Zivku v. DeLuca
Filed 4/26/13 Zivku v. DeLuca CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
JON ZIVKU,
Plaintiff and Appellant,
v.
DINO A. DELUCA,
Defendant and Respondent.
D059978
(Super. Ct. No. 37-2009-00051778-
CU-PN-NC)
APPEAL from
a judgment of the Superior Court of San
Diego County, Robert P. Dahlquist, Judge.
Affirmed.
Jon Zivku
purchased commercial retail property from Dino DeLuca subject to a lease with
an automobile dealership, P.J.P. Enterprises, Inc. (referred to here as
Escondido Mitsubishi). After the sale
closed, Zivku sued DeLuca for fraud, alleging that DeLuca affirmatively
misrepresented and/or failed to disclose information relating to Escondido
Mitsubishi's financial strength. After a
trial, the jury returned a special verdict
finding Zivku did not meet his burden to prove DeLuca made a "false
representation of an important fact to Jon Zivku" or that DeLuca failed
"to disclose an important fact that Jon Zivku did not know and could not
reasonably have discovered." Based
on this verdict, the court entered a defense judgment.
On appeal
Zivku challenges the sufficiency of the evidence to support the jury's
findings. We reject his contentions and
affirm the judgment.
FACTUAL
AND PROCEDURAL SUMMARY
DeLuca did
not timely file a respondent's brief in this case.
showing reversible error even in the absence of a respondent's brief. (See
Cal.App.4th 1102, 1104; Cal. Rules of Court, rule 8.220(a)(2).) Moreover, under appellate rules governing
substantial evidence challenges, we view the evidence in the light most
favorable to the prevailing party (DeLuca) and assume all credibility disputes
were resolved in his favor. (
279.)
According
to the testimony presented at trial, DeLuca owned a large commercial parcel of
property in Escondido, and in
August 2005 entered into a five-year triple net lease with Escondido
Mitsubishi. The principals of Escondido
Mitsubishi were Patrick and Jerilyn Poulain and David Van Riper. Each of these parties provided personal
guaranties on the lease. Van Riper was a
successful banker; his net worth was approximately $5 million. The Poulains' net worth was more than $1
million.
Pursuant to
the lease terms, DeLuca developed and improved the property to be used as a
Mitsubishi auto dealership, and Escondido Mitsubishi paid for a portion of the
tenant improvements. Escondido
Mitsubishi then moved into the premises and began operations. In late 2006, DeLuca listed the property for
sale at $4.6 million. At the time, the
commercial real estate market was at its peak; there were numerous real estate
investors with access to substantial amounts of cash; very few properties were
available; and financing was easy.
Additionally the property was in an excellent location for a new car
dealership. It was located near a major
highway (Highway 78) and was surrounded by several other automobile
dealerships.
Not
surprisingly, DeLuca quickly received numerous offers, one of which was from
Zivku, an experienced real estate investor.
Zivku had recently sold one of his properties and had $4.1 million on
deposit with a section 1031 tax-exempt exchange company. He needed to promptly reinvest this money to
defer paying capital gains taxes.
Represented
by real estate brokers, Zivku made an "all-cash" offer of $4.1
million. After negotiations, in January
2007, the parties signed a purchase agreement at $4.55 million that included
financing and other contingencies. The purchase agreement was subject to the
Escondido Mitsubishi primary lease and a second lease between Escondido
Mitsubishi and DeLuca pertaining to an adjacent storage lot. The contract provided for a 60-day escrow and
a 21-day due diligence contingency period.
In response to Zivku's request, DeLuca later extended this
February 26, 2007.
During the
due diligence period, DeLuca directed his real estate agents to provide any
information requested by Zivku, and encouraged Zivku to seek and obtain
relevant information, including information about Escondido Mitsubishi. However, Zivku never spoke with the tenant,
or obtained verification of its financial stability or financial history. Zivku only once walked through the tenant's
property, and found it to be in excellent condition. Although the purchase contract obligated
DeLuca to provide his financial statements on the property for the previous
year, he did not do so, explaining that these records were destroyed by water
damage in a flood. Zivku did not request
copies or seek back-up information from other sources.
Escrow for
the sale closed on March 16, 2007. At the time, the remaining term on the
Escondido Mitsubishi lease was three and one-half years (with two five-year
options). The first rent check from
Escondido Mitsubishi was due April 1,
2007. After a 10-day grace period,
Zivku spoke with Poulain, one of the lease guarantors, who said the rent would
be paid. However, when Escondido
Mitsubishi later gave Zivku a $35,724 check, it was returned for insufficient
funds and was never replaced. The rent
for May 2007 was also unpaid. Soon
after, Zivku served the tenant with an eviction notice. By the end of July, Escondido Mitsubishi had
vacated the premises. Although a third
party who operated another Mitsubishi dealership approached Zivku about
financially assisting Escondido Mitsubishi, after meeting with Zivku he
withdrew this offer, concerned about Zivku's focus on initiating litigation
without making any effort to work with the tenants.
Within one
year, Zivku sold the property at a substantial loss. DeLuca's evidence showed this loss resulted
primarily from the substantial downturn in the commercial real estate
market.
Zivku sued
DeLuca and various parties, including his real estate broker, the appraiser,
and the lease guarantors. After
obtaining default judgments or settling with all of these parties
DeLuca, a trial was held on Zivku's fraud claims against DeLuca. At
the trial, Zivku claimed DeLuca and/or his agents made various affirmative
misrepresentations about Escondido Mitsubishi's financial stability and its
compliance with rental obligations. Some
of the alleged misrepresentations were contained on the offering circular,
which referred to Escondido Mitsubishi as a "trophy auto dealership facility"
and stated that the property had a capitalization rate of 6.55 percent,
reflecting a strong net operating income.
Other alleged misrepresentations were contained on tenant estoppel
certificates signed by DeLuca and Escondido Mitsubishi principals. These certificates indicated that Escondido
Mitsubishi was current on rent and triple-net charges; there had been only one
rent concession (on the primary lease); there were no other benefits or
modifications; and Escondido Mitsubishi had never defaulted on the lease.
To prove
these representations were false, Zivku presented undisputed evidence that
Escondido Mitsubishi had failed to pay the full rent due for several months and
that during the escrow period two checks had been returned for insufficient
funds (the January and February 2007 rent checks). With respect to the storage lot lease, the
evidence showed Escondido Mitsubishi had never paid the required rent because
DeLuca had orally modified the lease to defer rent and other charges until
Escondido Mitsubishi vehicles were actually stored on the lot.
At the
conclusion of the jury instructions and closing arguments (which are not
contained in the appellate record), the jury was given a special verdict form
with numerous questions regarding the affirmative misrepresentation and failure
to disclose theories underlying Zivku's fraud claim. After a brief deliberation period, the jury
found in DeLuca's favor on the first question regarding each of these
theories. Specifically the jury answered
"no" to the following questions:
(1) "Did . . . DeLuca make a false representation of an
(2) "Did . . . DeLuca fail to disclose an important fact that . . . Zivku did not know and could not
reasonable have discovered?"
(Italics added.) As directed by
the verdict form, based on these responses the jury did not answer the
questions on the remaining fraud elements, including intent, actual and
justifiable reliance, and damages.
DISCUSSION
Zivku
contends there was insufficient evidence to support the jury's factual findings
that DeLuca did not make a false representation about, or fail to disclose,
"an important fact."
In
determining whether substantial evidence supports a jury's finding, we
"consider all of the evidence
in the light most favorable to the prevailing party, giving it the benefit of
every reasonable inference, and resolving conflicts in support of the
judgment." (Howard
v. Owens Corning (1999) 72 Cal.App.4th 621, 630.) "It is not our
task to weigh conflicts and disputes in the evidence; that is the province of the trier of fact. Our
authority begins and ends with a determination as to whether, on the entire
record, there is any substantial
evidence, contradicted or
uncontradicted, in support of
the judgment." (Id. at pp.
630-631.) If substantial evidence
is present, "no matter how slight it may appear in comparison with the
contradictory evidence, the
judgment must be upheld. As a general rule, therefore, we will look only
at the evidence and reasonable
inferences supporting the successful party, and disregard the contrary
showing." (Id. at p. 631.)
The fundamental rule of
appellate review is that an appealed judgment or order is presumed to be
correct. " 'All intendments and
presumptions are indulged to support it on matters as to which the record is silent,
and error must be affirmatively shown.
This is not only a general principle of appellate practice but an
ingredient of the constitutional doctrine of reversible error.' [Citations.]" (Denham v. Superior Court (1970) 2
Cal.3d 557, 564; Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th
229, 267.) Additionally, "error
alone does not warrant reversal." (
822.) " ' "The
burden is on the appellant, not alone to show error, but to show injury from
the error" ' " by demonstrating that absent the error, a
different result would have obtained. (Ibid.) " 'Only when an error has resulted in a
miscarriage of justice will it be deemed to be prejudicial so as to require
reversal.' " (Ibid.)
Under these
review principles, we conclude the jury findings were fully supported and there
was no prejudicial error.
First, with
respect to the storage lot lease, there was evidence supporting a finding that
despite the information on the tenant estoppel certificates, Zivku was aware
before the end of the due diligence period that the lease had been orally
modified and Escondido Mitsubishi was not required to pay rent on the storage
lot until it used this lot for its vehicles.
Thus, the jury could have reasonably found there was no material false
statement or failure to disclose with respect to this lease.
Second,
with respect to the primary lease, even assuming DeLuca failed to disclose
relevant information, or made false representations, regarding the financial
strength of Escondido Mitsubishi or the extent to which this tenant had timely
paid its rent, the jury verdict reflects that the jury found this information
was not "important" to the transaction.
To prove
fraud, a plaintiff must show there was a material
misrepresentation or the failure to disclose a material fact. (
196 Cal.App.4th 1545, 1557; Okun v.
Morton (1988) 203 Cal.App.3d 805, 828.)
As the jury was instructed, this element generally requires the plaintiff
to establish a reasonable person would consider the fact to be important in the
particular matter at issue. (See
977; Charpentier v. Los Angeles Rams
Football Co. (1999) 75
Cal.App.4th 301, 312-313; see also CACI No. 1905.) Information is considered
attach importance to its existence or nonexistence in determining his choice of
action in the transaction in question.' [Citations.]" (Engalla, supra, 15 Cal.4th at p. 977, italics
added.) Thus, "materiality is
generally a question of fact" unless there is only one reasonable
inference from the facts. (
In this
case, there was substantial evidence supporting a finding that the information
about Escondido Mitsubishi's financial strength and/or its recent compliance
with lease obligations would not have been "material" or
"important" to a reasonable person under the particular circumstances
of this real estate transaction. First,
the evidence showed that the sale occurred at or near the peak of the market in
early 2007 when the price of real estate had been rapidly escalating. At the time, there were very few commercial
properties for sale in the relevant area, numerous buyers had made offers on
DeLuca's property, and Zivku had a substantial amount of money he needed to
promptly invest in a section 1031 exchange to avoid substantial adverse tax
consequences. Additionally, the
Escondido Mitsubishi primary lease term was for about three and one-half more
years, and an individual with high net worth had personally guaranteed the
tenant's obligations. Thus, regardless
of the tenant's stability, a reasonable buyer would understand that this particular
tenant was committed only for the short term and the buyer would be fully
protected by the personal guaranty in the event of a tenant default before that
time. Moreover, the tenant's building
was brand new; the improvements were excellent; and the location of the
property (near other new car dealerships) was outstanding. Further there was an independent appraisal
valuing the property at about $4.6 million, and the evidence showed that the
tenant's financial strength was not a significant component of this
valuation. Under these facts, a jury
could have reasonably found that even if DeLuca made certain false statements
concerning the existing tenant, these statements were not material to the
transaction under the particular circumstances of the case.
Zivku
argues that "[r]epresentations by sellers concerning the past income
generated by commercial properties marketed as income producing ones are
material to such transactions." We
agree that the amount of income historically produced by a particular tenant
will typically be a material fact in a commercial real property
transaction. But this conclusion is not
compelled as a matter of law. Zivku
cites several decisions in support of his argument that tenant income
information is necessarily material.
(See Hale v. Wolfsen (1969)
515; Mariani v. Schonfeld (1954) 126
Cal.App.2d 187; Wilson v. Shultz (1951)
reviewing court found substantial evidence to support the factfinder's
conclusion that the particular representation about past business income
the court never stated or suggested that the conclusion was anything other than
a factual determination. In this case,
as in Hale, Barnes, Mariani, and
evidence supported the jury's finding regarding materiality. Under the totality of the circumstances here,
there was sufficient evidence to support a conclusion that the statements made
by DeLuca about the existing tenant (or facts that he failed to disclose) were
not material to Zivku's decision to purchase the property.
Additionally,
even if the jury's responses to the material misrepresentation and omission
questions were unsupported, Zivku has not met his burden to show a reasonable
probability the result would have been different on the other elements of his
fraud claim. It was undisputed at trial
that during the due diligence period, DeLuca gave Zivku the opportunity, and
encouraged Zivku, to review all relevant tenant information and confirm any of
DeLuca's statements. It was also
undisputed that DeLuca was willing to provide an additional extension of the
due diligence period if requested.
However, neither Zivku nor his agents performed any independent
investigation of the tenant, and never spoke with the tenant representatives or
sought verification of the tenant's financial information. Moreover, Zivku acknowledged at trial that
against his brokers' advice, he waived all the contingencies on February 26,
and the facts showed additional investigation could have revealed the negative
facts about Escondido Mitsubishi's financial situation.
On this
record, regardless of the materiality finding, the outcome of the trial would
have been the same. It is not reasonably
likely the jury would have found Zivku actually or justifiably relied on
DeLuca's information regarding Escondido Mitsubishi's financial strength before
purchasing the property and/or that the omission of certain information about
Escondido Mitsubishi's financial history had any effect on his decision to
purchase the property.
Zivku had
his day in court and was provided a full and fair trial. After hearing all the facts, the jury found
he did not prove his case. The evidence
supported this decision. On this record,
there is no basis to reverse the judgment.
(Cal. Const., art. VI, §
13 [no reversible error "unless, after an examination of the entire cause,
including the evidence, the court shall be of the opinion that the error
complained of has resulted in a miscarriage of
justice"]; Code Civ. Proc., § 475 [judgment not reversible "unless it
shall appear from the record that such error . . . was prejudicial
. . . and that a different result would have been probable if such error, ruling,
instruction, or defect had not occurred or existed"].)
DISPOSITION
Judgment affirmed.
No costs awarded because respondent did not timely file a respondent's
brief.
HALLER, Acting P. J.
WE CONCUR:
McDONALD, J.
AARON, J.
name="_ftn1" title="">[1]
Before the merits panel was
assigned this matter, the court denied DeLuca's request for leave to file a
late brief and denied his reconsideration motion.
name="_ftn2" title="">[2]
Zivku settled with guarantor Van
Riper for $300,000.
