Brenlar Investments v. Lynch

Filed 1/29/10 Brenlar Investments v. Lynch CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Defendant and appellant Helen Lynch (Lynch) appeals the judgment entered after a bench trial in favor of plaintiff and respondent Brenlar Investments, Inc., doing business as Frank Howard Allen Realtors (FHAR), on its suit against Lynch alleging equitable indemnity, comparative negligence, contribution and breach of contract arising from Lynchs acts and omissions as a FHAR salesperson in the sale of a Sausalito apartment to Barbara Crane. We affirm in part and remand for further proceedings consistent with this opinion.

Facts and Procedural Background

A. Pre-Trial

FHAR filed the corrected first amended complaint (complaint) on March 30, 2006. The complaint alleged Lynch began working as a salesperson for FHAR in June 1992 and that in her capacity as a salesperson Lynch was at all times an independent contractor and not an employee. The complaint alleged as follows: Lynch agreed to represent Barbara Crane, a 70-year old widow who had never bought a home before, in the purchase of a unit next door to her own in an apartment complex in Sausalito; Lynch had been involved in selling many of the units in the complex and was aware of significant defects, including dry-rot; Lynch concealed from Crane significant defects in the apartment for sale, including active termite infestation, dry rot, damaged siding, an outmoded furnace and an ongoing water leak in the bedroom. Additionally, the complaint alleged Lynch forged Cranes name on a number of disclosures and sales documents to make it look like Crane purchased the apartment with knowledge of and despite these defects.

FHARs complaint further alleged: After close of escrow Barbaras son Peter Crane discovered substantial undisclosed defects in his mothers apartment requiring repairs estimated at in excess of $250,000; Lynch admitted to Peter Crane she knew the house suffered from dry rot and that there was an active termite infestation in her living room located next door to the Crane apartment. Additionally, the complaint alleged Mrs. Crane filed a lawsuit against FHAR (Crane Litigation) alleging causes of action for concealment, deceit, negligent misrepresentation, breach of fiduciary duties, elder abuse and unfair business practices. In October 2004, according to the complaint, the Crane Litigation was settled at FHARs expense, with no contribution from Lynch, and the Crane lawsuit was dismissed.

On the basis of these allegations, FHAR asserted four causes of action against Lynch, namely, equitable indemnity, comparative negligence, contribution and breach of contract. In specific regard to its fourth cause of action for breach of contract, FHAR also alleged in the complaint that Lynch entered into a written agreement with FHAR entitled Broker-Salesperson Contract, Independent Contractor (Agreement), a copy of which was attached to the complaint. FHAR alleged Lynch breached the Agreement by the manner in which she handled the Crane real estate transaction, and that as an actual and proximate cause of the breach caused FHAR to suffer damages, including but not limited to the settlement monies and defense fees and costs incurred and paid by [FHAR] as a result of the Crane litigation.

Before trial, Lynch filed a motion in limine seeking to sever the issue of whether Lynch was an FHAR employee or an independent contractor from the issues of contract interpretation, liability and damages. Lynch argued that to try the issue of her employment status first would promote judicial efficiency because if the court decided that Lynch was an employee of FHAR, then all FHARs indemnity claims would fail as a matter of law. FHAR also filed a motion in limine on the issue of Lynchs employment status, seeking to prohibit Lynch from presenting evidence that she was an employee rather than an independent contractor because she failed to raise this defense in her answer or cross-complaint against FHAR. The trial judge denied FHARs motion in limine, ruling that she expected to hear testimony on Lynchs employment status because, Its been raised in the pleadings. Weve talked about it. Its new. Its going to be an issue in this trial. The trial judge also denied Lynchs motion in limine because, This is going to be a five-day trial, . . . and I think that to sever out that issue is not a good use of our resources.

B. Trial

Barbara Crane testified she was represented by her son Peter Crane in the suit she filed in June 2003 against FHAR and Helen Lynch (Crane litigation). Crane confirmed that on September 27, 2004, she signed an agreement to settle the case for $150,000. Crane testified that when she purchased the apartment she was 70 years old, widowed, and it was the first real estate transaction she had ever handled by herself. Crane said she was not thrilled [about purchasing] the property because it was on a hill and that she had many reservations about completing the transaction.NC

Crane testified she had complete trust in Lynch as her real estate agent in the purchase of the apartment. Crane stated she understood Lynch had a duty to act in Cranes best interest in the purchase of the apartment, and to exercise the upmost (sic) care, integrity, honesty, loyalty and due diligence in her dealings with [Crane]. Crane also acknowledged Lynch had a duty to investigate all material facts which might affect the propertys desirability and value, a duty to fully disclose . . . all pertinent facts having to do with the property, and a duty to advise [Crane] on conducting physical inspections of the property.

Crane agreed that it would be dishonest for someone to sign her name or initials without her authorization. Crane acknowledged that on a couple of occasions when Lynch contacted her to sign paperwork she gave Lynch permission to initial them on her behalf because Lynch said the papers were not that important. Crane testified she also authorized Lynch to sign her name and was impeached with deposition testimony in which she stated she only authorized Lynch to initial but the signature ones I always sign myself and she never authorized Lynch to sign her name. Crane stated she did not recall the exact number of documents Lynch initialed for her and that Lynch signed a few documents without her authorization.

Crane acknowledged deposition testimony in which she stated there had been irregularities in the purchase of the apartment, one of which she identified concerned the city inspection report: Crane answered in her deposition that We didnt get one in time I dont think. And I think that I should have had someone around who insists I had an inspection, and I didnt have an inspection. Crane was shown a City of Sausalito building inspection report dated July 21, 2001 purporting to carry her signature. Crane said it was not her signature. Crane said she got the report later from Lynch. Crane agreed Lynch gave false testimony in her deposition when Lynch said she never signed or initialed any documents for Crane. Crane confirmed that after Lynchs deposition, she filed a second amended complaint adding allegations of forgery and elder abuse based on forging plaintiffs signature on and/or failing to provide plaintiff several of the transaction documents including important disclosures about the property.

Crane identified all the initials and signature on the residential purchase agreement were made by her. Crane also identified her signature on the settlement agreement for the Crane litigation. Crane testified that the signature on an earthquake disclosure form is not her signature; she does not know who signed her name. The signature on a tax bill Crane received from Lynch is not Cranes signature but she does not know who wrote it. When presented with a document entitled satisfaction or waiver of contingencies, Crane stated she was unsure whether it contained her signature or initials but acknowledged her deposition testimony in which she stated the initials under examination of title were not hers and under inspections of physical condition were not hers. Regarding the national hazards disclosure report, Crane said it was not her signature on it. Crane did not write her signature on the city inspection report. The California Land Title of Marin preliminary report was not signed by Crane and she did not know who put her signature on it.

Crane was presented with the residential purchase agreement under which paragraph 22A provides the buyer will have the right to retain at his or her expense licensed experts including contractors to conduct inspections and furnish reports. Crane never told Lynch prior to the close of escrow that she wanted to waive her right to a contractor inspection or any other inspection of the physical condition of the apartment. The satisfaction or waiver of conditions showed Crane waived her right to inspections but Crane did not discuss the matter with Lynch, according to Cranes deposition testimony.

Crane testified that she signed the satisfaction/waiver of contingencies form but did not initial the boxes for approval of all inspection reports on physical condition of the property. The initials B.C. beside the term buyer approves all inspection reports obtained in accordance with this contingency were not made by Crane. Crane acknowledged that prior to close of escrow Lynch never advised her that the seller had disclosed in the state mandated earthquake disclosure that the seller did not know whether the house was anchored or bolted to the foundation, or whether the exterior walls were braced. Crane stated she thought Lynch showed her this form and was then impeached with deposition testimony in which she stated that if she had been shown the form she would have obtained a contractors inspection of the property. Crane acknowledged Lynch did not insist or even advise her to obtain a contractors report before purchasing the apartment. Crane said that when problems began to surface at the apartment after close of escrow, she wished she had completed a home inspection before purchase.

Crane acknowledged Lynch did not discuss or bring to her attention a termite report on the apartment, and she did not recall seeing a termite report. Nor was Crane aware there were three termite reports in total. The termite report dated May 30, 2001, listed item 10A as water stains on rear wall of master bedroom closet. In her deposition, Crane stated that she did not recall discussing this item with Lynch.

Peter Crane,[1] the son of Barbara Crane, testified that he is an attorney and had represented his mother in the suit against FHAR and Helen Lynch arising from her purchase of the property located at 204A Cazneau Avenue in Sausalito. Peter saw the property while driving in the neighborhood and stopped to speak to Lynch, who was there at the time. Lynch told Peter that she was a real estate agent, showed him the property, and indicated that she could get him a great deal because of her friendship with the owner. During this conversation, Lynch told Peter that the property was in perfect condition.

Peter later told his mother about the property and his conversation with Lynch, and expressed to his mother his desire to live there. Peter saw Lynch at the property once or twice before the closing of escrow and had no further substantive conversations with her about the property or its purchase. Once his mother had decided to buy the property, all conversations regarding the property and its purchase were solely between his mother and Lynch.

Peter further testified that he discovered the first problem with the property in Fall of 2001 when there was significant water intrusion in the guest bedroom closet, creating a large puddle on the floor and soaking the wall. Peter hired a repairman to repair the leak and replace the closet walls. After the incident regarding the leak, Peter stated he had an ongoing dialogue with Lynch regarding the condition of the property. During the course of these conversations, Lynch told Peter that there had been a termite infestation in the property; the siding was shot; the property was sliding down the hill; and there was no insulation in the property at all. Peter asked Lynch to pay the cost of repairing these undisclosed defects but Lynch refused.

Subsequently, Peter filed suit against Lynch and FHAR on behalf of his mother. In the course of pretrial preparations, Peter received a transaction file from Caldwell Banker, who had represented the seller in the transaction. Peter immediately recognized that the documents contained forgeries of his mothers distinctive signature. His mother told Peter that she had never authorized anyone to sign for her. Information Peter obtained through discovery indicated to him that Lynch had not provided his mother with certain documents, including one which discussed the sellers lack of knowledge as to the structural integrity of the property. Also, some of the documents Peter obtained contained forgeries of his mothers signature attesting that his mother had reviewed them. On that basis, Peter amended the complaint to add causes of action for elder abuse and unfair business practices.

Peter testified that in preparation for trial he commissioned two inspections of the property. The first, the Star Report, was a minimal contractors inspection and the other, the Danmeier Report, was an extensive report that included both engineering and structural analysis. The Star Report showed major defects including worn siding, gaps in the exterior trim, moisture damage, and buckling to the rear of the structure. The Danmeier Report, which included estimated repair costs of more than $250,000, showed that repair or replacement work was needed on the drainage system, structural damage, the parking deck, the roof, the siding, the balconies, the plumbing and electrical systems, and that insulation needed to be installed. After initially estimating damages in the neighborhood of $100,000, Peter revised the damages sought in the complaint against Lynch and FHAR to $250,000 in light of the inspection reports.

Noreen Smith, the Chief Financial Officer (CFO) at FHAR, testified that she oversees the financial aspects of the company, litigation involving FHAR, and the general operations of the business, including Human Resources. As part of her duties, she monitors all of the companys litigation and has settlement authority for suits filed against FHAR. Smith liaised with attorney Mark Perelman, who represented both FHAR and Lynch, on the Crane litigation.

Smith testified that she attended Lynchs deposition in the Crane litigation. At Lynchs deposition, Smith heard the allegations of forgery and elder abuse for the first time. Smith left the deposition worried about facing a jury in the case because Lynchs responses to the forgery allegations did not seem credible to Smith. After Lynchs deposition, Smith called Betty Gould, FHARs managing broker, and told her, We have a real problem here. Smith had never heard of a claim against an agent for signing or initialing documents in anothers name. Smith stated FHAR has a rock solid policy against such practice.

In response to events at Lynchs deposition, Smith and Gould decided to examine FHARs broker file, which contained all of the documents related to the Crane transaction. When Smith looked at the documents, it was clear to her that at least two people had signed the name of Barbara Crane. Subsequently, Smith and Gould met with Lynch and asked Lynch if she had signed Cranes name on some of the documents. Lynch claimed she could not remember if she signed any of the documents but admitted that she had signed for clients on other occasions and then obtained the true signatures before escrow closed. Smith and Gould then asked Lynch to produce her agent file, which Lynch first claimed to have left at her home, then claimed to have thrown away, and finally claimed to have burned.

Smith testified that FHAR had been in business for 100 years and had actively cultivated its reputation for community involvement and earning the goodwill of both the real estate agent community and the community at large. FHAR depended on that goodwill and reputation for its business. Concern over damage to this reputation and goodwill prompted FHAR to settle with Crane. Smith, Perelman, and Gould all agreed that the combination of Lynchs actions and her apparent lack of credibility during deposition, the nature of the claims against FHAR, which included elder abuse, and the fact that Barbara Crane was a believable sympathetic plaintiff, could result in punitive damages against FHAR and Lynch. Smith wanted to settle not only to protect FHAR but also to protect Lynch from punitive damages.

Smith testified that FHAR maintains error and omission (E&O) insurance for all its agents under which agents paid a yearly premium with no deductable. FHAR had a $75,000 deductible for claims made under the E&O policy. The policy does not cover any claim against an agent that results from a breach of any FHAR policy or agreement between FHAR and that agent. Smith stated she reviewed construction reports supplied by Crane, which showed the cost of repair to the property to be more than $200,000. Smith decided FHAR should settle the Crane case for $150,000, which Smith felt was a bargain in light of the possible award at trial. Lynchs independent contractor status with FHAR was terminated after the settlement.

Smith testified that as a sales agent Lynch was classified as an independent contractor and not as an employee. As a sales agent, Lynch was not overseen by the Human Resources department but by the agent licensing department. FHAR kept an agent file on Lynch containing a copy of the agents commission agreement, her independent contactors agreement, her insurance certificate, any verifications required by the Department of Real Estate and records of attendance at real estate seminars.

Becky Gould was the general manager and managing broker at FHAR at the time of the Crane litigation. Gould testified that as the general manager and managing broker, she oversaw between 350 and 365 sales agents, all of whom were independent contractors. Gould said she knew of no company where licensed real estate agents were employees of the brokerage rather than independent contractors. Gould testified that FHAR conducted weekly optional meetings and periodic training seminars. In addition, sales persons were required to attend an annual update on current legal developments in real estate law. Gould stated that FHAR policy prohibits agents from ever signing or initialing a document in a clients name and this has been taught in every annual legal update hosted by FHAR. In addition to the FHAR training programs, licensed agents are required to attend continuing education classes by the Department of Real Estate in order to maintain their licenses. Gould testified that it was extremely important to FHAR that agents knew the law and carried out their ethical fiduciary duties to the letter in order to maintain FHARs reputation for excellence.

Gould stated that Lynch had risen to the level of golden parachute sales person due to her years of satisfactory performance, which allowed Lynch to set her own commission rate and to work exclusively from her home. Gould noted that Lynchs employment contract required Lynch to acknowledge that FHAR operated at the highest levels of ethical and professional conduct and to agree to follow all laws, regulations, and ethical and professional standards applicable to licensed real estate agents.

Gould testified that she was involved with and made decisions regarding the Crane litigation, including the decision to terminate Helen Lynch. Gould corroborated the substance of Smiths testimony regarding their meeting with Lynch after her deposition. Gould asked Lynch if she had signed the papers for Crane or if she had ever signed anyones name to papers and Lynch replied she could not recall. Gould talked to Lynch about the potential cost to FHAR of the litigation and that Lynch would be expected to contribute to the settlement, at which time Lynch refused to contribute anything, became upset, and walked out of the meeting. Gould stated that concern over the potential cost to the company of a judgment for fraud and forgery led her, Smith, and Perelman to decide to settle the Crane litigation for FHAR and Lynch.

Helen Lynch testified on direct examination as a hostile witness pursuant to Evidence Code, section 776. Lynch testified she has been licensed by the Department of Real Estate as a sales agent since 1986, that she worked for Coldwell Banker and Grub and Ellis in that capacity before moving to FHAR, where she worked for 13 years as a licensed sales agent.

Lynch acknowledged that under the terms of the broker-salesperson contract she signed with FHAR in 1992, she covenanted to act in a manner consistent with generally accepted procedures and standards for the real estate profession, including ethical and fiduciary rules and all laws. Lynch also acknowledged that under the contract, she agreed to be bound by FHARs Policies and Procedures Manual.

Further, Lynch acknowledged that the contract she signed with FHAR in 1992 says that a sales person is an independent contractor and the the manner and means of managing real estate transactions shall be within the sole control of the sales person. Lynch stated that she worked her own hours at FHAR and agreed she had control over the conduct and discharge of [her] daily agent duties representing clients. Lynch said she made calls from her home to set up appointments, did not have a home office, had a desk at FHARs Irwin Street office in San Rafael, and did the majority of her work there until February 2003. Lynch stated she was not salaried and was paid on a commission basis and paid all state and federal taxes herself without any withholding by FHAR. Lynch stated she never heard another sales agent identify him or herself as an employee but Lynch regarded herself as an employee.

Lynch stated she knew that signing or initialing any clients signature or initials on any real estate document could jeopardize FHARs brokerage license as well as her own real estate agents license. Lynch attended mandatory seminars twice a year to update sales persons on legal issues pertaining to real estate and learned that signing or initialing documents for clients was prohibited. Lynch stated that she understood as a fiduciary she had to disclose to the client any information she had about a property. Lynch acknowledged that in her deposition in the Crane case she did not tell Crane she had seen evidence of termites in her apartment, including having seen termites flying around and noticing their droppings in her living room.

Lynch acknowledged Crane was a very reluctant buyer of this property, so it was important that she tell Crane everything she knew about the property. Lynch claimed that she sat down with Crane and went over and discussed each of the termite reports, and that Crane was mistaken in her testimony to the contrary. Lynch stated it would be improper, unethical, dishonest and in violation of FHARs policies to sign a clients name on a document. Lynch denied that she ever signed or initialed a clients signature on a document and denied ever admitting to Smith or Gould that she sometimes signed documents for clients. Lynch acknowledged that in her April 2004 deposition in the Crane litigation, she was asked if she ever signed any documents for Crane, and replied, I dont recall.

Under questioning by her own attorney, Lynch admitted signing documents in Cranes name. Lynch stated she only did this because she knew the the originals were at Caldwell Banker . . . to substantiate that [Crane] had received everything. Lynch admitted she previously lied, under oath, when she stated that she had not signed these documents because her attorney advised her if she did not sign anything with the intent of fraud, it is not an issue. Lynch did not consider the documents forged because Crane had signed the originals.

Susan Shoemaker testified that she knew Helen Lynch through her friend Judy who lived in the same cul-de-sac as Lynch. Once Shoemaker and Lynch were visiting with Judy and Lynch talked about the Crane litigation. Lynch said she had initialed documents and thats why they were upset with her. Shoemaker heard Lynch make this comment on several occasions and eventually Shoemaker told Lynch to stop . . . saying this to people.

David Moore testified for FHAR as a handwriting expert. Moore was asked by FHAR to examine a series of documents purportedly bearing the signatures of Crane to determine whether or not they were genuine. Moore also observed the Valentine (sellers) signature and evaluated it. Moore stated that in the real estate documents he examined, he found 8 non-genuine Crane signatures, 5 non-genuine Crane initials, 3 non-genuine Valentine signatures and 7 non-genuine Valentine initials. Upon an evaluation of Lynchs handwriting, Moore determined Lynch more probably than not had written the non-genuine Crane signatures and the date entries associated with those signatures. Also, Moore opined that Lynch more probably than not had written the non-genuine Crane initials and the Valentine signatures. Moore could neither identify nor eliminate Lynch regarding the non-genuine Valentine initials.

Moore testified that the satisfaction or waiver of contingencies form contains two genuine Crane initials in the upper left hand corner under loan approval and the next three sets of Crane initials under property tax bill, examination of title and inspections of physical conditions, are non-genuine. At the bottom of the form is a non-genuine Valentine set of initials and date. Moore opined that the Crane signature dated July 12, 2001 on the exhibit entitled liquidated damages ratification upon increase of deposit is a non-genuine signature, and that if Crane testified to the contrary then she was either mistaken or not telling the truth.

Fred Angeli testified that he was the manager at FHARs San Rafael office for 21 years. As manager, he is in charge of reviewing files, ensuring compliance with applicable laws and that sales agents fulfill state requirements. In 2001, Angeli had over sixty sales agents under his supervision. Angeli stated sales agents are characterized as independent contractors by FHAR, as reflected in the independent contractor contract between the agent and FHAR. Sales agents come and go as they please, keep no specific hours, and can use the office for any purpose they want, such as meeting clients, copying or making phone calls. Each agent had a designated desk, but did not have to work from that desk or sit at their desk for any prescribed period. Some agents worked from home. Angeli stated he helped to write, and was thoroughly conversant with, FHARs Policies and Procedures Manual (PPM). Angeli stated Lynch closed five deals in 2001, ten deals in 2000 and 15 deals in 1999, and in 2001 was in the office off and on, not on a regular basis. Between 1999 and 2001, Lynch attended the office less and less frequently.

Angeli explained sales agents could post new sales on the board in the office and that is how he usually learned about new transactions. Angeli never saw the Crane transaction posted on the board, and he reviews the board every day. After a sales contract is signed, an agent is required to submit for his review the brokers file containing the primary documentsthe real estate sales contract plus all addenda and counter offerstogether with a facing sheet showing details of the transaction, including the names of the buyers, names of sellers, agents involved, the price of the property, escrow company, escrow number, and commissions on the sale. FHARs policy requires Angeli to review and initial the primary documents but his initials are not on the primary documents pertaining to the Crane transaction because he received the brokers file after the close of escrow. Angeli stated he was certain he did not receive the documents until after close of escrow because the typed copy of the facing sheet is dated July 27th and escrow closed on July 24th. Angeli stated that the FHAR policy manual states agents should recommend and encourage the buyer to inspect the property, and the agent should note in the file and, if possible, obtain a waiver form, if a buyer has declined to order an inspection when urged to do so. The need to urge buyers to have inspections was emphasized on a regular basis at FHAR meetings and seminars. Angeli stated the broker file on the Crane transaction contained no notations that Crane declined inspections.

Angeli testified he was familiar with the standard residential sales contract, paragraph 22A of which is entitled Inspections of physical condition of property. A different document, Satisfaction or waiver of contingencies, relates specifically to paragraph 22A of the standard real estate sales contract. It is highly significant for a buyer to waive inspection and it is FHAR policy to urge buyers not to waive it. On the waiver of contingency form, the agent should have the buyer initial to show that buyer has read and approved any pest control or termite reportsand this was not done in Cranes case for any of the three termite reports. Cranes waiver form had Cranes initials that she had approved the inspection report but there was no inspection report for the property.

Angeli stated he did not initial any of the documents in the broker file to show that he had reviewed them because he did not see the file prior to the close of escrow: Angeli stated that after escrow closed his review was of no use because the deed was done, [] the transaction was completed and . . . I cant bring it back. Angeli could not confirm from the brokers file whether appropriate disclosures were made to the buyer.

C. Post-Trial

After the trial court issued its oral decision on September 14, 2007, Lynch filed a request for a statement of decision on September 20, pursuant to California Code of Civil Procedure 632, asking the court to address twenty four separate issues, including this one: What was Lynchs employment status at [FHAR] for purposes of the Courts decision related to FHARs first cause of action for indemnity, its second cause of action for comparative negligence, its third cause of action for contribution and its fourth cause of action for breach of contract?

On October 2, 2007, the trial court issued an order directing FHAR to prepare a statement of decision (SOD) incorporating the trial courts oral decision together with the trial courts rulings set forth in the order on Lynchs proposals for the content of the SOD. The trial court filed a Proposed SOD on October 24, 2007, and Lynch filed objections to the SOD on or about December 3, 2007. The trial court filed its SOD on December 7, 2007, which included the finding that Lynch was an independent contractor. On January 17, 2008, judgment was entered in favor of FHAR in the amount of $75,000. Lynch filed a timely notice of appeal on March 17, 2008.

Discussion

Lynch contends that the judgment in favor of FHAR should be reversed on both legal and evidentiary grounds. First, as more fully described below, Lynch asserts reversal is warranted because FHAR was not legally entitled to seek indemnification against her. Second, Lynch asserts the judgment should be reversed because certain key elements of the claims FHAR brought against her are not supported by substantial evidence.

A. Indemnification

Lynchs argument that FHAR is not legally entitled to seek indemnification against her hinges on the issue of her employment status. In this regard, Lynch advances several reasons why she was an employee for purposes of the Crane litigation, not an independent contractor as the trial court concluded. First, Lynch asserts that under the holding in Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190 (Gipson), a real estate sales person is the employee of the broker as a matter of law for purposes of third-party litigation such as the Crane litigation. The continuing validity of the holding in Gipson, according to Lynch, finds statutory support in Section 10032 of the Business and Professions Code and its accompanying Historical and Statutory Notes.[2] In addition, Lynch asserts that the broker-salesperson contract she signed with FHAR specifically provides that for purposes of real estate law the sales associate is an employee of the broker. Also, Lynch asserts a further indication that FHAR was her employer for purposes of the claims raised in the underlying Crane litigation is found in the Regulations of the Real Estate Commissioner, which charge the broker with the exercise of reasonable supervision over the activities of his or her salespersons.[3] Having advanced these reasons why she should be considered an employee for purposes of the underlying Crane litigation, Lynch then asserts that because she was a FHAR employee, FHAR was precluded under California Labor Code, section 2802[4] from seeking indemnification against her.

In response, FHAR argues that Gipson, supra, 215 Cal.App.2d 190, is not controlling because its true focus was vicarious liability and the rights of third parties, not with the internal relationship between an agent (Lynch) and the company she is an agent for (FHAR).[5] In contrast, FHAR argues, the issue here is whether Lynch is an employee for purposes of the Labor Code, and that determination, according to FHAR, is governed by the common law control test. On this point, FHAR contends that substantial evidence supports the trial courts determination that Lynch was an independent contractor. FHARs argument is the more persuasive.

We agree with FHAR that Gipson does not control on the issue of Lynchs employment status for purposes of indemnification under the Labor Code. In Gipson, Davis Realty Company (Davis) appealed a jury verdict finding Davis liable for injuries to an unborn child in a collision between an automobile driven by its real estate salesman, Roland Shugg, and the ambulance transporting the unborn childs mother to the hospital. (Gipson, supra, 215 Cal.App.2d at p. 195.) On appeal, Davis argued that the trial court erred in its instruction to the jury on the effect of the contract of employment between the parties in determining whether Shugg was an independent contractor (in which case Davis would not be liable) or an agent acting within the scope of his authority (in which case Davis would be liable). (Id. at pp. 201-202.)

The appellate court stated that the instruction given was a correct statement of the law insofar as it declared that the relation of the parties to a written contract of employment is prima facie that which is expressed by the terms of their writing. (Gispon, supra, 215 Cal.App.2d at p. 202.) Additionally, and as pertinent here, the court opined that it was error for the trial court to have given any instructions on the effect of the employment contract because Shugg was an agent of [Davis] as a matter of law. (Id. at p. 203.) The court based this opinion on provisions of the Real Estate Law (Bus. & Prof. Code,  10000 et seq.) applicable to real estate salesmen by which a brokers license could be suspended or revoked for failing  to exercise reasonable supervision over the activities of his salesmen.  The court understood this provision mandating supervisory control by the broker over the salesman to indicate a legislative intent to create by statute . . . the relationship of principal and agent between broker and salesman. (Id. at p. 206.) Thus, the court concluded that the Legislature has, by virtue of statutory enactment, made such a salesman an agent of the broker as a matter of law. (Id. at p. 206, italics added.)

Gipson held that under the Real Estate Law the relationship between a licensed broker and real estate salesperson is one of principal and agent for purposes of whether a broker may be held liable for injury to a third party caused by a salesperson in the course of employment. (Gipson, supra, 215 Cal.App.2d at pp. 206-207.) The limited scope of Gipsons holding is reflected in the later case of California Real Estate Loans, Inc. v. Wallace (1993) 18 Cal.App.4th 1575, wherein the court stated: It is settled that for purposes of liability to third parties for torts, a real estate salesperson is the agent of the broker who employs him or her. The broker is liable as a matter of law for all damages caused to third persons by the tortious acts of the salesperson committed within the course and scope of employment. (Id. at p. 1581, citing Gipson and others.) Gipson did not, however, hold that a real estate salesperson is an employee of the broker for all purposes. Indeed, Gipson itself acknowledged that although a salesman is an agent of the broker as a matter of law under the Real Estate Law, the issue of whether a real estate salesman is an employee within the common law definition of master and servant is a question of fact in each case. (Gipson, supra, 215 Cal.App.2d at p. 206, italics added.)

This means that although Lynch was FHARs agent for purposes of Cranes claims against FHAR for any injuries caused to Crane by Lynch in the course of her employment, it does not necessarily follow that Lynch was an employee of FHAR for purposes of employee indemnification pursuant to section 2802 of the Labor Code. The Labor Code defines  [e]mployee[s]  to include virtually all persons in the service of an employer under any . . . contract of hire ([Lab. Code,]  3351), but specifically excludes independent contractors ([Lab. Code,]  3357). An independent contractor is defined as any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. ([Lab. Code,]  3353.) (Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 77 (Cristler).) Due to the numerous variables that can inform the employee/independent contractor distinction, courts have supplemented these statutory definitions with a host of classification factors. (Ibid.) The most important of these factors is the right to control the manner and means of accomplishing the result desired.  (Ibid., citing Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43-44.) Strong evidence of an employment relationship is also indicated by  the right to discharge at will, without cause.  (Ibid.) Other factors to be taken into consideration include (a) whether or not the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the workman supplies the instrumentalities, tools and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee. (Citation.) (Cristler, supra, 171 Cal.App.4th at p. 77.)

Furthermore, the question of whether a party is an independent contractor or an employee under the Labor Code is one of fact which will be upheld if supported by substantial credible evidence unless only one inference may be drawn from all the facts making the employment relationship a question of law. (S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 349; see also Cristler, supra, 171 Cal.App.4th at p. 78 [employee or independent-contractor status is a question of fact and must be affirmed if supported by substantial evidence]; Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 11 [The determination (employee or independent contractor) is one of fact and thus must be affirmed if supported by substantial evidence]; Air Couriers Internat. v. Employment Development Dept. (2007) 150 Cal.App.4th 923, 937 (Air Couriers) [same].)[6] In this case, the trial courts finding that Lynch was an independent contractor is supported by substantial evidence.

Regarding the most important factor in the independent contractor/employee determination the right to control the manner and means of accomplishing the result desired (Empire Star, supra, 28 Cal.2d at p. 43) Lynch herself testified she worked her own hours at FHAR and had control over the conduct and discharge of [her] daily agent duties representing clients. Additionally, Lynchs manager Fred Angeli testified that sales agents come and go as they please, keep no specific hours, and can use the office for any purpose they want, such as meeting clients, copying or making phone calls. Although sales agents each had a designated desk in the FHAR office, they did not have to work from that desk or sit at their desk for any prescribed period, and some agents just worked from home.

Moreover, that Lynch was an independent contractor is supported by substantial evidence on other factors probative to the employee/independent contractor determination. The Broker-Salesperson Contract between FHAR and Lynch indicates that the parties did not intend to create employer-employee relationship because it states, The parties agree and intend that Salesperson is an independent contractor and not an employee of Broker. Regarding local industry practice, FHARs general manager and managing broker Becky Gould testified that to her knowledge no real estate company hired licensed real estate agents as employees rather than independent contractors. Also, regarding whether the method of payment was by the time or by the job, Lynch herself acknowledged that she was not salaried, was paid on a commission basis and paid all state and federal taxes herself without any withholding by FHAR. Lynch stated she never heard another sales agent identify him or herself as an employee but Lynch regarded herself as an employee. In sum, the trial courts determination that Lynch was an independent contractor is supported by substantial evidence. Accordingly, FHAR was not barred by section 2802 of the Labor Code from seeking indemnification against Lynch. Thus, we reject Lynchs contention that FHAR was precluded by law from seeking indemnification against her.

B. Sufficiency of the Evidence

Lynch contends that the trial courts judgment in favor of FHAR should be reversed for failure of proof on key elements of FHARs claims pertaining to liability. Preliminarily, Lynch asserts that FHARs first three causes of action for equitable indemnity, comparative negligence and contribution are all forms of indemnity claims, and that to prevail on any of them FHAR had to prove (1) that Lynch was liable for any injury to Crane in the underlying Crane litigation and (2) that Crane suffered actual damages. Lynch asserts the same requirements apply to FHARs breach of contract claim. Lynch contends she is not liable under either FHARs equitable indemnity or breach of contract claims because FHAR did not establish that Crane suffered actual, compensable damages. On that basis, Lynch asserts the judgment must be reversed.[7]

We disagree with Lynchs contention that FHAR failed to establish liability on its causes of action at trial.[8] Rather, we are persuaded that FHAR produced sufficient evidence at trial to establish Lynchs liability under both equitable indemnity and breach of contract. Nevertheless, we are unable to affirm the judgment in full because the trial courts damages award of $75,000 in favor of FHAR is not supported by substantial evidence.

1. Liability

FHAR established Lynch was liable under its theory of equitable indemnity.[9] Equitable indemnity principles govern the allocation of loss or damages among multiple tortfeasors whose liability for the underlying injury is joint and several. (Citations.) Such principles are designed, generally, to do equity among defendants who are legally responsible for an indivisible injury by providing a basis on which liability for damage will be borne by each joint tortfeasor in direct proportion to [its] respective fault. (Citations.) (Expressions at Rancho Niguel Assn. v. Ahmanson Developments, Inc. (2001) 86 Cal.App.4th 1135, 1139-1140.) A settling defendant may seek indemnity from a joint tortfeasor if the settling defendant can prove that the party from whom indemnity is sought was itself at fault in causing the injury to plaintiff and that the amount it paid in settlement was reasonable. (Mullin Lumber Co. v. Chandler (1986) 185 Cal.App.3d 1127, 1134-1135 (Chandler); accord Gross v. Allen (1994) 22 Cal.App.4th 354, 360.) A settlement amount is reasonable if the injured party could state a recognized cause of action against the settling defendant and the settlor faced actual, potential or reasonably apparent liability. (Chandler, supra, 185 Cal.App.3d at p. 1134.) This evaluation is made on the basis of the information available to the parties at the time of settlement. (Ibid.) Accordingly, to prevail on its equitable indemnity claim against Lynch, FHAR had to establish at trial that (1) Lynch was at fault (2) for damages suffered by Crane and (3) based on the information available at the time the $150,000 paid by FHAR to settle the Crane litigation was reasonable.

Our review of the record establishes that FHAR has met each of the elements set forth above. First, FHAR established Lynch was at fault because the record shows Lynch breached fiduciary duties owed to Crane. Under the law, a real estate salesperson owes fiduciary duties to his or her client, including the duties of loyalty, honesty, and full disclosure. (See Ford v. Cournale (1973) 36 Cal.App.3d 172.) A real estate salesperson will be charged with the highest duty of full disclosure of material facts concerning the transaction that might affect the clients decisions with respect to a property. (See Alhino v. Starr (1980) 112 Cal.App.3d 158, 169.)

At trial, Crane was presented with the residential purchase agreement under which paragraph 22A, initialed by Crane, provides the buyer will have the right to retain at his or her expense licensed experts including contractors to conduct inspections and furnish reports. Crane was also presented with a Satisfaction and/or Waiver of Conditions (Trial Exhibit No.1), signed and dated by Crane on June 27, 2001, stating that Crane waived the inspection provision set forth in 22A of the residential purchase agreement. Crane testified, however, that she never told Lynch prior to the close of escrow that she wanted to waive her right to a contractor inspection or any other inspection of the physical condition of the apartment and that Lynch presented the waiver to her for signature without explaining or discussing the waiver with her.

Crane was also presented with another Waiver of Contingencies form (Trial Exhibit No. 57), signed and dated by Crane on July 12, 2001. This waiver contains a section entitled Inspections of Physical Condition. Two boxes can be checked in this section: The first box states Buyer approves all inspection reports obtained in accordance with this contingency, and the second states, Buyer waives this contingency without any inspections against advice of brokers. The first box contains the initials B.C. However, no inspections were carried out on the property and Crane testified the initials in that box were not hers. The second box is empty and Crane confirmed that she did not waive the inspection contingency against the advice of her broker. Moreover, David Moore, the handwriting expert, testified that Lynch more probably than not had forged Cranes initials indicating buyers approval of the non-existent inspection reports. This evidence that Lynch fabricated Cranes approval of inspection reports, when no inspections were actually carried out on the property, and that Lynch had Crane sign a Waiver without discussing it beforehand, is directly contrary to FHARs policy that brokers should urge buyers not to waive the inspection contingency but should rather recommend and encourage the buyer to inspect the property prior to close of escrow.

In addition, Crane testified that prior to close of escrow Lynch never advised her that the seller had disclosed in the state mandated earthquake disclosure (Exhibit 12) that seller did not know whether the house was anchored or bolted to the foundation, or whether the exterior walls were braced. Crane acknowledged Lynch did not advise her to obtain a contractors report before purchasing the apartment. Crane said that after close of escrow when problems began to surface at the apartment, she wished she had completed a home inspection before purchase. Crane further stated in her trial testimony that Lynch did not discuss or bring to her attention a termite report on the apartment and that she did not know there were three termite reports for the property. In sum, there is ample substantial evidence Lynch breached the fiduciary duty of full disclosure owed to Crane.

Second, FHAR established Crane suffered actual damages as a result of Lynchs breach of fiduciary duty. Peter Crane testified that after dealing with a significant water intrusion problem in the Fall of 2001 he had an ongoing dialogue with Lynch regarding the condition of the property. During the course of these conversations, Lynch told Peter that there had been a termite infestation in the property; the siding was shot; the property was sliding down the hill; and there was no insulation in the property at all. Lynch herself admitted she knew about termite infestation at the property because she had seen termites in her own apartment. Barbara Crane testified at trial that a termite report Lynch failed to discuss with her disclosed fungus infection and damage to the exterior siding that subsequently cost $30,000 to repair. In addition, Mrs. Crane stated in her deposition that new support beams had to be installed in the bedroom because they too were rotten and infected by fungus, and that she had to replace all three decks. Also, the record shows that at the time of her deposition, Crane stated she had spent about $60,000 and still had more repairs to carry out.

Third, FHAR established that the sum of $150,000 paid in settlement of the Crane litigation was reasonable. Prior to settlement in the Crane litigation, Peter Crane revised the damages sought in his mothers lawsuit against Lynch and FHAR from $100,000 to $250,000 in light of the report prepared by Danmeier Architects that documented construction defects at the Cazneau property requiring repairs estimated at over $250,000.[10] Noreen Smith, CFO for FHAR, testified that she made the settlement decisions in any litigation against the company. Smith attended Lynchs deposition at which Lynch was confronted with buyers documents purportedly forged by her. Smith did not think that Lynchs deposition responses to this were at all convincing. After Lynchs deposition, Smith then examined FHARs broker file and found more documents in which Cranes signature had been forged. When Smith confronted Lynch with this at a subsequent meeting, Lynch claimed she could not remember if she had forged Cranes signature on the documents, admitted that in the past she had signed documents for clients without their authorization, and gave conflicting explanations about why she could not produce her agents file for the Crane transaction. In sum, the record provides ample support for the courts finding that FHAR had met its burden of establishing Lynchs liability on its indemnity claims.

In addition, we also conclude that FHAR established Lynch was liable for breach of contract. To prevail on a breach of contract cause of action, plaintiff must prove: (1) the contract; (2) plaintiffs performance or excuse for nonperformance; (3) defendants breach; and (4) resulting damages to plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) The test for causation in a breach of contract . . . action is whether the breach was a substantial factor in causing the damages. (Citation.) Causation of damages in contract cases, as in tort cases, requires that the damages be proximately caused by the defendants breach, and that their causal occurrence be at least reasonably certain. (Citation.) A proximate cause of loss or damage is something that is a substantial factor in bringing about that loss or damage. (Citation.) The term substantial factor has no precise definition, but it seems to be something which is more than a slight, trivial, negligible, or theoretical factor in producing a particular result. (Citation.) (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 909.)

In this regard, FHAR established that Lynch breached the terms of her broker-salesperson contract with FHAR by the manner in which she handled the Crane transaction, including such acts and omissions as her failure to advise Crane to obtain a contractors inspection and placing Cranes signature and initials on documents to attest Crane had reviewed and acknowledged such documents and the terms therein. Furthermore, FHAR established causation because Lynchs breach of her employment contract, in particular her violation of FHARs policy and procedures for the conduct of real estate transactions as illustrated in the evidence adduced at trial, was more than a slight, trivial, negligible, or theoretical factor in inducing FHAR to settle the Crane litigation rather than contesting liability at trial. (US Ecology, Inc. v. State of California, supra, 129 Cal.App.4th at p. 909.)

2. Damages

The SOD indicates that the $75,000 in damages the court found FHAR to have sustained is the amount of the deductible under FHARs E&O insurance policy. The SOD recites that FHAR paid $39,505.63 to defend the Crane Lawsuit and $35, 494.37 out of pocket to settle the case. These figures total $75,000. FHAR sought to recover $75,000, the amount it was out of pocket to defend and settle the underlying Crane lawsuit. After concluding that the evidence of damages incurred by Crane established the reasonableness of having agreed to pay her $150,000 in settlement, the court found that [FHAR] has proved damages of at least $75,000 reflecting its portion of the defense and settlement costs that it was forced to spend/pay out of pocket because of the Crane litigation.

FHARs Policies and Procedures Manual, which is included in the record, provides that FHAR does not charge the sales associate a deductible amount. Neither the record nor the SOD contains any explanation of why this provision does not preclude the recovery by FHAR of the deductible amount under the E&O policy, and neither the record nor the SOD suggests any damages that FHAR incurred other than the amount of the deductible. In its appellate brief, FHAR argued that the provision in the manual relieving its agents of responsibility for the deductible amount does not apply if the agent breached its agreement with FHAR or failed to follow company policies. However, as counsel acknowledged at oral argument, this exception appears in the first paragraph of the errors and omissions coverage provisions, relating to the defense of claims against the agent, and not in the second paragraph relating to the cost of errors and omissions coverage and responsibility for the deductible amount under the insurance policy. From our review of the record and the responses received to questions at oral argument, we are unable to determine the basis on which the court concluded either that FHAR is entitled to recover from Lynch the deductible amount under the E&O policy, or that FHAR incurred $75,000 of damages not within the scope of the deductible. Since it appears that these issues were not fully addressed in the trial court, we must remand to permit consideration of the issue of damages.

Disposition

We affirm the judgment with respect to Lynchs liability to FHAR. We remand for a new trial on the issue of whether FHAR is precluded by language in the Errors and Omissions Coverage section of its Policy and Procedures Manual from recovering, as damages, its deductible under the E&O policy and, if so precluded, whether FHAR incurred any damages not within the scope of the deductible.

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Jenkins, J.

We concur:

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Pollak, Acting P. J.

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Siggins, J.

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