Hasso v. Hapke
227 Cal. App. 4th 107
Cal. Ct. App.2014Background
- In 2007 the initial trustee (Colson) invested $3 million from each of two family trusts into Rockwater American Municipal Fund (RAM Fund); Rockwater Municipal Advisors, LLC (RMA) managed the Fund; John Hapke and Bryan Williams were key RMA officers.
- In Nov. 2007 Charles Fish Investments, Inc. (CFI) contributed assets to RMA in exchange for a 15% RMA interest and an option to unwind the deal if benchmarks were unmet; an unwind occurred in 2009 returning CFI’s contributed assets.
- The RAM Fund suffered catastrophic losses in 2008; successor trustee Hasso sued RMA, the RAM Fund, Williams, Hapke, CFI and Fish for fraud, negligent misrepresentation, breach of fiduciary duty, professional negligence, and actual/constructive fraudulent transfer.
- At trial the jury found RMA, Williams, and Hapke liable on multiple counts and awarded $4,640,380; CFI and Fish were found not liable. Post-trial motions produced partial new-trial rulings on damages; appeals and cross-appeals followed and were consolidated.
- The Court of Appeal (Division Three) reversed fraud, concealment, negligent-misrepresentation, and fraudulent-transfer judgments against the RAM Fund and Hapke; affirmed breach-of-fiduciary and professional negligence liability as to RMA and Williams; affirmed judgment for CFI and Fish and the trial court’s rejection of alter-ego/single-enterprise claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraudulent transfer (UFTA) based on unwind | Hasso: unwind returned RMA assets to CFI without consideration and intentionally hindered creditors; transferred future management-fee stream was an asset | RMA/CFI: CFI had a preexisting contractual right (unwind option) — a lien/interest; future fees not a transferable asset for UFTA purposes; no fraudulent intent | Reversed liability of RMA/Williams — CFI’s preexisting unwind right was a lien/interest so no UFTA “transfer” of an asset was proven; judgment for CFI/Fish affirmed |
| Fraud / negligent & concealment claims | Hasso: misrepresentations and omissions to Serrano (trust representative) were communicated to and relied on by trustee Colson; induced loss | RMA/Williams/Hapke: disclosures (P.P.M., brochure, presentation) warned of risks; Colson (sophisticated trustee) read documents and could not reasonably rely on oral puffery | Reversed fraud, concealment, negligent-misrep. liability for RMA/Williams/Hapke; judgment for CFI/Fish on these claims affirmed because any reliance was unreasonable |
| Breach of fiduciary duty / professional negligence (investment-adviser status) | Hasso: RMA, RAM Fund, Williams, Hapke and CFI owed fiduciary duties as investment advisers and breached them (unsuitable, undisclosed leverage) | Defendants: some entities/individuals (RAM Fund, Hapke) were not investment advisers; where not advisers, no advisor fiduciary/professional duty; CFI/Fish did not breach duties | Affirmed breach/professional negligence liability as to RMA and Williams (substantial evidence they were investment advisers and breached duties); reversed as to RAM Fund and Hapke (not investment advisers); CFI/Fish liability on this claim affirmed for defendants (i.e., Hasso lost) |
| Alter-ego / single-enterprise to reach CFI/Fish | Hasso: CFI (and Fish) should be liable for RMA’s obligations via single-enterprise or alter-ego theories | CFI/Fish: companies kept separate records, capitalization, governance; no commingling or bad faith; no inequity proven | Trial court’s finding that CFI was not RMA’s alter ego / single-enterprise was supported by substantial evidence — affirmed; Fish’s potential liability moot because CFI judgment stands in their favor |
Key Cases Cited
- Mejia v. Reed, 31 Cal.4th 657 (Cal. 2003) (future income generally not an "asset" under UFTA unless subject to levy)
- Mirkin v. Wasserman, 5 Cal.4th 1082 (Cal. 1993) (indirect misrepresentation liability where maker expects statements will be repeated to influence third party)
- Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226 (Cal. 1995) (reliance element in fraud requires actual reliance causally connected to plaintiff’s conduct)
- Monastra v. Konica Business Machines, U.S.A., Inc., 43 Cal.App.4th 1628 (Cal. Ct. App. 1996) (summarizes UFTA standards for actual and constructive fraudulent transfers)
- Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523 (Cal. Ct. App. 2000) (alter-ego doctrine elements and factors; extreme remedy sparingly applied)