Filed 4/16/13 (opn. on rehearing) 

CERTIFIED FOR PUBLICATION 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA 

FOURTH APPELLATE DISTRICT 

DIVISION THREE 

TODD KURTIN, 

 Plaintiff and Appellant, 

 v. 

BRUCE ELIEFF, 

 Defendant and Appellant. 

 G043999 

 (Super. Ct. No. 30-2007-00100307) 

 O P I N I O N 

 Appeals from a judgment and two orders of the Superior Court of Orange 

County, Nancy Wieben Stock, Judge. Judgment affirmed; one order affirmed; one order 

affirmed as modified. 

 Miller Barondness, Louis R. Miller, Daniel S. Miller; Snell & Wilmer, 

Richard A. Derevan, Todd E. Lundell and Andreea V. Micklis for Plaintiff and 

Appellant. 

 Andersen Hilbert & Parker, M. Steven Andersen, Jeffrey N. Garland, Jason 

L. Satterly; Luce, Forward, Hamilton & Scripps; McKenna Long and Aldridge and 

Charles A. Bird for Defendant and Appellant. 

* * * 
2

 We affirm the trial court’s judgment holding defendant Bruce Elieff liable 

for misstating his authority to bind a group of real estate businesses known as the “Joint 

Entities” in the course of agreeing to buy out his former partner, plaintiff Todd Kurtin. 

We affirm the trial court’s posttrial order denying Elieff’s motion for judgment 

notwithstanding the verdict. And we affirm the trial court’s grant of a new trial as to the 

issue of the precise amount of damages which Kurtin may recover. 

 However, as to one of Kurtin’s causes of action – for liability under Civil 

Code section 2343 for lack-of-good-faith breach of an agent’s warranty of authority – the 

new trial order must extend to liability as well. (All further statutory references to 

sections 2343, 2342, or 3318 will be to the Civil Code.) The jury returned inconsistent 

verdicts. Liability under section 2343 requires either (1) the lack of a good faith belief on 

an agent’s part that “he has authority” to bind “his principal,” or (2) an act by the agent 

that is “wrongful” in its nature. Case law has equated “wrongful” with tortious. Here, 

the jury found that Elieff did have a good faith belief in his authority to bind what the 

parties refer to as the Joint Entities when he signed the agreement. Furthermore, the jury 

specifically exonerated Elieff of all tort claims presented against him to the jury, 

including even the claim for negligent misrepresentation. 

 The proper remedy for inconsistent verdicts is a new trial. (See Shaw v. 

Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, 1344 (Shaw) [“Inconsistent verdicts 

are ‘“‘against the law,’”’ and the proper remedy is a new trial.”].) Accordingly, we will 

modify the new trial order on appeal to provide for the trial of liability under section 

2343, as well as damages. (Code Civ. Proc., § 906.) As modified, we affirm that new 

trial order. 

BACKGROUND 

1. The 2005 Settlement Agreement 

 Kurtin and Elieff had been equal partners in a series of real estate ventures 

in the 1990’s, doing business under the rubric of SunCal Companies. In 2003, growing 
3

disagreements between the two led Kurtin to sue Elieff to “separate” themselves. By that 

time SunCal Companies had already been “transformed” into “basically” Elieff’s 

company. 

 The litigation led to a mediation, which in turn led to a settlement 

agreement. The agreement, signed in August 2005, provided that Elieff was to buy out 

Kurtin for $48.8 million in four installment payments. 

 As Kurtin and Elieff structured their partnership, each real estate project 

was its “own little company.” The settlement agreement provided that of the $48.8 

million, both Elieff and the Joint Entities were jointly and severally responsible for the 

first installment of $21 million. However, only the Joint Entities were responsible for 

making the last three installments. 

2. Default on the Payments 

 Elieff made the $21 million first and only installment payment for which he 

could be held personally responsible. The Joint Entities made the $1.8 million second 

installment payment for which they alone were responsible. But the Joint Entities paid 

only about $3.5 million of the $13.1 million third installment payment, and nothing on 

the final installment of $12.9 million. 

 Elieff had signed the settlement agreement both “individually and on behalf 

of the Elieff Separate Entities and the Joint Entities.” The agreement had provided that if 

there was a default in any of the last three payments, Kurtin would be “entitled to have 

judgment entered pursuant to C.C.P. Section 664.6 against the Joint Entities” in an 

amount equal to the unpaid balance. 

 But when Kurtin sought to enforce the agreement against the Joint Entities 

under section 664.6 of the Code of Civil Procedure in the context of the 2003 litigation, 

the trial judge denied his request. The judge determined that the Joint Entities were not 

“parties” to Kurtin’s 2003 litigation. 
4

 Elieff opposed the attempt to enforce the agreement. He argued that the 

trial judge had correctly determined the Joint Entities had to be added as parties to the 

lawsuit before any judgment could be entered against them. 

 The trial judge did not address the question of whether Elieff had the 

authority to bind the Joint Entities. However, in opposition to a writ petition filed in this 

court by Kurtin contesting the trial court’s order, Elieff pointed out that “some of the 

Joint Entities are majority owned by independent third-parties,” and further asserted “that 

only his interest in the Joint Entities, if anything, is subject to legal action.” (Italics in 

original.) Pursuant to Evidence Code section 452, subdivision (d), on our own motion we 

have taken judicial notice of the records in writ proceeding in this court’s docket number 

G037647. 

 Two of the Joint Entities, Moorpark 150 LLC (Moorpark), and SJD 

Partners (SJD), appeared through their own counsel, and argued that Elieff did not have 

any authority to bind their assets “to resolve his personal dispute with Kurtin.” As they 

asserted in opposing the writ relief sought by Kurtin, Elieff “might as well have pledged 

the Brooklyn Bridge to Kurtin.” 

 Elieff further argued that Kurtin had an adequate remedy at law. Besides 

Kurtin’s bringing the Joint Entities into the case, Elieff took the position that Kurtin 

could either (1) demand arbitration under the arbitration clause of the settlement 

agreement, or (2) sue for breach of the settlement agreement. 

3. Arbitration 

 Kurtin never tried to bring the Joint Entities into the case. Instead he 

sought arbitration. We will recount the relevant facts involving the arbitration when we 

discuss whether the arbitration decision precludes any judgment against Elieff in more 

detail. For the moment, we need only note two things about the result of the arbitration. 

First, the arbitrator determined that the amount owing to Kurtin was $24,411,433.86. 
5

Second, the arbitrator announced a decision that only gave Kurtin the right, along the 

lines previously advocated by Elieff’s attorneys in the writ proceeding, to foreclose on 

Elieff’s own interests in the Joint Entities to the extent of that amount. 

4. The Litigation 

 a. Phase 1 accounting 

 After the arbitration, Kurtin filed this action against Elieff and the Joint 

Entities, including Moorpark and SJD. A “distribution” clause in the settlement 

agreement prompted the trial judge to propose a bifurcated trial. The clause provided 

 that “Elieff shall not take any distribution from any of the Joint Entities if such 

distribution prevents satisfaction of payment of the Settlement Payments.” With 

reference to that clause, trial judge noted that Kurtin was “alleging certain causes of 

action concerning how the defendant handled certain funds or assets of” the Joint 

Entities. There was thus a “sub-issue” as to whether “distributions are measured in every 

entity at the very moment they emerge or whether the alleged pre-existing practice 

treating the joint entities as a single unified economic force allows somebody to exercise 

the business judgment to consider it more as a whole and utilize what might be 

considered net profit from one entity to help preserve the viability of another entity for 

the purpose allegedly of making more money for everybody as to all the entities.” That 

is, the judge was concerned whether, if Elieff moved money around from one entity to 

another for the purpose of maximizing total aggregate profit, such movement might 

constitute a violation of the agreement. 

 Phase 1 of the bifurcated proceedings consisted of a five-day trial 

“concerning the accounting issues arising out” of Kurtin’s claim that Elieff had breached 

the settlement agreement by, among other things, taking distributions from entities that 

prevented repayment of remaining payments. Kurtin had charged that some $22.4 

million of “distributions” had been diverted to Elieff himself or Elieff-controlled entities. 
6

 After hearing evidence, the court made certain, limited, findings. The 

“evidence received by the Court,” said the judge, “has, in fact, accounted for every penny 

of the funds that could be classified in any way as a distribution from a joint entity in the 

period following the August 2005 settlement agreement.” 

 But the “every penny” comment did not mean the trial judge was ruling that 

Elieff had taken no “distributions” in contravention of the agreement. In fact, the trial 

judge did not actually define the word with the exception of ruling, as a matter of law, 

that the word “distribution” could not “be interpreted as precluding any and all 

distributions from being utilized for the good of the whole” 

 b. Phase 2 jury trial

 The result of phase 1 was an elaborate jury instruction (Jury Instruction No. 

10 in the record). The jury instruction encapsulates what happened at phase 1. In 

summary, the court ruled – and only ruled – that the $22.4 million in “distributions” fell 

into one of five categories, and left to the jury the task of deciding whether money falling 

into any given one of those categories was a “distribution” in contravention of the 

settlement agreement. We quote the relevant parts: 

 “At an earlier trial, the Court found that after the Settlement Agreement 

between Mr. Elieff and Mr. Kurtin was signed, Mr. Elieff used distributions of money 

from various of the Joint Entities in the total amount of $22,384,632.22. . . . The Court 

found that all of this money was used by Mr. Elieff in the following five categories: (1) 

management services; (2) management expenses; (3) management costs; (4) loan 

repayment or return of capital; and (5) payments to Mr. Kurtin. . . . [¶] The Court did 

not decide whether the taking of these distributions of money did or did not violate 

Paragraph 14 of the Settlement Agreement. The Court found that Paragraph 14 does not 

preclude Mr. Elieff from taking distributions from the Joint Entities, so long as the 
7

distributions were used to enhance, and not prevent or jeopardize, the possibility of Mr. 

Kurtin being paid the Settlement Payments required under the Settlement Agreement.” 

 Attached to the instruction was a chart giving the jury a list of 19 specific 

money outflows totaling $22,384,632.22 from various of the Joint Entities, and a 

recapitulation of the five categories (management services, management expenses, and so 

on) which the judge had identified. Fourteen of the 19 outflows listed told the jury only 

that the court had made “no specific findings other than to conclude that the amount 

distributed was used for one or more” of those categories. For example: Item number 4 

showed that on November 6, 2006, $1.5 million from one entity, Serrano Heights East, 

went into “one or more” of those five categories. 

 The remaining five outflows were more specific. About $4 million was 

used (by Rancho Etiwanda 685 and Serrano Heights East) to reimburse “Elieff/SunCal” 

for “costs incurred on joint projects.” Another outflow from Moorpark Equity Partners 

consisted of $1 million to repay a deposit from a third party, another $250,000 going to 

pay a third-party owner, with the balance (roughly half a million dollars) going either to 

Moorpark Equity Partners itself ($263,000) or to reimburse “Elieff/SunCal for advances 

made by Elieff” ($241,500). Only one item, a $1.8 million outflow from Rancho 

Etiwanda, was unambiguously shown to have been used to repay Kurtin. (Presumably 

this was the same $1.8 million referenced above as the second installment payment.) 

 Even though the settlement agreement had not personally obligated Elieff 

to pay more than $21 million of the $48.8 buyout price, Kurtin sought recovery from 

Elieff on the theory that Elieff had misrepresented his authority to obligate the Joint 

Entities to pay the balance. Concomitantly, Kurtin also claimed that Elieff had breached 

a provision in the settlement agreement to execute the customary documents “necessary 

to perfect this security interest” in Elieff’s interests in the Joint Entities. And, as just 

discussed, Kurtin asserted that Elieff had taken distributions from the Joint Entities that 

should have gone to pay off the buyout price. 
8

 From these basic claims the following six causes of action against Elieff 

were submitted to the jury: number 2, for breach of warranty of an agent’s authority 

under section 2342; number 3, for breach of warranty of an agent’s authority under 

section 2343; number 4, for fraud or intentional misrepresentation in representing to 

Kurtin that he had the authority to sign for the Joint Entities; number 5, for negligently 

misrepresenting that he had the authority to sign for the Joint Entities; number 6, for 

breaching the provision of the settlement agreement that he would execute the documents 

necessary to perfect Kurtin’s security interests in Elieff’s share of the Joint Entities; and 

number 7, for breaching the provision of the settlement agreement not to take 

distributions which prevented the Joint Entities from paying the balance of the buyout 

amount. 

 The jury, however, came back with an anomalous result. On the one hand, 

it found Elieff liable for breaching the warranty of authority under both sections 2342 and 

2343, and in each case determined the amount of damage to be $24,411,433.86, which 

was the exact amount the arbitrator had determined was owing on the unpaid balance. 

The jury further determined that Elieff had breached the provision requiring him to 

provide Kurtin with perfected security interests in Elieff’s interests in the Joint Entities. 

And it likewise determined that Elieff had breached the provision precluding him from 

taking distributions that prevented the Joint Entities from paying off the balance of the 

$48.8 million. And, again, in each case the jury assessed Kurtin’s damages at exactly 

$24,411,433.86. 

 But on the other hand the jury exonerated Elieff on both the intentional and 

negligent misrepresentation causes of action. It specifically found, in answering the 

special verdict form, that Elieff did not know his representation that he had authority to 

obligate the Joint Entities was false when he made it. And it specifically found that Elieff 

did not make the representation recklessly and without regard for its truth. Further, the 

jury concluded that Elieff did not lack reasonable grounds to believe his representation 
9

was true when he made it. Likewise, the jury found, in answering the special verdict 

form in regard to liability under section 2343, that Elieff did not “lack a good faith belief” 

in his authority to sign on behalf of the Joint Entities. 

 But then again, the jury found liability under section 2343 because Elieff 

had committed an act “wrongful in its nature” when he signed on behalf of the Joint 

Entities. As we discuss in more detail below, Kurtin’s counsel had argued to the jury that 

the precise acts committed by Elieff that were “wrongful in their nature” were the alleged 

intentional and negligent misrepresentations, and yet the jury absolved Elieff of both 

intentional and negligent misrepresentation. 

 c. Judgment, posttrial motions and appeal 

 Judgment was filed May 17, 2010, decreeing that Kurtin recover 

$24,411,433.86 from Elieff. Within 12 days Elieff gave notice of his intent to move for 

new trial. The notice was supported by four juror declarations all stating that the jury 

“solely” looked at the $24,411,433.86 from the arbitration decision, and (as stated in each 

of the four declarations) did not discuss or “look at any other evidence to determine 

damages.” The new trial motion focused on the anomaly of liability under section 2343 

in light of the jury’s exoneration of Elieff on the intentional and negligent 

misrepresentation claims. The motion further pointed out that even Kurtin’s own counsel 

had not asked the jury for damages in excess of $8 million on the violation of the nodistribution clause. Elieff also filed a motion for judgment notwithstanding the verdict 

(JNOV). 

 The trial judge denied the motion for JNOV, but granted the new trial 

motion as to damages only. The judge reasoned that the evidence would not support a 

$24,411,433.86 verdict on any of the four causes of action on which Kurtin had 

prevailed. The court noted that the $24,411,433.86 figure “exceeded the total amount of 

all” distributions from the Joint Entities, and even exceeded “Kurtin’s argued-for 
10

damages of $7,852,222.22.” The judge in particular rejected Kurtin’s argument that the 

$24,411,433.86 might be justified under section 2343 on the theory that Elieff’s 

“‘wrongful acts’” subjected him to the “full liability of his principal.” She ruled that 

damages under section 2343 were governed by section 3318, and under section 3318, 

Elieff could only be liable for what Kurtin could have “recovered and collected” from the 

Joint Entities. 

 Elieff filed a timely notice of appeal, challenging the judgment, the order 

denying the JNOV motion, and the order granting in part and denying in part his motion 

for new trial. Kurtin countered with a notice of cross-appeal, also challenging the order 

granting in part and denying in part the new trial motion. 

DISCUSSION 

1. The Effect of the Arbitration 

 Elieff contends that the arbitration decision precludes the subsequent civil 

court judgment (either by way of res judicata or collateral estoppel, or both). Because the 

arbitration issue most clearly brings the various textual provisions of the settlement 

agreement into sharp relief, we now set them forth: 

 

 a. Relevant terms of the settlement agreement 

 A number of particular features of the settlement agreement are relevant. 

First, the recitations at the beginning purport to treat Elieff and the Joint Entities as one 

collective entity. (“This Settlement Agreement is entered into . . . between Todd 

Kurtin . . . and Bruce Elieff, the Elieff Separate Entities identified in Exhibit ‘A’ and the 

Joint Projects identified in Exhibit ‘B’ on the other hand (collectively ‘Elieff’).”) 

 Second, the text of the agreement is clear that Elieff personally was only 

responsible for the initial $21 million installment payment, and not for the balance 

contemplated to come from the Joint Entities. The point is made in three separate 
11

instances. Paragraph 2 directly says it: “Elieff and each of the Joint Entities are jointly 

and severally liable for making the first Settlement Payment in the amount of 

$21,000,000. The Joint Entities are liable for making the remainder of the Settlement 

Payments.” Paragraph 3 strongly implies it, both by (a) defining default in terms of the 

particular “Elieff Party obligated to pay” (thus excluding Elieff parties, like Elieff 

himself, not obligated to pay) and also by (b) specifically separating Kurtin’s remedy for 

failure to pay the first installment from failure to pay the other installments. 

 Third, the text of the settlement agreement contemplates that the assets of 

the Joint Entities would secure the obligations of the Joint Entities under the agreement. 

It does so in paragraph 14 by both requiring Elieff personally to “execute customary 

documents necessary to perfect” a security interest to be held by Kurtin and by 

preventing Elieff from taking distributions which impair that security. Rather than 

attempting to paraphrase the remainder of that paragraph, we now quote it in full: 

“Payment to Kurtin of the Settlement Payments shall be secured by the interest of Elieff 

and the Joint Entities in the projects owned by the Joint Entities. Elieff and the Joint 

Entities shall execute customary documents necessary to perfect this security interest, 

including UCC-1 filings, provided however that Kurtin shall, within ten (10) business 

days of written notice execute those consents and/or subordination agreements necessary 

for Elieff to refinance the Pacific Point project. Elieff shall not take any distribution from 

any of the Joint Entities if such distribution prevents satisfaction of payment of the 

Settlement Payments.” 

 Fourth, paragraph 15 of the settlement agreement contains an arbitration 

clause. The arbitration clause reads: “The Parties believe that all of the material terms of 

their agreement are set forth herein. It is the intent of the parties that this Settlement 

Agreement shall be final and binding and that this Settlement Agreement shall be 

enforceable under C.C.P. Section 664.6. In the event that any Party claims that one or 

more material terms have been omitted from this Settlement Agreement, or that the 
12

Parties failed to reach an agreement as to one or more material terms, or that any other 

defect exists with respect to this Settlement Agreement that would make it unenforceable, 

the Parties agree to final and binding arbitration before Tony Piazza or, if Mr. Piazza is 

unable, before a mutually agreeable arbitrator. At such arbitration, the arbitrator shall 

imply a reasonable term that the arbitrator finds consistent with the purpose and intent of 

this Settlement Agreement or otherwise cure any defect in the Settlement Agreement by 

amending its terms. The sole act of the arbitrator shall be to issue an amendment to this 

Settlement Agreement implying such additional terms, curing any ambiguity or otherwise 

curing any defect in this Settlement Agreement that would make this Settlement 

Agreement unenforceable. The Settlement Agreement, together with any amendment 

issued by the arbitrator, shall be enforceable under C.C.P. Section 664.6.” 

 Finally, in paragraph 17, the agreement contains an integration clause: 

“This agreement contains the entire and only understanding between the Parties 

pertaining to the subject matter contained in it and supersedes any and all prior and/or 

contemporaneous oral or written negotiations, agreements, representations and 

understandings. This agreement shall be governed by California law.” 

 b. The arbitration award 

 Despite the “sole act” language in the settlement agreement, at the 

arbitration Kurtin sought a direct award for the balance due. His arbitration brief 

asserted: “Therefore, the arbitration award here should include an award against Elieff 

personally for the principal balance owing under the Settlement Agreement which, as 

explained below, is now $22,934,809.16 plus interest, attorney’s fees and costs in an 

amount according to proof at the hearing.” 

 What Kurtin received, however, was in substance simply an amendment to 

the terms of the settlement agreement. The arbitrator decreed that any recovery against 

Elieff would be restricted to Elieff’s own interests in the Joint Entities, as distinct from 
13

the total assets of the Joint Entities themselves: “If payment of $24,411,433.86 is not 

made to Todd Kurtin by June 30, 2007, then Kurtin shall have the right to require Bruce 

Elieff to transfer to Kurtin or his designee by July 10, 2007, any and all of Elieff’s right, 

title and interest - held directly or indirectly - in and to any or all of the Joint Entities 

listed on ‘Exhibit B’ to the Settlement Agreement of August 5, 2005 and Elieff shall 

promptly execute all documents necessary to effectuate such transfer.” 

 The narrowness of the arbitrator’s decision (it would be a misnomer to call 

it an “award,” though the arbitrator himself referred to it as that) was emphasized by a 

statement which soon followed the sentence quoted above, the essence of which was that 

Kurtin could still assert further rights under the settlement agreement: “Exercise of this 

right [to require Elieff to give security in his own interests in the Joint Entities] shall not, 

of itself, extinguish Kurtin’s rights to payment under the Settlement Agreement, but shall 

only reduce the amount due under the Settlement Agreement by the fair market value of 

any Elief [sic] right, title or interest transferred to Kurtin.” 

 The second paragraph of the award then bolstered the right of Kurtin to 

recover from Elieff’s own interests in the Joint Entities by prohibiting Elieff from 

encumbering those interests until Kurtin was “paid in full.” It also provided that Elieff 

would hold “in constructive trust for Kurtin anything he received from said Joint Entities 

from this date [June 11, 2007] forward.” 

 The next two, one-sentence paragraphs, suggested that there was no winner 

in the arbitration: Paragraph one read: “No attorney fees or costs are awarded.” 

Paragraph two read: “This award is not intended to preclude any other remedy that 

Kurtin may have at law, or in equity.” 

 The final paragraph of the award referred back to the arbitration paragraph 

of the original agreement. It self-consciously recognized that arbitration decision was, in 

fact, amending the terms of the original settlement agreement: “This award shall also 

constitute an amendment to the Settlement Agreement of August 15, 2005, pursuant to 
14

Paragraph 15 of that Agreement, and shall be enforceable under C.C.P. Section 664.6, as 

well as enforceable as an arbitration award.” 

 c. Discussion 

 Elieff argues the arbitration decision, as the result of a prior proceeding, 

necessarily precluded further litigation of his liability on the unpaid balance under the 

settlement agreement in this civil action as a matter of res judicata. As summarized by 

our Supreme Court in Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797, the 

doctrine of res judicata requires that the cause of action in the prior proceeding be the 

same as in the present cause of action, the prior proceeding result in a final judgment on 

the merits, and the parties be the same as in the prior proceeding. (Or in privity with 

parties in the prior proceeding). If applicable, the doctrine “not only precludes the 

relitigation of issues that were actually litigated, but also precludes the litigation of issues 

that could have been litigated in the prior proceeding.” (Bullock v. Philip Morris USA, 

Inc. (2011) 198 Cal.App.4th 543, 557.) 

 Elieff emphasizes the “could have been” aspect of the res judicata doctrine. 

He argues that Kurtin asserted his “primary right” to be made whole in the arbitration 

proceeding, which is the same primary right he subsequently asserted in this civil case, 

and therefore must be satisfied with the decision the arbitrator handed down. 

 The flaw in Elieff’s logic is that he confuses what Kurtin asked for in the 

arbitration with the arbitrator’s power to give it in light of the scope of the arbitrator’s 

powers to which the parties had agreed. It is well established that the scope of an 

arbitrator’s powers are fixed by the agreement to arbitrate. (E.g., Moncharsh v. Heily & 

Blase (1992) 3 Cal.4th 1, 8 [the “‘“‘powers of an arbitrator are limited and circumscribed 

by the agreement or stipulation of submission’”’”]; Kelly Sutherlin McLeod Architecture, 

Inc. v. Schneickert (2011) 194 Cal.App.4th 519, 528 [“An arbitrator’s powers ‘derive 

from, and are limited by, the agreement to arbitrate.’”].) 
15

 Here, the settlement agreement conferred only limited powers on the 

arbitrator. There is no provision giving the arbitrator power to make an award against 

any party for money. The arbitrator’s powers are limited to interpreting the settlement 

agreement and, at the most, amending it to insert intended but inadvertently omitted 

material terms. 

 And the arbitrator did just that. He interpreted and amended the agreement 

to insert terms which had been understood by the parties, but did not find their way into 

the final text. Thus, to the degree that the agreement was initially ambiguous as to 

Kurtin’s right to security involving all the assets of each Joint Entity, the arbitrator 

cleared up that ambiguity by limiting Kurtin’s right to security to just Elieff’s interests in

each Joint Entity. 

 The “primary right,” then, that was adjudicated in the arbitration was not 

Kurtin’s “right to be made whole,” but Kurtin’s right, under the agreement, to have the 

mediator who midwifed the settlement agreement interpret, and if necessary amend, the 

agreement. This case thus presents the opposite of the usual could-have-been-decided 

situation in res judicata analysis, where a litigant seeks to litigate in a second proceeding 

what could have been litigated in the first place. Here, a litigant sought to litigate more in 

the first proceeding than he could have possibly obtained from it. 

 Elieff’s argument that O’Malley v. Petroleum Maintenance Co. (1957) 48 

Cal.2d 107 (O’Malley), University of San Francisco Faculty Assn. v. University of San 

Francisco (1983) 142 Cal.App.3d 942, 954 (University of San Francisco), Felner v. 

Meritplan Ins. Co. (1970) 6 Cal.App.3d 540, 544 (Felner), and Crofoot v. Blair Holdings 

Corp. (1953) 119 Cal.App.2d 156, 186-187 (Crofoot) compel a contrary result is 

unpersuasive. All these cases are distinguishable. 

O’Malley and University of San Francisco both involved second 

agreements to specifically submit disputes to arbitrators which clearly encompassed the 

scope of what was later challenged in court. (See O’Malley, supra, 48 Cal.2d at p. 108 
16

[submission agreement made after initial collective bargaining agreement specifically 

included question of arbitrability by arbitrators] & p. 110 [holding employer bound by 

terms of its submission agreement]; University of San Francisco, supra, 142 

Cal.App.3d at pp. 945, 953-954 [noting that “additional agreement” plus “discussion at 

the hearing” showed that supplemental pension provisions “were properly a subject of 

arbitration,” plus “the parties stipulated” that the arbitrator had the power to decide issue 

of his own “jurisdiction’”].) 

Crofoot involved an agreement to arbitrate after a “plethora” of litigation 

which, by its terms, included issues of law as well as fact. The court rejected, as a matter 

of textual interpretation of the agreement to arbitrate, one party’s argument that the terms 

of the agreement “necessarily” excluded issues of law. (Crofoot, supra, 119 

Cal.App.2d at pp. 164, 186.) Likewise, in Felner, the text of the agreement to arbitrate –

there an uninsured motorist provision in an insurance policy – was held “broad enough” 

and “sufficiently comprehensive” to include a dispute over whether an uninsured motorist 

actually came into “physical contact” with the insured. (Felner, supra, 6 Cal.App.3d at 

pp. 543-544.) 

 In the case before us, unlike O’Malley and University of San Francisco, 

there was no second agreement specifically to arbitrate which encompassed the 

arbitrability of some issue which might have been outside some initial agreement. And 

unlike Crofoot and Felner, the actual text of this arbitration agreement – here, the 

settlement agreement itself – will not support the resolution by the arbitrator of the 

question of damages. We need only note additionally that while Kurtin may have sought 

more from the arbitrator than the arbitrator had the power to give, Elieff vigorously 

opposed Kurtin’s attempt, and Elieff was successful in that opposition. 
17

2. The Mediation Privilege 

 What we have just said about the nature of the settlement agreement bears 

on Elieff’s main argument against the judgment, namely that Kurtin’s invocation of the 

mediation privilege denied Elieff a fair trial. Elieff’s argument goes like this: Various 

terms of the settlement agreement were ambiguous, particularly the clauses requiring 

Elieff to execute “customary” security documents. Typically, in contract litigation, 

extrinsic evidence is allowed so that the trier of fact may resolve the issue of what the 

parties intended when they used ambiguous terms in a contract. (E.g., Duncan v. The 

McCaffrey Group, Inc. (2011) 200 Cal.App.4th 346, 381, overruled on another point in 

Riverisland Cold Storage v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 

1169, 1176, 1182 [“extrinsic evidence can be admitted to explain the ambiguity in the 

contract”].) But here, by asserting the “mediation privilege” (see Evid. Code, § 1119), 

Kurtin effectively prevented the trier of fact from hearing evidence from the mediation 

bearing on any ambiguities in the settlement agreement. Therefore, just as an attorney 

sued by a former client for malpractice must be allowed to use otherwise confidential 

information received from that client (cf. McDermott, Will & Emery v. Superior Court 

(2000) 83 Cal.App.4th 378, 385), Kurtin’s decision to hold firm to the mediation 

privilege means Elieff did not get a fair trial. Elieff should either have been allowed to 

present evidence otherwise precluded by the mediation privilege to defend himself or 

Kurtin should have been required to drop his claims. (See Solin v. O’Melveny & Myers

(2001) 89 Cal.App.4th 451 [client’s invocation of attorney-client privilege vis-à-vis 

attorneys sued for malpractice required dismissal of malpractice action against them].) 

 There are two flaws in the argument: One, Elieff already had a chance to 

clear up ambiguities in the settlement agreement before trial in arbitration. In fact, he 

actually used the arbitration process to clear up, in his favor, at least one ambiguity. 

(Here the parties acknowledge that the initial out-of-court proceeding was a mediation. 

The later proceeding which resulted in clarification of the settlement agreement is 
18

referred to by the parties as an arbitration. Mediation and arbitration are two different 

things, as Evidence Code section 1119, subdivision (a) makes clear. What went on at the 

mediation was the subject of the mediation privilege. Further proceedings in arbitration 

would not be so privileged.) 

 Two, even if, arguendo, Elieff did not have a chance to clear up ambiguities 

by way of arbitration prior to going to civil trial, Kurtin still did not forfeit his right to sue 

Elieff by asserting the mediation privilege. The California Supreme Court has clearly 

signaled the policy behind the mediation privilege is so strong that California law is 

willing to countenance the “high price” of the loss of relevant evidence to protect the 

privilege. (Cassel v. Superior Court (2011) 51 Cal.4th 113, 138 (conc. opn. of Chin, J.).) 

 a. Elieff’s chance to clear up ambiguities before trial 

 The first flaw in Elieff’s mediation privilege argument is that he ignores the 

opportunity he had to resolve ambiguities in the settlement agreement by returning to the 

original mediator in arbitration. Accordingly, Elieff cannot now be heard to complain 

that he was denied the chance to resolve ambiguities at trial. The arbitration paragraph 

gave each party the right to go to arbitration in front of the one person most familiar with 

what the parties achieved at their mediation – the mediator himself – where any 

ambiguity in its terms might be resolved. 

 As against such an opportunity, Elieff counters with the argument that the 

arbitration paragraph (giving the parties the right to return to the arbitrator) really is 

restricted to situations absolutely necessary to make the settlement agreement 

enforceable. Outside of those situations, he now argues, the arbitrator did not have the 

power to interpret ambiguous terms in the settlement agreement. 

 We cannot agree. The text of the arbitration clause is, on balance, most 

naturally read to set forth three sets of arbitral powers, with only the last of those three 

tethered to the idea of some need to avoid making the agreement unenforceable. 
19

 We begin by observing the arbitration clause (quoted in full on page 12, 

infra) consists of six sentences: The first two make the points that the settlement 

agreement consists of all material terms, and the parties want the agreement to be 

enforceable, while the sixth sentence specifies the intent that the agreement indeed be 

enforceable as the settlement of pending litigation under Code of Civil Procedure section 

664.6. 

 It is sentences three and five on which Elieff relies to confine the 

arbitrator’s power to interpret or cure ambiguities only to situations where the cure was 

absolutely needed to preserve enforceability. For reader convenience, we quote those 

two sentences again here, and include the intervening sentence four: 

 “[Sentence 3:] In the event that any Party claims that one or more material 

terms have been omitted from this Settlement Agreement, or that the Parties failed to 

reach an agreement as to one or more material terms, or that any other defect exists with 

respect to this Settlement Agreement that would make it unenforceable, the Parties agree 

to final and binding arbitration before Tony Piazza or, if Mr. Piazza is unable, before a 

mutually agreeable arbitrator. [Sentence 4:] At such arbitration, the arbitrator shall 

imply a reasonable term that the arbitrator finds consistent with the purpose and intent of 

this Settlement Agreement or otherwise cure any defect in the Settlement Agreement by 

amending its terms. [Sentence 5:] The sole act of the arbitrator shall be to issue an 

amendment to this Settlement Agreement implying such additional terms, curing any 

ambiguity or otherwise curing any defect in this Settlement Agreement that would make 

this Settlement Agreement unenforceable.” 

 Readers will see that sentences three and five are constructed in two 

parallel series of three clauses, each clause dealing with, in order: (1) omission of 

material terms; (2) curing ambiguity or disagreement as to those material terms; and (3) 

unspecified defects. In each sentence, only the last clause, concerning unspecified 

defects, is unambiguously connected to the idea of remedying unenforceability. Thus, to 
20

make the unenforceability language apply to either of the first two clauses, one must 

relate back to the first and second clauses the unenforceability language one finds in the 

third clause. And that of course is how Elieff reads sentences three and five in this 

appeal. 

 To be sure, Elieff’s argument is consistent with the references to “other 

defect” in sentence three, and the reference to “otherwise” in sentence five. Those two 

references can indeed be stretched to suggest a connection between what happens in the 

third clause and what has gone before in clauses one and two. 

 All else being equal, however, courts prefer a more natural reading of text 

to a less natural one, whether that text be found in a statute (e.g., Runyon v. Board of 

Trustees of California State University (2010) 48 Cal.4th 760, 768; Munson v. Del Taco, 

Inc. (2009) 46 Cal.4th 661, 672) or a contract (Lapp-Gifford Co. v. Muscoy Water Co.

(1913) 166 Cal. 25, 27-28 [more natural interpretation of letter to creditor containing 

check for “final payment” was that it did not refer to payment in full of the disputed 

debt]; Dover Village Assn. v. Jennison (2010) 191 Cal.App.4th 123, 128-129 [more 

natural reading of CC&R’s was that sewer pipes were not “‘exclusive use’” items for 

purposes of repair responsibility].) And of course courts are directed by statute to read 

contracts as a whole, so, if reasonably practical, no part is deprived of effect. (Civ. Code, 

§ 1641.) 

 In this case, we conclude Elieff’s interpretation of the arbitration provision 

is not the more natural reading and does not give effect to the whole of the arbitration 

provision. 

 First, Elieff’s reading is by no means compelled. Sentence three’s phrase 

“other defect,” and sentence five’s use of the word “otherwise” do not necessarily require 

a connection to the first two clauses. Logically, each of the three clauses can be seen as 

independent of the others, i.e., the arbitrator has three sets of powers: (1) omission of 

material terms; (2) curing ambiguity or disagreement as to material terms; and (3) curing 
21

any unspecified defects which might make the agreement not enforceable. The 

independence of the three clauses is confirmed when one realizes that, grammatically, in 

sentence three the third clause is not even necessary to make an intelligible English 

sentence. Sentence three is written so the first two clauses easily survive even if the third 

were completely omitted. (Thus: “In the event that any Party claims that one or more 

material terms have been omitted from this Settlement Agreement, or that the Parties 

failed to reach an agreement as to one or more material terms, the Parties agree to final 

and binding arbitration . . . .”) 

 By the same token, sentence five, like sentence three, also can be read 

logically to set forth three independent clauses, though the gerund-based parallel 

construction (“implying . . . curing . . . or otherwise curing”) makes it impossible to 

simply omit the third clause. Even so, the “or” separating the third clause from the other 

two emphasizes the independence of each clause: Either (1), (2) “or otherwise” (3). In 

that sequence, whatever is attached to (3) is not necessarily attached to (1) or (2). 

 Second, Elieff’s reading of the arbitration clause tends to reduce sentence 

four to a meaningless afterthought. Sentence four begins by pegging off sentence three 

(“[a]t such arbitration”) but articulates two powers of the arbitrator without any 

qualification as to enforceability. To be sure (as shown by sentences one, two and six), 

the parties clearly wanted their mediated agreement to be enforceable. But if they wanted 

to confine the arbitrator’s powers solely to what was necessary to “save” that 

enforceability, there was no need to write sentence four. By stating powers in sentence 

four without any reference to enforceability, an intention is evidenced to give the 

arbitrator powers to construe the contract without a need to justify their use on a “saving” 

theory – an intention particularly demonstrated by the structure of the preceeding 

sentence three, where the reference to enforceability (as shown above) is not even 

grammatically necessary. 
22

 Third, and most importantly, the last antecedent rule strongly indicates the 

arbitrator’s powers are necessarily pinned down by a requirement to only be exercised to 

“save” the agreement. (See ACS Systems, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 

147 Cal.App.4th 137, 150 [applying last antecedent rule, which usually applies to 

statutes, to contracts as well].) 

 The last antecedent rule is the common sense presumption that the tail 

should not wag the dog in sentence construction, i.e., qualifiers apply to words and 

phrases immediately preceding them, as distinct from words and phrases more remote. 

(See Renee J. v. Superior Court (2001) 26 Cal.4th 735, 743.) In this regard, we note that 

if the parties really meant to confine the arbitrator’s power to interpret terms or cure 

ambiguities to only situations where it was absolutely necessary to make the agreement 

enforceable, they could easily been much clearer than appending that limitation to the last 

of three successive clauses. (Here’s one possibility: “In order to make sure this 

agreement is absolutely enforceable, the arbitrator shall have the power to (1) insert 

omitted terms, (2) cure ambiguities, or (3) remedy defects, but the arbitrator’s power to 

so shall be limited only to those situations where it is necessary to make sure the 

agreement is enforceable; otherwise the arbitrator shall have no power at all.”) 

 Four, a reading of the arbitrator’s powers not dependent on a need to “save” 

the agreement was one Elieff himself used with ease at both the trial and appellate level 

in other contexts when describing the arbitration clause. At the trial level, in the context 

of opposing Kurtin’s attempt to obtain judgment under section 664.6 of the Code of Civil 

Procedure, Elieff’s trial counsel observed: “The Settlement Agreement provided for final 

and binding arbitration in front of the person who mediated the settlement, Tony Piazza, 

if a party claimed that a material term had been omitted or that another defect with the 

agreement existed.” The sentence lacks any qualifier about “only if necessary to save the 

agreement.” 
23

 Likewise, at the appellate level, after Kurtin sought writ relief in this court 

because the trial court refused to grant the Code of Civil Procedure section 664.6 motion, 

Elieff’s counsel quoted with approval Kurtin’s counsel’s characterization of the 

arbitration provision that “‘if there’s anything in this agreement that prevents the express 

intent of the parties from being carried out, the arbitrator can fix it basically.’” The 

context of that quotation, ironically, was Elieff’s point that Kurtin already had a remedy 

to enforce the agreement in arbitration. And again, nothing was said about enforceability 

qua enforceability being a prerequisite for resort to the arbitrator. 

 And finally, in this regard, we also further note that at the arbitration that 

was actually held, Elieff won an important interpretational victory independent of any 

need to save the contract – a victory he certainly has not repudiated as beyond the 

arbitrator’s powers. Namely, he established that Kurtin’s claims under the agreement 

only extended to Elieff’s own interests in the Joint Entities, as distinct from being directly 

against the Joint Entities themselves. 

 In sum, on balance, we conclude the better reading of the text of the 

arbitration clause is that Elieff could have cleared up any ambiguities he thought 

necessary to his defense by going back to the mediator prior to trial. Doing so, we note, 

would also have been consonant with the zealous regard the law affords the mediation 

privilege, which we now address. 

 

b. California’s Zealously Guarded Mediation Privilege 

 But even if the arbitration clause is limited to just clearing up what is 

minimally necessary to have an enforceable agreement, Elieff’s more basic argument – 

that Kurtin forfeited his claims against Elieff by invoking the mediation privilege 

(see Evid. Code, §§ 1115-1128 and particularly § 1119) – cannot prevail. The mediation 

privilege carries with it different dynamics than simple attorney malpractice cases where 

a party can indeed be required to give up an evidentiary privilege as the price of asserting 
24

its claim. (E.g., Solin, supra, 89 Cal.App.4th at p. 467; McDermott, Will & Emery v. 

Superior Court, supra, 83 Cal.App.4th at p. 385 [corporate outside counsel entitled to 

judgment in shareholder derivative action where counsel could not make use of attorneyclient communications].) Elieff’s theory concerning mediation simply cannot be squared 

with what our Supreme Court unanimously both did and said in Cassel v. Superior Court, 

supra, 51 Cal.4th 113. 

 In Cassel, a plaintiff in a legal malpractice action claimed his attorneys had, 

in a pretrial mediation, pressured, harassed and otherwise coerced him into accepting a 

lower price than he wanted for certain licensing rights. The Supreme Court upheld a trial 

court order precluding the admission of evidence related to the mediation, including the 

discussions the plaintiff had with his attorneys. (Cassel, supra, 51 Cal.4th at pp. 121, 

138.) The high court acknowledged that the exclusions “may indeed hinder the client’s 

ability to prove a legal malpractice claim against the lawyers.” (Id. at p. 122) But, as 

Justice Chin separately wrote to explain why he was “reluctantly” concurring in the 

judgment, the high court was willing to pay such “a high price . . . to preserve total 

confidentiality in the mediation process.” (Id. at p. 138 (conc. opn. of Chin, J.).) 

 The application of the mediation privilege in Cassel meant, under the 

particular circumstances of that case, the plaintiff’s ability to present a claim was 

hindered. Here, Elieff argues that application of the mediation privilege supposedly 

hindered his ability as defendant to defend against a claim. And on that difference – the 

difference between one’s status as a plaintiff or as a defendant – Elieff hangs all attempt 

to distinguish Cassel. 

 But we cannot see any meaningful difference between plaintiffs and 

defendants in the mediation privilege situation. In fact, differentiating between them 

makes no sense. One need only think of the consequence of Elieff’s position to 

understand it was never intended by the Legislature. Under Elieff’s theory, parties to a 

mediation would know that if they were successful in achieving a mediated settlement in 
25

which they were the obligee, they could not enforce the settlement without running the 

risk of their adversaries claiming terms of the settlement were ambiguous, and forcing 

either (1) the disclosure of communications made in the course of the mediation or (2) the 

loss of the very benefit of that mediation, which was the mediated agreement itself. By 

contrast, obligors would have a natural advantage over obligees. They could put obligees 

to the Hobson’s choice of giving up the benefit of the settlement or allowing the airing of 

privileged communications. The Legislature obviously never intended such asymmetry. 

 Due process is an underlying theme of Elieff’s argument. Somehow, he 

says, it was fundamentally unfair that he was sued under a mediated agreement but was 

not allowed to bring evidence bearing on what the parties discussed concerning the actual 

terms of that agreement. But the Cassel decision itself confronted and rejected the idea 

that enforcing the mediation privilege statutes “in strict accordance with their plain 

terms” deprives a civil litigant of due process. (Id. at p. 124.) Said the court: “We 

further emphasize that application of the mediation confidentiality statutes to legal 

malpractice actions does not implicate due process concerns so fundamental that they 

might warrant an exception on constitutional grounds. Implicit in our decisions . . . is the 

premise that the mere loss of evidence pertinent to the prosecution of a lawsuit for civil 

damages does not implicate such a fundamental interest.” (Cassel, supra, 51 Cal.4th at 

p. 135, italics added.) 

 Moreover, and significantly, a page after the “mere loss of evidence” 

statement, the Cassel opinion again rejected the notion that somehow due process was 

implicated by protection of the privilege, but phrased its idea in such a way as to apply to 

both sides of a dispute: “The Legislature decided that the encouragement of mediation to 

resolve disputes requires broad protection for the confidentiality of communications 

exchanged in relation to that process, even where this protection may sometimes result in 

the unavailability of valuable civil evidence.” (Cassel, supra, 51 Cal.4th at p. 136, italics 

added.) 
26

 This court followed Cassel in its recent decision in Provost v. Regents of 

University of California (2011) 201 Cal.App.4th 1289 (Provost), where we rejected the 

claim of a party seeking to disavow a stipulated settlement arrived at through mediation, 

even though the party claimed coercion from threats of criminal prosecution by the other 

party if he did not enter into the agreement. (See id. at pp. 1302-1304.) If evidence of 

coercion in the achievement of a mediated agreement itself was properly excluded by the 

mediation privilege in Provost, how much less compelling is Elieff’s contention that 

Kurtin should forfeit his claim to repayment where the assertion of the privilege entails 

only an incidental loss of evidence from a mediation bearing on allegedly ambiguous 

contract terms. 

 Elieff places great reliance on In re Marriage of Kieturakis (2006) 138 

Cal.App.4th 56 (Kieturakis) for his forfeiture theory, but the case doesn’t help him. 

Kieturakis is a somewhat complicated case that arose from a mediated 

divorce settlement which lopsidedly favored the husband, so we must explore it in some 

detail to show why does not stand for what Elieff claims. In fact, Kieturakis is a case 

which strongly upholds the mediation privilege. 

 After the mediated divorce settlement in Kieturakis the wife attempted to 

set it aside. Under substantive family law, the question then arose as to whether the 

husband had exerted undue influence in obtaining the settlement agreement, and, again as 

a matter of substantive family law, on that issue the husband bore the burden of showing 

he did not exert undue influence. To ascertain whether the husband had indeed exerted 

undue influence, the trial court allowed in evidence from the mediation in the interests of 

“‘justice’” (Kieturakis, supra, 138 Cal.App.4th at p. 75) – something which, we now 

note, would clearly not be correct under Cassel or Provost. But, having made that 

mistake, the trial court concluded the husband had carried his burden of showing an 

absence of undue influence, so the trial court did not set aside the agreement. In effect, 
27

the trial court’s finding the husband had indeed carried his burden rendered harmless the 

earlier error of admitting evidence from the mediation. 

 Accordingly, the appellate court affirmed the order refusing to set aside the 

agreement. However, in affirming, it took the opportunity to explain that because the 

settlement was the product of mediation, the trial court had still erred in determining the 

husband bore the burden of proof. (Kieturakis, supra, 138 Cal.App.4th at p. 85.) To 

apply a presumption of undue influence from a lopsided agreement arising out of 

mediation would undermine the Legislature’s preference for mediation. (Id. at pp. 85-

87.) 

 It was in the process of recognizing that there was indeed a cost to be paid 

for the Legislature’s value judgment placing a higher value on mediation than on the 

substantive family statutes involving possible undue influence, that the Kieturakis court 

made a comment which Elieff now asserts requires dismissal of Kurtin’s claims. 

“However, if there is a price to be paid in fairness to preserve mediation confidentiality, 

the cases have required that it be paid by parties challenging, not defending, what 

transpired in the mediation.” (Kieturakis, supra, 138 Cal.App.4th at p. 87.) 

 We are not persuaded by Elieff’s argument connecting (a) the observation 

made by the Kieturakis court and (b) the idea Kurtin was put to a forced choice of giving 

up the mediation privilege or dropping his claims. Elieff’s argument is a non sequitur. It 

does not follow from (a) Kieturakis’ proposition that a party to a mediated agreement 

who later wants to get out from under the terms of that agreement cannot use evidence 

from the mediation to achieve her purpose if the other party asserts the mediation 

privilege to Elieff’s proposition that (b) a party seeking to enforce a mediated agreement

cannot do so without simultaneously losing the right to assert the mediation privilege. 

Kieturakis’ observation was, in context, a simple recognition that a party, 

such as the wife in the case before it, who seeks to set aside an agreement resulting from 

a mediation, will have a “price” to pay in being unable to use what happened at the 
28

mediation to challenge the agreement. And under Cassel, that recognition is fairly 

unremarkable. Indeed, as applied to the case before us, the observation only strengthens 

our conclusion that the mediation privilege statutes mean that it was Elieff, not Kurtin, 

who was required to pay the “price” of the Legislature’s policy in favor of mediation 

confidentiality. The whole point of the passage in Kieturakis was that the mediation 

statutes reflect such a strong legislative policy that it even allows “unfair agreements to 

stand.” (Kieturakis, supra, 138 Cal.App.4th at p. 87.) As with Provost, if the Legislature 

is willing to allow even unfair mediated agreements to stand as a result of mediation 

confidentiality, it certainly is willing to stomach whatever incidental unfairness might 

result from a party’s inability to use mediation evidence to explain allegedly ambiguous 

terms within a mediated agreement. 

 In sum, Kurtin did not lose this case by asserting a mediation privilege 

which the Legislature has chosen to zealously protect. 

3. The “Accounting” and Damages

 Elieff argues that cause of action number 7 (for violation of the 

“distribution” clause in paragraph 14) is precluded from any retrial because the 

“accounting” which Kurtin received established that Elieff took no “profits” and spent 

funds only for authorized purposes. As Elieff’s trial attorney said after the trial judge 

delivered her decision in the phase 1 trial from the bench, “I want to address the issue of 

whether there’s anything left to submit to a jury on the seventh cause of action.” 

 The argument overstates what happened in the trial court. There was 

indeed much left after the phase 1 trial. The trial judge did not rule that Elieff took no 

“distributions.” She ruled, rather, that money which was used by Elieff to maximize the 

“good of the whole” would not be covered by the distribution clause. 

 Only one of the five destinations of the outflows identified by the trial 

court, payments to Kurtin, is unequivocally not a “distribution” taken by Elieff to 
29

“prevent” repayment of the unpaid balance. (That distribution was the $1.8 million that 

was itself a payment to Kurtin.) A reasonable jury might readily conclude that outflows 

within the other four categories (management services, management expenses, 

management costs, return of capital) both (a) did not benefit the Joint Entities as a whole 

and (b) prevented repayment of the unpaid balance. And the ultimate categorization of 

the various outflows was left to the jury. The trial judge granted a new trial on damages 

because the numbers of available outflows did not add up to the $24.4 million which the 

jury awarded on the seventh cause of action. 

 Put another way, the “gist” or “essence” of Kurtin’s seventh cause of action 

was not one in equity. (Cf. De Guere v. Universal City Studios (1997) 56 

Cal.App.4th 482, 507-508 [explaining when parties are, or are not, entitled to jury trial in 

context of contract actions involving accountings].) Tracing the various outflows from 

discrete Joint Entities was only ancillary to the true gravamen of that cause of action, 

focused as it was on whether various outflows came within the category of distributions 

that prevented repayment. A reasonable jury might very well find that much mischief 

might be done under the cover of management services, expenses, and costs. Even 

capital that was “returned” to Elieff might, if not otherwise linked to the “good of the 

whole,” and if that return had the effect of preventing repayment, constitute an improper 

“distribution” under the distribution clause. With the exception of the “good of the 

whole” qualifier appended to the definition of distribution by the trial judge, the whole 

tenor of the settlement agreement was that Kurtin would be paid off the top from any 

money available for outflows from any of the Joint Entities, even if it meant that Elieff 

might go out of pocket. 

 By the same token, we must reject Elieff’s argument that Kurtin did not 

prove any damages. While a requirement of actual collectability from the Joint Entities 

puts a limit on Elieff’s liability under section 2342 and under section 2343 per section 

3318 (see discussion below in part 5 of this opinion), Kurtin had no need to establish 
30

collectability under his cause of action for violation of either the “distribution,” or 

security-document clauses of paragraph 14. And phase 1 showed that of $22.4 million in 

outflows from Joint Entities identified in the phase 1 trial, only $1.8 million was shown 

to have been paid to Kurtin. That leaves about $20 million in distributions for which 

Elieff might (at least in theory) be personally liable under the distribution and security 

clauses of the settlement agreement alone. 

4. Inconsistent Verdicts Regarding Section 2343

 Kurtin’s cause of action number 3 for violation of section 2343 presents the 

problem of inconsistent jury verdicts. The text of section 2343 plainly requires either the 

absence of a good faith belief on the part of the agent that he or she “has authority” to 

enter into the contract on behalf of a principal, or acts “wrongful in their nature.” Here is 

the text of section 2343: “One who assumes to act as an agent is responsible to third 

persons as a principal for his acts in the course of his agency, in any of the following 

cases, and in no others: [¶] 1. When, with his consent, credit is given to him personally 

in a transaction; [¶] 2. When he enters into a written contract in the name of his principal, 

without believing, in good faith, that he has authority to do so; or, [¶] 3. When his acts 

are wrongful in their nature.” 

 The problem is the jury found that that Elieff did have a good faith belief he 

could obligate the Joint Entities, and the only “wrongful” acts which the jury were asked 

to impute to Elieff were negligent or intentional misrepresentation, and the jury refused to 

find he engaged in either of those wrongful acts. Compounding the problem was 

Kurtin’s own argument to the jury at the end of trial. That argument specifically linked 

Kurtin’s claim of wrongful acts to the intentional misrepresentation claim. Kurtin’s 

counsel rhetorically asked the jury, “Did Bruce Elieff commit an act that was wrongful in 

its nature when he signed the settlement agreement on behalf of any of” the Joint Entities, 

then answered his own question by referring to his intentional misrepresentation cause of 
31

action, emphasizing that Elieff had committed fraud: “Now, I’m going to defer on this 

question because in a minute we’re going to come to a verdict form on what’s called 

intentional misrepresentation.” 

 Kurtin posits that any “wrongful” act that might be derived from the facts 

generally before the jury will satisfy section 2343, regardless of whether the jury 

specifically found that Elieff actually committed it. In particular, Kurtin suggests that a 

“wrongful” act can be extracted from facts showing breach of a partnership duty. The 

argument, however, rests on an incorrect interpretation of section 2343. 

 Case law explicating section 2343 shows that the “acts are wrongful in their 

nature” clause arises in juxtaposition to the normal rule that agents are not liable for the 

torts or breaches of contract of their principals. (See Sanchez v. Lindsey Morden Claims 

Services, Inc. (1999) 72 Cal.App.4th 249, 255 [independent insurance adjuster retained 

by insurer to adjust loss not directly liable in tort for negligent claims handling].) The 

“wrongful in their nature” clause codifies a corollary rule that agents are responsible for 

their own independent torts and breaches of contract in connection with “acts in the 

course of their agency.” (See Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & 

Gladstone (2003) 107 Cal.App.4th 54, 68-85 (Shafer) [attorney of insurance company 

providing coverage for defendant liable for own fraud in misrepresenting defendant’s 

coverage to third party claimants]; Bayuk v. Edson (1965) 236 Cal.App.2d 309, 319-320 

(Bayuk) [rejecting agent’s argument he could not be liable on theory “he was acting for a 

disclosed principal,” because he “personally agreed” to supervise construction of house 

and was negligent in doing so].) 

 Here, however, the jury never determined that Elieff committed any 

wrongful act in the course of signing on behalf of the Joint Entities. To be sure, he 

breached his own personal obligations not to take distributions which prevented 

repayment and to provide documents to secure his own interests in the Joint Entities, but 

those were not “acts in the course” of an assumed agency. The jury specifically found, in 
32

regard to his signing, that he had a good faith belief in his authority, and made no 

misrepresentation, intentional or negligent. Because of these inconsistent verdicts, we 

cannot say that the jury impliedly found a tort or a breach of contract “in the course” of 

an agency where they had not been asked to find one. 

 The trial court itself rejected Elieff’s motion for a new trial as to liability 

under section 2343 by concluding that the evidence showed wrongful conduct in the lack 

of an intention to ever “expose” the Joint Entities to liability and by “act[ing] to impair” 

their ability to perform. The problem with the former rationale is that the jury rejected all 

findings of fraud or misrepresentation on Elieff’s part. The problem with the latter 

rationale is that Elieff’s obligation under the distribution clause not to impair the Joint 

Entities’ ability to perform was a personal obligation (liability for which remains 

undisturbed by our decision today), not an act “in the course” of his assumed agency. 

 The law is clear that the proper remedy for inconsistent verdicts is “not to 

grant judgment as a matter of law in favor of one of the parties, but rather, to order a new 

trial.” (Stillwell v. The Salvation Army (2008) 167 Cal.App.4th 360, 376; Shaw, supra, 

83 Cal.App.4th at p. 1344; e.g., Oxford v. Foster Wheeler LLC (2009) 177 Cal.App.4th 

700, 704 [“Because the jury rendered inconsistent verdicts, we will reverse and remand 

for a new trial.”].) We have power to modify the new trial order on appeal to have it 

include a new trial on the issue of liability under section 2343 as well as damages (Code 

Civ. Proc., § 906), and do so now. 

5. Kurtin’s Cross-Appeal 

 a. The Relationship Between Section 2343 and Section 3318 

 i. no effect on new trial order 

 The trial court’s formal order on motion for new trial agreed with Elieff’s 

contention that the measure of damages for the violation of section 2343 is found in 

section 3318. In particular, the trial judge cited the language from section 3318 that the 
33

measure of damages is what “could have been recovered and collected from [the agent’s] 

principal if the warranty had been complied with” as governing in the new trial to come. 

Accordingly, the judge ruled that “even as” to the cause of action for violation of section 

2343, “Kurtin [would be] required to prove actual damages.” The judge “left for another 

day” the question of how “‘recovered and collected’” should be interpreted and “what 

degree of certainty” would meet “that standard.” 

 In his cross-appeal, Kurtin now argues that the trial judge’s ruling that 

section 3318 governs his section 2343 claim was incorrect. His main concern is the 

“recovered and collected” clause of the statute. Given that the total value of the Joint 

Entities is apparently not enough to pay off the unpaid balance of the $48.4 million 

buyout price (much less Elieff’s personal interests in those entities), Kurtin argues that 

section 3318 does not establish the relevant measure of damages. Kurtin argues for an 

interpretation of section 2343 that would make Elieff personally liable for the unpaid 

balance exceeding more than $20 million without regard to section 3318’s “recovered 

and collected” language. 

 Preliminarily, we reject Kurtin’s argument that any error by the trial court 

on the issue of the applicability of section 3318 to section 2343 requires reversal of the 

order granting a new trial. As we have just shown in the preceding part of this opinion, 

given the inconsistent jury verdicts in this case, even the question of Elieff’s liability 

under section 2343 must be considered anew by the trier of fact. Moreover, the trial 

judge identified several other reasons to order a new trial besides the inconsistent 

verdicts. These included: the failure of the amount of damages assessed to add up to the 

distributions at issue, the fact that the jury’s award “exceeded even Kurtin’s argued for” 

damages of about $7.8 million, and the lack of more detailed evidence in phase 2 of the 

trial by which the jury might be able to evaluate the “two dozen cash transactions” which 

the trial court itself had considered in phase 1. Even if, for sake of argument, the trial 

judge’s announced opinion on the applicability of section 3318 to section 2343 were 
34

incorrect, under an abuse of discretion standard we can hardly say that the trial judge was 

unreasonable in determining to re-try the whole issue of damages. 

 However, because the question of the proper measure of damages under 

section 2343 has been fully briefed on appeal and the new trial order is being affirmed, 

we address the question of the applicability of section 3318 to section 2343 for the 

benefit of the trial court on remand. (Code Civ. Proc., § 43.) The question is a matter of 

first impression in California. 

 As we now show, the trial judge was correct. Section 3318 does indeed 

limit the damages recoverable under section 2343. 

 ii. text of sections 2342, 2343 and 3318 

 For reader convenience we now set out the complete verbatim text of the 

three statutes at issue, including repeating the text of section 3318 recited in the previous 

part of this opinion. 

 Section 2342 provides: “One who assumes to act as an agent thereby 

warrants, to all who deal with him in that capacity, that he has the authority which he 

assumes.” 

 Section 2343 provides: “One who assumes to act as an agent is responsible 

to third persons as a principal for his acts in the course of his agency, in any of the 

following cases, and in no others: [¶] 1. When, with his consent, credit is given to him 

personally in a transaction; [¶] 2. When he enters into a written contract in the name of 

his principal, without believing, in good faith, that he has authority to do so; or, [¶] 3. 

When his acts are wrongful in their nature.” 

 Section 3318 provides: “The detriment caused by the breach of a warranty 

of an agent’s authority, is deemed to be the amount which could have been recovered and 

collected from his principal if the warranty had been complied with, and the reasonable 
35

expenses of legal proceedings taken, in good faith, to enforce the act of the agent against 

his principal.” 

 iii. analysis of text 

The opening line of section 3318 sets forth a clear measure of damages for 

breach of an agent’s warranty of authority, and makes no differentiation as to whether 

that breach is in good faith (section 2342) or lacks good faith (section 2343, subdivision 

(2)). Damages against the agent are limited by what could be “recovered and collected” 

from the agent’s purported principal. 

 Any argument that section 3318 does not apply to section 2343 necessarily 

rests on two premises: (1) section 2343 contains its own, competing, measure of 

damages in the form of section 2343’s “responsible . . . as a principal clause” and (2) the 

competing measure of damages clause set forth in section 2343 must prevail over the 

alternative in section 3318. That is, for section 3318 to not apply to section 2343, the 

“responsible . . . as a principal” clause of section 2343 must necessarily trump the 

“detriment . . . is deemed to be” clause of section 3318. 

 Courts, of course, must prefer statutory interpretations which harmonize 

and reconcile potentially conflicting statutory meanings. (E.g., Voices of the Wetlands v. 

State Water Resources (2011) 52 Cal.4th 499, 519; DeVita v. County of Napa (1995) 9 

Cal.4th 763, 778-779.) In the present case, the two potentially competing clauses 

(“responsible . . . as a principal” and “detriment . . . is deemed to be”) may be harmonized 

by reading section 2343’s “responsible . . . as a principal” language to set forth the fact of 

liability (i.e., if a purported agent does X, Y, or Z, he or she shall be liable as a principal) 

while section 3318 sets forth the precise amount of liability (i.e., if there is liability for 

doing Y, then here is the way the detriment is calculated). Three reasons impel our 

conclusion. 
36

 First, the very structure of the Civil Code suggests that very harmonization. 

Chapter and section headings may be considered in ascertaining legislative intent and are 

entitled to “considerable weight.” (People v. Hull (1991) 1 Cal.4th 266, 272; Howard 

Jarvis Taxpayers Association v. County of Orange (2003) 110 Cal.App.4th 1375, 1385.) 

Sections 2342 and 2343 are contained within article 4 (obligations between principals and 

third persons) which is a subdivision of title 9 (dealing generally with agency) which is 

within part 4 (obligations arising from particular transactions) of division 3 (generally 

dealing with obligations) of the Civil Code. On the other hand, the general subject of 

relief, including damages, is within part 1 of division 4 (general provisions). Section 

3318 is found in article 1 (damages for breach of contract), which is within chapter 2 

(measure of damages) which is within title 2 (compensatory relief), which is within 

division 4 (dealing with general provisions). One can, from this pattern, divine the 

general structure of the Civil Code on the subject of breaches of an agent’s warranty of 

authority: Spell out the obligation in division 3. Set forth the remedy in division 4. 

 Second, textually, we are required to give effect to section 2343’s “in the 

course of his agency” clause” as well as its “responsible . . . as a principal” clause. When 

the statutory clauses are read together (“responsible . . . as a principal in the course of his 

agency”) it is evident that the statute was intended to refer to the particular transaction in 

which the agent “assumed” to act for another. The statute was not intended to assign a 

liability to the purported agent beyond what was inherent in that particular transaction, 

i.e., beyond the course of his agency. We note that Kurtin’s proposed interpretation of 

section 2343 not only ignores the plain language of section 3318, but confers on Kurtin a 

windfall beyond the course of Elieff’s purported agency, i.e., beyond the original 

expectations of the parties. 

 The point may be illustrated by examining the original intentions of the 

parties as the transaction was supposed to occur. Assume, for sake of argument, that 

Elieff really did have authority to bind the Joint Entities, that Elieff delivered all the 
37

security documents he was required to deliver, and that he took no distributions of any 

kind (e.g., forewent management fees otherwise legitimately owed to his companies) 

from any of the Joint Entities. But further assume (as appears indeed to have occurred in 

this case) that despite Elieff’s foregoing any distributions from the Joint Entities, the real 

estate recession put them all into insolvency. In such a case, there would be no question 

that Kurtin would be limited to what he could “recover and collect” from any of the Joint 

Entities, even if he had to go to bankruptcy court for that recovery. Section 3318 sets 

forth a measure of damages that indeed reflects the benefit of the bargain, together with 

the commercial risks inherent in that bargain, which Kurtin actually made. 

 The third reason is that to the degree that section 2343’s “responsible . . . as 

a principal” clause does indeed conflict with section 3318’s “detriment is deemed to be” 

clause, section 3318 must prevail as the more specific. (See Code Civ. Proc. § 1859 [“a 

particular intent will control over a general one that is inconsistent with it”]; e.g., San 

Francisco Taxpayers Assn. v. Board of Supervisors (1992) 2 Cal.4th 571, 577 [“‘It is well 

settled . . . that a general provision is controlled by one that is special, the latter being 

treated as an exception to the former.’”].) The precise “responsibility” or liability of a 

principal in any given context may vary, depending on the circumstances. For example, 

in criminal law, aiders and abettors are “liable as a principal” for the crime, but the exact 

extent of their liability is fixed by more specific penalty statutes. Here, section 3318 

fixes a clear measure of damages for breaches of an agent’s warranty of authority. By 

contrast one can puzzle all day over the degree to which “responsible . . . as a principal” 

implies a measure of damages, if it does at all. 

 To the degree that case law has addressed the question of whether section 

3318 applies to section 2343, the answer is yes. (See Borton v. Barnes (1920) 48 

Cal.App. 589 (Borton).) Borton, in fact, contains a plain statement that section 3318 

provides the measure of damages in a section 2343 situation where the agent lacks a good 

faith belief in his authority. (Borton, supra, 48 Cal.App. at pp. 591-592; cf. Nichols 
38

Grain & Milling Co. v. Jersey Farm Dairy Co. (1933) 134 Cal.App. 126, 130 [following 

Borton but not mentioning section 3318].) The brief reference to section 2343 in Jeppi v. 

Brockman Holding Co. (1949) 34 Cal.2d 11, 18-19 [observing that difference between 

section 2342 and section 2343 is that under section 2342 the agent is simply “held to 

account on a theory of breach of the implied warranty of authority” while under section 

2343 the agent is held liable “as a principal”] merely notes the general difference between 

section 2342 and section 2343. 

 The question of section 2342 remains. There is a clear overlap between 

section 2342 [all breaches of an agent’s warranty of authority] and section 2343, 

subdivision (2) [lack-of-good-faith breaches of an agent’s warranty of authority]. We 

may observe that all liability for lack-of-good-faith breach of a purported agent’s 

warranty of authority under section 2343 necessarily includes a breach of the purported 

agent’s warranty of authority under section 2342 as well. (See Borton, supra, 48 

Cal.App. at p. 591 [treating section 2342 and section 2343 together].) 

 From this overlap, the question arises as to what the practical difference 

between section 2342 and section 2343, subdivision (2) might be. One might postulate, 

simply to avoid a construction that avoids surplusage, that section 2342 and section 2343, 

subdivision (2) must have two different measures of damages, not just one as the 

language of section 3318 would lead one to believe, and, further, that the “as a principal” 

clause in section 2343 provides that different measure. 

 It does not, however, follow that section 2342 and section 2343 must have 

different measures of damages. Much of the time, in fact, the result under either statute 

will be exactly the same, as shown in the two cases that remain the leading case 

authorities on the interaction between the two statutes and section 3318, namely, Borton, 

supra, 48 Cal.App. 589, and Kohlberg v. Havens (1919) 41 Cal.App. 222 (Kohlberg). 

Kohlberg was the first case to find liability under section 2342. Borton was the first case 

to find liability under section 2343. In each case, the plaintiff received from the 
39

purported agent the commission he would have received from the purported principal if 

the purported principal had been liable on the contract. (In Kolhberg, the amount owing 

under the contract was not called a commission, but that’s what it plainly was – the price 

of obtaining a third party’s signature to a real estate agreement, see Kohlberg, supra, 41 

Cal.App. at pp. 223-224.) 

 At the very least, the “as a principal” clause in section 2343 makes a 

potential difference as to when the applicable statute of limitations may begin to run. 

(E.g., Kennedy v. Stonehouse (1904) 13 N.D. 232 [where purported agent sued for lackof-good faith breach of warranty of authority, statute of limitations began running when 

principal repudiated contract made in her name and not when agent initially 

misrepresented authority, which was ten years earlier].) Moreover, we may observe that 

the two statutes will yield different measures of damages in cases where the purported 

agent’s breach of his or her implied warranty of authority comes under one of the two 

other subdivisions of section 2343, namely receiving credit personally, or is combined 

with his or her own independent tort. 

 B. The Accounting 

 Kurtin presents another point in his cross-appeal that centers on the phase 1 

trial. Like Elieff in the main appeal, Kurtin claims that phase 1 decided more than it did. 

Specifically, he identifies three issues he now says “should have been tried to the jury”: 

(1) the meaning of “distribution” in paragraph 14; (2) the standard by which Elieff’s 

decisions to move any funds from one Joint Entity to another should be judged; and (3) 

the question of whether there were payments from Joint Entities to Elieff distributions 

preventing repayment. 

 We perceive that Kurtin’s cross-appeal as it relates to these questions is 

essentially protective, because he has not been aggrieved by the new trial order on any of 

these issues. Those issues were tried to the jury by way of Kurtin’s seventh cause of 
40

action for breaching the provision of the settlement agreement not to take distributions 

which prevented the Joint Entities from paying the balance of the buyout amount. And 

he prevailed on them. We need only mention here that we do not disturb the new trial 

order as to Elieff’s liability on Kurtin’s seventh cause of action on the distribution issue. 

DISPOSITION 

 The new trial order is modified to include a new trial on Elieff’s liability 

under section 2343, as well as a new trial on the topic of damages. As modified, the new 

trial order is affirmed. In all respects the judgment and order denying JNOV are 

affirmed, but let us now spell out what exactly that means: 

 (1) We affirm the trial court’s determination that Elieff is liable to Kurtin 

in an as-yet-to-be-determined amount, if any, on Kurtin’s causes of action for (a) breach 

of warranty of an agent’s authority under section 2342; (b) breach of the provision of the 

settlement agreement that Elieff would execute the documents necessary to perfect 

Kurtin’s security interests in Elieff’s share of the Joint Entities; and (c) for breach of the 

provision of the settlement agreement not to take distributions which prevented the Joint 

Entities from paying the balance of the buyout amount. 

 (2) As we modify the trial court’s new trial order, the issue of both 

Kurtin’s liability under section 2343 and, if he is found to be liable, the amount of 

damages for which he will be liable, will be the subject of the new trial. 

 (3) Moreover, in the new trial on section 2343, if Elieff is found liable, the 

amount of damages for which he will be liable will be governed by section 3318’s 

“collected and recovered” language. 
41

 Because each side has prevailed on at least one point, each side will bear its 

own costs in this appeal. 

 

 RYLAARSDAM, ACTING P. J. 

WE CONCUR: 

ARONSON, J. 

FYBEL, J.