Opinion
A128694
12-08-2011
VIP EXPRESS TRANSPORT INC., Plaintiff and Appellant, v. H & L PROPERTIES et al., 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Alameda County
Super. Ct. No. RG08363919)
Lessee VIP Express Transport (VIP) appeals from a judgment for defendants H & L Properties et al. after a court trial on causes of action for breach of contract, wrongful eviction, and abuse of process arising from their lessor-lessee relationship. Lessor is a family trust, and the appeal is based primarily on a trust law argument that was not raised in the trial court and is untenable in any event. No meritorious ground for reversal is presented, and we affirm the judgment.
I. BACKGROUND
VIP, a company that transports low-income people for nonemergency medical treatment, leased property in Oakland owned by the Gallagher Family Living Trust (Trust). The Trust was formed by Leonard Gallagher (Leonard) and his wife, defendant Helen Gallagher (Helen), and did business as "H & L Properties." VIP's premises at 4621 Foothill Boulevard were part of a larger complex owned by the Trust, comprising three commercial properties, six apartments, and a residence rented to Tish Magini. The commercial premises were rented to VIP, an auto body shop, and an auto repair shop operated by Magini's ex-son-in-law. VIP's President, Mishun Abrams, testified that the property was ideal for VIP. The rent was reasonable, VIP's vans could be parked, cleaned, and repaired on site, and the apartments could be rented to the vans' drivers.
Magini had known Leonard since 1995 or 1996, and was trusted by Leonard, Helen, and their daughter, defendant Sharon Gallagher. Magini testified that she was a consultant to VIP, but she appeared to be the company's principal manager. Abrams had served as VIP's president since 2002, but testified that in 2007, when the events that precipitated this lawsuit transpired, Magini was still "teaching [her] everything" about VIP's business. Abrams also testified that VIP owed Magini over $200,000 for loans Magini made to the company and credit card charges she incurred for the company's benefit.
VIP rented the premises pursuant to a lease executed by Magini, on behalf of VIP, and Leonard, on behalf of H & L Properties, for a term from July 15, 2003 to July 31, 2008, with monthly rent of $1022. The lease provided for annual adjustment of the rent based on the "Bay area consumer price index," and for the tenant's payment of 50 percent of any property tax increase for the premises. Leonard managed the property until he became seriously ill at age 91 in October 2006. Sharon testified that she kept the lease forms Leonard used on her computer. She printed them as needed and he filled in the blanks.
When Leonard became ill, the Gallaghers asked Magini, and Magini agreed, to manage the property. Sharon prepared a letter to tenants dated October 11, 2006 advising them of Magini's status as property manager. In November 2006, Leonard and Helen executed powers of attorney prepared by Magini giving Magini and Sharon full authority "[t]o manage all commercial and residential rental properties."
At the time, five of the six apartments at the property were vacant and in a state of disrepair. Sharon and Magini worked together to accomplish the repairs, and Magini found tenants, all VIP employees, for the vacant apartments after the repairs were completed. VIP effectively guaranteed its employees' rental payments, and Sharon acknowledged that Magini found good tenants for the apartments.
Magini testified that Sharon, who had taken a real estate course "years ago," wanted long-term leases for all of the tenants. Magini prepared the leases by retyping the lease forms she received from Sharon.
Abrams on behalf of VIP, and Sharon on behalf of "H & L Fund Trust," signed a new lease for VIP's premises for an additional $100 monthly rent and a term from June 15, 2006 to May 31, 2016. The signatures are dated June 15, 2006, but Magini testified that Sharon signed the lease sometime between October 2006 and February 2007, and that she did not know why the signatures were dated June 15. Sharon could not remember when she signed the lease, and likely did not read it. She said that she signed the last pages of leases because that was all that Magini sent to her by facsimile. She trusted Magini and did not think that Magini would change the lease forms. Sharon said when she visited the property from her home in Sacramento, "they would shove documents in front of me to sign." She had the following exchange with VIP's counsel: "[Q.] And you signed all those leases with all those tenants, didn't you? [A.] I suppose I did. I was coming down and buying stuff to fix up the apartments so that they would be rentable and I just you know, signed everything that was put in front of me because it was my job. [Q.] Without reading it? [A.] Yeah, neither does [C]ongress. I trusted her."
Much of the 2006 lease was the same as the 2003 lease, including erroneous headings such as "Ordinances and statuettes [sic]" and "Airs [sic],Assigns, Successors." However, the provisions for escalated rent in the event of property tax or cost of living increases were deleted, and a paragraph entitled "Renter's Option" was added. It provided: "In the event the property safety issues or accommodations no longer are sufficient, the renter can issue a notice of 120 days and vacate the premises without penalty."
Magini said that she deleted the tax and cost of living provisions because Leonard never enforced them. She "showed everything" to Sharon, and Sharon "read everything." Sharon "should have told [her]" if she wanted those provisions to be retained. Sharon testified that Leonard was emphatic about including tax and cost of living adjustments in his commercial leases. "[T]hat's the one thing my father always hounded me about," she said, "no matter what, that is what you always put in." She discovered the omissions after she hired real estate broker William Karr to sell the property in February 2007. When Karr saw the leases and told her he was "not going to handle that property . . . that's a barrel of worms," she "went ballistic."
Karr testified that the lease terms were abnormally long—ten years for the businesses, three years for the apartments. Sharon told him that she had been taught to obtain long-term leases, and did not mention to him that cost of living adjustments were necessary.
In June 2007, Helen resigned as a trustee and appointed Sharon in her place. At the time, Sharon was distraught over Leonard's health, and her daughter, Lisa Harder, offered to take over managing the property. In August 2007, Leonard died, and the Trust entered into a property management agreement with Harder. Harder had worked in the film industry, and had no formal training or experience in property management. She conceded at trial that she was "not really a property manager," and said that she was just trying to assist her family when she agreed to help with the property.
Harder consulted her attorney, Carl Allen, about the property's leases. She was concerned about the June 2006 lease with VIP because it incorrectly identified the H & L Fund Trust as the lessor, and it was signed for the lessor by Sharon as of a date when she had no authority to do so. Harder testified that she decided, in consultation with Allen, to cancel the June 2006 lease, which she understood to be invalid. Allen did not recall telling Harder that the lease was invalid, but recommended a new lease that correctly identified the lessor. Harder testified that she "wanted to make sure [the leases were] good, solid" and "legal," "so that if the property would be sold, the tenants would be protected."
Harder filled in the blanks of a lease form prepared by Allen, and presented Magini with a new lease for VIP in the first week of August 2007. The lease did not provide for tax or cost of living increases, but the term was shortened to run from June 1, 2007, to July 1, 2010, and she had deleted the option to vacate that had been inserted in the prior lease. When Magini refused to sign the new lease, Harder had Allen prepare and execute on behalf of the Trust a 30-day notice to quit, dated October 1, 2007, advising VIP that its tenancy was terminated. Harder brought a second proposed new lease to Magini, with slightly different terms. When Magini refused to sign it, Harder served her with the 30-day notice.
In a declaration admitted as evidence at trial, Harder stated that she was unaware of VIP's July 2003 lease when she served the 30-day notice. Had she known of the earlier lease with the "effective dates of 2003-2008," she would have told VIP that it was the operative lease.
VIP moved out of the Foothill Boulevard premises by December 1, 2007 and rented new premises in Oakland for $3,500 per month. The June 2006 lease had eight and a half years left to run. VIP's accountant calculated that, including the increased rent, the defendants' alleged breach of the June 2006 lease cost VIP $485,427.89.
In its statement of decision, the trial court found that Magini had a conflict of interest when she prepared the June 2006 lease. She displayed a "first loyalty" to VIP, and breached her fiduciary duty to the Trust by drafting terms that were "awful" from the Trust's standpoint. The unfavorable provisions included the ten-year term without cost of living increases, and the renter's option to vacate, which was "so vague that VIP could terminate the rental agreement at any time for almost any given reason." The court found that Sharon was also at fault because she did not read the lease before signing it. The court ruled for defendants because, on balance, Magini was more culpable than Sharon. The court wrote: "Failure to carefully read a contract is negligent. In comparison, breach of fiduciary duty is a wrongful act. [¶] VIP is not entitled to any damages from the trust."
II. DISCUSSION
VIP contends that the trial court identified no valid grounds for the Trust's rescission of the June 2006 lease. However, Magini's breach of her fiduciary duty to act in the Trust's best interest was sufficient. "[O]ne who signs a contract without reading it cannot escape liability in the absence of fraud, mistake, undue influence, or duress." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 301, p. 327.) Undue influence includes " 'the use, by one in whom a confidence is reposed by another . . . of such confidence . . . for the purpose of obtaining an unfair advantage over him.' " (Id. at § 316, p. 343, quoting Civ. Code, § 1575, subd. (1) [italics omitted].) A contract giving a fiduciary, such as an agent, an advantage over the principal is presumptively invalid, and is subject to rescission unless the principal agreed to it " 'freely and voluntarily, and with full knowledge of all the facts . . . .' " (Id. at §§ 317-319, pp. 344-346.) Substantial evidence supported findings here that the lease Magini drafted was advantageous to VIP and unduly burdensome on the Trust, and that Sharon was unaware of the provisions detrimental to the Trust when she signed it. Grounds for rescission were thereby shown.
VIP's main argument on appeal is that Leonard and Helen, as trustees, could not lawfully delegate property management duties to Magini, and thus that no fiduciary relationship arose between Magini and the Trust. This argument is based on Probate Code section 16012, which provides: "(a) The trustee has a duty not to delegate to others the performance of acts that the trustee can reasonably be required personally to perform and may not transfer the office of trustee to another person nor delegate the entire administration of the trust to a cotrustee or other person. (b) In a case where a trustee has properly delegated a matter to an agent, cotrustee, or other person, the trustee has a duty to exercise general supervision over the person performing the delegated matter. (c) This section does not apply to investment and management functions under section 16052."
Subsequent statutory references are to the Probate Code.
Section 16052 states in relevant part: "(a) A trustee may delegate investment and management functions as prudent under the circumstances. The trustee shall exercise prudence in the following: (1) Selecting an agent. (2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust. (3) Periodically reviewing the agent's overall performance and compliance with the terms of the delegation. (b) In performing a delegated function, an agent has a duty to exercise reasonable care to comply with the terms of the delegation."
VIP submits that Leonard and Helen violated these statutes by delegating authority to manage their rental properties to "inexperienced individuals, one of whom [Magini] testified that she had no real estate experience and the other [Sharon] went around signing anything that was put in front her, including important legal documents, without first reading them." However, VIP did not raise this argument below. In fact, its argument was to the contrary. While VIP now describes Magini as "incompetent," it noted in argument to the trial court that Magini found tenants for the vacant apartments, and was thus "able with the trust of the Gallagher[s] to make trust property productive which is what a trustee is supposed to do."
VIP contends that the "the trial court failed to determine the character of the trust's appointment of Magini as the trust['s] so called fiduciary and whether the trust employed her under [section] 16012 or authorized her under [section] 16052." But VIP did not cite those statutes below, and cannot properly rely on them for the first time on appeal. (See, e.g. Hepner v. Franchise Tax Bd. (1997) 52 Cal.App.4th 1475, 1486 [points not raised in trial court generally not considered on appeal].) VIP observes that attorney Allen's testimony touched on the subject of a trustee's ability to delegate management functions. Allen opined that a trustee can hire a manger for trust property. He questioned "whether the person acting as a trustee can in fact then appoint someone else under a power of attorney to act for them," but had not researched the point. This testimony did not preserve issues under sections 16012 or 16052 for appellate review.
We are not persuaded by VIP's argument under these statutes in any event. Section 16012, subdivision (c) permits a trustee to delegate management responsibilities. The issue under section 16052 is whether it was reasonably prudent for Leonard and Helen to select Magini as their agent. Magini appeared in several respects to be an ideal manager for the property. She lived there, supervised a company that could furnish a majority of the tenants, and was well known to, and trusted by, the trustees. Appointing her to manage the property was not imprudent as a matter of law. VIP contends that the trustees failed to adequately supervise Magini, but section 16052, subdivision (a)(3) requires only "[p]eroidic[]" review of the agent's "overall" performance, not review of individual transactions such as the lease in question. Under the principles of agency law cited above, the trustees had a right to rely on Magini not to draft a one-sided contract between her company and the Trust.
VIP contends that the Trust could not properly do business as "H & L Properties," but does not explain why its use of a fictitious business name would be cause to reverse the judgment.
VIP also argues that Helen and Sharon can be held personally liable for damages caused by the Trust, but has not established that the court erred when it concluded that VIP was not entitled to any recovery from the Trust.
III. CONCLUSION
The judgment is affirmed.
Siggins, J.
We concur:
McGuiness, P.J.
Jenkins, J.