Opinion
B161022.
11-25-2003
DEOK RYE YOON, Plaintiff and Respondent, v. YORAM STERN et al., Defendants and Appellants.
William F. Raff for Defendants and Appellants. Natasha Roit for Plaintiff and Respondent.
The trial court determined after a bench trial that defendants, Ahron Zilberstein of North East Funding and Yoram Stern of Silver Star Realty, Inc. (Silverstar), while negotiating a short payoff on a commercial mortgage for plaintiff, Deok Yoon, conspired to conceal material facts, defraud her, convert her funds and commit usury. Defendants conspired to steal money from Yoon by telling her the bank had accepted $ 660,000 as a payoff when, in fact, it had accepted $500,000. Defendants accomplished this fraud, in part, by hiding from Yoon a payoff document and forging her name on it. To accomplish the payoff and take for themselves $135,000, defendants also lent Yoon money at a usurious rate of interest, calling it a fee (i.e., "points" charged) for the loan.
Defendants contends there is: (1) no evidence Yoon suffered any harm or damages because the payoff of her loan benefited her by eliminating a larger loan obligation; (2) no substantial evidence that the fee paid by Yoon was for the loan of money and thus usurious; (3) no justification for the award of 25 percent interest; (4) no substantial evidence that Stern individually participated in the conspiracy with the other defendants; and (5) no substantial evidence that Stern breached any agreement with Yoon regarding the short payoff of the loan. We find the contentions unavailing and affirm.
FACTUAL AND PROCEDURAL SUMMARY
Yoon owned a 24-unit apartment house in Los Angeles. In late 1997, due to real estate market conditions, the apartment house did not generate enough income to make the monthly payments on the first trust deed loan, and the approximately $1 million loan on the property exceeded its market value. Yoon went into default on the first trust deed loan.
Yoon was advised by an acquaintance to contact Zilberstein for assistance. Yoon, a Korean immigrant who does not speak fluent English, had her daughter, Seon Lecher, contact Zilberstein. Lecher, a supervisor in the Los Angeles District Attorneys Office, lived in one of the apartments in the building owned by Yoon. Lecher sometimes acted as a translator for Yoon in business affairs. When Lecher telephoned Zilberstein, Stern answered and told Lecher to come to his office and he could assist her. Stern owned Silverstar, and it was the corporation through which Stern conducted his real estate brokerage business.
When Stern and Lecher met, he boasted to her that he had successfully negotiated "short sales, short payoffs." Stern also stated that he would charge "five, six percent, like any other broker would charge." Lecher only met with Stern on that one occasion, and Yoon never met Stern. Stern started working on a short sale, which is the sale of property for less than the amount of the first trust deed loan. This type of sale is made when the holder of the first trust deed loan agrees to a payoff of less than the full amount owed.
Lecher later indicated in a telephone conversation that Yoon wanted to keep the property, and thus sought a short payoff rather than a short sale. In a short payoff, the property is not sold, but the lender consents to a payoff of the loan for less than the full amount due on the loan. According to Stern, he stopped any further work on the short sale and referred Lecher to Zilberstein of North East Funding, who did short payoffs rather than short sales.
Zilberstein proceeded to negotiate with the holder of the first trust deed and arranged for a short payoff at $500,000. However, Zilberstein told Lecher that the payoff amount was $ 660,000, rather than the true amount of $500,000. And Stern told Lecher that the $660,000, which included his brokers fee, had to be paid within three days. When Lecher indicated that Yoon did not have that amount of cash, Stern told her that he had "friends and investors" who could fund the money at a "large" interest rate and referred her to Zilberstein. Lecher called Zilberstein, who agreed to help her get the money in a couple of days.
Stern suggested that Lecher and Yoon meet him at an escrow office, where he would have the necessary documents and the promissory note to sign. Zilberstein, however, was at that meeting instead of Stern. Zilberstein introduced himself as Sterns friend and business associate and stated he was there to bring the necessary documents for Yoons signature. Neither Zilberstein nor anyone else ever explained to Lecher that there was a $160,000 fee for the transaction. Stern had told her that his 5 percent commission was included in the $660,000, and that the bank would pay it to him. Zilbersteins company, North East Funding, then proceeded to lend Yoon the money necessary to pay off the bank and to close the short payoff of the loan.
Meanwhile, the correct payoff amount was reflected in a mutual release with retained rights document, which was signed with Yoons name but was not signed by Yoon. In the expert opinion of a qualified documents examiner, Yoons signature was more likely than not forged by Zilberstein. This forgery concealed from Yoon the fact that the bank accepted a payoff that was substantially less than the amount Zilberstein had represented to her, so that he could keep the difference between Yoons payment and the payment to the bank.
In effect, North East Funding charged Yoon $160,000, which it characterized as a bonus or commission, for making this loan. Yoon was also charged 13 percent interest on the full sum of $660,000, bringing the total interest charged to Yoon for the $500,000 to approximately 45 percent (determined by adding 32 percent, which is the percentage represented by $ 160,000 charged on $500,000, to the 13 percent interest on the full $660,000). Yoon thus replaced a $1,000,000 loan obligation with a $660,000 loan obligation, and North East Funding paid out $500,000 and collected $160,000 plus interest on the $660,000 at 13 percent.
Yoon made three payments on the note of interest only, each payment in the amount of approximately $7,100, until she refinanced the debt and paid the balance off in full with a check from Southland Title Company in the amount of approximately $666,000. Subsequently, Yoon received a 1099-C form from the bank, reflecting the amount cancelled as $498,000, thus revealing that the sum accepted by the bank as a payoff was $500,000, not $660,000 as represented by Stern and Zilberstein. When Lecher confronted Stern about the discrepancy revealed by the 1099-C form, Stern told her that North East Funding had charged not just 13 percent interest but 20 points for lending the money. Further calls from Lecher to Stern and Zilberstein went unanswered.
Yoon sued Stern and Zilberstein and their companies for conversion, breach of contract, fraud, usury, conspiracy and breach of fiduciary duty. Regarding the usury cause of action, the trial court granted summary adjudication in favor of Yoon. It found the transaction usurious as a matter of law, that there were no triable issues of fact as to the three payments made by Yoon on the 13 percent interest (i.e., the approximately $21,300 in interest paid), and that North East Funding was liable to Yoon for such sum "as a minimum," with the issues of treble damages and Zilbersteins personal liability reserved for trial.
At trial, Yoon established that Stern and Zilberstein had during their depositions denied doing business with each other, denied involvement in each others companies, and claimed to be only casual acquaintances. And Zilberstein could not recall who received the disbursement of the stolen $135,000. However, Yoon obtained documentation indicating that Zilberstein had incorporated Sterns company, that Stern had signed checks on Zilbersteins business accounts, and that Stern had been involved in a prior real estate transaction with Zilberstein. Stern also had a prior business loan with Zilbersteins wife and occasionally acted as a broker representing Zilbersteins wife. And on the day Yoons loan payoff cleared the bank, a check was written from Zilbersteins account to Sterns wife and then deposited into an account with her and her father.
Yoon sought to establish Sterns contractual right to financial gain from the short payoff by the terms of the exclusive authorization agreement between Stern and Yoon. Pursuant to the terms of their agreement, Stern was entitled to a commission of 5 percent of the listing price (or if a sales contract was entered into, 5 percent of the sales price), even if the property was withdrawn from sale without Sterns consent. Moreover, pursuant to the terms of a consultant-client agreement for arranging a short payoff, Stern and Silverstar (dba Carmel Financial Services) would receive a fee of 5 percent for consulting services in connection with a short payoff.
Stern faxed to Lecher both the exclusive authorization agreement and the consultant-client agreement. Stern asserted to Lecher that the two documents were essentially the same thing and that he would represent Yoon as her broker. Lecher signed on Yoons behalf the exclusive authorization agreement, but not the consultant-client agreement, and faxed the documents back to Stern, who signed them both.
The trial court made no specific finding that Stern or Silverstar received any of the $660,000, which was paid to North East Funding. However, the trial court found, in pertinent part, the following: Each of the defendants, including Stern, had entered into a civil conspiracy to commit the acts alleged and were therefore liable for each others actions. For example, they conspired to convert from Yoon $135,000, an amount representing the difference between what was taken from Yoon and the 5 percent she agreed to pay. The court also found that Stern had breached an oral contract with Yoon to charge her only 5 percent, and that each defendant, including Stern individually, had conspired to defraud Yoon by both concealment and intentional misrepresentations.
Regarding the cause of action for usury, the court found that the charge of $135,000 was usurious as a "bonus, commission, discount or other compensation" in excess of authorized interest (Cal. Const., art. XV, § 1), and that Zilbersteins testimony that he had performed services for this money was not credible. Also, although the loan was technically with North East Funding, Zilberstein and Stern participated "directly or indirectly" (Civ. Code, § 1916-2) in this transaction and were personally subject to the usury provisions subjecting them to liability for treble the amount of the usurious money paid by Yoon. (Civ. Code, § 1916-3, subd. (a).) Finally, the court found that Stern, who had been hired in his capacity as real estate broker, had a special relationship with Yoon and had breached his fiduciary duty to her.
In its written judgment after trial, the court awarded damages against each of the defendants in the total sum of $135,000, plus interest. The court specified that the interest is "to be computed at two and a half times the rate, which is 25 percent, to run from the date the loan was paid off" to North East Funding (September 16, 1998) until it is paid in full.
DISCUSSION
I. Yoon did suffer harm or damages.
Defendants assert that Yoon suffered no harm or damages from any of their acts and therefore is not entitled to recover any money. According to defendants, since Yoon was able to rid herself of a loan obligation of approximately $1 million by the payment of $660,000, she received a benefit of over $ 300,000, was better off than she would have been had she not dealt with defendants, and thus suffered no harm or damages as a result of the actions of the defendants. This contention is totally without merit.
Although, in essence, Yoon was defrauded by people who helped her, she was nonetheless defrauded. Admittedly, Yoon was better off financially than if she had not dealt with anyone and not obtained a short payoff. However, she was not better off than if she had dealt with honest people, rather than with defendants. As Yoon aptly notes by way of analogy to underscore the absurdity of defendants defense: it is as if an attorney were to receive a beneficial settlement for his client, clandestinely kept more of the settlement as his fee than he was entitled to under the retainer agreement, and then claimed his client was not damaged because there was still a beneficial settlement for the client. Surely, the attorneys client suffered monetary damages, and so, too, did Yoon in the present case.
Absent the defendants breach of contract, fraud, usury, conspiracy and breach of fiduciary duty, Yoon would have benefited from the financial arrangement to a greater extent and to the degree to which she was entitled. She thus suffered monetary damages and satisfied the requisite element of injury for the causes of action alleged.
II. Substantial evidence supports the finding that the $160,000 charged was usurious.
With certain exceptions inapplicable here, interest on a loan which exceeds 12 percent is usurious. (Civ. Code, § 1916-2.) In addition, "No person, company, association or corporation shall directly or indirectly take or receive in money, goods or things in action, or in any manner whatsoever, any greater sum or any greater value for the loan" than legally permissible, and any agreement violating this provision is "null and void." (Ibid., italics added.) The victim of a usurious loan may recover from the lending company "or its personal representative, treble the amount of the money so paid." (Civ. Code, § 1916-3, subd. (a).) And, as provided for in the California Constitution, no person or entity "shall by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than the interest authorized by this section upon any loan . . . ." (Cal. Const., art. XV, § 1, subd. (2).)
In determining whether a particular transaction is usurious, courts look to its substance rather than to its form. "The key question is whether the transaction has as its true purpose the hire of money at an excessive interest rate." (Sheehy v. Franchise Tax Bd. (2000) 84 Cal.App.4th 280, 282-283.) The trial court here made a factual finding that the extra $ 135,000 taken from Yoon (the difference between the $160,000 bonus or commission and the 5 percent Yoon agreed to pay), apart from constituting converted funds, constituted an excessive and prohibited "fee, bonus, commission" or "other compensation" (Cal. Const., art. XV, § 1, subd. (2)) received by defendants for making the loan.
On appeal, defendants concede that the loan itself, which provided for 13 percent interest, was usurious. Nonetheless, they contend that there was insufficient substantial evidence to support the finding that the $135,000 fee was usurious. Rather, defendants assert the court should have found the fee was a permissible fee constituting "compensation" for Zilbersteins services in negotiating the short payoff of Yoons loan.
Apart from the fact that there was no evidence of time sheets or other indicia of $135,000 worth of negotiating work so as to justify such a fee for services, the evidence and reasonable inferences therefrom support the conclusion that the amount constituted a usurious fee or commission. Defendants admitted during their depositions that North East Funding "make[s] loans for people," and that the extra funds in question were taken for making the loan and "risk[ing] the money."
Defendants efforts to explain away these admissions are unavailing. Zilberstein attempted to explain at trial that what he meant by risking the money was that North East Funding, in addition to arranging the short payoff, also risked its own money because it had to put up the money to accomplish the short payoff before it could obtain a deed of trust lien on the property and title insurance on the deed of trust assuring a good first lien on the property. However, lending money always entails some degree of risk. There is no authority for the notion that a greater risk can somehow justify usury.
Moreover, although defendants urge otherwise, the trial court did not specifically find "all" of their testimony not credible. Rather, the court found their testimony not credible as it was "undermined" by other witnesses or documentary evidence. The trier of fact may accept part of the testimony of a witness and reject other parts of the same witnesss testimony. (See People v. Williams (1992) 4 Cal.4th 354, 364; Stevens v. Parke, Davis & Co. (1973) 9 Cal.3d 51, 67-68.) Thus, although defendants complain that Yoon focuses only on certain out-of-context statements by Zilberstein, the trial court as the trier of fact was entitled to believe Zilbersteins deposition remarks and to disregard his self-serving explanations at trial.
Zilberstein also urges that the $160,000 was a fee earned at the time the short payoff of the loan was negotiated, and that it was only thereafter that the loan transaction took place. According to defendants, since the fee was earned before the loan was made, the fee should not be considered a part of the loan transaction.
However, "`[I]n determining whether or not the transaction is usurious the court "will disregard its form and look to the substance, and will condemn it if all of the requisites of usury are found to be present, despite any disguise it may wear." [Citations.] [¶] . . . "As a general rule, any benefit or advantage exacted by the lender from the borrower, whatever be its name or form [e.g., a commission], which, added to the interest taken or reserved, would yield to the lender a greater profit upon his loan than is allowed by law is deemed usury." (Haines v. Commercial Mortgage Co. (1927) 200 Cal. 609, 616-617.) In the present case, just because the form of the transaction was such that Zilberstein purportedly earned some of the money in advance of other money does not make the initial amount any less usurious. Defendants cite no law for the proposition that such timing can conveniently nullify what otherwise constitutes impermissible usury.
Accordingly, substantial evidence supports the finding that the $160,000 was not a permissible fee for services, but rather was usurious interest.
III. The award of 25 percent in interest is appropriate.
Contrary to defendants contention, there was a proper legal basis for the trial courts award of interest on the judgment at the rate of 25 percent per annum. In addition to the trial courts awarding damages against each defendant in the total amount of $135,000, plus interest, it specified that: "Interest to be computed at two and a half times the rate, which is 25 percent, to run from the date the loan was paid off to [North East Funding], to wit, September 16, 1998, until paid in full." As the trial court explained in its statement of decision, it had authority to treble damages (Civ. Code, § 1916-3, subd. (a)) and found that "the appropriate way to address these additional damages in this case is to award prejudgment and post-judgment interest at the rate which is 2 1/2 times the legal rate, i.e. 25% (twenty five percent) from the date the payment was made to Defendants . . . until the judgment is paid."
It is thus apparent that the court awarded pre- and post-judgment interest of 10 percent per annum, as authorized by statute (Civ. Code, § 3287, subd. (a)), and added 15 percent to that interest in the exercise of its discretion with respect to the treble damages. To the extent defendants insist on treble damages, rather than merely the additional 15 percent imposed, the damages would amount to over $400,000, which would be significantly higher than 15 percent on $135,000.
Accordingly, the trial court did not abuse its broad discretion in awarding such additional damages.
IV. Substantial evidence supports the finding that Stern individually participated in the conspiracy.
"The formation and existence of a conspiracy may be inferred from all the circumstances tending to show the common intent and may be proved in the same way as any other fact may be proved, either by direct testimony of the fact or by circumstantial evidence . . . . It is not necessary to show a meeting of the alleged conspirators or the making of an express or formal agreement." (BAJI No. 13.87.) "As long as two or more persons agree to perform a wrongful act, the law places civil liability for the resulting damage on all of them, regardless of whether they actually commit the tort themselves. . . . [¶] [T]he requisite concurrence and knowledge may be inferred from the nature of the acts done, the relation of the parties, the interests of the alleged conspirators, and other circumstances. Tacit consent as well as express approval will suffice to hold a person liable as a coconspirator." (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784-785, internal citations and quotation marks omitted.)
Although directors and officers of a corporation are not personally liable for its torts merely because of their official positions, they may become liable if they "participate in the wrong or authorize or direct that it be done." (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595.) "Personal liability, if otherwise justified, may rest upon a `conspiracy among the officers and directors to injure third parties through the corporation." (Wyatt v. Union Mortgage Co., supra, 24 Cal.3d at p. 785.)
Here, contrary to defendants contention, substantial evidence supports the conclusion that Stern individually and not just as an officer of Silverstar participated in the conspiracy with Zilberstein and their two companies, North East Funding and Silverstar. The evidence established that Stern was essentially in charge of his own "tightly knit" business operation under his "close person control." (Wyatt v. Union Mortgage Co., supra, 24 Cal.3d at p. 785.) Stern also directly ordered, authorized or participated in tortious conduct and thus became individually liable. (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595.)
For example, Stern worked closely with Zilberstein to defraud Yoon, as indicated by the fact that Yoon did not even meet Zilberstein until after the fraud was perpetrated and she attended a meeting where the prepared documents were to be signed. Significantly, Stern himself made intentional misrepresentations to Yoon, fraudulently asserting that the bank had agreed to settle for $660,000. Substantial evidence thus supported the trial courts conclusion that Stern personally was liable for his conspiratorial conduct.
V. Substantial evidence supports the finding that Stern breached the agreement with Yoon regarding the short payoff of the loan.
The trial court found that "Stern dba [Silverstar] Realty broke an oral contract to represent [Yoon] for a 5% fee in negotiating a short payoff of the subject loan, thus also breaching a fiduciary duty to [Yoon]." According to Stern, there is no evidence he personally breached any agreement with Yoon because there is no evidence that he personally had any agreement with Yoon.
The evidence at trial established, in pertinent part, that Stern represented Yoon as a real estate broker and personally promised in a conversation that he would only charge a 5 percent commission. Since there was also abundant uncontested evidence that Stern did not maintain corporate formalities, could not produce the corporate book, and hid his financial records, there was adequate justification for the court to find that Stern, as the sole owner and operator of his business, could not hide behind the corporate name and avoid personal responsibility. (See Wyatt v. Union Mortgage Co., supra, 24 Cal.3d at p. 785.)
In any event, as discussed above, Stern is personally liable as a coconspirator. The defendants do not challenge the judgment against the remaining parties for breach of contract, and Sterns personal liability for the contract cause of action is established under the theory of civil conspiracy with the other defendants.
DISPOSITION
The judgment is affirmed.
We concur: DOI TODD, J. and ASHMANN-GERST, J.