Thiel v. MKA Real Estate Qualified Fund CA1/4
A144099
| Cal. Ct. App. | Oct 3, 2016Background
- In 2007 Norman Thiel, an elderly, retired investor in poor health, invested $200,000 in MKA Real Estate Qualified Fund I, LLC (Qualified Fund) after recommendation by broker/registered rep Jeffrey Guidi.
- Guidi previously steered Thiel into high‑risk investments; Thiel’s capacity and vulnerability were later established by expert neuropsychological testimony.
- MKA used broker‑dealers (including ePlanning, Guidi’s firm) under a 2006 Placement Agent Agreement (PAA) to solicit accredited investors for a Regulation D private placement; PAA reserved MKA’s right to review purchaser questionnaires and accept or reject subscriptions.
- MKA accepted Thiel’s subscription despite conflicting investor forms, red flags about net worth and suitability, and later suspended distributions and recharacterized payments as return of capital.
- Trial court found MKA and its manager Advisors negligent, vicariously liable for Guidi’s fraud and breach of fiduciary duty (agency via ePlanning), and liable for financial elder abuse; awarded $500,000 in damages, $1,247,709.10 in attorney fees, and a $570,000 civil penalty under Civil Code §3345 (penalty later stricken on appeal).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a private‑placement issuer (MKA) owed a common‑law duty of care to an elderly non‑client investor | Thiel: MKA assumed a duty by using placement agents, retaining review/acceptance authority, and pursuing a Regulation D exemption that required reasonable steps to verify accredited status | MKA: No independent duty to supervise broker reps or verify investor suitability beyond industry practice; securities statutes govern | Held: Duty recognized under Biakanja factors and securities law context; issuer had nondelegable duties to take reasonable steps to assure accredited status and protect elderly investor |
| Whether MKA breached that duty by accepting Thiel’s investment | Thiel: MKA failed to investigate obvious red flags in its file and to monitor Guidi/ePlanning | MKA: Industry practice delegates vetting to broker; MKA followed practices | Held: Breach proven—contradictory applications and other red flags in MKA’s file supported failure to exercise reasonable care |
| Whether ePlanning/Guidi were agents of MKA (vicarious liability) | Thiel: PAA, practice of using placement agents to reach investors, and MKA’s retention of acceptance authority show agency for the specific purpose of soliciting and securing offers | MKA: ePlanning was an independent contractor/broker; it lacked authority to bind MKA; agency cannot be found as a matter of law | Held: Substantial evidence supports special agency for the solicitation/offer‑taking purpose; agency may coexist with independent‑contractor status; vicarious liability upheld |
| Whether the trial court properly imposed and calculated a civil penalty under Civil Code §3345 | Thiel: §3345 authorizes trebling/penalties to punish/deter senior‑targeted misconduct | MKA: No statutory basis to impose the $570,000 penalty | Held: Civil Code §3345 penalty stricken—trial court lacked statutory basis to impose that separate penalty though other remedies (damages, fees) stood |
Key Cases Cited
- Biakanja v. Irving, 49 Cal.2d 647 (Cal. 1958) (factors for imposing duty to third parties in commercial transactions)
- Bily v. Arthur Young & Co., 3 Cal.4th 370 (Cal. 1992) (limits on expanding duties among commercial actors)
- Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP, 59 Cal.4th 568 (Cal. 2014) (duty, breach, causation framework for negligence)
- McGarry v. Sax, 158 Cal.App.4th 983 (Cal. Ct. App. 2008) (duty is a question of law; breach and causation are typically factual)
- Camacho v. Youde, 95 Cal.App.3d 161 (Cal. Ct. App. 1979) (nondelegable duties where statute/regulation prescribes safeguards)
- Stilson v. Moulton‑Niguel Water Dist., 21 Cal.App.3d 928 (Cal. Ct. App. 1971) (control/manner‑and‑means test for agency vs. independent contractor)
- Patterson v. Domino’s Pizza, LLC, 60 Cal.4th 474 (Cal. 2014) (franchisor control and limits on vicarious liability; focus on day‑to‑day control factors)
- Clark v. Superior Court, 50 Cal.4th 605 (Cal. 2010) (Civil Code §3345 trebling applies only where underlying remedy is statutory and punitive/deterrent in nature)