Zollars v. Kahan
Filed 6/21/12 Zollars v. Kahan CA1/4
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST
APPELLATE DISTRICT
DIVISION
FOUR
JENNIFER
ZOLLARS,
Plaintiff and Appellant,
v.
STAN KAHAN,
Defendant, Cross-complainant and
Appellant;
QUALITY
LOAN SERVICE CORPORATION,
Cross-defendant and Respondent.
A130332
(Solano
County
Super. Ct.
Nos. FCS031010,
VCM100676)
Faced
with competing claims of ownership of a Benicia
residence, the trial court quieted title in appellant Stan Kahan, whom it found
to be a bona fide purchaser. On Kahan’s
related unlawful detainer action, it
ordered the eviction of appellant Jennifer Zollars and awarded Kahan damages
for the rental value of the property during her time of possession. The trial court found in Kahan’s favor on his
cross-complaint for indemnity and declaratory
relief against Quality Loan Service Corporation (Quality Loan)—the trustee
for his foreclosure sale—awarding him attorney fees but no damages.
Zollars
appeals from the judgment, contending inter alia that Kahan was not a bona fide
purchaser and thus was not entitled to the benefit of a statutory conclusive
presumption applied in his favor. (See
Civ. Code,
§ 2924, subd. (c).) Kahan
cross-appeals, contending that the trial court erred by failing to award him
damages for lost profits and for diminution in property value from Quality
Loan. He also asserts that the trial
court abused its discretion in setting the amount of his attorney fees
award. We affirm the judgment.
FACTS
A.
Sales of the
In
March 2006, Gherlie Dancel purchased a residence on East
5th Street in Benicia
by grant deed. At the time of purchase,
she executed two deeds of trust held by Ownit Mortgage Solutions, Inc.
(Ownit)—a first mortgage for $408,750 and a second mortgage for $136,250—secured
against the property. The deeds of trust
gave Ownit the contractual authority to sell the Benicia
property if Dancel failed to make timely payments on the underlying loans. The grant deed and deeds of trust were
recorded in March 2006.
In
October 2006, Dancel conveyed the Benicia
residence to Morgan Meeks by grant deed.
Meeks’s purchase was financed by two deeds of trust from WMC Mortgage
Corporation (WMC)—a first mortgage for $436,000 and a second mortgage for
$109,000. These deeds of trust were also
secured against the Benicia
property and contained a contractual power to sell that property if Meeks did
not pay on her loans. The Meeks grant
deed and the two WMC deeds of trust were recorded in October 2006. Financial Title Company—which has since filed
for bankruptcy—handled the Dancel-Meeks escrow.
For unknown reasons,
name="_ftnref2" title="">[2]
when the Benicia property was conveyed to Meeks, the Dancel-Ownit second deed
of trust secured against the Benicia property was not cancelled.
The
following year, Meeks assigned her WMC first deed of trust to U.S. Bank. This assignment was recorded on July 17,
2007.
On
August 6, the Dancel-Ownit second deed of trust was also assigned to U.S. Bank
by a nominee acting on Ownit’s behalf.
to sell under the Dancel-Ownit second deed of trust was recorded. Quality Loan was the trustee for that sale,
responsible for ensuring that all junior lien holders entitled to notice were
given notice of the sale. Ten-day and
one-month notices of default were mailed on August 20 and September 7 to Dancel
at the Benicia property address, but no one else was sent these notices.
Meanwhile,
a separate foreclosure was underway, based on the deed of trust that Meeks
assigned to U.S. Bank. On September 5,
the Benicia property was sold to U.S. Bank at a trustee’s sale conducted under
the terms of that deed of trust. A week
later, U.S. Bank recorded a trustee’s deed upon sale evidencing that purchase. On November 16, U.S. Bank sold the property
to appellant Jennifer Zollars by grant deed for $320,000. On the same date, a deed of trust was
recorded from Zollars in favor of Suntrust Mortgage, Inc. (Suntrust), for a
$304,000 loan secured against the Benicia property. Zollars took immediate possession of the
property.
A
week before the Zollars purchase, notice of a pending sale of the same property
pursuant to the Dancel-Ownit second deed of trust was given. Again, only Dancel was given mailed notice of
that pending foreclosure. There was
evidence that a notice of trustee’s sale was posted at the property on November
9—a week before Zollars took possession.
A notice of a trustee’s sale pursuant to the Dancel-Ownit deed of trust
was recorded on November 16, a little more than an hour after Zollars’s grant
deed and the Suntrust deed of trust were recorded.
A
trustee’s sale was held on December 5 pursuant to the terms of the Dancel-Ownit
second deed of trust. At that sale,
appellant Stan Kahan paid $158,669
name="_ftnref5" title="">[5]
for the Benicia property. He was unaware
that the trustee had failed to mail notices of default and of sale to all
interested parties. On December 21,
Kahan recorded a trustee’s deed upon sale evidencing his purchase of the
Benicia property. The trustee’s deed
recited that the conveyance was made in accordance with the terms of the
Dancel-Ownit second deed of trust and that required notice—mailed, published,
personally delivered, or posted—for the notice of default and notice of sale
had been given.
Kahan
served Zollars with a three-day notice to quit on January 19, 2008. That notice expired on January 23, 2008. Zollars refused to vacate the Benicia
property, claiming ownership of it.
B.
Actions Filed and Pretrial Matters
In
February 2008, Kahan filed an unlawful detainer action against Zollars,
asserting that he was the owner of the property. He claimed damages of $60 per day—the fair
rental value of the residence—resulting from her failure to give him possession
of it. (Code Civ. Proc., § 1161a,
subd. (b)(3).) The same month, Zollars
brought an action against Kahan to quiet title, asserting that she was the
owner of the fee and seeking to nullify Kahan’s purchase. She also asked for declaratory and injunctive
relief. In her complaint, Zollars
alleged that Kahan was not a bona fide purchaser of the property. (Code Civ. Proc., §§ 760.010-765.060.)
Kahan
demurred to Zollars’s quiet title action, but her later-filed first amended
complaint
rendered that demurrer moot.
name="_ftnref7" title="">[7] Kahan filed a first amended complaint in his
unlawful detainer action, alleging that he was a bona fide purchaser entitled
to rely on a conclusive presumption of proper notice of the foreclosure
sale. (See § 2924, subd. (c).) In July 2008, after Zollars’s demurrer to
this first amended complaint was overruled, she answered that complaint.
By
this time, Kahan’s unlawful detainer action and Zollars’s quiet title action
had been consolidated. (Code Civ. Proc.,
§ 1048, subd. (a).) In August 2008,
Zollars filed a lis pendens against the property, giving notice of her quiet
title action. In November 2008, Kahan
answered Zollars’s first amended complaint.
Meanwhile,
Kahan was pursuing possible remedies against Quality Loan, the trustee for the
December 5 sale. He sought
indemnification from Quality Loan for any damages or attorney fees he incurred
defending his property interest. He also
demanded that the trustee defend him in the quiet title action. Quality Loan refused to do either. In November 2008, Kahan filed a
cross-complaint against Quality Loan, pleading causes of action for negligence,
implied indemnity and declaratory relief.
He alleged that Quality Loan had breached its duty to Kahan to provide
proper notice of the December 5 foreclosure sale, and that this breach had prompted
Zollars’s action against him. He asked
that Quality Loan indemnify him if he lost the Benicia property and Zollars was
awarded any damages. Kahan also sought
attorney fees. Quality Loan answered his
cross-complaint in May 2009.
In
May 2009, Zollars moved for summary judgment on Kahan’s first amended
complaint, for summary adjudication on his bona fide purchaser affirmative
defense and for summary adjudication on her quiet title and declaratory relief
causes of action. That motion was denied
in August 2009.
title="">[8]
C.
Trial
Zollars
remained in possession of the property at the time of the September 2009 court
trial. The quiet title action was heard
before the unlawful detainer and damages claim, with the cross-complaint heard
after the complaints.
name="_ftnref9" title="">[9]
The
documentary evidence of the competing purchases of the Benicia property was
admitted into evidence. The parties
stipulated that before the December 5 sale, Quality Loan did not advise Kahan
that the notice of default or the notice of sale had not been mailed to U.S.
Bank or to Meeks. Quality Loan’s
affidavits of mailing of the notice of default and the notice of sale did not
report that any had been mailed to U.S. Bank, Meeks or Zollars. (See § 2924b.)
At
trial, Zollars put on expert testimony suggesting that Kahan’s pre-sale review
of the public records about the property should have alerted him (1) that the
October 2006 first and second deeds of trust were intended to place Meeks’s
ownership interest in first priority; (2) that Meeks did not acquire a junior
interest in the property from Dancel; and (3) that Zollars purchased the
property a month before the December 5 sale with a Suntrust first deed of
trust. Her expert testified that for
Dancel’s second deed of trust to continue in force after Meeks acquired
Dancel’s interest in the Benicia property was “extremely unusual,†even
“bizarre.†Zollars’s expert admitted
that the timing of the various transactions was critical to a determination of
which deed of trust had priority.
Dancel’s March 2006 deed of trust was recorded before Meeks’s October
2006 deed of trust. The expert opined
that it was important for a bidder at a nonjudicial foreclosure sale to speak
with those in possession of the property before bidding.
For
his part, Kahan testified that he was an experienced bidder at foreclosure
sales, having participated in them for 30 years. He purchased properties at foreclosure sales
with the intention of reselling them.
After the notice of sale, he had 20 days to prepare a bid. As part of that preparation, he reviewed the
chain of title to determine the position of the deed of trust that was going
into foreclosure—the one that was up for bid.
Kahan did not view the Benicia property before December 5, although his
employee drove by the site immediately before the sale to be sure that it was
not damaged.
Before
the December 5 sale foreclosing on the Dancel-Ownit deed of trust dated March
2006, Kahan reviewed a title company summary of recorded transactions on the
Benicia property,
name="_ftnref10" title="">[10]
a multiple listing service report and a report of comparable sales in Benicia
the 60 days before the foreclosure sale.
He knew from these reports that Zollars had recently purchased that
property for $320,000 pursuant to the October 2006 Meeks deed of trust. He was unconcerned about this purchase,
because he concluded that the October 2006 deed of trust from which Zollars
derived her interest had a lower priority than the March 2006 deed of trust
that was the subject of the upcoming foreclosure sale.
Kahan
was very knowledgeable about foreclosure law and relied on this expertise in
his business. He knew that the owner of
a junior interest in property would be entitled to notice of a foreclosure of a
deed of trust in first position, as the junior interest would be wiped out by
foreclosure of a first position deed of trust.
As the Dancel-Ownit interest that was up for bid at the foreclosure sale
was in first position, it was superior to any interest Zollars held flowing
from the later Meeks deed of trust.
Thus, he was unconcerned about Zollars’s junior interest, which he knew
would be eliminated by foreclosure on the Dancel-Ownit deed of trust.
A
representative of Quality Loan testified that junior lien holders who were
entitled to notice were not given notice of the December 5 sale. If it had known of that failure to provide
notice before December 5, that sale would have been cancelled and the
nonjudicial foreclosure process would have begun anew.
D.
Decision
In
January 2010, the trial court issued its tentative decision on the quiet title
and unlawful detainer actions. It found
that both parties had acted in good faith and that Kahan had no notice of an
adverse competing interest in the Benicia property. It found Kahan to be a bona fide purchaser,
and—applying a statutory conclusive presumption about the regularity of
notice—found him to be the lawful owner of the property. (See § 2924, subd. (c).) It found for Kahan on both Zollars’s quiet
title action and his own unlawful detainer action. It awarded Kahan damages of $60 per day from
Zollars for the reasonable rental value of the property during possession of
it. Overruling Zollars’s objections to
the tentative decision, the trial court adopted it as the statement of decision
in March 2010.
In
August 2010, the trial court issued its statement of decision on Kahan’s
cross-action against Quality Loan. It
found that Quality Loan breached its trustee duties in the December 5
foreclosure sale, entitling Kahan to both implied indemnity and declaratory
relief. As Kahan had been awarded
damages from Zollars, the trial court awarded no damages from Quality
Loan. It did award Kahan $150,000 from
Quality Loan for attorney fees associated with the unlawful detainer and quiet
title actions.
title="">[12]
Judgment
was entered in September 2010, incorporating the trial court’s rulings on all
three underlying actions. Kahan took
possession of the Benicia property on October 26, 2010.
BONA FIDE PURCHASER
A.
Conclusive Presumption
On appeal, Zollars contends that
the trial court’s finding that Kahan was a bona fide purchaser is unsupported
by substantial evidence. The issue is
critical to Zollars’s quiet title claim and her defense to the related unlawful
detainer action, because if Kahan was not a bona fide purchaser, she could
offer evidence that his purchase was invalid because it was not properly
noticed.
In
a nonjudicial foreclosure sale, a trustee exercises a power of sale contained
in a deed of trust. The purchaser at a
nonjudicial foreclosure sale takes title by a trustee’s deed. (Nguyen
v. Calhoun (2003) 105 Cal.App.4th 428, 441 (Nguyen).) When—as here—the
deed that the trustee delivers to the buyer at a foreclosure sale recites that
all procedural requirements for the default and sale notices have been met, a
rebuttable presumption that these notice requirements have been satisfied
applies. If the buyer is a bona fide
purchaser, the presumption becomes conclusive.
1238, 1255 (Melendrez);
441.)
A
conclusive presumption requires the
trier of fact to find the existence of a presumed fact from the finding of a
basic fact. The opposing party may not
offer any evidence to rebut the existence of the presumed fact. (Melendrez,
supra, 127 Cal.App.4th at p. 1250, fn. 17.)
Kahan’s bona fide purchaser status required the trial court to give
conclusive effect to recitals in his trustee’s deed that proper notice of the
foreclosure sale had been given. If the
bona fide purchaser finding is not supported by substantial evidence, then
evidence that Meeks and U.S. Bank were not given notice of default or notice of
sale could be admitted to rebut the presumption of proper notice. (§ 2924, subd. (c).)
B.
Professional Bidder Status
Zollars contends that a
professional bidder at a foreclosure sale cannot be a bona fide purchaser, as
matter of law. However, the cases that
she cites in support of this argument do not conclude that one in the business
of buying foreclosed properties can never be a bona fide purchaser. As we read those cases, they hold that a
person’s professional bidder status is a relevant fact that may weigh when
determining whether that person is a bona fide purchaser, but not that it is a
determinative factor. (See
Inc. (2001) 85 Cal.App.4th 1279, 1286 [person in business of buying
properties at foreclosure sales as evidence
that party was not bona fide purchaser]; Estate
of Yates (1994) 25 Cal.App.4th 511, 523 (Yates) [substantial evidence supports trial court finding that
purchaser was not bona fide purchaser, in part because he was professional
bidder]; see also Nguyen, supra, 105
Cal.App.4th at p. 442 [noting that Yates
suggests that experienced bidder may not qualify
as bona fide purchaser].)
In
Melendrez, the Sixth Appellate
District rejected the same argument
Zollars makes here—that a speculator who regularly purchases property at
foreclosure sales and who purchased the subject property at a trustee’s sale
for a price substantially less than its fair market value cannot be a bona fide
purchaser. (Melendrez, supra, 127 Cal.App.4th at pp. 1249, 1253.) In so doing, it carefully considered
she heavily relies. The Melendrez
court explained that in Yates, the
Fourth Appellate District upheld a trial court’s factual finding that a
purchaser was not a bona fide purchaser.
The trustee in Yates had
completely failed to give any notice to a public administrator, despite knowing
that the administrator was administering the decedent’s estate. The Yates
trustee’s sale was set aside, based on the complete lack of notice and a
sale at a grossly inadequate price. The
trial court impliedly found that the buyer was not a bona fide purchaser, based
on evidence that the buyer regularly bought properties in foreclosure sales,
knew that the property was worth more than its price, and paid a grossly
inadequate sales price. (See
On
appeal, the Yates court did not conclude
that the buyer was not a bona fide purchaser as a matter of law. Instead, it found that there was substantial
evidence to support the trial court’s implied finding that the buyer was not a
bona fide purchaser
name="_ftnref14" title="">[14]
because he had notice of the irregularity in the sale, thus negating the second
prong of the bona fide purchaser test.
This conclusion was based in part on the buyer’s vast experience of
foreclosure sales. (Melendrez, supra, 127 Cal.App.4th at p. 1253.)
After
a purchase made at a trustee’s sale, a buyer’s foreclosure sales experience is
a factor to consider when evaluating whether the buyer is a bona fide
purchaser. This evidence is relevant to
the factual determination whether or not the buyer had knowledge or notice of a
competing claim. (Melendrez, supra, 127 Cal.App.4th at p. 1253, fn. 23.) Kahan’s professional bidder status was
clearly relevant to the trial court’s factual determination of whether or not
he was a bona fide purchaser, but we reject the contention that he was
absolutely ineligible to be a bona fide purchaser.
C.
Inquiry Notice
Zollars
also contends that there is insufficient evidence that Kahan was a bona fide
purchaser because he had inquiry notice of a defect in the December 5
sale. A bona fide purchaser is one who
pays value for property without notice of any adverse interest or of any irregularity in the sale
proceedings. (Melendrez, supra, 127 Cal.App.4th at pp. 1249-1250;
442.)
in real property without notice of the asserted interest of another in that
same property, he or she is a bona fide purchaser who takes the property free
of these unknown rights. (
1251.)
Bona
fide purchaser status requires two elements:
the purchase of property in good faith for value, and the lack of actual
knowledge or constructive notice of another’s asserted rights to the
property. (Melendrez, supra, 127 Cal.App.4th at p. 1251.) The issue of whether or not a buyer is a bona
fide purchaser is a question of fact. On
appeal, we may reverse the trial court’s determination only if it is
unsupported by substantial evidence.
Bona fide purchaser status is determined based on circumstances existing
at the time that the buyer acquired the property. Later-acquired information is irrelevant to
our consideration. (Id. at p. 1254.) Thus, we
limit our inquiry to the facts known as of the December 5 date of sale.
The
trustee’s deed upon sale evidences that Kahan paid $158,669 for the Benicia
property. This is substantial evidence
supporting the conclusion that he purchased the Benicia property for
value. This element of the bona fide
purchaser test does not require that the property be purchased at fair market
value.
exchange for the property. The adequacy
of the consideration may reflect on the good faith of the purchaser, but does
not undermine the conclusion that it was purchased for value. (Melendrez,
supra, 127 Cal.App.4th at pp. 1251, 1254.)
The
second element of bona fide purchaser status is a lack of notice. This element requires that the buyer have
neither knowledge nor notice of a competing claim. The recording laws do not protect those whose
ignorance of the title is deliberate or intentional, but protect only those who
honestly believe that they acquired good title and who invest a substantial sum
in reliance on that belief. (
1252.)
Generally,
one has notice of a particular fact if he or she has knowledge of circumstances
that, on reasonable inquiry, would lead to that fact. (Melendrez,
supra, 127 Cal.App.4th at p. 1252.)
The public records of the Benicia property gave Kahan inquiry notice
that Zollars had a junior lien against the property. However, as Zollars’s junior interest was
that was up for bid at the December 5 sale, this notice did not preclude Kahan
from being a bona fide purchaser. (See
Significantly,
a review of the public records did not
given Kahan notice of the pivotal defect in the foreclosure sale—that Zollars’s
predecessors in interest were not given notice of the December 5 foreclosure
sale. Also, there was no evidence that
Kahan had actual notice of Quality Loan’s failure to provide notice to Meeks
and/or U.S. Bank—Zollars’s predecessors in interest—that a foreclosure sale of
the Dancel-Ownit deed of trust was to be conducted that would extinguish their
interests in the underlying property.
Substantial
evidence supports the trial court’s finding that at the time of the December 5
trustee’s sale, Kahan had no actual or imputed notice that would defeat his
bona fide purchaser status. (See
1254-1255 [little evidence to challenge bona fide purchaser status].) As substantial evidence supports the trial
court’s finding that Kahan was a bona fide purchaser, we must uphold that finding
on appeal.
title="">[17] (See id.
at p. 1254.)
D.
Effect
Sections
2924 through 2924l provide a
comprehensive framework regulating nonjudicial foreclosure sales pursuant to a
power of sale contained in a deed of trust.
The purpose of this statutory scheme is threefold: to provide a creditor or beneficiary with a
quick, inexpensive and efficient remedy against a defaulting debtor; to protect
the debtor from wrongful loss of the property; and to ensure that a properly
conducted sale is final between the parties and conclusive for a bona fide purchaser. (Millennium
Rock Mortgage, Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804, 809 (Millennium);
Melendrez, supra, 127 Cal.App.4th at
pp. 1249-1250.)
Under
these provisions, when a trustee delivers a deed to a buyer at a foreclosure
sale and that deed recites that all procedural requirements for the default and
sale notices have been met, a rebuttable presumption that these notice
requirements have been satisfied applies.
If the buyer is a bona fide purchaser, the presumption is a conclusive
one. (§ 2924; Millennium, supra, 179 Cal.App.4th at p. 809; Melendrez, supra, 127 Cal.App.4th at p. 1255; Nguyen, supra, 105 Cal.App.4th at p. 441.) The purpose of this statutory presumption
serves to ensure that a properly conducted sale is conclusive to a bona fide
purchaser. (Millennium, supra, 179 Cal.App.4th at p. 809; Melendrez, supra, 127 Cal.App.4th at p. 1255; see
440.)
In
the circumstances before us, section 2924 precludes any attack based on
irregularities in the default and sale notices.
It does not bar Zollars from attempting to set aside the trustee’s sale
based on other grounds, but some evidence of fraud must be shown. (See Melendrez,
supra, 127 Cal.App.4th at pp. 1242, 1255-1257 & fn. 26.) As the person attacking the validity of
Kahan’s trustee’s sale, Zollars had the burden of proof on this issue. (See id.
at p. 1258; Hatch v. Collins (1990)
trustee’s sale, we affirm the quiet title and unlawful detainer aspects of the
judgment.
DAMAGES AND ATTORNEY FEES
A.
Damages for Lost Profits
1. Trial
Court Ruling
In
his cross-appeal, Kahan contends that the trial court erred by failing to award
him damages from Quality Loan. First, he
asserts that he should have been awarded damages for lost profits.
Kahan’s proffered evidence of lost profits as speculative. Kahan testified that between 2007 and 2009,
he purchased 17 different properties and resold them. He made an offer of proof of the rate of
return on his investment on these 17 transactions. Only one of the 17 properties was in Solano
County and it was physically distant from the Benicia property. Of the 17 sites, the one closest to the
Benicia property was actually resold for a loss. Ultimately, the trial court excluded as
speculative Kahan’s proffered evidence of monetary damage suffered from an
inability to resell the Benicia property during the period when he was
dispossessed.
Another
professional foreclosure bidder testified generally, that a 30 percent net
profit on resale of foreclosure property was the “industry standard.†That witness admitted that he did not know
anything about the condition of the Benicia property, nor about all of Kahan’s
other property interests. The trial
court admitted this evidence, finding that objections to it went to the weight
it should be afforded, rather than its admissibility.
Ultimately,
the trial court found that Kahan’s evidence of lost profits was too
speculative. It did not award any
damages for lost profits. On appeal,
Kahan contends that this was error. He
asks us to remand the matter to the trial court with instructions to allow him
to present evidence of lost profits, to calculate the amount of his lost
profits using his methodology of calculation, and to award those damages to
him.
2. Legal
Principles
In
a negligence action, the measure of damages is the amount that will compensate
the plaintiff for all detriment proximately
caused by the defendant’s breach of duty.
(§ 3333; Safeco Ins. Co. v. J
& D Painting (1993) 17 Cal.App.4th 1199, 1204.) These damages may include loss of anticipated
profits if an established business has been injured, as long as those damages
can be ascertained with reasonable certainty from the working experience of the
business, the past volume of business, and other provable data relevant to
probable future sales. (
692; Kids’ Universe v. In2Labs, supra, 95
Cal.App.4th at p. 883; Shade Foods, Inc.
v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th
847, 889-890.)
An
award of damages for lost profits turns on whether there is a satisfactory
basis for estimating the probable earnings that would have been realized if the
tort had not occurred. If no basis
exists, damages are denied. If the
operating experience of the business is sufficient to permit a reasonable
estimate of probable income and expense, then lost profits are awarded as
damages. (Natural Soda Prod. Co. v. City of L.A. (1943) 23 Cal.2d 193, 199;
Cal.App.4th at p. 883.)
Proving
the amount of lost profits can be difficult.
The evidence must make reasonably
certain both the occurrence and extent of any lost future profits. That evidence must be reasonably reliable in
order to justify an award. (
692-693; Kids’ Universe v. In2Labs,
supra, 95 Cal.App.4th at pp. 883-884, 887; S. C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529,
536.) Uncertainty about the amount of
damage is not fatal to a lost profits claim.
However, uncertainty about whether any profit would have been derived at
all from the lost business venture precludes an award. (See Kids’
Universe v. In2Labs, supra, 95 Cal.App.4th at pp. 883-884.)
A
trial court has broad discretion to determine both whether evidence should be
admitted or excluded, and whether a witness is competent and qualified to
testify as an expert. On appeal, we
review those determinations for an abuse of discretion. (Miller
v. Los Angeles County Flood Control Dist. (1973) 8 Cal.3d 689, 701
[competency]; Mora v. Big Lots Stores,
Inc. (2011) 194 Cal.App.4th 496, 513 [competency]; Zhou v. Unisource Worldwide (2007) 157 Cal.App.4th 1471, 1476
[admissibility].) To establish an abuse
of discretion, Kahan must demonstrate that the trial court exercised its
discretion in an arbitrary, capricious or patently absurd manner resulting in a
miscarriage of justice. (See
Cal.App.4th 416, 421.)
3. Focus
on Benicia Property
Kahan
raises three claims of error related to the denial of damages for lost
profits. First, he contends that the
trial court erroneously narrowed its focus to profits lost from the Benicia
property alone. Kahan argues that he
does not claim a specific lost profit on a discrete transaction, but that he
was entitled to lost profits because during the time that he was unable to
resell the Benicia property, the money that he had invested in it was
unavailable for other investment use.
We
reject this argument. Kahan had the
burden of proving that he suffered a loss as the proximate result of his
inability to obtain possession of the Benicia property and to resell it. (See § 3333.) If he was unable to sell that property for a
profit, then the proceeds of his investment would have been unavailable to him
for reasons that were unconnected to Quality Loan’s breach of its trustee’s
duties. Necessarily, Kahan’s lost
profits damages claim turns on whether and to what extent the funds invested in
the Benicia property itself were unavailable to him. Thus, he was required to demonstrate that if
he had not been delayed in acquiring possession of the Benicia property, he
would have been able to resell that property promptly and would have made a
reasonably certain amount of profit on that resale. In our view, the trial court properly focused
his lost profits claim on whether and to what extent the loss of possession of
the Benicia property may have resulted in lost profits.
4. Evidence
Beyond Benicia
In
a related attack, Kahan challenges the trial court’s discounting of his
evidence of sales and purchases outside of Benicia, involving different types
of properties or occurring at different times.
The trial court concluded that it was inappropriate to consider the
return on investment on all of Kahan’s 2007-2009 sales and merely average them
in order to determine what profits he lost on the Benicia property. It noted that some of these properties were
resold for large profits, some for smaller profits, and some at a loss. It also found that when considering the
property that Kahan resold that was geographically closest to the Benicia
property, the evidence showed that he lost money on the resale, resulting in no
lost profits.
Kahan
offered no evidence that the Benicia real estate market was similar to the
markets in the other communities where he resold foreclosed properties. Evidence of lost profits is relevant only if
the plaintiff establishes a substantial similarity between the business
analyzed and that in which the business opportunity was destroyed. (Parlour
Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 291;
Cal.App.4th at p. 886.) The trial court
found that Kahan was unable to show that the profits he made on the
transactions outside of Benicia were sufficiently similar to the profits he
hoped to make on the Benicia property to constitute persuasive evidence of what
Kahan might actually have been able to sell the property for during the months
after he purchased it. This assessment
of the evidence fell within the trial court’s discretion. (See Zhou
v. Unisource Worldwide, supra, 157 Cal.App.4th at p. 1476.) It was not an arbitrary, capricious or
patently determination that could constitute an abuse of discretion. (See Ghadrdan
v. Gorabi, supra, 182 Cal.App.4th at p. 421.)
5. Methodology
Kahan
also asserts that the trial court erred by rejecting his methodology for
calculating his return on investment. He
contends that his evidence and that of his expert witness allowed his lost
profits to be reasonably calculated at approximately 30 percent return on investment—a
calculation that he argues was sufficient to warrant an award of damages for
lost profits. Again, we disagree. The trial court had discretion to determine
whether the evidence could reliably form the basis of an award for lost
profits. (See Zhou v. Unisource Worldwide, supra, 157 Cal.App.4th at p.
1476.) It was not required to accept
Kahan’s proposed methodology at face value, but was entitled to evaluate its
underlying soundness. Having rejected
Kahan’s evidence, it also found that the evidence of his expert was not
sufficiently based on Kahan’s business practices to be given much weight. These rulings are not patently absurd, nor do
they result in a miscarriage of justice.
(See, e.g., Ghadrdan v. Gorabi,
supra, 182 Cal.App.4th at p. 421.)
6. Speculation
Having
found the trial court’s evidentiary rulings to be within its discretion, we
also conclude that its denial of an award of lost profits damages was
proper. In its statement of decision on
the cross-claim, the trial court found that Kahan’s nonattorney fees damage
claims were “[un]supported by the law or evidence†and were “speculative and
duplicative.†Speculative evidence is
irrelevant, as it has no tendency to prove a disputed fact. (See Evid. Code, § 210;
924; see Pacific Gas & Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1135.) Irrelevant evidence is inadmissible. (Evid. Code, § 350.)
We
read the trial court’s rejection of Kahan’s evidence of lost profits as a
finding that he failed to prove with reasonable certainty that he suffered lost
profits at all on the Benicia
property. (See Kids’ Universe v. In2Labs, supra, 95 Cal.App.4th at pp.
883-884.) An award of damages is
properly denied if occurrence of the damage is uncertain or speculative. (See, e.g., Grupe v. Glick, supra, 26 Cal.2d at p. 693; Kids’ Universe v. In2Labs, supra, 95 Cal.App.4th at pp. 883, 887
[new business].) As the plaintiff on the
cross-claim, Kahan had the burden of demonstrating a reasonable probability
that profits would have been earned if not for Quality Loan’s breach of
duty. (S. C. Anderson, Inc. v. Bank of America, supra, 24 Cal.App.4th at
p. 536.) The failure to offer admissible
evidence showing with reasonable certainty that lost profits actually occurred
precluded such an award.
B. Damages
for Diminution in Property Value
Kahan
also contends that the trial court should have awarded him damages from Quality
Loan for diminution in property value.
At trial, he testified that once he saw the interior of the residence,
he concluded that it was worth $425,000 at the time of purchase. By the time of the September 2009 trial,
Kahan believed that the property was worth $205,000 to $210,000. As of early September 2009—at the time of
trial—Quality Loan’s expert appraised the property at $206,000. Kahan reports that he took possession of the
property in October 2009.
On
appeal, Kahan argues that this evidence establishes that he lost $219,000 of
the value of his property during the time of Zollars’s possession. We disagree.
Kahan intended to resell the Benicia property, but he did not establish
that he would have been able to do so within a reasonably certain time
period. The evidence of the time of
resale of his 2007-2009 properties that had been resold varied from a few weeks
to two years. He reasons that averaging
these figures would provide a reasonably certain time, but that argument fails
for the same reasons that his lost profits claim failed. (See pt. III.A.6, ante.) Without knowing when
the property might have been sold, the trial court could not determine with
reasonable certainty what the value of the property would have been at the time
of sale. As the diminution in value
claim was unduly speculative, the trial court properly denied Kahan’s claim for
diminution in value damages.
name="_ftnref20" title="">[20]
C.
Attorney Fees
1. Fee
Award
Kahan
contends that the trial court abused its discretion by failing to award him a
greater amount of attorney fees. By
motion, he sought $189,884 in attorney fees and almost $15,000 in costs. Several days later, he filed a separate
memorandum of costs for an additional $5,490.
More than $21,000 of the attorney fees sought related to both the
Zollars actions and the cross-action.
More than $8,600 in claimed attorney fees were associated with the writ
of mandate to challenge the trial court’s overruling of Kahan’s demurrer. Another $3,934 in attorney fees was incurred
on damage theories that were rejected by the trial court.
Quality
Loan sought the complete denial of the motion for attorney fees. Barring that, it asked the trial court to
award no more than $145,074.75 in attorney fees. Ultimately, the trial court set $150,000 as a
reasonable award of attorney fees to Kahan for defending the
unlawful detainer action. No costs were
awarded.
2. Motion
First,
Kahan objects that the trial court required him to file a posttrial motion for
attorney fees rather than including those fees as part of the damages awarded
at trial. His motion for attorney fees
was based on section 1021.6. That
statute provides that “[u]pon motion,†a trial court may award attorney fees to
the prevailing party on an implied indemnity claim if the court finds that (a)
the indemnitee—because of the tort of the indemnitor—was required to act to
protect the indemnitee’s interest by bringing an action or defending a third
party action; (b) the indemnitor was properly notified of a demand for defense
and failed to avail itself of the opportunity to do so; and (c) the trier of
fact determined that the indemnitee was without fault in the underlying
action. (§ 1021.6.) The language of this provision requires the
prevailing party to seek attorney fees by motion, thus precluding an award of
attorney fees as damages.
name="_ftnref21" title="">[21] The trial court properly awarded attorney
fees only after Kahan’s posttrial motion.
3. Costs
Kahan
also contends that he should have been awarded $14,626.28 in costs in addition
to an award of attorney fees. He asserts
that the trial court denied his request for costs because he filed an untimely
memorandum of costs. However, the
language of section 1021.6 entitling Kahan to an award of attorney fees makes
no mention of a right to costs. We
reject his claim that case law entitles him to an award of costs as “other
expenditures incurred.†(See fn. 21,
Regardless of whether his request for costs was timely, Kahan was not
entitled to any award of litigation costs.
4. Reasonableness
of Award
Finally,
Kahan contends that the trial court’s $150,000 attorney fees award was
arbitrary and unreasonable. He urges us
to conclude that he should have been awarded $189,884—$168,837.50 that he
attributes to the underlying quiet title and unlawful detainer actions and
another $21,046.50 that he asserts was inextricably intertwined with both those
actions and the cross-action against Quality Loan.
A
trial court has broad discretion to determine what constitutes a reasonable
attorney fee. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095;
48 Cal.App.4th 1145, 1151.) An
experienced trial judge is the best judge of the value of professional services
rendered in that court. While its
judgment is subject to review, that judgment will not be disturbed on appeal
absent a showing of an abuse of discretion.
(PLCM Group, Inc. v. Drexler,
supra, 22 Cal.4th at p. 1095; Ciani
v. San Diego Trust & Savings Bank (1994) 25 Cal.App.4th 563, 571.) We find no abuse of discretion in the
$150,000 attorney fees award.
The
judgment is affirmed.
_________________________
Reardon,
J.
We concur:
_________________________
Ruvolo, P.J.
_________________________
Sepulveda, J.
name="_ftn1" title=""> [1]
All statutory references are to the Civil Code unless otherwise indicated.
name="_ftn2" title=""> [2]
The escrow records were not available at trial and one witness suggested that
the Dancel-Meeks sale might not have been an arm’s length transaction.
