Infac Management v. Infac India Group

Filed 5/19/08 Infac Management v. Infac India Group CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, James E. Satt, Judge. Affirmed.

Spellberg Law Offices and Geoffrey Spellberg for Plaintiffs and Appellants.

Kerr & Wagstaffe, H. Sinclair Kerr, Jr., Michael von Loewenfeldt, and Adrian J. Sawyer for Defendant and Appellant and Defendant and Respondent.

Following a jury trial, plaintiff and his wholly-owned company recovered a $1.2 million judgment against defendant, a company he founded, for breach of contract, fraud, and breach of the implied covenant of good faith and fair dealing. Both sides have appealed. We affirm the judgment.

BACKGROUND

Viewed in the light most favorable to the judgment, the evidence at trial established the following.

Plaintiff and cross-appellant James Williams is the sole owner of plaintiff and cross-appellant Infac Management Corp. (IMC),[1]a construction management firm with experience working in Asian countries. In the 1990s, Williams secured a contract to develop a multi-billion dollar high technology business complex in Tamil Nadu, India (the project). Williams founded defendant and appellant Infac India Group, LLC (IIG or the company) to develop the project.

As IIGs founder and president, Williams brought in several investors, including Broadacre India, Inc. (Broadacre), as partners in IIG. When Broadacre sought to withdraw from IIG, Williams replaced Broadacre with defendants Vernon Loucks and his son Charles Loucks as investors and partners.[2] Vernon provided $1.5 million for IIG to repurchase the bulk of Broadacres interest in the company, and Williams signed a $224,864 promissory note (the Broadacre note) to cover the balance. Williams also pledged his 600,000 shares in IIG (held in the name of IMC) as security for the Broadacre note. In signing the Broadacre note and security agreement for IMC, Williams relied upon Charless and Vernons promises that IIG would pay the Broadacre note in full when IIG received its anticipated financing. Williams also relied upon the August 1999 vote by IIGs board of directors to assume IMCs obligations under the Broadacre note.

After Vernon and Charles became partners in IIG, the company was restructured so that Vernon, as majority shareholder, became chairman of the board, Charles became chief executive officer, and Williams, who was formerly president, became executive vice president. The company also reallocated its ownership units so that Williamss 600,000 shares now represented only a 19.7 percent, rather than 33.3 percent, interest in IIG.

Vernon viewed himself as the projects owner, and began controlling IIGs management and finances. Charless friend Samuel Halle became IIGs chief operating officer, despite his lack of international development experience. In Williamss view, Charles and Halle began mismanaging the project.

Unbeknownst to Williams, Vernon directed IIG not to pay the Broadacre note when it came due, despite knowing that this would harm Williams and IMC because, in Vernons words, it is bad for any company to have an unsatisfied judgment hanging over their head. Broadacre sued IMC on the note and security agreement, and entered a default judgment against IMC. IIG continued to dishonor its obligation to pay the note, and Williams was served with notice of a judgment debtor examination. Williams fell into financial difficulty, not only because IIG was behind in paying his salary, but because the Broadacre judgment precluded him from securing new construction management bids, which he could only procure by bidding as IMC.[3] Construction clients will not advance funds to management companies with outstanding judgments because any project funds advanced to those companies would become subject to collection. Accordingly, Williams repeatedly asked that IIG honor its obligation to pay the Broadacre judgment, which was accruing interest, but to no avail.[4]

In January 2004, Halle informed Williams that IIG no longer needed his services. Halle also told Williams that IIG would pay the Broadacre judgment, but that his 600,000 shares in the company would be seized and redistributed to IIG, Vernon, and Charles.

In March 2004, Williams, faced with the growing Broadacre judgment and the loss of his shares in IIG, sued Vernon, Charles, and IIG. As alleged in the operative second amended complaint, Williams sought damages for: (1) breach of contract to recover his unpaid salary at the rate of $25,000 per month; (2) promissory fraud, including punitive damages, for being fraudulently induced to sign the Broadacre note and security agreement;[5]and (3) breach of the implied covenant of good faith and fair dealing for the fraudulent acts and omissions regarding the Broadacre note that were designed to improperly obtain control of IMC and Williams 19.73% ownership interest in IIG.

During discovery, Williams learned not only that Vernon had directed IIG to dishonor its obligation to pay the Broadacre note and judgment, but that IIG had amassed $12 million in investment funds that could have been used to pay the relatively small amount due on the Broadacre note, as IIG had promised. (At trial, the parties stipulated to IIGs acquisition of $12 million in investment funds.) In April 2005, more than one year after being sued in this lawsuit, Vernon relieved Williams of liability for the outstanding Broadacre judgment by signing a new security agreement with Broadacre. In addition, IIG relinquished its claim to Williamss 600,000 shares in the company. Accordingly, by the time of trial, Williamss shares in IIG were no longer in dispute and the Broadacre judgment had been settled.

Williams presented three claims for damages at trial: (1) a breach of contract claim to recover his unpaid salary at the rate of $25,000 per month; (2) a fraud and punitive damages claim that was based, not on the Broadacre note as originally alleged in the complaint, but on a false promise to pay Williams $351,000 if he continued working for the company, for which Williams had signed a $351,000 promissory note in favor of IIG in November 2001, to be forgiven at the rate of $70,000 per year over five years; and (3) a breach of implied covenant claim against Vernon and Charles, based on their wrongful refusal to pay the Broadacre note, which resulted in the default judgment that had impaired Williamss ability to do business as IMC.

During trial, IIG objected that Williams had switched from a promissory fraud claim based on the Broadacre note allegations that were pleaded in the complaint, to a fraud claim concerning a false promise to pay $351,000. The trial court overruled IIGs objection, and allowed Williams to present the fraud claim based on the evidence at trial regarding the $351,000 promissory note.[6]

The trial was held in two phases. After the first phase, the jury returned the following findings: (1) IIG breached its contract to pay Williams his $25,000 monthly salary, resulting in $343,750 in damages to Williams; (2) IIG breached the implied covenant by dishonoring its obligation to pay the Broadacre note, resulting in $0 damages to Williams and $325,000 in damages to IMC; and (3) Williams reasonably relied on IIGs material misrepresentations regarding the $351,000 promissory note, resulting in $0 damages to IMC and $198,000 in damages to Williams. Additionally, the jury found that Williams was entitled to punitive damages for fraud because IIG had acted with malice, fraud, or oppression.

Also after the first phase, the jury returned a defense verdict on IIGs cross-complaint against Williams for misrepresentation. As IIG has raised no issues on appeal regarding that ruling, we will not discuss it further in this opinion.

After the second phase of trial, the jury awarded Williams $400,000 in punitive damages against IIG. The trial court denied defendants motions, oral and written, for judgment notwithstanding the verdict, and entered judgment for Williams on the complaint and cross-complaint. Both sides have appealed.[7]

DISCUSSION

I. IIGs Appeal

A. Breach of the Implied Covenant

Based on IIGs failure to honor its obligation to pay the Broadacre note when it came due, the jury awarded IMC $325,000 in damages for IIGs breach of the implied covenant of good faith and fair dealing. The damages were based on Williamss testimony that the Broadacre judgment had impaired his ability to use IMC to obtain new construction management projects from January 2004, when he was ousted from IIG, through April 2005, when Vernon settled the Broadacre judgment. The jury accepted the damages calculation provided by plaintiffs counsel during closing argument, which equated IMCs lost profits between January 2004 and April 2005 with the salary that Williams would have earned at IIG during the same period.[8]

On appeal, IIG seeks reversal of the $325,000 damages award on three grounds. For the reasons that follow, we conclude the contentions lack merit.

1. Future Lost Profits

IIG argues that the damages award is invalid as a matter of law, because it was impermissibly based on IMCs lost future profits from unrelated business ventures of which IIG had no notice when it entered into the contract. (Citing Shoemaker v. Acker (1897) 116 Cal. 239, 244-245; Fraser v. Bentel (1911) 161 Cal. 390, 396 [In awarding damages for the non-performance of an existing contract the gains or profits of collateral enterprises . . . , of which no notice has been given the other party, cannot be included]; Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968-978.) IIG contends that the evidence at trial failed to show that IIG was liable for IMCs future lost profits, as either general or special damages. IIG also argues that damages for future lost profits are precluded by Civil Code section 3300, which codifies the rule enunciated in Hadley v. Baxendale, 9 Exch. 341, that damages for breach of contract may only include such damages as may reasonably be supposed to have been within the contemplation of the parties at the time of the making of the contract, as the probable result of a breach.Other damages are too remote. In this lies the distinction between damages for breach of contract and damages for tort, the rule as to tort being that the injured person may recover for all detriment proximately caused thereby, whether it could have been anticipated or not. (Civ. Code, sec. 3333.) Such, as we understand it, is the rule declared by section 3300 of the Civil Code, as that section has always been construed by this court, and it is the rule enunciated in the leading case of Hadley v. Baxendale, 9 Exch. 341, which has been universally accepted and followed. (Hunt Bros. Co. v. San Lorenzo etc. Co.(1906) 150 Cal. 51, 56.)

IIG does not mention, however, that the trial court instructed the jury to apply a tort measure of damages to the breach of implied covenant claim. The trial court instructed the jury that if it found the necessary elements of the breach of implied covenant claim had been met under Judicial Council of California Civil Jury Instructions (2008) CACI No. 325,[9]it was to apply the tort measure of damages set forth in CACI No. 3900. The modified version of CACI No. 3900 that was read to the jury stated: If you decide that the plaintiffs have proved their claim against the defendant, you also must decide how much money will reasonably compensate the plaintiffs for the harm. This compensation is called damages. The amount of damages must include . . . an award for all harm that the defendants were a substantial factor in causing,even if the particular harm could not have been anticipated. [] The plaintiffs must prove the amount of their damages; however, the plaintiffs do not have to prove the exact amount of damages that will provide reasonable compensation for the harm. [] You must not speculate or guess in awarding damages. To decide the amount of damages you must determine the fair market value of the services that the plaintiff gave, and subtract from that amount the fair market value of what the plaintiff received. (Italics added.)

IIG does not challenge CACI No. 3900 as erroneous in its opening brief. In the absence of such a challenge, we will review the sufficiency of the evidence to support a verdict under the law stated in the instructions given, rather than under some other law on which the jury was not instructed. (Null v. City of Los Angeles (1988) 206 Cal.App.3d 1528, 1535.) . . .  The jurys responsibility is to decide factual issues and return a verdict in accordance with the law as instructed by the court. (Null, supra, at p. 1534;Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 877.) (Bullock v. Philip Morris USA, Inc. (2008) 159 Cal.App.4th 655, 675.)[10] In light of the tort damages instruction that was given below, we distinguish cases such as Louis Jorge, supra, 34 Cal.4th 960, in which such an instruction was not given.

2. Substantial Evidence

IIG argues that the award is unsupported by the evidence. In determining whether substantial evidence supports the verdict, [t]he principles of review which must guide us are elementary. . . . [A] reviewing court is without power to substitute its deductions for those of the trial court. . . . []In brief, the appellate court ordinarily looks only at the evidence supporting the successful party, and disregards the contrary showing. [Citation.] All conflicts, therefore, must be resolved in favor of the respondent. [Citation.] (Campbell v. Southern Pacific Co. (1978) 22 Cal.3d 51, 60.)

When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact. [Citations.] (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) Except where additional evidence is required by statute, the direct evidence of one witness who is entitled to full credit is sufficient for proof of any fact. (Evid. Code, 411.)

Furthermore, this court will presume the record contains sufficient evidence to support the finding of fact. [Citations.] The appellant who contends that some particular finding is not supported is required to set forth in his brief a summary of the material evidence upon that issue. (In re Marriage of Fink[ (1979)] 25 Cal.3d [877,] 887.) The appellant may not simply recite evidence in his favor, but must set forth all material evidence. [Citation.] (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 842-843.)

IIG contends that the evidence was insufficient to support the damages award because [t]here simply is no record evidence that IMC lost even a single job that it otherwise would have received because of the judgmentonly evidence that Williams chose not to apply for unspecified jobs as IMC because Williams feared he would not get them due to the judgment, and that Williams did not get one job he applied for under his own name (but no evidence that was because he applied under his own name instead of as IMC). (Record citations omitted.) We are not persuaded. Williams testified that he could not obtain construction management projects either as an individual, because such work typically is not given to individuals, or as IMC, because clients do not want the funds for their project to be subject to collection. The jury reasonably accepted his testimony.

IIG states that even if lost profits from unspecified future contracts could somehow be claimed as special damages for IIGs breach of the implied covenant, there is no allegation or evidence of such lost profits here. IIG contends that there was no proof of lost work due to the Broadacre judgment, and no evidence of a logical connection between what Williams allegedly earned at IIG and how much IMC would have made on other unspecified jobs without the Broadacre judgment.

The jury, however, adopted the damages calculation provided by plaintiffs counsel during closing argument, which equated IMCs lost profits from January 2004 to April 2005, with the salary that Williams would have earned at IIG during the same period. In doing so, the jury followed the courts instructions under CACI No. 3900 to determine the fair market value of the services that the plaintiff gave, and subtract from that amount the fair market value of what the plaintiff received. As measured against this instruction, the jury could reasonably find that Williamss salary of $25,000 per month represented the fair market value for his services that could be earned by pursuing development projects through IMC.

Similarly, we reject IIGs contention that it had no reason to anticipate that if the note was paid late, IMC would suffer lost profits by having a judgment entered against it and then choosing not to bid for work for fear the judgment would render the bids unsuccessful. According to the jury instruction, damages must include an award for all harm that the defendants were a substantial factor in causing, even if the particular harm could not have been anticipated. (CACI No. 3900, italics added.) As measured against this instruction, the jury could reasonably include IMCs lost profits in the damages award, even if that particular harm could not have been anticipated.

3. IIG Was Added as a Defendant

IIG contends that although the complaint alleged a breach of implied covenant claim against Vernon and Charles, it did not allege such a claim against IIG. IIG argues that it was not subject to a verdict on this claim because, under Tri-Delta Engineering, Inc. v. Insurance Co. of North America (1978) 80 Cal.App.3d 752, 760, a plaintiff may not recover upon a cause of action not pleaded, even if disclosed by the evidence.

As alleged in the complaint, plaintiffs theory was that Vernon and Charles, by virtue of having signed subsequent agreements that referred to IIGs original agreement to assume the Broadacre note, became parties to the original agreement and subject to liability for breach of the implied covenant of good faith and fair dealing. At trial, however, defense counsel for Vernon, Charles, and IIG objected that because Vernon and Charles were not parties to the subsequent agreements, which they signed solely as IIGs representatives, they were not parties to IIGs original agreement to assume the Broadacre note. Defense counsel argued below that IIG was the only proper defendant that could be sued under the original agreement for breaching the implied covenant,[11]and submitted a proposed jury verdict form to that effect. Plaintiffs counsel, on the other hand, insisted that Vernon and Charles were proper defendants, and submitted a proposed jury verdict form to that effect.

The trial court selected IIGs verdict form that named IIG as the sole defendant in the breach of implied covenant claim. This effectively dismissed the claim as to Vernon and Charles, and substituted IIG in their place.[12] As the substitution was made at IIGs request, we conclude that IIG is judicially estopped to argue inconsistently on appeal that it is immune from liability because of a pleading defect that the substitution, which was proposed by IIG, was intended to cure. (See Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 130-131 [judicial estoppel applies when (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake].) Given that IIG was added by an amendment to conform to proof, it has failed to show a violation of the rule precluding recovery upon a cause of action not pleaded.

B. Fraud

As previously mentioned, the complaint originally stated a promissory fraud claim based on the Broadacre note allegations, and sought to recover the value of Williamss lost shares in IIG. Before trial, however, IIG restored Williamss shares, and Vernon settled the Broadacre judgment. Accordingly, Williams did not seek promissory fraud damages based on the Broadacre note allegations at trial. Instead, he sought damages for fraud based on the $351,000 promissory note that he was induced to sign in November 2001 as part of a loan forgiveness plan. Based on this theory, the jury awarded Williams $198,000 in fraud damages against IIG, as well as an additional $400,000 in punitive damages against IIG based on fraud.

On appeal, IIG argues that the $198,000 fraud award must be reversed because: (1) there simply was no evidence presented on the elements of the supposed fraud; (2) the fraud claim is based on an alleged statement by Charlie Loucks, but the jury expressly found that Loucks did not commit fraud; and (3) the fraud claim based on the $351,000 promissory note was never pleaded in the complaint, and was invented by plaintiffs on the fifth day of trial.

1. Elements of Fraud

Actionable deceit exists where a promise is made without any intention of performing it. (Civ. Code, 1710, subd. (4).) In a promissory fraud action, the essence of the fraud is the existence of an intent at the time of the promise not to perform it. (Benson v. Hamilton (1932) 126 Cal.App. 331, 334.) To maintain an action for deceit based on a false promise, one must specifically allege and prove, among other things, that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promisee to do or not do a particular thing. (Tarmann v. State Farm Mutual Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159.) The mere failure to perform a promise made in good faith does not constitute fraud. (Merciful Saviour v. Volunteers of America, Inc.[ (1960)] 184 Cal.App.2d 851, 859.) (Building Permit Consultants, Inc. v. Mazur (2004) 122 Cal.App.4th 1400, 1414.)

2. Jury Instructions on Fraud and Punitive Damages

On the fraud claim, the trial court instructed the jury that Vernon, Charles, and IIG were alleged to have made a false representation that harmed plaintiffs. [] To establish this claim, plaintiffs must prove all of the following: [] One) That the defendant represented to the plaintiff that an important fact was true. [] Two) That the defendants representation was false. [] Three) That the defendant knew that the representation was false when he made it and that he made the representation recklessly and without regard for [its] truth. [] Four) That the plaintiff relied on the representation. [] Five) That the plaintiff reasonably relied on the representation. [] Six) That the plaintiff was harmed, and; [] Seven) That the plaintiffs reliance on the representation was a substantial factor in causing the plaintiffs harm.

The trial court also instructed the jury that if it found that Vernon or Charles had caused the plaintiffs harm, you must decide whether that conduct justifies an award of punitive damages against Mr. Vernon Loucks and/or Mr. Charles Loucks. The amount, if any, of punitive damages will be an issue decided later. You may award punitive damages against defendants only if the plaintiff proves by clear and convincing evidence that the defendants engaged in that wrongful conduct with malice, oppression, or fraud.

The trial court further informed the jury that it could award punitive damages against IIG only if there was clear and convincing evidence that either: (1) Vernon, Charles, or Halle was an officer, director, or managing agent of IIG who was acting on behalf of IIG at the time of the conduct constituting malice, oppression, or fraud; or (2) that an officer, director, or managing agent of IIG knew of the conduct constituting malice, oppression, or fraud and adopted or approved that conduct after it occurred. The instructions defined managing agent as one who exercises substantial independent authority and judgment such that the agents decisions ultimately determine company policy.

3. Verdict Form

Unlike the jury instructions, the fraud verdict form did not mention Vernon, Halle, or IIGs officers, directors, or managing agents. The fraud verdict form asked the jury to record its findings as to IIG and Charles, but did not mention or request findings for Vernon, Halle, or IIGs officers, directors, or managing agents.

The jury recorded its findings as to IIG and Charles, and found IIG to be liable for fraud, but not Charles. As the verdict form contained no questions regarding Vernon, Halle, and IIGs officers, directors, or managing agents, the jury expressed no findings regarding them.

On appeal, IIG argues that the jurys exoneration of Charles necessarily exonerated IIG, both as to fraud and punitive damages, because Charles was the only person who had spoken with Williams about the $351,000 promissory note. We are not persuaded. The jury instructions, which we presume were followed (Roberts v. Del Monte Properties Co. (1952) 111 Cal.App.2d 69, 78), directed the jury to consider whether Vernon had made material misrepresentations regarding the $351,000 promissory note, or had known about them when they were made, or had adopted or approved of them, and whether Vernon had acted with malice, oppression, or fraud. As will be discussed below, the jury had sufficient evidence to infer that even though Charles was not guilty of fraud, Vernon, who had financial control of the company, did not intend to pay Williams $351,000 in connection with the promissory note when the promise was made.

4. Sufficiency of the Evidence

IIG argues that at trial Williams clearly only identified Charlie Loucks as the person who discussed the $351,000 note with him before he signed it. It asserts that the evidence establishes that no other promise relating to the note was made to Williams. As a result, IIG contends that the jurys exoneration of Charles leads to the inescapable conclusion that Williamss fraud claim is not supported by the evidence. We disagree.

A promise made without any intention of performing it constitutes fraud. (Civ. Code, 1710, subd. 4.) A promise to do something necessarily implies the intention to perform, and, where such an intention is absent, it is an implied misrepresentation of fact, which is actionable fraud. (Joanaco Projects, Inc. v. Nixon & Tierney Constr. Co.[ (1967]) 248 Cal.App.2d 821, 831; [citations].) (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 133.)

Viewing the evidence in the light most favorable to the judgment, as we must, the jury was presented with the picture of a company that routinely made promises to Williams that it never intended to keep. The officers of the company denied that certain promises were made, and were impeached with IIGs corporate documents. The officers attempted to justify their conduct by making factual claims that were belied by other evidence. From there, it was hardly a stretch for the jury to conclude that IIGs practice was to promise everything while possessing the intent to deliver nothing.

From the beginning, when Vernon and Charles became partners in IIG, illusory promises were made. As we have discussed, the IIG board of directors agreed to assume the Broadacre note. Williams was told this prior to his signing the note. Nonetheless, although the company had the financial means to pay the note, Vernon decided not to do so. As a result, judgment was entered against IMC.

In attempting to explain to the jury why the note was not paid, Vernon testified that it was the IIG boards decision to spend its capital elsewhere. Although he described IIG as his company at his deposition, Vernon denied that he was the person who decided how IIGs money was spent. Specifically, he denied making the decision not to pay the Broadacre note. He acknowledged that James Ciardelli, IIGs chief financial officer, should know who made the decisions regarding the use of IIG funds. Vernon recognized that an unsatisfied judgment was bad for any company but he claimed there were no funds to pay salaries or the note.

In contrast, Ciardelli testified that Vernon made the decisions as to how IIGs money would be allocated. Although he tried to convince the jury that at times Vernon would merely put money into the company and leave individual allocation decisions to Charles and him, Ciardelli acknowledged the final authority with regard to major financial decisions rested with Vernon. As to whether IIG had the money to pay the Broadacre note, the parties stipulated that the company had received $12 million in income, which Charles testified was received in 2003 and 2004. However, IMC remained saddled with the unsatisfied judgment against it until Vernon arranged for the note to be paid in April 2005.

With regard to Williamss claim for unpaid salary (IIG chose not to appeal that award), he testified that his salary was $25,000 per month. IIGs principals, including Vernon, Charles, and Ciardelli, tried to convince the jury that IIG had not agreed to pay Williams any particular salary. However, IIGs financial documents reflected under Accounts Payable that Williams was owed $250,000 for 10 months of work. In March 2002, Williams received a check for $50,000 as compensation for January and February. Ciardelli admitted that he signed the check to Williams and that the voucher indicated it was compensation for two months of work. Ciardelli attempted to explain the clear correlation between Williamss claimed salary and the amount of the check by labeling the voucher as a blunder on his part.

Williams testified that after he received the March compensation check, money continued to flow into IIGs coffers. Williams said that during one period $1 million was raised, and Charles told him a number of times the money was being transferred into an account that would be used to pay back salaries. Despite Charless promises, Williams did not receive any other compensation.

That brings us to the $351,000 promissory note. IIG tried to persuade the jury that the note did not obligate it to pay Williams anything. Indeed, Charles testified that the $351,000 promissory note actually reflected a loan to Williams from IIG. The jury believed Williamss testimony to the contrary that the note was intended to reimburse him for $51,000 in past expenses and $300,000 in partial back wages, and that he was told that if he wanted the money, he had to sign the note. (IIG admitted no other employee was required to sign such a note.) Further, Williams understood that he had to continue working at IIG to accrue the benefits of the note, thus inducing him to stay.

Vernon claimed that he was unaware that Williams had signed the $351,000 note. This testimony flies in the face of the evidence that Vernon was responsible for IIGs spending decisions. The jury could rationally have concluded that Vernons attempt to feign ignorance was a ploy designed to minimize the fact that Vernon had the financial power to either honor or ignore the note, the same authority he wielded when he chose not to keep the promise to pay the Broadacre note.

Although we agree that certain promises made to Williams did not specifically reference the $351,000 promissory note, they provide evidence of IIGs overall scheme to induce Williams to remain with the company despite the intent not to pay him. The evidence is undisputed that with the exception of the payment of two months of salary, Williams received none of the monies he was promised. This was despite Charless promises that the income received by IIG would be used to pay Williamss back salary and Vernons assurances throughout the entire project that Williams would be paid what he was owed. Williams also testified that Sam Halle constantly made promises to pay past salaries and debts.

On this record, we conclude that the jurys exoneration of Charles was not fatally inconsistent with its imposition of liability against IIG. Given that the jury was instructed to consider the conduct of IIGs officers, in particular Vernon, the jurys finding that Charles had not committed fraud does not rule out the possibility that it imposed liability against IIG based on Vernons malice, oppression, or fraud. The jury received substantial evidence that IIGs officers made three substantive promises to Williamsto pay the Broadacre note, to pay him a salary, and to pay him pursuant to the terms of the $351,000 promissory notethat they never intended to keep. Williams was induced to stay at IIG as a result. The string of broken promises later made by Vernon, Charles, and Halle that Williams would be paid what he was owed is further circumstantial evidence that IIG did not intend to pay Williams at all. In the end, the jury could reasonably have concluded that Vernon, who tried and failed to convince it that he did not have the ultimate authority over the disbursement of IIG funds, never intended to pay Williams the benefits to which he was entitled.

IIG relies on the rule that a verdict exonerating the agent is a declaration that the agent has done no wrong and necessarily exonerates the principal, since the principal cannot be held liable under the doctrine of respondeat superior if the agent has committed no tort. (Hendriksen v. Young Mens Christian Assn. (1959) 173 Cal.App.2d 764, 770.) The rule does not apply, however, where the conduct of the principal or, as in this case, another agent, is the proximate cause of the injury. We have concluded that the jury could reasonably find that Vernon was guilty of fraud, although Charles was not.

5. Damages

IIG argues that the $198,000 damage award was simply invented out of thin air, and has no relationship to the anticipated loan, the repayment and/or forgiveness schedule for the loan, or anything else. We disagree.

In promissory fraud cases, the plaintiffs claim does not depend upon whether the defendants promise is ultimately enforceable as a contract. If it is enforceable, the [plaintiff] . . . has a cause of action in tort as an alternative at least, and perhaps in some instances in addition to his cause of action on the contract. (Rest.2d Torts, 530, subd. (1), com. c., p. 65, cited with approval in Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 29.) Recovery, however, may be limited by the rule against double recovery of tort and contract compensatory damages. (Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1159.) (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Where appropriate, plaintiffs in promissory fraud cases may recover the benefit of their bargain so that they are placed, as much as possible, in the same position that they would have been had the defendant performed the contract. (Pepitone v. Russo (1976) 64 Cal.App.3d 685, 688-689.)

In this case, Williams requested in closing argument to recover the benefit of the two-year, five-month loan forgiveness period that he would have enjoyed under the promissory note, had he continued working at IIG from when the note was signed in November 2001, to when the Broadacre judgment was settled in April 2005, or some lesser percentage. The jury awarded Williams $198,000, which Williams surmises was based on a longer loan forgiveness period of two years and 10 months, because $70,000 per year x 2 years = $140,000, plus $58,000 for ten additional months = $198,000. IIG, on the other hand, argues that because Williams only remained at IIG until January 2004, which was two years and two months after he signed the promissory note in November 2001, neither Williamss explanation nor the jurys award makes any sense.

There is a third possibility that neither party mentions. In this case, it is possible that the $198,000 award, reasonably construed, gave Williams not only the benefit of a two-year two-month loan forgiveness period, but also a portion of his past expenses of $51,000.

IIG bears the burden on appeal of showing that the evidence is insufficient to support the amount of the damages award. The court in Grand v. Griesinger (1958) 160 Cal.App.2d 397, 403 . . . said it: It is incumbent upon appellants to state fully, with transcript references, the evidence which is claimed to be insufficient to support the findings. The reviewing court is not called upon to make an independent search of the record where this rule is ignored. [Citation.] [Citation.] A claim of insufficiency of the evidence to justify findings, consisting of mere assertion without a fair statement of the evidence, is entitled to no consideration, when it is apparent, as it is here, that a substantial amount of evidence was received on behalf of the respondents. Instead of a fair and sincere effort to show that the trial court was wrong, appellants brief is a mere challenge to respondents to prove that the court was right. And it is an attempt to place upon the court the burden of discovering without assistance from appellant any weakness in the arguments of the respondents. An appellant is not permitted to evade or shift his responsibility in this manner. (People v. Dougherty (1982) 138 Cal.App.3d 278, 283.) We conclude that IIG has failed to meet its burden.

6. Amendment to Conform to Proof

IIG argues that the fraud verdict must be reversed because the $351,000 promissory note was not mentioned in the complaint. The contention lacks merit.

As IIG repeatedly informed the jury, Williams had forgotten about the $351,000 note until it was shown to him by defense counsel at his deposition.[13] Following his deposition, Williams mentioned the $351,000 note in opposition to IIGs summary judgment motion, stating that Defendants induced Williams to sign a $351,000 note and never provided any of that money. [14] Williams also mentioned the $351,000 promissory note as a breach of contract claim in his trial brief, which drew no objection from IIG. But when Williams sought fraud damages at trial based on the $351,000 note, IIG objected that the $351,000 note was not mentioned in the complaint. The trial court overruled the objection, stating Ive heard testimony on that. I will give it.

Every element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109; [citations].) (Tarmann v. State Farm Mut. Auto. Ins. Co., supra, 2 Cal.App.4th at p. 157.) However, the requirement of specificity is relaxed when the allegations indicate that the defendant must necessarily possess full information concerning the facts of the controversy (Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825, disapproved on another ground in Silberg v. Anderson (1990) 50 Cal.3d 205, 212-213) or when the facts lie more in the knowledge of the opposite party[.] (Turner v. Milstein (1951) 103 Cal.App.2d 651, 658.) (Tarmann, supra, 2 Cal.App.4that p. 158.)

IIG, having drafted and retained the note, knew more about it than did Williams. Accordingly, it was appropriate to relax the specificity requirements for pleading fraud. (Tarmann v. State Farm Mut. Auto. Ins. Co., supra, 2 Cal.App.4th at p. 158.) By instructing on fraud, the trial court essentially amended the complaint to conform to proof and added IIG as a defendant to the amended claim.[15] We find no abuse of discretion.

The California courts have been extremely liberal in allowing amendments to conform to proof. [Citations.] (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading,  1143, p. 599.) A pleading may be amended at the time of trial unless the adverse party can establish prejudice. (United Farm Workers of America v. Agricultural Labor Relations Bd. (1985) 37 Cal.3d 912, 915.) Where a party is allowed to prove facts to establish one cause of action, an amendment which would allow the same facts to establish another cause of action is favored, and a trial court abuses its discretion by prohibiting such an amendment when it would not prejudice another party. [Citations.] A variance between pleading and proof does not justify the denial of an amendment to conform pleading to proof unless the unamended pleading misled the adverse party to his prejudice in maintaining his action or defense upon the merits. (Code Civ. Proc.,  469; Stearns v. Fair Employment Practice Com. (1971) 6 Cal.3d 205, 212-213.) (Brady v. Elixir Industries  (1987) 196 Cal.App.3d 1299, 1303, disapproved on other grounds in Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1248.)

Although IIG contends that it was prejudiced by the unfair surprise of being ambush[ed] with a made-up fraud claim at trial, IIG knew from the trial brief that plaintiffs were alleging a contract claim based on the $351,000 promissory note. The fraud damages award essentially provided Williams with the benefit of his bargain, which is a contract measure of damages. As for the punitive damages award, IIG knew from the complaints punitive damages claim regarding the Broadacre note allegations that it would have to defend against a punitive damages claim, albeit on a different factual theory. When IIG sought to reopen its defense at trial in order to respond to the fraud and punitive damages claims based on the $351,000 promissory note allegations, its stated reason was to play Williamss videotaped deposition excerpts in which he could not recall the $351,000 promissory note or any discussions concerning the note. Playing those deposition excerpts would, defense counsel stated, undo the prejudice to us which we have incurred by trying to streamline the case. When plaintiffs counsel correctly pointed out that the relevant deposition excerpts previously had been played, defense counsel withdrew the request. In any event, defense counsel replayed the deposition excerpts during closing argument, and argued that Williams purposely forgot about the $351,000 note because [t]here was no promise to loan him any funds, nothing that actually prompted his memory at all. . . .  This was frankly a made-up claim for this lawsuit, just like there was a made-up claim of the $25,000 a month salary. The jury, however, found otherwise, and IIG has failed to establish that it was prejudiced by the implied amendment of the complaint to conform to proof.

C. Punitive Damages

IIG argued against a punitive damages award, but alternatively argued that any punitive damages award should not exceed $99,000, or one-half of the $198,000 fraud damages award. Plaintiffs, on the other hand, argued for $600,000 in punitive damages, or three times the fraud damages award. The jury awarded $400,000, which was twice the damages award.

IIG contends on appeal that the $400,000 punitive damages award must be reversed because: (1) reversal of the fraud verdict negates the punitive damages award; (2) [t]he jurys exoneration of Charlie Loucks eliminates any basis for the punitive damages award against IIG; (3) the evidence fails to support a punitive damages award; and (4) the amount of the award is unconstitutionally excessive. For the reasons that were previously discussed, we reject the first three contentions. We therefore turn to the last contention.

Where the defendants oppression, fraud or malice has been proven by clear and convincing evidence, California law permits the recovery of punitive damages for the sake of example and by way of punishing the defendant. (Civ. Code, 3294, subd. (a).) As we explained in Neal v. Farmers Ins. Exchange[ (1978)] 21 Cal.3d [910,] 928, and Adams v. Murakami[ (1991)] 54 Cal.3d [105,] 110-112, the defendants financial condition is an essential factor in fixing an amount that is sufficient to serve these goals without exceeding the necessary level of punishment. [O]bviously, the function of deterrence . . . will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort. (Neal v. Farmers Ins. Exchange, supra, at p. 928.) [P]unitive damage awards should not be a routine cost of doing business that an industry can simply pass on to its customers through price increases, while continuingthe conduct the law proscribes. (Lane v. Hughes Aircraft Co. (2000) 22 Cal.4th 405, 427 (conc. opn. of Brown, J.).) On the other hand, the purpose of punitive damages is not served by financially destroying a defendant. (Adams v. Murakami, supra, at p. 112.) (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1184.)

Punitive damages awards generally may not exceed 10 percent of a defendants net worth. (Grassilli v. Barr (2006) 142 Cal.App.4th 1260, 1291; Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596.) We are convinced that in most cases there must be evidence of the defendants net worth in order to support the punitive damage award. [Fn. omitted.] An award based solely on the alleged profit gained by the defendant, in the absence of evidence of net worth, raises the potential of its crippling or destroying the defendant, focusing as it does solely on the assets side of the balance sheet without examining the liabilities side of the balance sheet. Without evidence of the entire financial picture, an award based on profit could leave a defendant devoid of assets with which to pay his other liabilities. (Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 57.)

In this case, the defense presented evidence that IIGs net worth was $2,074,804. IIG contends that because this amount was the only evidence of net worth presented at trial, the jury was required to accept it.[16] IIG asserts that the $400,000 punitive damages award, as measured against the sole evidence of net worth, was excessive in that it amounts to 19.3 percent of $2,074,804. Williams, on the other hand, argues that the award was not excessive because the jury reasonably concluded that IIG had overstated its liabilities and undervalued its assets by as much as $12 million, resulting in a net worth much higher than $2,074,804.

It was undisputed at trial that IIG is an asset holding company whose primary asset was the projects development site in India (the property), which in 2002 and 2004 had an appraised value of $41 million. IIG contended that the property recently had suffered a severe decline in value when the Indian government issued a restriction that prevents developers from selling land in special economic zones such as the one in which the property is located, subject to exemptions, concessions and drawbacks. Sid Luckenbach, IIGs expert witness on valuation, testified that the restriction had a negative effect on the propertys value [b]ecause any buyer would prefer an unrestricted asset over a restricted asset. Without referring to any comparable sales of properties in special economic zones, Luckenbach testified that, as a result of the restriction, the propertys value had declined by 50 percent from $41 million to $20,750,000. Based on IIGs stated liabilities of $18,675,196, Luckenbach testified that, as a result of the restriction, IIGs net worth at trial was only $2,074,804 ($20,750,000 - $18,675,196 = $2,074,804).

On cross-examination, Luckenbach conceded that he had simply accepted IIGs liability figures without examining them. When asked whether, given the joint venture with the Indian government, he had determined if the restrictions stated exemptions, concessions and drawbacks were applicable, Luckenbach admitted he had not considered that possibility. Luckenbach conceded that this omission in his analysis could be significant to the valuation of the property because if they are able to work around the restriction, the property value could be much higher than $20,750,000.

In closing argument, plaintiffs counsel argued that Luckenbach had undervalued IIGs assets by failing to include the $12 million in investment funds that were stipulated to during the first phase of trial, resulting in an understated net worth calculation. In addition, counsel argued that Luckenbachs net worth calculation was not trustworthy because it was based on IIGs untested statement of its liabilities. Plaintiffs counsel also argued that Luckenbachs testimony regarding the loss of property value caused by the restriction was inadequate because the restriction, which applied to developers, might not apply to this project, which was a joint venture with the Indian government, and the restriction contained exemptions and exceptions that Luckenbach had not even considered.

The trial court instructed the jury that in awarding punitive damages, it was not required to accept an experts opinion, and that it was to decide whether to believe and use an experts testimony as a basis for its decision. Among other factors, the jury was told to consider the reasons for an experts opinion in deciding whether to believe his testimony.

On appeal, [t]he standards for review of an award of punitive damages are well established. Reversal of an award is appropriate only where the record as a whole, viewed most favorably to the judgment, indicates the award was the result of passion and prejudice. (Neal v. Farmers Ins. Exchange[, supra,] 21 Cal.3d 910, 927.) Although a trial courts approval of the punitive damage award (by denial of a motion for new trial) is entitled to significant weight (see Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 937), deference is not abdication. It is the duty and responsibility of an appellate court to intervene where the award is so grossly disproportionate or palpably excessive as to raise a presumption that it was the product of passion and prejudice. (Rosener v. Sears, Roebuck & Co. (1980) 110 Cal.App.3d 740, 749-750, citing numerous cases.) We are also guided by the recognition that punitive damages constitute a windfall, create the anomaly of excessive compensation, and are therefore not favored in the law. (Id. at p. 750.) [Fn. omitted.] (Dumas v. Stocker  (1989) 213 Cal.App.3d 1262, 1266.)

The record supports a finding that Luckenbachs net worth calculation was based on a single asset, the property in India, and did not include the $12 million in investment income that was shown, by stipulation, to have been acquired by IIG. Assuming in favor of the judgment that the jury considered the $12 million as an omitted asset, it reasonably could have found IIGs net worth to be as high as $14,074,804 rather than $2,074,804. Assuming a net worth of $14 million, the $400,000 punitive damages award would have been less than three percent of IIGs net worth, which IIG does not argue was excessive.

We also assume in favor of the judgment that the jury found Luckenbachs valuation testimony, including his use of the untested liability figures provided by IIG, to be lacking. Once a jury discredits a partys evidence as to one aspect of a casein this case, the jury previously rejected, for example, IIGs evidence that it had no contractual obligation to pay Williams a salary of $25,000 per monththe jury may distrust other portions of the partys evidence. (Cf. Vallbona v. Springer (1996) 43 Cal.App.4th 1525, 1537 [if a witness is knowingly false in one part of his testimony, the jury may distrust other portions as well].) Moreover, the jury could properly view with distrust the weak evidence of liabilities presented by [IIG] since it was within [IIGs] power to produce stronger and more satisfactory evidence. (Evid. Code, 412.) [Fn. omitted.] (Vallbona v. Springer, supra, at p. 1537.)

IIG contends that plaintiffs, who had the burden below to produce evidence of IIGs net worth, failed to carry their burden. We find this to be a moot argument, however, given that IIG provided expert testimony on this topic. This is not a case where the jury had no evidence of net worth. On the contrary, the jury had ample evidence of net worth, but rejected some of it as untrustworthy.

We conclude that IIG has failed to show that the $400,000 punitive damages award, when viewed in light of the evidence and the instructions, was so grossly disproportionate or palpably excessive as to raise a presumption that it was the product of passion or prejudice.

II. Plaintiffs Cross-Appeal

A. Attorney Fees

Williams argued below that in order to relieve himself of the Broadacre judgment, he was forced to hire an attorney to prosecute this action against IIG, Vernon, and Charles. Williams contended that because his attorney fee agreement required him to pay his attorney 40 percent of the value of Williamss interest in the project, he was entitled to recover that amount from IIG. Williams relies upon the tort of another exception to the general rule (described by the parties as the American Rule) that requires each party to bear its own fees in the absence of an agreement or statute providing otherwise.

Defendants filed a successful motion in limine to exclude any evidence of attorney fees barred by the American Rule. In his cross-appeal, Williams challenges the order as erroneous. We disagree.

Although as a general rule attorneys fees incurred by a plaintiff in an action for damages for fraud are nonrecoverable [citations], an exception is recognized where a plaintiff, as a proximate result of defendants fraud, is required to prosecute or defend an action against a third party for the protection of his interest. (Prentice v. North Amer. Title Guar. Corp., 59 Cal.2d 618, 620.) In such cases reasonable attorneys fees incurred in connection with the third party lawsuit are recoverable as damages caused by defendants tortious act. (Prentice v. North Amer. Title Guar. Corp., supra; Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 57 Cal.App.3d 104, 112.) (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co