Opinion
D075550
03-27-2020
ERIC STEINMANN, Plaintiff and Appellant, v. THE SETTLEMENT GROUP, INC., et al., Defendants and Respondents.
Clearview Law and Shannon Gallagher, for Plaintiff and Appellant. Beitchman & Zekian, David P. Beitchman, Shani Kochav and Andre Boniadi for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. CIVDS1303256) APPEAL from a judgment of the Superior Court of San Bernardino County, Brian S. McCarville, Judge. Affirmed. Clearview Law and Shannon Gallagher, for Plaintiff and Appellant. Beitchman & Zekian, David P. Beitchman, Shani Kochav and Andre Boniadi for Defendants and Respondents.
This case arises from a transaction involving "life settlements," also known as "viatical settlements." Under a life settlement contract, an insured person with a terminal or life-threatening illness agrees to name a purchaser as the beneficiary to a life insurance policy in exchange for a lump sum payment in an amount less than the expected death benefit. (Ins. Code, § 10113.1, subd. (k).) The insured receives the payment before death to spend how he or she sees fit, and the purchaser obtains a return on the initial investment when the insured dies. The sooner the insured dies, the greater the return.
Plaintiff Eric Steinmann, working through his purported agent Advanced Life Planning (ALP)—not a party to this action— decided to purchase two life settlement contracts arising from life insurance policies held by an older woman, Jamila Alhwity, who has health issues leading to a shortened life expectancy. Alhwity reached an agreement with defendant The Settlement Group, Inc. (SGI), an experienced life settlement contract "facilitator," under which SGI agreed to pay Alhwity a lump sum to change the beneficiary from her nephew, defendant Kamies Elhouty, to a designated purchaser. In turn, Steinmann's purchase of the contracts was negotiated solely by his agent ALP with SGI. In a convoluted series of transactions, Steinmann was named as the purchaser and new beneficiary after he agreed to pay ALP, who took a small profit and agreed to pay SGI, who also made a small profit and then paid Alhwity. Put simply, Steinmann agreed to pay a lump sum of money, which was distributed in part to middlemen ALP and SGI with the remainder to Alhwity, resulting in Steinmann assuming responsibility for paying premiums on the policy in the hope that Alhwity's short life expectancy would result in a profitable return on his investment when she died and he collected the death benefit.
After completing the purchase, however, Steinmann claims he learned new information, including that: (1) Alhwity made misrepresentations in her insurance applications, which he feared might lead the insurer to rescind the policy; and (2) she was living in a foreign country for at least part of the year, which he feared would make it impossible to learn of or prove her death, precluding any recovery. He filed this lawsuit alleging a variety of related theories against SGI, Alhwity, and Elhouty, asserting that they either misrepresented these facts to him, failed to disclose these facts, or failed to conduct an adequate investigation to discover these facts and then report them to Steinmann. He states that had he known these facts, he would not have purchased the life settlement contracts.
The trial court granted summary judgment in favor of SGI and Elhouty, finding based on the undisputed facts that the two defendants owed no duty to Steinmann and that his claimed damages were entirely speculative. As we shall explain, SGI and Elhouty met their burden as the moving parties to establish that they (1) made no misrepresentations, (2) could not have concealed anything about Alhwity because they did not themselves have actual knowledge of these facts, and (3) owed no duty to conduct an investigation to discover those facts on behalf of Steinmann. In opposition, Steinmann failed to establish triable issues of fact as to any of these circumstances. Accordingly, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Consistent with our standard of review of orders granting summary judgment or summary adjudication, we recite the facts in the light most favorable to Steinmann as the nonmoving party. (See Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768 (Saelzler); Light v. Dept. of Parks & Recreation (2017) 14 Cal.App.5th 75, 81.)
In 2010, Steinmann was approached by Steven Paramo—working with David Clifford at ALP —who said he could assist Steinmann in making life settlement contract investments. Steinmann was interested, and in late July 2010 transferred a large sum of money into an escrow account for ALP's use in purchasing life settlements on his behalf. A month later, ALP identified the Alhwity policies as a potential sound investment based on the premium amounts and her life expectancy of between four and eleven and one-half years. Paramo told Steinmann he "like[d] the odds she is not going to live" for the maximum life expectancy and there was "potential to have a very early pay-out." On August 30, 2010, Paramo indicated he made a formal offer for the Alhwity policies that was accepted by SGI.
Steinmann and ALP signed an agreement for Steinmann to purchase the Alhwity policies from ALP. On the same day, ALP and SGI signed a nearly identical agreement for ALP to purchase those same Alhwity policies from SGI. A little more than a week later, SGI entered into an agreement with Alhwity to purchase the Alhwity "Pac Life" policy. On the same day, Alhwity and Elhouty, as the existing beneficiary, signed several documents necessary to complete the sale, including a consent to a change in beneficiary on the policy to SGI "or its designee." SGI and Alhwity also executed an escrow agreement specifying that Steinmann was to be named as the new beneficiary before disbursement of the sales proceeds to Alhwity.
The president of SGI handled the Alhwity transaction and declared that he never communicated in any way with Steinmann. Steinmann similarly declared he was unaware of the involvement of SGI or Elhouty in the transaction.
Although the original agreement specified that Steinmann would buy four Alhwity policies, he ultimately purchased only two. Thereafter, Steinmann grew concerned when he identified what he alleges to be "material misrepresentations" in Alhwity's applications for the insurance policies he purchased. Steinmann learned through a private investigator that there were concerns about Alhwity "being the person she has been advertised to be." The investigator spoke with Alhwity's son and learned that Alhwity was in Saudi Arabia, which Steinmann believed was at odds with representations in her insurance applications that she did not intend to reside in, or visit, a foreign country. Steinmann also noted that, despite offering to transfer four insurance policies, Alhwity's applications claimed she had not applied for other life insurance policies and failed to list any other existing policies.
Steinmann continued to own the policies and pay the premiums, but filed this lawsuit seeking damages or rescission. In his original complaint, Steinmann named only ALP, Clifford, and Paramo as defendants. He alleged those defendants "misrepresented and omitted material facts" regarding Alhwity's health and current residence. Steinmann later dismissed those defendants and obtained leave to file an amended complaint against SGI, Elhouty, and Alhwity.
In the operative complaint, Steinmann alleges eight causes of action against SGI and Elhouty. Against SGI, Steinmann asserts claims for (1) negligent misrepresentation; (2) violation of Corporations Code section 25401 et seq.; (3) fraud; (4) professional negligence; (5) negligence; (6) breach of fiduciary duty; (7) violation of Corporations Code section 25110; and (8) violation of Business and Professions Code section 17200 et seq. Against Elhouty, Steinmann alleges common law fraud and statutory claims for violation of Corporations Code sections 2511 and 25401 et seq.
The operative fourth amended complaint alleges seven of the eight causes of action against all defendants, but the trial court previously sustained Elhouty's demurrers to the first, fifth, and eighth causes of action. This appeal involves the judgment entered only as to Elhouty and SGI.
All of Steinmann's claims are based on the assertion that Alhwity made material misrepresentations in her applications such that Steinmann "is now exposed to the risk that [the insurers] will not honor the terms [of] the Policies . . . and will instead rescind the policies based on Defendant Alhwity's misrepresentations." He asserts that had he known of these misrepresentations, he would not have purchased the policies.
Regarding SGI and Elhouty, Steinmann alleges that Elhouty was aware of the misrepresentations but "failed to correct the misrepresentations." He claims SGI "either knew or should have known of Alhwity's misrepresentations in her applications for insurance . . . based on due diligence that it performed or should have performed." The complaint further alleges that "[h]ad SGI exercised reasonable care in analyzing Defendant Alhwity's applications for life insurance, it would have discovered Defendant Alhwity's material misrepresentations and omissions."
Steinmann additionally states that "SGI was either aware . . . or else failed to exercise the appropriate due diligence to discover" that Alhwity "routinely travelled between Saudi Arabia and the United States, and may have in fact resided in Saudi Arabia . . . at the time SGI sold the policies to [Steinmann]." He claims that SGI failed to advise Steinmann of the risk that Alhwity would move out of the country or remain in Saudi Arabia, which he claims "would make it difficult for Plaintiff and insurance companies to determine whether Alhwity was in fact still alive." Steinmann alleges that by producing some documents, including Alhwity's initial insurance applications and recent medical reports from a physician in Los Angeles, SGI created the impression that Alhwity lived in the United States.
SGI and Elhouty moved for summary judgment or, in the alternative, summary adjudication. In support of the motion, Elhouty submitted a declaration stating that he was not aware of "any misrepresentations, or any representations for that matter, made by Ms. Alhwity in connection with her applications for the subject policies or the sale of the subject policies." He also declared that he did not participate in the sale of Alhwity's policies in any manner or communicate with anyone involved in the life settlement contract transaction. Similarly, the president of SGI, Joseph Lucent, stated in a declaration that SGI was not aware of any misrepresentations made by Alhwity and did not communicate with Steinmann in any manner as part of the transaction. Lucent detailed the documents SGI received and reviewed and declared that the same information was provided to ALP.
In opposition to the motion for summary judgment, Steinmann did not dispute that he never communicated with Elhouty or SGI. In Steinmann's own declaration—the only evidence submitted in opposition—Steinmann admits that he "was not aware of the roles of Kamies Elhouty and SGI in the transactions prior to the inception of the action." In a separate declaration, his attorney states that "the facts essential to respond to those assertedly undisputed facts may exist, but cannot be presented until such time as I have conducted the depositions of defendants Elhouty and SGI."
The trial court granted summary judgment. Relying on certain undisputed facts, the court found that SGI owed no duty of care to Steinmann and that Steinmann's claimed damages were speculative and based on "mere possibilities." Steinmann appealed from the resulting judgment.
DISCUSSION
1. Summary Judgment Standards and Standard of Review
"The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).) "A defendant's motion for summary judgment should be granted if no triable issue exists as to any material fact and the defendant is entitled to a judgment as a matter of law. [Citation.] The burden of persuasion remains with the party moving for summary judgment. [Citation.] When the defendant moves for summary judgment, in those circumstances in which the plaintiff would have the burden of proof by a preponderance of the evidence, the defendant must present evidence that would preclude a reasonable trier of fact from finding that it was more likely than not that the material fact was true [citation], or the defendant must establish that an element of the claim cannot be established, by presenting evidence that the plaintiff 'does not possess and cannot reasonably obtain, needed evidence.' " (Kahn v. East Side Union High School Dist. (2003) 31 Cal.4th 990, 1002-1003 (Kahn).)
If the defendant "carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact." (Aguilar, supra, 25 Cal.4th at p. 850.) "The plaintiff . . . shall not rely upon the allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto." (Code Civ. Proc., § 437c, subd. (p)(2).) In its response to the moving party's separate statement, the opposing party must state whether each of the allegedly undisputed material facts is "undisputed" or "disputed." (Cal. Rules of Court, rule 3.1350(f)(2).) If the opposing party contends a fact is disputed, it must identify the nature of the dispute and describe the evidence that supports this position. (Ibid.)
On appeal, "[w]e review the record and the determination of the trial court de novo." (Kahn, supra, 31 Cal.4th at p. 1003.) "In performing our de novo review, we must view the evidence in a light favorable to plaintiff as the losing party [citation], liberally construing [the plaintiff's] evidentiary submission while strictly scrutinizing defendants' own showing, and resolving any evidentiary doubts or ambiguities in plaintiff's favor." (Saelzler, supra, 25 Cal.4th at p. 768.) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar, supra, 25 Cal.4th at p. 850, fn. omitted.)
2. The Judgment Is Not Subject to Reversal Due to Defendant's Filing of a Subsequent Summary Judgment Motion
Steinmann first contends that we need not reach the merits of the summary judgment motion because the motion was procedurally barred. He relies on Code of Civil Procedure section 437c, subdivision (f)(2), which states that a party may not move for summary judgment based on issues asserted in a previous motion for summary adjudication and denied by the court unless the moving party establishes newly discovered facts or circumstances or a change of law supporting the issues being reasserted.
Steinmann argues that the issues raised in the current summary judgment motion are substantively identical to the issues raised in a previous motion for summary judgment and/or summary adjudication, which was denied by the trial court. According to Steinmann, Code of Civil Procedures section 437c, subdivision (f)(2), applies here such that the second motion for summary judgment was barred and the trial court erred in granting the motion.
In Marshall v. County of San Diego (2015) 238 Cal.App.4th 1095 (Marshall), this court previously considered and rejected an identical contention. We held that while Code of Civil Procedures section 437c, subdivision (f)(2), may restrict a party's ability to file a successive motion, it does not limit the trial court's "inherent authority to permit a party to file a successive motion for summary judgment and/or adjudication." (Marshall, supra, at p. 1106.) In effect, the trial court has the discretion to excuse a party's violation of Code of Civil Procedures section 437c, subdivision (f)(2). Therefore, following the decision in Marshall, we conclude the trial court did not err in exercising its authority to permit defendants to file a successive motion for summary judgment.
3. The Trial Court Properly Granted Summary Judgment In Favor of SGI and Elhouty
The central basis for the trial court's order granting summary judgment centers on the duties owed to Steinmann by SGI and Elhouty. In essence, Steinmann claims that SGI and Elhouty breached their duties owed to him by (1) making material misrepresentations regarding Alhwity and her insurance policies; (2) failing to disclose their knowledge of Alhwity's misrepresentations; and (3) if they did not know of the misrepresentations, SGI's failure to conduct the necessary investigation to discover the misrepresentations and to fulfill their obligations to Steinmann by disclosing this information. We consider each of these contentions in turn.
a. There are no triable issues of material fact regarding whether SGI or Elhouty made any actual misrepresentations to Steinmann
In his first, second, third, and eighth causes of action, Steinmann alleges that defendants made material misrepresentations to him regarding Alhwity and her policies. Most of Steinmann's allegations of misrepresentation focus on Alhwity, who is not a party to this appeal, rather than defendants SGI and Elhouty. Regardless, even accepting that SGI and Elhouty owed a duty to Steinmann to refrain from making material misrepresentations, there is no triable issue of material fact regarding whether either SGI or Elhouty made any representations to Steinmann.
In support of their motion for summary judgment, both SGI and Elhouty submitted evidence that they had no direct communication with Steinmann. These declarations were sufficient to meet defendants' initial burden of showing that plaintiff cannot establish an element of his causes of action to the extent they rely on an actual misrepresentation. In opposition, Steinmann did not dispute that he ever communicated with SGI or Elhouty. Indeed, he submitted his own declaration admitting that he was not even aware of SGI and Elhouty's roles in the sale until well after the transaction was complete. In light of the undisputed fact that SGI and Elhouty made no representations to Steinmann of any kind, the trial court properly found no triable issue of material fact to the extent the causes of action are premised on actual misrepresentations, intentional or negligent, made by SGI or Elhouty to Steinmann.
In his reply brief, Steinmann does not dispute that he failed to establish an affirmative misrepresentation, but instead contends "the lower court did not reach these issues," which he argues "must be remanded for consideration." This contention, however, contradicts well-established principles of appellate review. Under our independent review, we may affirm a judgment correct on any theory regardless of the trial court's reasoning. (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.) "Respondents are free to urge affirmance of the judgment on grounds other than those cited by the trial court." (Little v. Los Angeles County Assessment Appeals Bd. (2007) 155 Cal.App.4th 915, 925, fn. 6.) Finding no triable issue of material fact, we need not remand for consideration despite the fact that trial court's decision did not reach this argument. b. There are no triable issues as to whether SGI or Elhouty failed to disclose any material facts to Steinmann
Steinmann alleges in his first, second, third, and eighth causes of action that SGI and Elhouty "also omitted material facts necessary to make other misrepresentations to Plaintiff not misleading" and made other omissions of material facts regarding Alhwity and her insurance policies. In essence, he claims both SGI and Elhouty were aware of certain material facts, but failed to fulfill their duty to disclose those facts to Steinmann.
"There are 'four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.' " (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) Absent a fiduciary relationship between the parties, the latter three circumstances "presuppose[ ] the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise." (Id. at pp. 336-337.)
Here, Steinmann alleges the existence of all four of these circumstances. However, even accepting that a duty to disclose exists, there is no triable issue of fact regarding whether SGI or Elhouty knew the alleged material facts about Alhwity and her insurance policies. An elementary element of nondisclosure or concealment is the defendant's own knowledge of the fact. (San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, 1055-1056 [duty to disclose "cannot arise when . . . such significant facts are not actually known to the defendant"]; see also Rest.2d Torts, § 551 [liability arises from failing to "disclose to another a fact he knows" and "matters known to him" (italics added)].)
Both SGI and Elhouty submitted evidence that they did not know of Alhwity's alleged misrepresentations. This evidence was sufficient to meet their initial burden and shifted the burden to Steinmann to demonstrate the existence of a triable issue of material fact. (See, e.g., Doe v. Salesian Society (2008) 159 Cal.App.4th 474, 479-481 [moving defendant's evidence that it lacked knowledge of fact at issue was sufficient to shift burden to plaintiff in opposition to motion for summary judgment].) In opposition, Steinmann offered no evidence to establish a triable issue of material fact regarding whether Elhouty or SGI were aware of any alleged misrepresentations made by Alhwity or SGI's claim that it provided all information and documents it possessed in relation to Alhwity to Steinmann via ALP. Instead, Steinmann claimed that responding to these undisputed facts would require additional discovery.
A plaintiff may oppose summary judgment or seek a continuance on the basis that additional discovery is necessary because facts essential to establishing a triable issue of material fact may exist but cannot yet be presented. (Code Civ. Proc., § 437c, subd. (h).) In the trial court, Steinmann raised such a claim in opposition to the motion for summary judgment. However, the trial court did not grant his request for a continuance and Steinmann does not challenge the trial court's ruling in that regard on appeal. Thus, he has abandoned this issue and must challenge the trial court's ruling on the evidence presented below. (See, e.g., Behr v. Redmond (2011) 193 Cal.App.4th 517, 538 [failure to raise issue on appeal constitutes a waiver or abandonment of the issue].)
In the absence of evidence creating a triable issue of fact as to Elhouty's or SGI's knowledge, Steinmann cannot simply assert their declarations are not credible. "If a party is otherwise entitled to summary judgment ... [it] shall not be denied on grounds of credibility." (Code Civ. Proc., § 437c, subd. (e); AARTS Productions, Inc. v. Crocker Nat'l Bank (1986) 179 Cal.App.3d 1061, 1064.) Accordingly, there is no triable issue of material fact regarding Elhouty's or SGI's knowledge of, and subsequent alleged failure to disclose, any alleged misrepresentation by Alhwity or other material fact to the transaction. To the extent Steinmann's causes of action rely on such failure to disclose, SGI and Elhouty have established they are entitled to summary judgment. c. SGI owed no duty to Steinmann to conduct an investigation to discover Alhwity's alleged misrepresentations and her current residence
In the absence of any triable issue of material fact regarding defendants' alleged misrepresentations or omissions of material facts, we are left with the question of whether SGI owed a duty to Steinmann to investigate Alhwity's representations in her insurance application or her current whereabouts and future plans for residence. This theory of liability is found in the fourth, fifth, sixth, and eighth causes of action.
Nothing in the complaint or evidence adduced as part of the motion for summary judgment supports the existence of any such duty owed by SGI to investigate on behalf of Steinmann to disclose all possible risks. The record contains no evidence that SGI expressly promised to perform any investigation beyond the limited scope of information obtained as part of the life settlement process, all of which Steinmann admits was transmitted to him via ALP. The agreements between the parties do not establish any promise by SGI to complete any investigation. The agreement between SGI and ALP, which is substantively identical to the language found in the agreement between ALP and Steinmann, states that ALP "expressly acknowledges that SGI has made no representations or warranties about the Policy" and that ALP "is freely and voluntarily assuming the risks in connection with its purchase of the Policy," including the risk that "the insured may disappear or become untraceable." In the absence of an express term of the agreement, there is no implied covenant that applies during negotiations to a contract. (See, e.g., McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 799.)
At most, Steinmann alleges in his complaint that SGI's website currently states that "all of [SGI's] life settlement transactions undergo a rigorous compliance and anti-fraud process." He repeats this allegation on appeal, purportedly to show that SGI represented that it would complete a "rigorous compliance and anti-fraud process" on his behalf. As asserted on appeal, Steinmann argues that "SGI misrepresented the fact that Alhwity's policies underwent a rigorous anti-fraud process." Steinmann, however, provides no evidence that this statement was found on SGI's website at the time he decided to purchase the policies. An allegation in a complaint is not admissible evidence and cannot be considered as evidence in opposition to a motion for summary judgment. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 720, fn. 7; Salma v. Capon (2008) 161 Cal.App.4th 1275, 1289.) Moreover, even assuming the truth of this allegation, Steinmann does not suggest he knew of or relied on this alleged representation as part of the transaction.
There is also no legal basis on which to otherwise find such an affirmative duty. To find defendants owed no duty to Steinmann, the trial court relied upon Nymark v. Heart Federal Savings and Loan Association (1991) 231 Cal.App.3d 1089 (Nymark), which held that a financial institution owed no duty of care to a borrower in appraising the collateral property for its own risk assessment purposes. (Nymark, supra, at pp. 1095-1097.)
While we see no reason to question the holding of Nymark, we think a different case cited by defendants is more applicable to the relationship between the parties in this case. In Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226 (Apollo Capital), a private company hired defendant Roth, a licensed broker-dealer and investment banker to act as a "placement agent" for the sale of "bridge notes" to investors to raise money for the company. (Id. at pp. 234-235.) Roth assisted in preparing offering documents, intended to be distributed to potential investors for the purpose of assisting the investors in determining whether to invest in the bridge notes. (Id. at pp. 235-236.) After several investors purchased the bridge notes, the company defaulted on the notes and filed for bankruptcy, leading to the notes becoming essentially worthless. (Id. at p. 234.) The investors then sued Roth for, inter alia, fraud, negligent misrepresentation, violation of California securities fraud statutes, and breach of fiduciary duty. (Id. at pp. 234-235.) The investors alleged that Roth breached his fiduciary duty, in part, by failing "to do proper due diligence . . . resulting in the investors' purchase of worthless securities." (Id. at p. 244.)
On appeal from a judgment following an order sustaining Roth's demurrer, the Court of Appeal opined that Roth did not owe a fiduciary duty to the investors. (Apollo Capital, supra, 158 Cal.App.4th at p. 244.) While acknowledging the general rule that a stockbroker owes a fiduciary duty to his or her customer, the court noted that there was no allegation the investors were Roth's customers or had any preexisting relationship with Roth. (Id. at p. 245.) The court also held that the investors failed to show the existence of a confidential relationship arising under an alternative theory. As the court explained, " '[t]he key factor in the existence of a fiduciary relationship lies in control by a person over the property of another.' That factor is completely absent in the relationship between Roth and the investors. Moreover, '[t]he mere placing of a trust in another person does not create a fiduciary relationship.' [Citation.] As the court observed in Committee on Children's [Television, Inc. v. General Foods Corp. (1983)] 35 Cal.3d [197,] 221, 'before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.' The facts alleged in the complaint do not support either scenario." (Apollo Capital, supra, 158 Cal.App.4th at pp. 245-246.)
The relationships in Apollo Capital are strikingly similar to those in this lawsuit. SGI contracted with Alhwity for the purpose of finding a purchaser for her life insurance policy. At most, Alhwity was SGI's client, not Steinmann or his ostensible agent, ALP. As Steinmann admits in his own declaration, he had no preexisting relationship with SGI and was not even aware of SGI or Elhouty's roles in the transaction. SGI controlled no property of Steinmann and no evidence in the record suggests any attempt by SGI to undertake a heightened duty to act on behalf of Steinmann or to enter into any relationship beyond the arm's-length transaction at the center of this lawsuit.
In his claim for breach of fiduciary duty, Steinmann alleges SGI "failed to conduct adequate due diligence to uncover . . . material facts, including Defendant Alhwity's misrepresentations in her applications for the Policies." Steinmann offers no authority to support his allegation that a fiduciary relationship existed between him and SGI. The existence of such a relationship, however, is critical to his ability to state a cause of action based on a failure to investigate. Such a duty to take affirmative action on behalf of another arises in this context. (See., e.g., Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 414-415 [real estate broker owes a fiduciary duty to client to perform the necessary research and investigation to learn the material facts that may affect the principal's decision].)
Absent such a relationship, there is no other basis for a duty owed by SGI to Steinmann to take affirmative action to remove any particular risk from his investment decision. "As a rule, one has no duty to come to the aid of another. A person who has not created a peril is not liable in tort merely for failure to take affirmative action to assist or protect another unless there is some relationship between them which gives rise to a duty to act." (Williams v. State of California (1983) 34 Cal.3d 18, 23; see also Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1128-1129.)
Here, the undisputed facts do not support the existence of a fiduciary relationship between Steinmann and SGI sufficient to give rise to an affirmative duty to investigate. As discussed above, SGI never communicated with Steinmann in any manner, there was no contract between SGI and Steinmann, and the relationship between the two was nothing more than the typical relationship between a seller and a buyer in an arm's-length business transaction.
Steinmann also asks this court to recognize a duty owed to him by SGI by applying the factors found in Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja). In Biakanja, the court outlined the factors that should be considered to determine the existence of a legal duty in the absence of privity of contract between the plaintiff in defendant. As stated in Biakanja, "[t]he determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, 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, and the policy of preventing future harm." (Id. at p. 650.)
Steinmann offers no case law applying the Biakanja factors to a situation similar to the one presented in this case. Our own research finds no authority supporting the argument made by Steinmann, but rather cases applying the Biakanja factors to find no such affirmative duty in relationships that are far less tenuous than the relationship between Steinmann and SGI. For example, in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 (Bily), the Supreme Court applied the Biakanja factors to determine the extent of the duty owed by a certified public accountant in the preparation of an audit to persons other than the accountant's client. (Id. at pp. 375, 397-398.) Although the court found liability to exist when an accountant makes an intentional misrepresentation to a third-party non-client, and in some circumstances with a negligent misrepresentation, the court drew the line at mere negligence not involving any false statements.
The decision in Bily focused on many factors unique to accountants conducting an independent audit. Indeed, whether a duty is owed by a certified public accountant as part of a corporate audit to the general public is a much closer question than the one presented here. Nevertheless, the principles discussed apply broadly to this case, which similarly involves parties with considerable sophistication and ability to consider risk in making investments involving hundreds of thousands of dollars. As the court explained in Bily, a finding of foreseeability of injury under the Biakanja factors is not sufficient to establish a duty. (Bily, supra, 3 Cal.4th at pp. 398-399.) Rather, other concerns militate against a broad finding of liability. "As a matter of economic and social policy, third parties should be encouraged to rely on their own prudence, diligence, and contracting power, as well as other informational tools. This kind of self-reliance promotes sound investment and credit practices and discourages the careless use of monetary resources." (Id. at p. 403.)
The Bily court concluded that an auditor's liability for general negligence "is confined to the client, i.e., the person who contracts for or engages the audit services. Other persons may not recover on a pure negligence theory." (Bily, supra, 3 Cal.4th at p. 406.) Accepting the Supreme Court's holding that no duty arises in the situation presented in Bily, it necessarily follows that no duty arises here, where the arm's-length relationship between Steinmann and SGI is far more attenuated than the relationship analyzed in Bily.
Similarly, the Supreme Court in Goodman v. Kennedy (1976) 18 Cal.3d 335 (Goodman) applied Biakanja to reject the theory that an attorney owed a duty under the Biakanja factors to a plaintiff who purchased shares of stock from the attorney's client based on a theory that the attorney failed to properly advise the plaintiff. The court explained: "Plaintiffs' only relationship to the proposed transaction was that of parties with whom defendant's clients might negotiate a bargain at arm's length. Any buyers' 'potential advantage' from the possible purchase of the stock 'was only a collateral consideration of the transaction' (Biakanja v. Irving, supra, 49 Cal.2d at p. 650) and did not put such potential buyers into any relationship with defendant as 'intended beneficiaries' of his clients' anticipated sales [citation]." (Goodman, supra, at p. 344; see also Borisoff v. Taylor & Faust (2004) 33 Cal.4th 523, 529 ["an attorney will normally be held liable for malpractice only to the client with whom the attorney stands in privity of contract, and not to third parties"].)
Considered altogether, existing case law applied to the undisputed facts establishes that SGI owed no duty to Steinmann to conduct an investigation or otherwise perform "due diligence" to discover the truth of Alhwity's representations to the insurance company in obtaining the underlying policy. There was no special relationship, fiduciary or otherwise, between SGI and Steinmann that required SGI to protect Steinmann from the risk to his investment posed by facts unknown to both parties. Although liability may generally be imposed based on actual misrepresentations or the concealment of material facts even absent such a relationship, there are no triable issue of material fact regarding SGI's knowledge of any such facts, let alone actual misrepresentations. Accordingly, the trial court properly granted summary judgment on the causes of action premised on such a theory. d. Steinmann's seventh cause of action for violation of Corporations Code section 25110 is meritless
Steinmann's eighth cause of action alleges a violation of Business and Professions Code section 17200. As pled in the operative complaint, this cause of action is premised on the same conduct underlying the other causes of action and, therefore, fails for the same reasons. Moreover, as SGI and Elhouty point out, Business and Professions Code section 17200 does not apply to securities transactions. (Bowen v. Ziasun Technologies, Inc. (2004) 116 Cal.App.4th 777, 788-790.)
The only cause of action alleged in the complaint that does not involve fraud, negligence, or a breach of fiduciary duty is the seventh cause of action for violation of section 25110 of the Corporations Code, which states that it is "unlawful for any person to offer or sell in this state any security in an issuer transaction . . . whether or not by or through underwriters, unless such sale has been qualified under Section 25111, 25112 or 25113 . . . or unless such security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part."
All further references are to the Corporations Code.
Steinmann alleges the life settlement contracts were not qualified securities at the time they were offered for sale and purchased by him and the sale was not exempt or not subject to qualification. On appeal, Steinmann cites no authority in his opening brief to establish whether the policies are securities, and refers only to general case law in his reply brief regarding the test to determine whether a transaction involves a "security" for purposes of state law. For its part, SGI merely relies on the evidence that it had no contract with Steinmann and did not sell the life settlement contracts to him. In essence, defendants implicitly argue, without citation to any authority, that Steinmann lacks standing to assert this cause of action given the absence of contractual privity.
For some reason the parties do not discuss the statutory language directly applicable to this cause of action. Pursuant to section 25102, subdivision (q), any offer or sale of any viatical or life settlement contract is exempt from section 25110 if certain criteria are met. They similarly fail to address the presence or absence of those criteria on the facts of this case. As a result, we are unable to determine whether the specific transaction at issue here was exempt from qualification.
Regardless of whether the transaction was exempt, defendants are correct that this cause of action fails as a matter of law because they did not directly contract with Steinmann. Section 25503 permits a party to file a civil lawsuit based on an alleged violation of section 25510. By extension, sections 25504 and 25504.1 makes any person who controls a person liable under section 25503 or who materially assists in the sale similarly liable.
Section 25503, however, states that a person who violates section 25503 "shall be liable to any person acquiring from him the security sold in violation of such section." "The Legislature, in section 25503, by the words 'any person acquiring from him' has required privity, with some exceptions, as a condition of recovery." (Bowden v. Robinson (1977) 67 Cal.App.3d 705, 712.) Thus, liability for a violation of section 25110 requires privity between the alleged violator and the plaintiff. (Sherman v. Lloyd (1986) 181 Cal.App.3d 693, 703; see also Viterbi v. Wasserman (2011) 191 Cal.App.4th 927 [the only remedy available when plaintiff still owns the security is rescission, which requires privity between plaintiff and defendant].)
Here, Steinmann alleges that defendants violated section 25110 when they sold Alhwity's life settlement contracts, but there was no contract between Steinmann and SGI or Elhouty. Instead, Steinmann purchased the life settlement contracts from ALP. ALP, in turn, was in privity of contract with SGI. But ALP is not now a party to this lawsuit. Steinmann is pursuing this cause of action against the wrong party and, therefore, the trial court properly granted summary judgment in favor of defendants in this regard.
The trial court alternatively granted summary judgment on the ground that all the causes of action alleged a claim for damages that were entirely speculative. Given our affirmance of summary judgment for the reasons discussed in this opinion, we need not address the issue of Steinmann's claimed damages. --------
DISPOSITION
The judgment is affirmed. Respondents are entitled to recover their costs on appeal.
DATO, J. WE CONCUR:
BENKE, Acting P. J.
O'ROURKE, J.