B297364
Cal. Ct. App.Nov 17, 2020Background
- Harouche hired Sisca and The Wilshire Corp. (TWC) as project manager for a Malibu residence; TWC owed fiduciary duties to Harouche under a project management agreement.
- Unknown to Harouche, TWC and general contractor Finton/FCI made a side deal: a $235,000 ``referral fee'' from the initial payment and an undisclosed extra 1.5% (total 4%) of all payments to FCI.
- Sisca and Finton also conspired to inflate subcontract change-order invoices, submit the inflated amounts to Harouche, and split the excess profits. Harouche ultimately paid FCI about $13.67M (≈ $3.04M over the stipulated sum).
- Harouche sued Sisca/TWC and Finton/FCI; he settled with Finton/FCI for a stipulated $1.1M judgment and dismissal of FCI’s cross-complaint (which had sought ≈ $608,000).
- After a bench trial the court found Sisca/TWC liable for breach of fiduciary duty and fraud and awarded damages totaling $1,980,837.72 (later reduced by $18,000 payment). Trial damages comprised: $235,000 (referral fee), $205,011.46 (1.5% kickback on payments), and $1,540,826.26 (fraudulent change orders).
- On appeal defendants did not contest liability but challenged (1) the change-order damages calculation, (2) the trial court’s refusal to allow them to keep the $235,000 as a “special circumstances” exception, and (3) their entitlement to a $608,000 offset under Code Civ. Proc. § 877 for FCI’s released cross-complaint. The Court of Appeal modified damages, remanded on the offset issue, and ordered recalculation of prejudgment interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper measure of damages for fraudulent change orders | Harouche: damages equal to the inflated portion of the nine forged subcontracts (difference between original and altered subcontracts), supporting the trial award. | Sisca/TWC: trial court miscalculated and awarded entire altered subcontract amounts; actual recoverable fraud markup is smaller. | Court: trial court erred; evidence supports only $362,982.26 total (differences for 8 subs = $250,324; Solar = $112,658.26). Judgment modified accordingly. |
| Whether Sisca/TWC can keep the $235,000 “referral fee” under a "special circumstances" exception | Harouche: fee was an undisclosed secret profit of an agent and belongs to principal; recoverable. | Sisca/TWC: alleged special circumstances (compensation for prior unpaid work) permit retention. | Court: Savage principle applies; no special circumstances shown. Award of $235,000 to Harouche affirmed. |
| Whether Sisca/TWC are entitled to a §877 offset for FCI’s settlement value, including the released $608,000 cross-complaint | Harouche: settlement value is the consideration actually paid/valued and court approved $1.1M settlement — offset should reflect fair value. | Sisca/TWC: settlement effectively conferred an additional $608,000 benefit (release of FCI’s cross-complaint) and that amount should be included in the offset against their liability. | Court: trial court made no express ruling on the $608,000 component; equitable §877 valuation required. Remanded for express findings on whether and how much offset is appropriate. |
| Effect on prejudgment interest after damages modification | Harouche: prejudgment interest should be calculated on the full final award. | Sisca/TWC: prejudgment interest must be recalculated if damages are reduced. | Court: prejudgment interest must be recalculated to reflect modified damages award ($802,993.72 before any §877 offset); remand for recalculation. |
Key Cases Cited
- Thompson v. Asimos, 6 Cal.App.5th 970 (describing substantial-evidence review of bench-trial findings)
- Savage v. Mayer, 33 Cal.2d 548 (agent may not retain secret profits; principal entitled to recovery absent special circumstances)
- Franklin Mint Co. v. Superior Court, 130 Cal.App.4th 1550 (valuation principles and evidentiary showing required for §877 settlement credit)
- Abbot Ford, Inc. v. Superior Court, 43 Cal.3d 858 (equitable goals and considerations in evaluating good-faith settlements and offsets)
- Behr v. Redmond, 193 Cal.App.4th 517 (reduce judgment to amount supported by evidence when some alleged damages lack proof)
- Bardis v. Oates, 119 Cal.App.4th 1 (court may disallow fiduciary’s self‑interested explanations; background on remedies for fiduciary misconduct)
- Conrad v. Ball Corp., 24 Cal.App.4th 439 (burden on defendant to prove entitlement to an offset)
- Wallis v. PHL Associates, Inc., 220 Cal.App.4th 814 (remand for recalculation of prejudgment interest when judgment is modified)