Trattman v. Key
Filed 10/7/13 Trattman v. Key CA2/8
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
EIGHT
DIETER TRATTMANN,
Plaintiff and Respondent,
v.
GARRISON KEY,
Defendant and Appellant.
B241337 c/w B243406
(Los Angeles
County
Super. Ct.
No. BC277311)
APPEAL from
orders of the Superior Court
of
County. Deirdre H.
Hill, Judge. Affirmed in part, reversed
and remanded in part.
Garrison Key, in pro. per.,
Appellant.
Sands & Associates, Leonard S.
Sands and Heleni E. Suydam, for Respondent.
__________________________
INTRODUCTION
This case is before us for a second
time. The underlying facts are set forth
in detail in our prior opinion in case No. B204150, filed on June 22, 2010, and need not be
restated here. Briefly, in 2007, following
a bench trial on plaintiff and
respondent Dieter Trattmann’s complaint for damages for fraud and quiet title,
among other things, the trial court found defendant and appellant Garrison Key
fraudulently recorded deeds in his own name associated with 11 properties. The judgment entered in favor of Trattmann
and against Key quieted title in 9 of the 11 properties in the names of
Trattmann and Key in equal shares as tenants in common, awarded Trattmann
damages in the amount of $159,808.50 (lost rent, increased tax liability and
costs of sale); and held Key liable for all of the yet to be determined costs
and fees associated with the receiver appointed to manage the subject
properties during the litigation (the September 2007 judgment). In the prior opinion, we affirmed the
liability findings against Key and remanded for a further trial on whether
Trattmann was also entitled to punitive damages. We found Key’s challenge to the receivership
cost award premature since the Receivership Court had not yet approved a final
accounting and costs.
In January 2012, following remand,
the Receivership Court approved total costs and fees of $2,179,461, most of
which had already been paid out of the receivership estate. On Trattmann’s motion for clarification, the
trial court ordered Key to pay Trattmann that amount as additional damages,
without credit for payments made to the receiver attributable to Key’s half of
the receivership estate (the March 2012 clarification order). In case No. B241337, Key appeals from
the March 2012 clarification order.
Following a three-day trial, the
trial court awarded Trattmann punitive damages in the amount of $150,000 (the
June 2012 punitive damages award). In
case No. B243406, Key appeals from the June 2012 punitive damages award.
We consolidated case Nos. B241337
and B243406 for purposes of oral argument
and decision. We affirm the June 2012
punitive damage award but reverse the March 2012 clarification order and remand
with directions.
FACTUAL AND
PROCEDURAL BACKGROUND
Punitive
Damages (Case No. B243406)
Judge
Conrad Aragon, who presided over the bifurcated liability (Phase I) and damages
(Phase II) trials, was unavailable following our remand so Judge Deidre Hill
presided over the punitive damages trial (Phase III) from September 20 through
23, 2011. The appellate record does not
include a Reporter’s Transcript of the trial, at which Trattmann, Key and the
court appointed receiver (Thomas Coleman) testified. According to the trial court’s final
statement of decision, Key testified that he was not employed, received monthly
social security disability payments, had not filed tax returns for himself or
for three LLC’s of which he was the sole owner and neither he nor the LLC’s had
any bank accounts. The properties in the
LLC’s generated rental income which was collected by the property managers; Key
assumed the property managers deposited the rental income into their own bank
accounts; he had no access to any accountings for the rents or expenses of the
properties. A licensed real estate
broker, Key rendered an opinion as to the value of the properties in response
to written interrogatories and at trial.
As of June 30, 2011, the receivership costs totaled
$2,099,337. The receiver testified that
this amount had “just about been paid in full from the assets and income of the
estate.†During the course of the receivership,
four properties “were necessarily sold,†presumably to pay these costs.
In its
December 2011 tentative statement of decision, the trial court found Key’s net
worth to be $1,505,291 and awarded punitive damages to Trattmann in the amount
of $150,000 – almost exactly 10 percent of Key’s net worth. Key objected that the net worth calculation
did not include a deduction for Key’s liability for the receivership
costs. In its final Statement of
Decision And Order For Plaintiff To Prepare Proposed Judgment, filed on
February 29, 2012, the trial court found Key’s net worth to be $1,505,291,
comprised of the value of properties Key transferred into the three LLCs of
which he was the sole owner, as well as the value of Key’s fifty-percent
ownership interest in the receivership estate.
The trial court concluded: “In
view of Key’s financial condition, this court finds that an award of punitive
damages in the amount of $150,000 is necessary and appropriate to punish [Key]
and discourage future wrongful conduct.
The court has taken into consideration the [$159,808.50 in compensatory
damages awarded in Phase II]. This court
has not considered the costs of the receivership as included in the total
compensatory damages for comparing the ratio of compensatory damages to
punitive damages.â€
title="">[1] Judgment was entered on June 21,
2012. Key timely appealed.
Receivership
Costs And Fees (Case No. B241337)
Following
Phase II of the trial, Trattmann had submitted a proposed judgment. Key objected to paragraph 10: “While [he] disagrees with the court’s
decision, he believes the Court intended in the Phase II Statement of Decision
that [Key] reimburse Trattmann for Trattmann’s share of the Receiver’s fees and
costs, and those of his ‘agents and employees’, since those have been paid to
date out of jointly-held properties (either [from the proceeds of the sale of a
jointly owned property] or through Preferred Bank borrowings secured by [other
jointly held properties]. Thus, Key
already has ‘paid’ 50 [percent] of the fees and costs to date, just as Trattmann
has.â€
In a Minute Order dated September
14, 2007, the trial court stated that it was deleting paragraph 10 of the
proposed judgment and replacing it with the following paragraph, designated
paragraph 9: “ ‘Key is solely
liable for all Receiver costs and fees, including the Receiver’s employees’
costs and fees as have been, or are yet to be, determined to be reasonable and
necessary by the Receivership Court expended by the Receiver from the date of
appointment of the Receiver until the Receiver’s discharge by the Receivership
Court; however, the Receiver shall be paid such costs and fees out of the
assets of the Receivership estate, and
Key shall therefore pay Trattmann, as damages, 100 [percent] of all such
Receiver fees and costs already paid or to be paid out of the Receivership
estate as approved by the Receivership Court. To secure payment of these damages to
Trattmann, all such costs and fees shall constitute a lien in Trattmann’s favor
against all properties herein described in which Key holds a 50 [percent]
interest as tenants in common.†(Italics
added.)
Paragraph 9 of the final September
2007 judgment (paragraph 9), reads exactly as stated in the Minute Order. Paragraph 9 was not affected by our prior
opinion remanding for a punitive damages trial and modifying the cost award.
At the punitive damages trial, the
trial court found the four properties that remained in the receivership estate,
which was owned equally by Trattmann and Key as tenants in common, had an
“equity†value of approximately $3.1 million.
the Receivership Court appointed Trattmann property manager in place of the
court appointed receiver. It found: “Trattmann and Key’s respective 50 [percent]
interests in the properties on a liquidation basis are about $1.5 million each. The parties have been advised that the total
current Receivership expense is just over $2 million. Key is solely responsible for those
costs. Once finalized and approved by
the court, the Receivership expense will constitute a lien against Key’s interest
in the four properties, effectively wiping out that interest.â€
The
receiver’s motions to approve a final report and account, terminate the
receivership, approve the final fees and costs of the receiver, approve the
final fees and costs of special tax counsel, and approve disposition of the
remaining receivership assets were heard on January 13, 2012.
costs that had already been paid. The
Receivership Court agreed, concluding that Key “already paid his half when the
properties were sold. He must pay Mr.
Trattmann’s half, but you don’t get to collect the whole thing from him
again. I agree with [Key] on that. If you want something different, you are
going to have to seek a clarification [order from the trial court].†In an order entered on January 23, 2012, the
Receivership Court approved total receivership costs of $2,179,461 (the January
2012 order) and stated: “19. To the extent that [income or
proceeds from the Receivership estate were used to pay Receivership Expenses]
any portion of any such utilization emanating from any property interest of the
Defendant Key that was determined by the Judgment to have belonged, or
continued to belong, to him, may constitute a credit or partial satisfaction of
the Judgment in his favor, in an amount that may be determined [by] the Trial
Court . . . and this Final Order shall be without prejudice to any such
determination by the Trial Court . . . .â€
As directed by the Receivership
Court, Trattmann sought clarification of paragraph 9 from the trial court. It tentatively found: “Pursuant to the [September 2007] judgment
. . . Trattmann is entitled to recovery of these costs from Key as
damages. Key presents no authority for
his argument that he is entitled to credit because the estate has paid the
receiver’s costs so no such credit has been given.†At the hearing, the parties submitted without
argument on the tentative. The final March
2012 clarification order states:
“[Paragraph 9] is interpreted to mean that Key must pay Trattmann 100
[percent] of the Receiver’s fees and costs, as damages payable to Trattmann
personally, secured by a lien on Key’s interest in the four remaining joint
venture properties; and that no credit is attributable to Key on account of any
contributions made from his share of the receivership estate toward Receiver
fees and expenses.â€
Key timely
appealed from the March 2012 clarification order.
DISCUSSION
A.
Case No. B241337
The Damage Award of $2,179,461
Based On Receivership Costs Is Excessive
Key challenges the March 2012
clarification order interpreting paragraph 9 to mean that, in addition to the
$159,808.50 damage award, Trattmann is entitled to damages in an amount equal
to all of the approved receivership costs (i.e. $2,179,461). Key argues that an award of the full amount
of the receiver’s costs without any reduction for costs already paid from Key’s
half of the receivership estate is excessive.
We agree.
We review a claim of excessive
damages for substantial evidence. (Estate
of Kampen (2011) 201 Cal.App.4th 971, 992.) “Damages must be assessed in the manner ‘most
appropriate to compensate the injured party for the loss sustained in the
particular case.’ [Citation.]†(Kelly
v. CB & I Constructors, Inc. (2009) 179 Cal.App.4th 442, 453,
quotations omitted.) The measure of
damages for fraud committed by a fiduciary is the “benefit-of-the-bargainâ€
measure provided by Civil Code, sections 1709 and 3333.
Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240-1241.) To be awardable, damages “ ‘must be such
as follows the act complained of as a legal certainty.’ [Citation.]â€
(Goehring v. Chapman University (2004)
121 Cal.App.4th 353, 364.)
Here, the evidence established that
the September 2007 judgment quieted title in the properties that comprised the
receivership estate in Trattmann and Key in equal shares and awarded Trattmann
compensatory damages of $159,808.50. In
addition, Paragraph 9 ordered Key to “pay Trattmann, as damages, 100 [percent]
of all such Receiver fees and costs already paid or to be paid out of the
Receivership estate as approved by the Receivership
Court. . . .†In
September 2011, the trial court found the receivership estate had an “equity
value†of approximately $3.1 million and that Trattmann’s and Key’s respective
shares in the receivership estate had a “liquidation†value of $1.5
million. In January 2012, the
Receivership Court approved total receivership costs and fees of $2,179,461,
most of which had already been paid out of the receivership estate. Accordingly, payment of receivership costs
over the course of the receivership had reduced the value of the entire
receivership estate by $2,179,461. Since
Trattmann and Key owned the receivership estate in equal parts, one half that
amount was attributable to each of their shares. In other words, payment of $2,179,461 in
receivership costs by the receivership estate reduced Trattmann’s and Key’s
half of the estate by $1,089,730.50, each.
Thus, the evidence established that Trattmann’s damages related to the
receivership costs were $1,089,730.50 – the amount by which his half of the
estate was reduced. There was no
evidence that Trattmann was damaged by the amount that Key’s half of the estate
was reduced by receivership cost payments.
Therefore, a damage award of the full $2,179,461 that had been paid from
the receivership estate was not supported by substantial evidence and was, as
such, excessive. For this reason, we
reverse the March 2012 clarification order and find paragraph 19 of the
Receivership Court’s January 13, 2012 order has essentially established the
amount that Key must pay to pay Trattmann as damages based on the receivership
costs.
B.
Case No. B243406
Substantial Evidence Supports the
Punitive Damage Award Based In Part on the Finding That Key Had A Net Worth of
$1,505,291
Key
challenges the $150,000 punitive damage.
He argues: (1) the evidence does
not support the $1,505,291 net worth finding because the trial court’s calculation
did not take into account Key’s liability for the receivership costs (which in
part III.A.1. we found was $1,089,730.50); and (2) if correctly calculated, the
punitive damage award improperly exceeds 10 percent of his net worth.
costs were an element of compensatory damages awarded by the trial court in
Phase II and there is no authority for the proposition that a compensatory
damage award is a liability which must be accounted for in calculating a
defendant’s net worth for purposes of assessing punitive damages. We find no error.
“We review
the trial court’s award of punitive damages for substantial evidence. [Citation.]
‘An award of punitive damages hinges on three factors: the reprehensibility of the defendant’s
conduct; the reasonableness of the relationship between the award and the
plaintiff’s harm; and, in view of the defendant’s financial condition, the
amount necessary to punish him or her and discourage future wrongful conduct. [Citations.]’
[Citation.]†(
150 Cal.App.4th 673, 679 (Baxter);
see also Bankhead v. ArvinMeritor, Inc. (2012) 205 Cal.App.4th
68, 76-77 (Bankhead) [trial court
reviews a motion challenging excessiveness of a punitive damage award as a
“thirteenth juror,†but appellate court applies the substantial evidence
standard].) Key’s contention
involves only the third factor, his financial condition.
Punitive damages are intended to
punish the defendant. (
105, 110.) Therefore, the amount should
not be so low that the defendant can absorb it with little discomfort, and not
so high that it financially destroys the defendant. (Id.
at p. 110; see also Simon v. San
Paolo U.S. Holding Col, Inc. (2005) 35 Cal.4th 1159, 1185.) Generally, punitive damages may not exceed 10
percent of a defendant’s net worth. (
29 Cal.App.4th 1566, 1596; see also Boeken v. Philip Morris,
Inc., supra, 127 Cal.App.4th at p. 1697 [“California courts have routinely
upheld punitive damage awards which amounted to a percentage of net worth from
.005 percent [citation], to 5 percent [citation], and not exceeding 10
percent. [Citation.]â€].)
But, because net worth is so easy
to manipulate, courts have recognized that it is not the exclusive measure of a
defendant’s ability to pay punitive damages, although it is the most common
measure. (Bankhead, supra, 205 Cal.App.4th at p. 79;
Sound Corp. (2001) 89 Cal.App.4th 577, 582 (Zaxis); Baxter, supra,
150 Cal.App.4th at p. 680.)
For this reason, courts have upheld even punitive damage awards that
exceed the defendant’s net worth where the defendant’s ability to pay could be
inferred from other evidence. In
$25 million punitive damage award where the defendant’s net worth was only
$15.7 million, reasoning that there was evidence that the present value of the
defendant’s future earnings was $25 million.
In Bankhead, supra, at
page 83, the court upheld a $4.5 million dollar punitive damage award
despite evidence that the defendant had a negative net worth. It reasoned that the jury was entitled to
credit an expert’s testimony that the defendant was far wealthier than its
stated net worth would indicate. And in
court upheld a $300,000 punitive damage award where the defendant had a
negative net worth, but a $50 million credit line of which $44.7 million was
available.
In calculating net worth, evidence
of liabilities must accompany evidence of assets. In Baxter,
the court reversed a punitive damage award where the record showed that the
defendant owned substantial assets, but was silent with respect to the
defendant’s liabilities. (
p. 680.) Here, the trial court
calculated Key’s net worth by adding the fair market value of each property in
which Key had an interest (100 percent of those in the LLC’s and 50 percent of
those in the receivership estate), less any mortgages and liens. From that subtotal, the trial court
subtracted judgment liens against Key that had attached to some of the
California properties. Thus, unlike in
consideration Key’s liabilities in calculating his net worth.
Neither party has cited, and our
independent research has not found, any case that discusses whether a
compensatory damage award should be treated as a liability in assessing a
defendant’s net worth for purposes of calculating punitive damages. The closest we have come is
calculation did not include any deduction for the $8.5 million compensatory
damage award. But there was no challenge
to the net worth calculation in Rufo and
a case is not authority for a proposition not considered. (Kinsman
v. Unocal Corp. (2005) 37 Cal.4th 659, 680.) We need not decide the issue here because, as
we shall explain, even if Key’s net worth were reduced by $1,089,730.50, leaving
a total net worth of $415,560.50, there is substantial evidence that Key has
the ability to pay the $150,000 punitive damage award.
Under the circumstances, although
the $150,000 punitive damage award would be about 36 percent of $415,560.50,
the trial court could infer that Key had the ability to pay the award from the
rental income of the seven properties held in the three LLC’s. Key’s claim that he did not know what the
property managers did with the rental income was simply not credible. We conclude that, in light of the extreme
reprehensibility of Key’s misconduct, the seriousness of the harm inflicted on
Trattmann, and Key’s ability to pay, the $150,000 punitive damage award did not
present an undue hardship. It was
reasonably necessary to achieve the goals of punishment and deterrence without
being disproportionate to Key’s ability to pay.
DISPOSITION
The June
2012 punitive damage award is affirmed.
The March 2012 clarification order is vacated and the matter is remanded
to the trial court with directions to modify the September 2007 judgment to
include additional damages to Trattmann in the amount of one half the
receivership costs paid from the receivership estate (i.e. $1,089,730.50) and
punitive damages in the amount of $150,000.
Each party shall bear his own costs on appeal.
RUBIN,
J.
WE CONCUR:
BIGELOW,
P. J.
FLIER,
J.
trial court found Key “lacked credibility. . . . His attitude gave the impression that he was
vengeful, non-contrite and intent on fulfilling a still present desire to
inflict further injury on Trattmann.â€
“By contrast, Trattmann’s testimony rang truthful. . . . Although the history of events demonstrate
that Key has caused Trattmann financial devastation and severe distress over a
prolonged period, Trattmann seemed resigned to move forward without evidencing
a strong overriding resentment which he might be expected given the
circumstances.†The trial court
characterized Key’s conduct as “outrageously reprehensible.†“Key did not commit just one act of
fraud. He wrongfully recorded multiple
deeds and then engaged in a long course of dispossessing Trattmann of his
properties, rents and management authority.â€
“Key’s actions were intentional and malicious.â€
had purchased one from the receivership estate and four had been sold to third
parties to finance the receivership. By
“equity†value, we understand the trial court to mean market value less any
encumbrances.
