JUSTIN MOORE, Plaintiff and Respondent, v. RICHARD BURDEN TEED,
A153523
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE
Filed 4/24/20
CERTIFIED FOR PUBLICATION; (San Francisco County Super. Ct. No. CGC-13-533313)
Conceding liability, Teed challenges the award of benefit-of-the-bargain damages and statutory attorney fees on various grounds. Courts of Appeal are divided over the question whether benefit-of-the-bargain damages may be recovered in fraud claims involving real property transactions where the fraud is perpetrated by a fiduciary. We are persuaded by those authorities which have concluded that benefit-of-the-bargain damages are available to fully compensate a plaintiff for all the detriment proximately caused by a fraudulent fiduciary‘s actions. We also conclude that the jury properly awarded statutory attorney fees and costs. Accordingly, we affirm the judgment below.
FACTUAL AND PROCEDURAL BACKGROUND1
A. Background
Moore decided to buy a house in San Francisco but found he could not afford one in the neighborhoods he preferred. In 2011, Moore met Teed, who promoted himself on the Internet as a real estate agent with “over 25 years of experience as a building contractor” with “an extensive background in historic restorations” and “a deep understanding of quality construction.” Teed told Moore that he could locate a lower-priced fixer-upper home in a choice neighborhood and then renovate it in a cost-effective manner. Based on his interactions with Teed and his exposure to Teed‘s promotional
In May 2011, following Teed‘s advice, Moore bought a large fixer-upper house on Green Street for $4.8 million. The home was built in 1912 аnd was last updated in the 1950s. Moore borrowed significantly from his father and a bank to purchase the house. Teed received a commission from the sale.
Before the close of escrow, Teed proposed renovating the basement to create a “below-ground floor Grade A living space” with a cinema and a wine cellar. Teed said other rooms in the house could also be expanded and modernized. Moore‘s father had a lengthy conversation with Teed in which they discussed on a line-by-line basis what the costs of construction would be for a specific list of improvements. Based on these conversations, Moore expected that in exchange for the $4.8 million purchase price plus $900,000 for renovations (excluding certain design fees), Teed and his team of construction professionals would deliver the Green Street home renovated to the same high-end standard as the othеr projects Teed had shown Moore.
Teed recommended that Moore hire architect Gregg De Meza to design the renovations. De Meza and Teed met with Moore and Moore‘s father to outline the budget for various aspects of the project. The projected budget for the foundation work, for example, was $200,000. After the close of escrow, De Meza prepared a 10-page comprehensive “Creative Spec” setting forth the proposed renovations in detail.
De Meza put the project out for bidding and received contractor bids ranging from approximately $1.6 million to $2.4 million. Teed told Moore that he would work with De Meza to get the project back within the budget. Teed proposed cutting costs for some items as well as performing demolition in the upper floors and completing the foundation and basement work before seeking further bids. Moore and his father аgreed to Teed‘s plan of action.
Moore employed Teed‘s associates for the project. He signed contracts with two engineering firms recommended by Teed. Moore did not sign a written contract with Teed himself because Teed stated he “didn‘t need contracts; that this is what he did. This is how he built his reputation.” Moore nevertheless believed that he had an oral agreement with Teed. Work demands prevented Moore from visiting the site regularly and he relied on progress videos sent by Teed. Teed set up a joint account funded by Moore to make payments to the contractors.
B. Litigation Commences
On August 2, 2013, Moore filed a complaint against Teed and other defendants for breach of contract, intentional misrepresentation, negligent misrepresentation, negligence, breach of fiduciary duties, negligence per se, violation of
Moore hired a new architect and a general contractor. The defective foundation was demolished and replaced and renovations along the lines of those promised by Teed were completed at a much higher expense. Moore and his father eventually expanded the renovation well beyond what Teed had originally proposed. Moore did not seek damages for these additions at trial. By the 2017 trial, Moore had nearly completed the renovations to his home at a total cost of about $9 million.
At trial, construction cost estimator Christine Kiesling testified for Moore as an expert witness. Kiesling explained that the cost to complete Teed‘s proposed renovations was much higher than promised because Teed‘s estimates had been unrealistically low and because construction expenses had gone up in the additional time it took to tear out and replace the foundation. Kiesling testified about four items of damages claimed by Moore: (1) the difference in value between the actual cost of Teed‘s renovations using 2011-2012 pricing rates and the promised cost of $900,000; (2) the actual cost to demolish and replace the foundation; (3) the value of the lost use of the property; and (4) the increased costs due to the delay in the renovations.
In closing arguments, Moore‘s counsel told the jury: “The first category of damage that Mr. Moore is entitled to from Mr. Teed is the difference between the renovation‘s promised cost—that‘s the $900,000 for the construction—and the cost calculated to do that work in 2011-2012.” Counsel asked for an award of $3,842,160 for this category of damages. She also requested $693,000 for increased costs due to the delay in the renovation work.
Teed‘s counsel argued there had never been a promised $900,000 remodel and urged the jury to award nothing for the first and last categories of damages. He said the alleged damages did “not represent any loss that was actually sustained by the plaintiff in the real world. [¶] What it really is, is free money that is fabricated out of thin air, and we don‘t think that you should award any.”
C. Jury Verdict and Posttrial Matters
The jury found for Teed on Moore‘s claim for breach of contract but found in favor of Moore on all of his remaining tort claims.3 It awarded benefit-of-the-bargain damages of $900,000 for the difference between the renovation‘s promised cost and the actual cost to do the same work using 2011-2012 rates, and $104,498 in increased costs due to delay. The jury also awarded Moore out-of-pocket damages of $822,904 for the actual cost to replace the foundation, and $106,920 for lost use of the property—damages that Teed does not challenge on appeal. The damages awarded against Teed totaled $1,934,322.
The trial court granted Teed‘s motion for an offset based on Moore‘s settlements with other defendants, leaving the net damages against Teed at $934,322. The court also granted Moore‘s motion for statutory attorney fees and costs based on the jury‘s special verdict finding that Teed had violated
We review Teed‘s claims that the trial court erroneously instructed the jury on matters of law de novo, viewing the evidence in the light most favorable to the claim of instructional error. (Mize-Kurzman v. Marin Community College Dist. (2012) 202 Cal.App.4th 832, 845-846.) “In other words, we assume the jury might have believed the evidence favorable to the [prevailing party] and rendered a verdict in [the prevailing party‘s] favor on those issues as to which it was misdirected.” (Id. at p. 846.) Teed‘s claim that attorney fees were awarded under a misapplication of law is a legal question we review de novo. (Employers Mutual Casualty Co. v. Philadelphia Indemnity Ins. Co. (2008) 169 Cal.App.4th 340, 347.)
I. Damages Award
Teed challenges the damages award on several grounds. He claims that benefit-of-the-bargain damages cannot be awarded alongside out-of-pocket damages as a matter of law, benefit-of-the-bargain damages are not a permissible form of recovery for fraud actions involving the purchase of real property, and the trial court erred in allowing a damages award founded on speculative assumptions about a hypothetical project that was never built. These errors were compounded, Teed argues, when the trial court permitted double recovery for the cost of replacing the foundation. We find no merit to any of these contentions.
a. The Trial Court Did Not Err in Instructing on Alternative Forms of Recovery
The principles applicable to a damages award for fraud are well settled. “There are two measures of damages for fraud: out-of-pocket and benefit of the bargain. [Citation.] The ‘out-of-pocket’ measure of damages is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction, and thus awards the difference in actual value at the time of the transaction between what the plaintiff gave and what he received. The ‘benefit-of-the-bargain’ measure, on the other hand, is concerned with satisfying the expectancy interest of the defrauded plaintiff by putting him in the position he would have enjoyed if the false representation relied upon had been true; it awards the difference in value between what the plaintiff actually received and what he was fraudulently led to believe he would receive.‘” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 (Alliance Mortgage); see Lazar v. Superior Court (1996) 12 Cal.4th 631, 646 (Lazar) [“Because of the extra measure of blameworthiness inherent in fraud,
As described above, Moore was awarded $900,000 in benefit-of-the-bargain damages based on the difference between the price Teed represented the renovations would cost and the actual cost to do the same renovations using rates from 2011-2012. Moore was also awarded out-of-pocket damages for costs he incurred to tear out and replace the defective foundation. We analyze these separate items of recovery in further detail below. Here, we address Teed‘s contention that benefit-of-the-bargain and out-of-pocket damages cannot both be awarded on a tort claim. Teed‘s reliance on a footnote in Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1176, footnote 4 (Simon)) is misplaced.
In Simon, the Supreme Court concluded that a punitive damages award was excessive under federal constitutional principles. (Simon, supra, 35 Cal.4th at p. 1167.) The plaintiff in the underlying action prevailed on a claim of promissory fraud against the seller of a commercial office building who backed out оf the real estate transaction. The jury found that although the parties had no enforceable agreement, the plaintiff was entitled to $5,000 in compensatory damages and $1.7 million in punitive damages. (Id. at pp. 1170-1171.) In reversing the punitive damages award, the Simon court rejected the plaintiff‘s claim that the defendant‘s fraudulent promises caused him $400,000 in potential losses—the profit plaintiff might have earned had the transaction been consummated. (Id. at pp. 1173-1175.) The Simon court concluded that the plaintiff was not entitled to lost profits of $400,000 because the defendant‘s fraud was not the cause of plaintiff‘s failure to obtain the property. (Id. at p. 1176.)
Teed contends that Simon forecloses a tort plaintiff‘s right to recover both benefit-of-the-bargain and out-of-pocket damages in cases where, “[l]ike the Simon plaintiff, Moore prevailed on his fraud claim but not on his contract claim.” He quotes footnote 4 of the Simon opinion, which resрonded to the Simon plaintiff‘s argument that under Lazar, supra, 12 Cal.4th 631, a fraud plaintiff generally may recover both benefit-of-bargain and out-of-pocket damages. “[Plaintiff‘s] reliance is misplaced: our reference in [the Lazar] decision to benefit-of-bargain damages was to their recovery under a contract cause of action.” Teed, however, omits the last sentence of the footnote, which states: “On a different point, nothing we say in this case affects the scope of damages recoverable for fraud committed by a fiduciary.” (Simon, supra, 35 Cal.4th at p. 1176, fn. 4.)
We
b. Benefit-of-the-Bargain Damages May Be Awarded for Fraud Committed by a Fiduciary in Real Property Transactions
Teed next contends that benefit-of-the-bargain damages are never recoverable for fraud claims involving real property transactions, even when the fraud is perpetrated by a fiduciary. While there is a split of authority on this question, we are persuaded by the majority of courts which have concluded that benefit-of-the-bargain damages are recoverable in fraud actions where a fiduciary induces an individual to purchase, sell, or exchange real property to their detriment.
As а general matter, in fraud claims involving the purchase, sale or exchange of property, the Legislature has directed that the “out-of-pocket” rather than the “benefit-of-the-bargain” measure of damages should apply.
Under
In Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, our colleagues in Division Two affirmed an award of benefit-of-the-bargain damages against a fiduciary in a real estate fraud action. The court concluded that benefit-of-the-bargain damages was an appropriate remedy under
Contrary to Teed‘s assertion on appeal, Alliance Mortgage did not disapprove Salahutdin. The question before the high court was whether a real estate lender‘s full credit bid at a nonjudicial foreclosure sale barred the lender from pursuing a separate fraud action against third party fiduciaries that induced the lender to make the loans. (Alliance Mortgage, supra, 10 Cal.4th at pp. 1241-1242.) After noting Salahutdin‘s holding that benefit-of-the-bargain damages are available in claims of fraud by a fiduciary, the court cautioned that Salahutdin involved claims of a fiduciary‘s negligent misrepresentation, and in such circumstances “a plaintiff is only entitled to its actual or ‘out-of-pocket’ losses suffered because of fiduciary‘s negligent misrepresentation under [
Alliance Mortgage left unresolved the split of authority concerning the appropriate measure of damages for a fiduciary‘s intentional fraud, and the disagreement persists. In Fragale, the Second Appellate District concluded that benefit-of-the-bargain damages apply in intentional fraud claims involving a fiduciary, observing that ” the remedy afforded by [
awarding him the difference in value between what he actually received and what he was fraudulently led to believe he would receive.” (Id. at p. 236.) In Strebel v. Brenlar Investments, Inc. (2006) 135 Cal.App.4th 740, Division Three of this court concluded that a real estate broker‘s fraudulent concealment of facts that induced his client to sell his house prematurely allowed for an unusual damages award—the loss in appreciation of his home caused by the premature sale. (Id. at pp. 744-745.) The court reasoned that “‘[t]here is no fixed rule for the measure of tort damages under
Conversely, in Hensley v. McSweeney (2001) 90 Cal.App.4th 1081, the Fifth Appellate District limited the damages available for claims of fraud by a fiduciary in a real property transaction to out-of-pocket damages. (Id. at p. 1086.) It adopted the reasoning of its earlier decision in Overgaard v. Johnson (1977) 68 Cal.App.3d 821, which held that the measure of damages for fraud by a fiduciary is out-of-pocket damages, not the benefit-of-the-bargain damages normally applicable to contract causes of action. (Overgaard, at pp. 826-828.) But Overgaard involved allegations of negligent misrepresentation by a fiduciary, and Hensley does not explain why the same out-of-pocket rule should apply for a fiduciary‘s intentional fraud.
We are persuaded by the reasoning of Pepitone, Salahutdin, Fragale, and related authorities and conclude that where a person has been defrauded by their fiduciary in a real property transaction, the measure of damages available under
p. 688), and that a victim is compensated for any and all detriment proximately caused by their fraudulent behavior. (
c. The Damages Award Was Not Speculative
Teed next argues that the jury could not have calculated a benefit-of-the-bargain damages award because such damages require that both the scope of
“Whatever its measure in a given case, it is fundamental that ‘damages which are speculative, remote, imaginary, contingent, or merely possible cannot serve as a legal basis for recovery. [Citations.]’ [Citations.] However, recovery is allowed if claimed benefits are reasonably certain to have been realized but for the wrongful act of the opposing party.” (Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 989.)
As a preliminary matter, Teed‘s argument that the scope of the promised renovations was too indefinite to support the damages award
stands in tension with his concession on liability. We must accept all facts in support of his liability for fraud, including that he held himself out as an experienced contractor and renovator of houses and that he falsely represented to Moore that he and his team could deliver a set of specific renovations for only $900,000. The record evinces that Teed‘s conversations with Moore and Moore‘s father generated a sufficiently clear scope of work for the promised renovations prior to the close of escrow. In one such conversation, Teed and Moore‘s father discussed on a line-by-line basis what the cost of construction would be for a list of renovations, with the costs totaling $900,000. That the renovation concepts were modified in follow-up conversations with Teed and architect De Meza does not render this evidence remote or illusory.
We must also reject Teed‘s claim that there was no evidence the prоmised renovations were ever completed. As the trial court found in denying Teed‘s motion for new trial: “[T]he most relevant misrepresentations are Teed‘s statements that the value of his team‘s renovation—the ‘Teed/De Meza project‘—would be $900,000. Eventually, Moore actually received that renovation, but at far greater cost than the $900,000 Teed fraudulently led Moore to believe when convincing him to buy the house and undertake the renovation. The damage was not speculative; it was supported by documents and by testimony from Moore, his father, Teed himself and Christine Kiesling, a well-qualified expert on construction costs.” (Italics added, fns. omitted.) While some plans were changed and the actual renovation was more expansive than Teed‘s proposal, it is undisputed that Moore did not seek to recover damages for work that went beyond what Teed had promised to deliver.
Teed further complains that the trial court erroneously modified the standard CACI instruction on benefit-of-the-bargain damages. CACI No. 1924 provides: “To determine the amount of damages, you must: [¶] 1. Determine the fair market value that [name of plaintiff] would have received if the representations made by [name of defendant] had been true; and [¶] 2. Subtract the fair market value of what [he/she/it] did receive. [¶] The resulting amount is [name of plaintiff]‘s damages.” CACI No. 1924 was modified by the trial court to read: “To determine the amount of damages, you must determine: [¶] 1. The difference between the actual cost that Mr. Moore would have incurred in 2011 and 2012 to complete the work promised by Mr. Teed and the amount for which Mr. Teed promised to complete the work; [¶¶] And [¶] 2. Increased costs due to the delay.
Citing out-of-state authorities, Teed argues that benefit-of-the-bargain damages cannot be awarded when they are based on the value of something nonexistent and never in fact received. He quotes Barrows v. Forest Laboratories, Inc. (2d Cir. 1984) 742 F.2d 54, 60) for the proposition that ” ‘[a] claim for benefit-of-the-bargain damages must be based on the bargain that was actually struck, not on a bargain whose terms must be supplied by hypotheses about what the parties would have done if the circumstances surrounding their transaction had been different.‘” Teed contends that the difference between the promised cost of his vague, original renovation concepts and the hypothetical cost of De Meza‘s later, more elaborate design—neither of which was ever built—has no connection to any damages that Moore actually suffered.
Teed‘s jury instruction challenge is but a variation on his assertion that the damages were speculative. For the reasons explained, the record supports the
Even if Teed were correct that the challenged damages were improper under a benefit-of-the-bargain theory, we conclude that the jury would have returned the same damages award under
“Tort damages are awarded to fully compensate the victim for all the injury suffered. [Citation.] There is no fixed rule for the measure of tort damages under
The jury found that the only way to fully compensate Moore for the detriment caused by Teed‘s misrepresentations that he and his team of experienced contractors could deliver a quality remodel for only $900,000 was to award Moore the additional cost necessary to accomplish the promised renovations. Once Moore was induced to buy the house and hire people to renovate it in reliance upon Teed‘s false representations, he was entitled under
d. The Damages Award Was Not Duplicative
Teed finally asserts that the benefit-of-the-bargain damages award was improper because it duplicates the out-of-pocket damages that the jury awarded for the foundation replacement. While it is true that “[d]ouble or duplicative recovery for the same items of damage amounts to overcompensation and is therefore prohibited” (Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1159), Teed is barred from claiming that the jury awarded overlapping damages because he did not request a special verdict form
containing separate entries for each component of damages comprising the benefit-of-the-bargain damages award.
Because we cannot determine from the record whether the jury awarded damages for the defective foundation as part of its $900,000 benefit-of-the-bargain award, Teed has forfeited his claim on appeal. As Moore points out, the jury returned a verdict for benefit-of-the-bargain damages that was substantially below the requested amount of $3,842,160, and it awarded Moore the exact amount ($822,904) he had requested for the cost of replacing the foundation. This would suggest that the jury separated the damages award for the foundation replacement from benefit-of-the-bargain damages items for completing the promised renovations. There is no basis for inferring that the benefit-of-the-bargain damages award contains any duplicate money for foundation replacement.
II. Attorney Fee Award
Teed chаllenges the trial court‘s award of attorney fees under
including but not limited to a home improvement, in reliance on false or fraudulent representations or false statements knowingly made, may sue and recover from such contractor or solicitor a penalty of five hundred dollars ($500), plus reasonable attorney‘s fees, in addition to any damages sustained by him by reason of such statements or representations made by the contractor or solicitor.”
At trial, the parties agreed to an instruction that closely tracked
While Teed concedes that a contract is not required for a person to be deemed a “contractor” under the Contractors’ State License Law, he contends that a contract was required here in order for the jury to have found him in violation of
We begin with the observation that statutory provisions regulating contractors are to be broadly construed. “The Contractors’ State License Law . . . is to be given a ‘reasonable and practical construction’ ‘[i]n light of the intent of the Legislature and the purpose behind the statutory scheme—to protect consumers and the public from dishonest or incompetent contractors.‘” (ACCO Engineered Systems, Inc. v. Contractors’ State License Bd. (2018) 30 Cal.App.5th 80, 88.) “California‘s strict contractor licensing law reflects a strong public policy in favor of protecting the public against unscrupulous and/or incompetent contracting work.” (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 938; see Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882, 894.)
To assist the jury, the trial court also instructed on the definition of “contractor” under
construct, alter, repair, add to, subtract from, improve, [move], wreck or demolish any building, excavation or other structures or works in connection therewith, or the cleaning of grounds and structures in connection therewith, or whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development or improvement herein described of any material or article of merchandise. ‘Contractor’ includes subcontractor and specialty contractor.” (Italics added.)
There was ample evidence for the jury to find that Teed was a “contractor” within the meaning of
Teed attacks the definitional instruction of “contractor” as confusing and incomprehensible, yet he submitted a nearly identical instruction defining “contractor” as his Special Jury Instruction No. 1. And while he admits he had no objection to the wording of CACI No. 418, Teed asserts the trial court should have clarified thе accompanying instruction defining “contractor” by giving his proposed Special Jury Instruction No. 2, entitled, “Construction managers are not required to be licensed under California law.” The trial court did not err in rejecting Teed‘s proposed definition of “contractor.”
“In general, ‘[i]nstructions in the language of a statute should only be given ” if the jury would have no difficulty in understanding the statute without guidance from the court.“’ [Citations.]’ [Citation.] Although instructions based on code sections should follow the language of the particular section at issue, the court should give explanatory instructions where the statutory wording is confusing or couched in legal terms. [Citation.] ‘It is incumbent upon the trial court to determine whether or not a code section should be explained.‘” (Brown v. Smith (1997) 55 Cal.App.4th 767, 784-785.)
The trial court‘s instruction on the statutory definition of “contractor” required no clarification. While
In contrast, Teed‘s proposed Special Jury Instruction No. 2 was lengthier than the instruction given by the trial court, included several numbered subparts, and contained argumentative passages. For example, the proposed instruction stated that “even if” Teed engaged in four types of activities, including coordinating construction workers, keeping Moore informed of the project‘s status, being the onsite “point person,” and acting as Moore‘s agent in the renovations, these activities were not enough to have made him a contractor. The instruction also erroneously stated: “If you find that evidence was presented establishes [sic] that [Teed] had no responsibility or authority to perform any construction work on the project, or to enter into any contract or subcontract for the performance of such work, then you must find that he was not acting as a ‘contractor.‘” This passage
misstates the law, as it omits that one can be deemed a contractor under California law if he or she “offers to undertake” or “purports to have the capacity to undertake” or undertakes a
III. Moore‘s Request for Appellate Fees
Moore asks that we direct the trial court to award attorney fees incurred on appeal under
DISPOSITION
The judgment is affirmed. The matter is remanded to the trial court for its determination of an award to Moore of attorney fees on appeal. Moore is entitled to costs on appeal.
Sanchez, J.
WE CONCUR:
Humes, P.J.
Margulies, J.
A153523 Moore v. Teed
Trial Court: San Francisco County Superior Court
Trial Judges: Hon. Richard B. Ulmer, Jr.
Counsel:
California Appellate Law Group, Ben Feuer, Charles Kagay, Sarah K. Hofstadter, for Defendant and Appellant
Farella, Braun + Marter, Sandra A. Edwards; Greines, Martin, Stein & Richland, Laurie J. Hepler, for Plaintiff and Respondent
A153523 Moore v. Teed