112] (citations omitted); Civ. Code, § 1714.) Rowland enumerates a number of considerations, however, that have been taken into account by courts in various contexts to determine whether a departure from the general rule is appropriate: ‘the major [considerations] are the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, the policy of preventing future harm, the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved.’ (Italics added.)” (Ballard v. Uribe (1986) 41 Cal.3d 564, 572-573, fn. 6; see, e.g., Casteneda v. Olsher (2007) 41 Cal.4th 1205 [applying factors when mobile home park resident was injured in gang shooting to determine whether owner of mobile home park had duty not to rent to known gang members or evict them when they harass other tenants]; Rotolo v. San Jose Sports and Entertainment, LLC (2007) 151 Cal.App.4th 307, 336 [applying factors to determine if owners of sports facility had duty to notify facility’s users of the existence and location of automatic external defibrillators].)

By applying a public policy balancing test to determine whether Arias owed Kelly a duty, rather than looking only to the law of agency, the trial court afforded Arias a greater opportunity to avoid liability than we believe was appropriate. Nonetheless, in applying the balancing test from Biakanja, the trial court’s conclusion Arias owed Kelly a duty in connection with the amended agreement was sound: “First, the ‘transaction’ -- i.e., Arias’s drafting of the [amended] agreement, and promise to prepare and record the deed of trust -- was intended to affect Kelly. Arias intended that the purchase and sale transaction between Kelly and Randle be consummated so that he could collect the resulting commission. This implies that his conduct was indeed intended to affect Kelly -- as well as Randle and himself. Second, it was readily foreseeable that, if the [amended] agreement were not enforceable, [Kelly] would be harmed: that is, Kelly’s recourse in the event that Randle did not pay the promised $100,000 would be impaired or even extinguished. Third, it is certain that Kelly was harmed -- Randle did not pay the promised $100,000. Fourth, the connection between Arias’[s] conduct and Kelly’s injury is plain. But for Arias’[s] negligent preparation of the side agreement, and his failure to prepare a deed of trust and escrow instructions, plaintiff would have received the $100,000 -- or, if she did not, she would have had additional legal options, including foreclosure, for collecting it from Randle. Fifth, [Kelly’s] harm came about as a result of Arias’[s] acting in his own pecuniary interest. Arias ensured that the sale to Randle was consummated in order to garner a commission for himself, and through his fault Kelly did not receive the $100,000. Sixth, it is not clear whether Kelly would have recovered from Randle. Permitting Kelly to recover from Arias, however, rectifies the unjust enrichment that would result if Arias (and his employer, Inco) were allowed to profit from Arias’[s] wrongdoing.”

The Biakanja test used by the court included a additional factor not articulated in Rowland particular to the third party beneficiary context considering “the extent to which the transaction was intended to affect the plaintiff” (Biakanja, supra, 49 Cal.2d at p. 650), but did not include the factor in Rowland assessing “the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved” (Rowland, supra, 69 Cal.2d at p. 113). This difference in the two tests is not relevant to the trial court’s finding of duty.

Arias contends imposition of a duty on brokers to guarantee agreements outside of escrow is against public policy when, as here, the broker is acting in the dual capacity of both buyer’s and seller’s agent because the broker will always be in the untenable position of breaching a duty to one or the other. Dual agency, by its very nature, is fraught with risk. (See Nguyen v. Scott (1988) 206 Cal.App.3d 725, 739, fn. 4 [“By disclosing his position, a broker may undertake the awkward role of representing both the seller and buyer. But such dual representation, which engenders a host of practical problems, is undesirable as a matter of policy”].) Recognizing a real estate agent’s duty to perform competently tasks voluntarily undertaken (not that an agent must “guarantee agreements outside of escrow”) does not increase that risk.

Arias also contends finding a duty in the circumstances of this case would wreak havoc in the real estate industry, where brokers often act as intermediaries to exchange communications or draft side agreements to facilitate deals, because it would “chill” their willingness to assist their clients during escrow. The court found, however, Arias was acting as more than just a middleman, passively typing the amended agreement and delivering it to the parties. Indeed, Arias arguably crossed the fine line between properly advising his clients about the real estate transaction and the unauthorized practice of law. (See Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119, 128 [unauthorized practice of law includes giving legal advice and preparing legal instruments and contracts]; Baron v. City of Los Angeles (1970) 2 Cal.3d 535, 543 [in determining when nonattorney engages in authorized practice of law, “[i]n close cases, the courts have determined that the resolution of legal questions for another by advice and action is practicing law ‘if difficult or doubtful legal questions are involved which, to safeguard the public, reasonably demand the application of a trained legal mind’”]; People v. Sipper (1943) 61 Cal.App.2d Supp. 844, 846-847, disapproved on other grounds in Murgia v. Municipal Court (1975) 15 Cal.3d 286, 301, fn. 11 [“If defendant had only been called upon to perform and had only undertaken to perform the clerical service of filling in the blanks on a particular form in accordance with information furnished him by the parties, or had merely acted as a scrivener to record the stated agreement of the parties to the transaction, he would not have been guilty of practicing law without a license. [Citations.] But the record supports the conclusion that he went further -- that he determined for the parties the kind of a legal document they should execute in order to effectuate their purpose. This constituted the practice of law”]; Greenwald & Asimow, Cal. Practice Guide: Real Property Transactions (The Rutter Group 2007) ¶ 2:8, p. 2-5 [“[a]s a practical matter . . . almost every broker probably engages in the ‘unauthorized practice of law’ to a certain extent”].) To the extent real estate agents, in attempting to facilitate transactions, engage in the unauthorized practice of law, public policy is best served by holding them responsible for their actions. (Cf. Biakanja, supra, 49 Cal.2d at p. 651 [unauthorized practice of law “should be discouraged and not protected by immunity from civil liability, as would be the case if plaintiff, the only person who suffered a loss, were denied a right of action”].)

Arias contends he told Kelly to consult her attorney regarding the risks associated with the amended preschool fixtures agreement. This, however, was insufficient. To avoid imposition of a duty of care, Arias should not have drafted the amended agreement or advised Kelly regarding its implications. Once he did, Kelly was left without real incentive to seek legal advice.

b. Substantial evidence supports the trial court’s finding Arias breached his duty of care to Kelly

“Where a duty is found to exist, a real estate agent must fulfill it by exhibiting the degree of care and skill ordinarily exhibited by professionals in the industry.” (Carleton v. Tortosa, supra, 14 Cal.App.4th at p. 754.) “The degree of care and skill required to fulfill a professional duty ordinarily is a question of fact and may require testimony by professionals in the field if the matter is within the knowledge of experts only.” (Id. at pp. 754-755.)

Substantial evidence supports the trial court’s finding that, “[h]aving voluntarily assumed the duty to draft the side agreement competently and to follow through with the steps necessary to protect Kelly’s interest, Arias (and by extension, Inco) breached his duty by failing to accomplish these things.” Although Arias testified at trial it was his understanding Randle was responsible for preparing the deed of trust, Kelly testified Arias assured her he would prepare it, submit it to escrow and personally ensure the deed of trust was recorded after Randle received approval for the development. It is undisputed Arias did not prepare the deed of trust, no deed of trust was ever submitted to escrow and, in fact, Arias never even submitted the amended preschool fixtures agreement to escrow, which would have at a minimum ensured some oversight to protect Kelly’s interests. Even if Arias had believed Randle was obligated to prepare the deed of trust, he admitted he never told Kelly this was his belief or ensured the amended agreement reflected such an obligation, which Kelly’s expert, Alan Wallace, testified was “high risk and very unusual.”

Arias contends both Wallace and his own expert, Lee Alan Ziff, testified a broker or agent has no obligation to enforce a side agreement and that under the trial court’s analysis a broker would be in breach of his duty any time a buyer or seller fails to perform, even under a standard purchase agreement. Arias, however, mischaracterizes both the nature of the duty the court found and the breach. The court did not find Arias had a duty to “enforce” the side agreement, but merely to perform the tasks he undertook competently, including to draft the deed of trust, to submit it to escrow and subsequently to verify the deed was recorded according to the terms of the amended agreement.

c. Substantial evidence supports the trial court’s finding Arias’s breach of his duty to Kelly caused her damages

The trial court found “if Arias had not breached the duty of care he assumed, the relatively straightforward procedures for foreclosing Kelly’s deed of trust would have been available to Kelly”; thus, “Arias’[s] breach was a substantial factor in bringing about Kelly’s damages. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 774 [“to demonstrate actual or legal causation, the plaintiff must show that the defendant’s act or omission was a ‘substantial factor’ in bringing about the injury”].) Arias contends the trial court failed to consider that Kelly’s own negligence in removing the preschool fixtures from the property was the cause of Randle’s refusal to pay her the additional $100,000 and that it was not certain she would have been paid even if Arias had fulfilled his duties. (See Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35, 44-45 [trial court erred in failing to apportion plaintiff’s damages to the extent they were proximately caused by his own failure to take action to protect his security interest or record deed of trust].)

Arias’s argument regarding Kelly’s role in the disposition of the preschool fixtures, as the trial court found, is “not well taken and is beside the point.” In fact, the trial court found, and substantial evidence supports, the consideration for the amended agreement “was for Kelly to cooperate with Randle in obtaining the necessary permits for the project.” The amended agreement itself expressly states, “[f]or the above [$100,000] consideration, [Kelly] agrees to” “[c]ooperate with [Randle] in any way possible to expedite the obtaining of permits for the subject project[.]” Kelly testified, when she expressed concern the title of the document still referred to purchase of the preschool trade fixtures, Arias assured her that it was just a heading and “that in this document, unlike the other, there is no exchange for any fixtures and inventory, that he’s only asking that I cooperate with him . . . about getting the permits and things for himself.”

2. Arias Has Forfeited His Argument Kelly Failed To Include Randle as an Indispensable Party

“Code of Civil Procedure section 389, subdivision (a) states in relevant part that ‘[a] person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if . . . in his absence complete relief cannot be accorded among those already parties . . . .’ Thus, ‘[a] person is an indispensable party [only] when the judgment to be rendered necessarily must affect his rights.’” (Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 808.) A party, however, “is indispensable only in the ‘conclusory sense that in [its] absence, the court has decided the action should be dismissed. Where the decision is to proceed the court has the power to make a legally binding adjudication between the parties properly before it.’” (Deltakeeper v. Oakdale Irrigation Dist. (2001) 94 Cal.App.4th 1092, 1105.) Thus, failure to join an indispensable party is not a jurisdictional defect. (Kraus v. Willow Park Public Golf Course (1977) 73 Cal.App.3d 354, 364 [“failure to join an ‘indispensable’ party is not ‘a jurisdictional defect’ in the fundamental sense; even in the absence of an ‘indispensable’ party, the court still has the power to render a decision as to the parties before it which will stand”].)

Arias filed a cross-complaint against Randle in March 2004 for apportionment of fault, contribution and indemnity, but dismissed the cross-action several months later (in June 2004). On February 1, 2005, approximately six weeks before trial was scheduled to commence, Kelly sought leave to file a second amended complaint adding Randle to the action; Arias successfully opposed the motion, contending Randle “had no involvement whatsoever with regard to the liability issues now before the Court” and a delay in trial would cause undue waste of time and expense. Kelly has now instituted a separate suit against Randle for breach of contract. Against this backdrop Arias contends for the first time on appeal Randle is an indispensable party. Arias argues, if Randle successfully defends against Kelly’s action on the ground she destroyed the consideration or otherwise failed to perform her obligations under the amended preschool fixtures agreement, such a result would be inconsistent with the trial court’s finding in the case at bar that Kelly could have collected on the amended agreement but for Arias’s negligence. Arias also argues a finding in Kelly’s favor in her suit against Randle would lead to her recovery of duplicative damages.

Arias is correct failure to join an indispensable party may be raised for the first time on appeal when “‘the absence of a party has precluded the trial court from rendering any effective judgment between the parties before it.’” (Kraus v. Willow Park Public Golf Course, supra, 73 Cal.App.3d at p. 369.) However, Randle’s presence in the lawsuit was by no means necessary for the trial court to afford complete relief with respect to Kelly’s claims against Arias. Randle will certainly ensure, in an effort to reduce his own liability, that Kelly does not receive a duplicative recovery. The allocation of liability as between Randle and Arias, on the other hand, is a matter for those parties to resolve, and not an issue as to which Kelly has an interest.

Moreover, given that Arias had earlier added Randle to Kelly’s lawsuit by cross-complaint and then dismissed him and thereafter vigorously opposed Kelly’s efforts to name him as an additional defendant, he cannot now complain about Randle’s absence. (See Weber, Lipshie & Co. v. Christian (1997) 52 Cal.App.4th 645, 660 [defendant not permitted to invoke in petition for rehearing “provision of California law he consciously rejected in all prior proceedings”; to do so “would be contrary to our adversary system and would result in a miscarriage of justice”]; Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1686 [“where a deliberate trial strategy results in an outcome disappointing to the advocate, the lawyer may not use that tactical decision as the basis to claim prejudicial error”].)

3. Arias Has Forfeited His Argument the Trial Court Erred in Excluding Portions of His Expert’s Testimony

The trial court granted Kelly’s motion to strike five areas of trial testimony by Arias’s expert, John Ziff, on the ground the testimony was outside the scope of opinions given by Ziff at his deposition. (Jones v. Moore (2000) 80 Cal.App.4th 557, 564-565 [expert witness properly precluded from offering opinions beyond scope of deposition testimony even though expert witness declaration was arguably broad enough to encompass trial testimony; expert witness had stated during deposition opinions given were his only opinions and would notify counsel if he formed new opinions, but had not done so].) Arias had opposed Kelly’s motion to strike on the ground Ziff’s trial testimony was consistent with his deposition testimony. He renews that argument on appeal but fails to cite to any portion of the record to support his argument. By omitting appropriate record citations, Arias has forfeited his right to pursue this argument: We will not scour the record on counsel’s behalf. (Del Real v. City of Riverside (2002) 95 Cal.App.4th 761, 768 [“it is counsel’s duty to point out portions of the record that support the position taken on appeal”; “[t]he appellate court is not required to search the record on its own seeking error”]; Mansell v. Board of Administration (1994) 30 Cal.App.4th 539, 545-546 [it is not the proper function of Court of Appeal to search the record on behalf of appellants or to serve as “backup appellate counsel”].

The only excluded topic relevant on appeal was Ziff’s testimony “Arias had no obligations to Kelly under the ‘contract addendum’ or ‘side agreement.’”

Arias also contends Ziff’s excluded testimony should have been admitted as rebuttal to the testimony offered by Kelly’s expert, Wallace. This argument not only lacks citation to authority and the record but also is in direct conflict with the argument presented to the trial court that “[n]one of the 5 opinions provided related to Mr. Wallace or his testimony.” (Landry v. Berryessa Union School Dist. (1995) 39 Cal.App.4th 691, 699-700 [“[w]hen an issue is unsupported by pertinent or cognizable legal argument it may be deemed abandoned and discussion by the reviewing court is unnecessary”].) Accordingly, Arias has forfeited his argument the trial court erred in excluding Ziff’s testimony.

4. The Trial Court’s Denial of Summary Judgment Was Not Reversible Error

As discussed, several months before trial the court denied Arias’s motion for summary judgment or, in the alternative, summary adjudication. Arias contends the trial court committed reversible error in denying the motion because it failed to make any findings as to what issues of material fact existed (Code Civ. Proc., § 437c, subd. (g)); permitted Kelly to create triable issues of material fact by submitting a declaration that contradicted her deposition testimony (Shin v. Ahn (2007) 42 Cal.4th 482, 500, fn. 12 [“a party cannot create an issue of fact by a declaration which contradicts his prior discovery responses”]); and relied on inadmissible evidence to support Kelly’s assertion she could have obtained a higher value for her property. Whether or not the court erred, Arias has failed to demonstrate prejudice. When a party unsuccessfully moves for summary judgment or summary adjudication and the same issues are thereafter decided against the moving party following a fair trial on the merits, any error in failing to grant the motion or a technical deficiency in the order itself is harmless. (Waller v. TJD, Inc. (1993) 12 Cal.App.4th 830, 836; South Bay Chevrolet v. General Motors Acceptance Corp. (1999) 72 Cal.App.4th 861, 907.) Moreover, Arias prevailed on Kelly’s claim Arias was negligent and breached his fiduciary duties in connection with valuing, marketing and obtaining the best price for Kelly’s property. For this additional reason, any error in denying the motion in that regard was harmless.

5. This Court Lacks Jurisdiction To Hear Arias’s Appeal of the Denial of His Motion for Attorney Fees

“A postjudgment order which awards or denies costs or attorney[] fees is separately appealable.” (Norman I. Krug Real Estate Investments, Inc. v. Praszker, supra, 220 Cal.App.3d at p. 46.) “The failure to appeal an appealable order ordinarily deprives the appellate court of jurisdiction to review the order. [Citation.] However, when the judgment awards attorney fees but does not determine the amount, the judgment is deemed to subsume the postjudgment order determining the amount awarded, and an appeal from the judgment encompasses the postjudgment order.” (R. P. Richards, Inc. v. Chartered Construction Corp. (2000) 83 Cal.App.4th 146, 158; compare Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 997 [“requiring a separate appeal from . . . an order [awarding costs and fees] when the judgment expressly makes an award of costs and/or fees serves no apparent purpose”] with Fish v. Guevara (1993) 12 Cal.App.4th 142, 148 [award of expert witness fees is not incidental to judgment, but a separately litigated issue, and thus must be challenged by separate, timely notice of appeal].)

On January 6, 2006 Arias filed a notice of appeal from the trial court’s judgment and statement of decision entered on November 10, 2005. Whether Arias was entitled as the “prevailing party” to attorney fees pursuant to the purchase agreement’s contractual attorney fee provision and Civil Code section 1717 was not addressed in the statement of decision or judgment, and had not yet been decided when the notice of appeal was filed. (The motion for attorney fees was filed on December 28, 2005.) Accordingly, the denial of the attorney fee motion does not fall within the limited exception permitting an appeal from the judgment to serve as the vehicle to appeal a postjudgment order regarding attorney fees. Because no separate notice of appeal was filed from the January 24, 2006 postjudgment order denying Arias’s motion for attorney fees, we have no jurisdiction to review the trial court’s order.

Kelly’s Cross-Appeal

6. The Contractual Limitation of Liability Clause Is Not Void as Against Public Policy

Paragraph 24.2(d) of the standard offer, agreement and escrow instructions for purchase of real estate (non-residential), prepared by the American Industrial Real Estate Association, which formed the basis for the purchase agreement between Kelly and Randle for the preschool property, provides in part, “The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Agreement shall not exceed the fee received by such Broker pursuant to this Agreement; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.” After finding in favor of Kelly on her claim that Arias had breached his duty of care in connection with the preparation of the amended preschool fixtures agreement, the trial court concluded this contractual limitation-of-liability provision in the purchase agreement itself applied to limit her recovery, finding Arias’s liability “relat[es] to [the underlying] Agreement”: “The side agreement would not exist without the underlying Agreement”; “[t]he side Agreement arguably just adds terms to (or modifies) the underlying Agreement”; and “[t]he court is convinced that an ordinary, reasonable person viewing the evidence in this case would find that Arias’[s] preparation of the side agreement cannot be extricated from his role as facilitator of the transaction memorialized in the underling Agreement.”

In her cross-appeal Kelly does not argue the trial court erred in concluding the contractual limitation on damages applies to her negligence claim based on Arias’s advice and drafting with respect to the amended preschool fixtures agreement. Instead, she argues, as she did following the trial court’s tentative decision to limit her recovery, the provision is void as against public policy under Civil Code section 1668 and Tunkl v. Regents of University of California (1963) 60 Cal.2d 92 (Tunkl) [exculpatory clauses relieving party from consequences of its own negligence cannot be enforced when public interest is involved, even if conduct does not involve violation of law].

Civil Code section 1668 provides, “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”

Kelly’s assertion of this argument for the first time in an objection to the trial court’s tentative decision was not untimely and does not constitute a forfeiture for purpose of this cross-appeal. Although the court did not address Kelly’s public policy argument in its final statement of decision, the court had an opportunity to consider the issue. (See JRS Products, Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168, 178 [“fairness is at the heart of a [forfeiture] claim. Appellate courts are loath to reverse a judgment on grounds that the opposing party did not have an opportunity to argue and the trial court did not have an opportunity to consider”].)

Kelly’s argument presumes a commercial contract provision limiting to a non-nominal amount the economic damages recoverable in an action for breach of duty may be challenged as an invalid exculpatory clause under Civil Code section 1668 using Tunkl’s public policy analysis. Yet, “[l]imitation of liability provisions have long been recognized as valid in California” (Markborough California, Inc. v. Superior Court (1991) 227 Cal.App.3d 705, 714), and California courts have enforced such clauses in numerous contexts, including contracts for the purchase of real estate. (See, e.g., Wheeler v. Oppenheimer (1956) 140 Cal.App.2d 497, 499-501; see generally 1 Witkin, Summary of Cal. Law (10th ed. 2005) contracts, § 677, p. 760 [“[c]ontractual limitations of liability have been frequently upheld”].) Generally, a damages limitation clause will be enforced unless the party opposing the provision establishes it is unconscionable (see Markborough California, Inc., at p. 714; but see McCarn v. Pacific Bell Directory (1992) 3 Cal.App.4th 173 [applying Tunkl factors in action by advertiser against publisher of telephone directory to uphold contract provision limiting directory’s liability for failure to run advertisement to fees it had received for advertisement]) -- an analysis Kelly did not attempt in the trial court and does not pursue here.

Unconscionability has both procedural and substantive elements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 (Armendariz); Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1539.) Both must appear for a court to invalidate a contract or one of its individual terms (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174 (Mercuro)), but need not be present in the same degree. (Armendariz, at p. 114.)

Even if we were to accept Kelly’s invitation and apply the Tunkl analysis to the contractual limitation provision at issue in this case because, to a certain extent, it insulates Arias from liability for his own wrongful or negligent act, however, we would uphold the trial court’s decision limiting her recovery to $80,000 -- the amount of Arias’s commission -- because neither the non-residential real estate purchase agreement nor the amended preschool fixtures agreement involves the “public interest.”

In Tunkl, supra, 60 Cal.2d at page 96, the Supreme Court held, under Civil Code section 1668 and the cases interpreting it, an “exculpatory provision may stand only if it does not involve ‘the public interest.’” “Traditionally the law has looked carefully and with some skepticism at those who attempt to contract away their legal liability for the commission of torts. [Citation.] This general policy of the common law found legislative expression early in California’s history with the enactment of Civil Code section 1668. . . . [¶] This section made it clear a party could not contract away liability for his fraudulent or intentional acts or for his negligent violations of statutory law. Less clear was the status of negligent violations of common law standards of care. While acknowledging some conflict in the cases, Witkin concludes California now follows the modern view of the Restatement of Contracts -- ‘a contract exempting from liability for ordinary negligence is valid where no public interest is involved . . . and no statute expressly prohibits it . . . .’ [Citation.] [¶] The converse is also true, however. Under Civil Code section 1668 [a service provider] cannot exempt itself from liability even for ordinary negligence if the service it provides implicates the public interest.” (Gardner v. Downtown Porsche Audi (1986) 180 Cal.App.3d 713, 716; accord Gavin W. v. YMCA of Metropolitan Los Angeles (2003) 106 Cal.App.4th 662, 670-671.)

“The Tunkl court enumerated six factors to be considered in determining whether an exculpatory contract involves the public interest within the meaning of this rule: . . . . ‘[T]he attempted but invalid exemption involves a transaction which exhibits some or all of the following characteristics. [1] It concerns a business of a type generally thought suitable for public regulation. [2] The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. [3] The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. [4] As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. [5] In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against negligence. [6] Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents.’ (Tunkl, supra, 60 Cal.2d at pp. 98-100, fns. omitted.)” (Gavin W. v. YMCA of Metropolitan Los Angeles, supra, 106 Cal.App.4th at p. 671.)

Relying primarily on Akin v. Business Title Corp. (1968) 264 Cal.App.2d 153 (Akin), in which the court found a complete exculpatory clause in an escrow agreement void after applying the Tunkl factors, Kelly contends the damage limitation provision in the real estate purchase agreement should be found void as against public policy because both cases involve a real estate professional who negligently failed to record the seller’s security interest for the unpaid balance of the purchase price. Kelly argues real estate agents and brokers should be held to a higher standard than escrow companies because they owe a fiduciary duty to their clients, and argues that all of the Tunkl factors, as applied in Akin, are present here.

In Rooz v. Kimmel (1997) 55 Cal.App.4th 573 the Court of Appeal distinguished Akin in a case also involving an escrow company’s failure to timely record a deed of trust. The escrow company had agreed to perform “an accommodation recording,” which “means the title company is recording the document without liability since no title insurance will be issued to cover the transaction,” on the condition “the principals sign accommodation instructions and an indemnity agreement absolving [the escrow company] of liability in connection with the recording.” (Rooz, at p. 578.) After applying the Tunkl factors, the court held the indemnity and hold harmless agreement was not void as against the public interest. As the court noted, “The Akin court did not hold . . . that all transactions conducted by title companies necessarily affect the public interest. [¶] Whether a particular transaction or contract affects the public interest depends upon the circumstances of the particular transaction. [Citations.] Moreover, a court will invalidate an exculpatory clause only where ‘all or most of the[] [Tunkl] circumstances exist.’” (Rooz, at p. 589.)

As in Rooz, applying the Tunkl factors to the particular transaction here -- and recognizing that the six factors are not all of equal significance in assessing whether the contract affects the public interest -- we find no basis for invalidating the limitation of liability provision in the purchase agreement. While real estate licensees are subject to regulation (Bus. & Prof. Code, § 10130 et seq.), “in the typical private real estate purchase and sale transaction[,] [n]either the parties nor their real estate representatives are engaged in a transaction of any great importance to the public, generally.” (Loughrin v. Superior Court (1993) 15 Cal.App.4th 1188, 1193-1194.) Not only were the services performed by Arias not of vital importance to the public, as, for example, are child care services (see Gavin W. v. YMCA of Metropolitan Los Angeles, supra, 106 Cal.App.4th at p. 671), but also, in light of the commercial nature of the transaction, which involved the sale of non-residential property, not Kelly’s home, we cannot conclude those services were so essential to Kelly that Arias enjoyed a decisive advantage in bargaining strength. Although the limitation-of-damages provision was contained in a preprinted, standard offer for the purchase of real property, nothing in the record suggests Kelly, had she asked, could not have insisted Arias delete the provision or gone to another real estate agent who would have agreed to do so. (Cf. Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1420 [noting home buyer successfully negotiated with home inspector to strike preprinted clause limiting damages available for inspector’s breach of duty]; McCarn v. Pacific Bell Directory, supra, 3 Cal.App.4th at p. 182 [“existence of an offer to negotiate the limits of liability in the preprinted contract is fatal to plaintiff’s public policy claim”].)

Kelly’s additional argument that under Civil Code section 1668 Arias cannot limit his liability for violation of a statutory duty is misplaced. Kelly did not allege in her complaint, and the court did not impose liability, based upon Arias’s purported violation of Business and Professions Code section 10141.5, which specifies a broker’s obligations regarding the timely filing of deeds of trust, an issue Kelly raised for the first time in her closing brief in the trial court.

In a final effort to invalidate the limitation of liability provision, Kelly argues the clause is void because it attempts to unilaterally limit one party’s right to collect attorney fees in violation of Civil Code section 1717. (See Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 968 [Civil Code § 1717 “makes [unilateral attorney fee provisions] reciprocal and applicable to the entire agreement”].) The resolution of any conflict between the real estate purchase agreement’s provisions for attorney fees to the prevailing party, the agreement’s limitation on damages awards recovered in negligence actions against the broker relating to that agreement and Civil Code section 1717’s requirement of mutuality is not properly before us; for Kelly did not seek attorney fees in the trial court. (See Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 746 [“[c]ourts do not decide abstract questions of law”].) One point is clear, however: Kelly’s argument is not appropriately directed to invalidating the limitation-of-damages provision, but to limiting any attorney fees award to Arias, which was precisely what Kelly argued in the trial court: “Because [Civil Code] § 1717’s reciprocity provisions are intended to establish mutuality of remedies, defendants should have no more rights to recover attorney fees than plaintiff would have. The court should deny defendants’ motion for attorney fees in its entirety. However, if for some reason it is inclined to award defendants their fees, the award must be limited to $80,000.”

DISPOSITION

The judgment is affirmed. The parties are to be bear their own costs on appeal.

We concur: WOODS, J., ZELON, J.

Procedural unconscionability focuses on the elements of oppression and surprise (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160) and often turns on the concept of “adhesiveness” -- a set of a set of circumstances in which the weaker or “adhering” party is presented a contract drafted by the stronger party on a take it or leave it basis. (Mercuro, supra, 96 Cal.App.4th at p. 174.) A claim of procedural unconscionability may be defeated if the complaining party has reasonably available sources of supply from which to obtain the desired goods or services free of the terms claimed to be unconscionable. (Dean Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758, 768; see Marin Storage & Trucking, Inc. v. Benco Contracting & Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1056 [alternative sources rendered procedural unfairness of adhesive contract minimal].)

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create “‘“overly harsh”’” or “‘one-sided’ results” (Armendariz, supra, 24 Cal.4th at p. 114), that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. (Jones v. Wells Fargo Bank, supra, 112 Cal.App.4th at p. 1539.) To be substantively unconscionable, a contractual provision must shock the conscience. (California Grocers Assn. v. Bank of America (1994) 22 Cal.App.4th 205, 214; Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1330 [“‘Substantive unconscionability’ focuses on the terms of the agreement and whether those terms are ‘so one-sided as to “shock the conscience.”’ [Citations.]”].)


Summaries of

Kelly v. Arias

California Court of Appeals, Second District, Seventh Division
Nov 6, 2007
No. B189264 (Cal. Ct. App. Nov. 6, 2007)
Case details for

Kelly v. Arias

Case Details

Full title:ELAINE KELLY, as Trustee of the ELAINE KELLY TRUST Plaintiffs and…

Court:California Court of Appeals, Second District, Seventh Division

Date published: Nov 6, 2007

Citations

No. B189264 (Cal. Ct. App. Nov. 6, 2007)