Filed 6/19/14

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

RONALD HASSO, as Trustee, etc.,

 Plaintiff and Appellant,

 v.

JOHN HAPKE, 

 Defendant and Appellant;

CHARLES FISH INVESTMENTS, INC., 

et al.,

 Defendants and Respondents

_________________________________

RONALD HASSO, as Trustee, etc.,

 Plaintiff and Appellant, 

 v. 

ROCKWATER AMERICAN 

MUNICIPAL FUND, LLC, et al., 

 Defendants and Appellants.

 G047495

 (Super. Ct. No. 30-2009-00333066) 

 

 O P I N I O N

 G047588

 (Super. Ct. No. 30-2009-00333066) 

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

County, Richard W. Luesebrink, Judge. (Retired judge of the Orange Super. Ct. assigned 
2

by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed in part and 

reversed in part.

Winget, Spadafora & Schwartzberg, Brandon S. Reif, Marc S. Ehrlich and 

Kelsey L. Hotchkiss for Plaintiff and Appellant Ronald Hasso as trustee of the 2006 May 

S. Hasso Serrano Family Trust and as trustee of the 2006 Norman Hasso Family Trust.

Robert D. Feighner for Defendants and Appellants Rockwater American

Municipal Fund, LLC, Rockwater Municipal Advisors, LLC and Bryan Williams.

Brown Rudnick, Joel S. Miliband and Stephen R. Cook for Defendant and 

Appellant John Hapke.

Krause, Kalfayan, Benink & Slavens, Vincent D. Slavens and Mary K. 

Wyman for Defendants and Respondents Charles Fish Investments, Inc. and Charles 

Fish.

* * *

As they say, timing is everything. In August 2007, the initial trustee of two 

family trusts invested millions in the Rockwater American Municipal Fund, LLC (RAM 

Fund)—a hedge fund engaged in municipal arbitrage.

1 The RAM Fund was managed by 

Rockwater Municipal Advisors, LLC (RMA), its managing member. In November 2007, 

Charles Fish Investments, Inc. (CFI) transferred its assets to Rockwater CFI, LLC, a 

wholly owned subsidiary of RMA, in exchange for a 15 percent interest in RMA. CFI 

had an option to unwind the transaction, if its interest in RMA did not meet certain 

benchmark values. The RAM Fund was devastated by the stock market crash and the

trust investments were largely wiped out by 2008. CFI exercised its option to unwind the

 

1 A marketing brochure described the RAM Fund as “a multi-manager 

municipal arbitrage fund for high net worth and institutional clients.” It explained: 

“Municipal arbitrage is an investment strategy that creates two ownership interests in the 

same municipal bond to take advantage of the spread between long-term and short-term 

municipal bond interest rates.” 
3

transaction with RMA and Rockwater CFI, LLC, and obtained a return of the assets 

originally belonging to it. 

The successor trustee of the trusts sued the RAM Fund, RMA, Bryan 

Williams (Williams), who was the founder of the RAM Fund and the chief executive 

officer of RMA, John Hapke (Hapke), who was the chief financial officer of the RAM 

Fund, CFI, and Charles Fish (Fish), who was the chairman and chief executive officer of 

CFI. After it had seen clips from the movie Wall Street 2 (Twentieth Century Fox 2010)

and a power point presentation with eight screens captioned “Greed,” a jury awarded the 

successor trustee a $4,640,380 judgment against the RAM Fund, RMA, Williams, and 

Hapke.

2 The successor trustee was unsuccessful in his attempt to obtain a judgment 

against CFI and Fish. The RAM Fund, RMA, and Williams (collectively, the Rockwater 

Defendants), on the one hand, and Hapke, on the other hand, have each filed an appeal 

claiming the RAM Fund was simply the victim of the market crash. The successor 

trustee has appealed as well, seeking to hold liable CFI and Fish, the defendants who “got 

away.”

The judgment against RMA and Williams for actual and constructive 

fraudulent transfer is reversed and the judgment in favor of CFI and Fish on those causes 

of action is affirmed. There is no substantial evidence to show that RMA and Williams 

made a fraudulent transfer, within the meaning of the Uniform Fraudulent Transfer Act

(Civil Code section 3439 et seq.) (UFTA), in returning CFI’s assets upon unwinding. 

To the extent the judgment holds the Rockwater Defendants and Hapke 

liable on the causes of action for fraud by intentional misrepresentation, fraud by 

concealment, and/or negligent misrepresentation, it is reversed. Even if the Rockwater 

Defendants or Hapke had made any material misrepresentations or omissions, and even if 

the initial trustee of the trusts had relied thereon, any such reliance would have been 

 

2 The defendants made a collective motion for a mistrial based on the power 

point presentation regarding “Greed.” The denial of that motion is not at issue on appeal.
4

unreasonable. For the same reason, the judgment in favor of CFI and Fish on those 

causes of action is affirmed.

The judgment against the RAM Fund and Hapke for breach of fiduciary 

duty and professional negligence is reversed, because there is no substantial evidence to 

show that they were investment advisers within the meaning of Corporations Code 

section 25009. However, the judgment against RMA and Williams on those causes of 

action is affirmed because there is substantial evidence to show that they were investment 

advisers and that they breached their fiduciary duties to the initial trustee. The judgment 

in favor of CFI and Fish on the breach of fiduciary duty cause of action is affirmed 

because there is substantial evidence to show that they did not breach any fiduciary duty.

The court’s finding that CFI was not the alter ego of RMA is supported by 

substantial evidence. Consequently, we affirm the ruling that CFI was not liable for the 

debts of RMA. The ruling that Fish was not liable for the debts of CFI is moot, inasmuch 

as the judgment in favor of CFI on all causes of action is affirmed.

I

FACTS

A. BACKGROUND:

(1) Agreement between CFI and RMA—

CFI, Fish, RMA, and its wholly-owned subsidiary, Rockwater CFI, LLC, 

entered into a contribution agreement in November 2007. The contribution agreement 

provided that CFI would contribute certain assets to Rockwater CFI, LLC. In 

consideration therefor, Rockwater CFI, LLC agreed to assume certain obligations of CFI 

and RMA agreed to issue to CFI certain “Class B Units, representing approximately 15% 

of the issued and outstanding membership interests” of RMA. The contribution 

agreement gave CFI the option to unwind the deal as early as January 1, 2010, if its 

interest in RMA was worth less than certain threshold figures.
5

Also in November 2007, Fish, RMA and Rockwater CFI, LLC entered into 

an employment agreement, pursuant to which RMA employed Fish as a managing 

principal. At the same time, RMA hired CFI vice president Betsy Shelton as well.

The parties ultimately agreed to an early termination of their arrangement. 

An unwind agreement dated April 15, 2009 was executed by CFI, Fish, Shelton, RMA, 

and Rockwater CFI, LLC. The unwind agreement provided that the contribution 

agreement was rescinded and terminated effective May 1, 2009. As of that date, CFI and 

RMA returned their respective property to each other and CFI agreed to pay RMA 

$56,000 in settlement.

(2) The Trusts—

The two irrevocable trusts involved in this matter are the 2006 May S. 

Hasso Serrano Family Trust, created for the benefit of the descendants of May S. Hasso 

Serrano (Serrano), and the 2006 Norman Hasso Family Trust, created for the benefit of 

the descendants of Norman Hasso. Serrano and Norman Hasso are brother and sister. 

The 2006 May S. Hasso Serrano Family Trust was funded by Serrano’s 

parents. Serrano herself was neither the trustor nor the trustee. Rather, Bart Colson

(Colson) was the initial trustee of each trust. He was a long-time family friend and 

business associate. At the end of 2009, Serrano’s nephew Ronald Hasso (Hasso) took 

over as successor trustee.

(3) Serrano’s Characterization of Events—

Hasso’s case was built largely on Serrano’s testimony, which we describe

hereinafter.

Serrano has a bachelor’s degree with an economics major from UCI, an 

MBA from UCLA, and a law degree from Pepperdine. She passed the bar exam, but 

never practiced law. 
6

One day when Serrano was visiting Attorney Wayne Casey on an unrelated 

matter, he mentioned an interesting investment opportunity. Serrano asked for 

information about the investment.

Sometime thereafter, in April 2007, Hapke telephoned her. According to 

Serrano, Hapke explained that Attorney Casey had referred him and “that he had a 

background in investment advice” and he thought they “might be interested in some taxfree investments” for the trusts. Serrano told him that the trust was for the benefit of her 

young children and that the primary objective was to have a safe investment and preserve 

capital. 

Serrano accepted the offer of Williams and Hapke to make a presentation to 

her at her home. In advance of the meeting, Hapke sent her a package of materials

including an investment proposal for the 2006 May S. Hasso Serrano Family Trust, 

which she reviewed before the meeting, and a RAM Fund marketing brochure. The 

investment proposal allocated assets to three classifications—liquid investments, 

traditional municipal bonds, and the RAM Fund.

Serrano and her husband were present at the May 29, 2007 meeting, along 

with Williams and Hapke. Williams and Hapke gave a power point presentation and 

provided a hard copy of it to Serrano. According to Serrano, Williams and Hapke told 

her there were a lot of risks, but that they had methods for managing and minimizing 

them. She also said they repeatedly told her the proposed investment was low risk and 

appropriate for the trusts.

Williams and Hapke provided an explanation of municipal arbitrage. 

Serrano testified to her understanding that the bond was split into two component parts, 

one being the feature that paid interest over time and the other being the remainder of the 

bond, and that each of the two parts was sold to a different party. She understood that the 

remainder of the bond was to go to the RAM Fund sub-manager. Williams and Hapke 

did not go into detail on the identity of the sub-manager.
7

Serrano understood that the RAM Fund was a hedge fund. She said 

Williams and Hapke told her she could get an 8 to 10 percent return, but that the return 

was actually more beneficial than that because it was tax exempt. According to Serrano, 

Williams said, “‘In the worst case scenario you could lose 10 percent.’” That was 

supposed to be “‘if the world fell apart.’” 

After the meeting, Hapke sent Serrano an email stating: “‘Our proposed 

investment strategy is designed to deliver attractive returns with nominal risk, a result 

that seems ideally suited to the trusts.’” Within a day or two after the meeting, Serrano

sent an email to Williams and Hapke telling them she was going to recommend to Colson 

that he follow their proposal and make an investment.

Williams sent, in care of Serrano, a letter dated June 6, 2007 addressed to 

Colson. The letter included a copy of the private placement memorandum with respect to 

the RAM Fund. Serrano confirmed that she received the letter and the copy of the private 

placement memorandum.

After receiving the documents, Serrano met in person with Colson. 

According to Serrano, she was the one who made the decision to invest, and Colson 

relied on her decision.

In mid-June, 2007, Colson executed subscription agreements for investment 

in the RAM Fund. However, before the trust money was wired in, Serrano’s mother 

contacted her and expressed concern that some hedge funds were collapsing. She 

suggested that Serrano check into whether the hedge fund the trusts were investing in was 

affected. Serrano then contacted Hapke, and asked whether the investment had become 

more risky because of an unstable market.

In response, Hapke sent Serrano a June 25, 2007 e-mail with a market 

update attached and the two of them also spoke. According to Serrano, Hapke reassured 

her that everything was alright and the investment was still safe and appropriate for the 

trusts.
8

Colson wired the trust money around August 6 or 8, 2007. By the 

following month, Serrano learned that the investment of each trust had already lost 

money. Around February 2008, Serrano asked for a return of principal. However, the 

investments were subject to a two-year lockup and could not then be returned.

Serrano and Williams met in March 2008. She then found out that there 

had been leveraging and margin calls and the trust investments basically had been wiped 

out. Sometime in 2009, Serrano learned that a decision had been made to wind up the 

RAM Fund. She thought the trusts had lost roughly $2.5 million apiece.

(4) Trust Investment Documentation—

On June 13, 2007, Colson as trustee executed a RAM Fund subscription 

agreement for each trust. He invested $3,000,000 in the RAM Fund on behalf of each of 

the two trusts. The RAM Fund signed the subscription agreements on August 1, 2007. 

Colson only invested trust monies in the RAM Fund. He did not invest in any traditional 

bonds or liquid investments managed by CFI.

B. PROCEDURAL HISTORY:

Hasso filed a second amended complaint on behalf of the trusts. He alleged 

that the defendants engaged in investment fraud and related wrongful activity by enticing 

Colson, the prior trustee of the trusts, to invest $3 million of each trust’s assets into the 

RAM Fund. He further alleged that the nature of the RAM Fund was misrepresented, 

that it was not a suitable investment for the trusts, and that each trust lost at least $2.4 

million, or 80 percent.

The case was tried in three phases. In the first phase, a jury trial was held 

on causes of action for: (1) breach of fiduciary duty; (2) fraud by intentional 

misrepresentation; (3) fraud by concealment; (4) actual fraudulent conveyance; (5) 

constructive fraudulent conveyance; (6) professional negligence; and (7) negligent 

misrepresentation. The jury found in favor of CFI and Fish on all causes of action 
9

against them. It found all other defendants liable on multiple causes of action. In short, 

Hasso prevailed on each cause of action as against more than one defendant, excluding 

CFI and Fish. 

In the second phase, the issue of whether to award punitive damages

against either Williams or RMA was tried before a jury. The jury awarded no punitive 

damages. In the third phase, the issues of alter ego and/or single enterprise liability with 

respect to Fish and CFI were tried before the court. The court held that CFI and RMA 

were not a single enterprise and that CFI was not the alter ego of Fish.

The judgment held the Rockwater Defendants and Hapke jointly and 

severally liable in the amount of $4,640,380. It further held that Hasso take nothing from 

either CFI or Fish.

The Rockwater Defendants filed both a motion for judgment 

notwithstanding the verdict and a new trial motion. The court denied the motion for 

judgment notwithstanding the verdict. It granted the new trial motion as to the causes of 

action for actual and constructive fraudulent conveyance, but as to damages issues only.

Hapke also filed both a motion for judgment notwithstanding the verdict 

and new trial motion. The court denied both of Hapke’s motions.

Hasso filed a motion for judgment notwithstanding the verdict to set aside 

the portion of the judgment in favor of CFI and Fish. He also filed a new trial motion 

with respect to CFI and Fish. The court denied each of Hasso’s motions.

Hasso filed a notice of appeal from: (1) the portions of the judgment in 

favor of CFI and Fish and denying Hasso’s equitable claims; (2) the order denying 

Hasso’s motion for judgment notwithstanding the verdict; (3) the order denying Hasso’s 

new trial motion; and (4) the order granting in part the new trial motion of the Rockwater 

Defendants with respect to the causes of action for actual and constructive fraudulent 

conveyance.
10

The Rockwater Defendants filed a cross-appeal from the judgment and 

from the orders denying their motion for judgment notwithstanding the verdict and 

denying in part their new trial motion.

Hapke filed a notice of appeal from the judgment, the order denying his 

motion for judgment notwithstanding the verdict, and the order denying his new trial 

motion. However, in his opening brief on appeal, he challenges only the judgment and 

the order denying his motion for judgment notwithstanding the verdict.

This court, on its own motion, consolidated the appeals.

II

DISCUSSION

A. STANDARDS OF REVIEW:

“The trial court’s power to grant a motion for judgment notwithstanding the 

verdict is the same as its power to grant a directed verdict. (Code Civ. Proc., § 629.) ‘A 

motion for judgment notwithstanding the verdict may be granted only if it appears from 

the evidence, viewed in the light most favorable to the party securing the verdict, that 

there is no substantial evidence in support.’ [Citations.] On appeal from the denial of a 

motion for judgment notwithstanding the verdict, we determine whether there is any 

substantial evidence, contradicted or uncontradicted, supporting the jury’s verdict. 

[Citations.] If there is, we must affirm the denial of the motion. [Citations.] If the 

appeal challenging the denial of the motion for judgment notwithstanding the verdict 

raises purely legal questions, however, our review is de novo. [Citation.]” (Wolf v. Walt 

Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1138.)

“We defer to the trial court’s factual determination when the court grants a 

motion for new trial, not when the court denies such a motion. When the court denies the 

motion, we presume the jury’s verdict is correct. [Citation.]” (Mammoth Lakes Land 

Acquisition, LLC v. Town of Mammoth Lakes (2010) 191 Cal.App.4th 435,473.)
11

“Code of Civil Procedure section 657 states: ‘A new trial shall not be 

granted upon the ground of insufficiency of the evidence to justify the verdict or other 

decision, nor upon the ground of excessive or inadequate damages, unless after weighing 

the evidence the court is convinced from the entire record, including reasonable 

inferences therefrom, that the court or jury clearly should have reached a different verdict 

or decision.’ A trial court has broad discretion in ruling on a new trial motion, and the 

court’s exercise of discretion is accorded great deference on appeal. [Citation.]” 

(Fassberg Construction Co. v. Housing Authority of City of Los Angeles (2007) 152 

Cal.App.4th 720, 751-752.)

B. PRELIMINARY MATTER—EFFECT OF HASSO’S ABANDONMENT OF APPEAL 

FROM ORDER GRANTING NEW TRIAL AS TO DAMAGES ONLY:

The Rockwater Defendants filed a cross-appeal from the judgment and 

from the orders denying their motion for judgment notwithstanding the verdict and 

denying in part their new trial motion.

Hasso entreats us to ignore the cross-appeal of the Rockwater Defendants. 

He reminds us that, in his own notice of appeal, he challenged the court’s order granting, 

with respect to damages issues only, the motion of the Rockwater Defendants for a new 

trial on the fraudulent transfer claims.

3 However, as Hasso readily admits, he has not 

challenged the order in his opening brief on appeal. Consequently, his challenge to that 

order is deemed abandoned. (G.R. v. Intelligator (2010) 185 Cal.App.4th 606, 610, fn. 

1.) Hasso argues that because he is not pursuing an appeal from the order for a partial 

 

3 The court in Cobb v. University of So. California (1996) 45 Cal.App.4th 

1140 addressed the situation where there has been a “grant of a partial new trial after 

determination of all issues in a matter.” (Id. at p. 1144.) It stated: “If a new trial is 

ordered as to some issues but not as to others (for example, to retry the issue of damages 

but not of liability), the order granting the new trial is appealable by any party aggrieved 

by the order, including the moving party who sought a new trial as to all issues. 

[Citations.]” (Ibid.)
12

new trial on damages, and the Rockwater Defendants to do not appeal from it either, their 

protective cross-appeal is moot. He cites Marshall v. Brown (1983) 141 Cal.App.3d 408 

and Sandco American, Inc. v. Notrica (1990) 216 Cal.App.3d 1495.

The Rockwater Defendants, however, assert that even though no one is 

challenging that particular order on appeal, this court still has jurisdiction over their 

appeal from the order denying their motion for judgment notwithstanding the verdict and 

from the order denying their new trial motion as to liability issues. As stated in Saxena v. 

Goffney (2008) 159 Cal.App.4th 316, “An appeal may be taken from an order denying a 

motion for JNOV even where the trial court has granted, or denied, a new trial motion. 

[Citations.]” (Id. at p. 324.) Furthermore, they emphasize that where the allegations and 

evidence are insufficient to establish liability, the court may resolve the protective crossappeal in the interests of judicial economy. They cite Adams v. City of Fremont (1998) 

68 Cal.App.4th 243, wherein the court stated: “When parties file both an appeal from an 

order granting a new trial and a protective appeal from the judgment, we generally 

consider the appeal from the new trial order first. [Citations.] However, where the 

appeal from the judgment shows that the allegations and proof of the plaintiff are 

insufficient to establish liability, we may depart from this normal procedure because 

affirmance of the order granting new trial will simply continue wasteful litigation, while 

reversal of the judgment will terminate it on the merits. [Citation.]” (Id. at p. 261, fn. 

15.)

The foregoing rule applies in this instance. For reasons we shall show, the 

judgment holding RMA and Williams liable on the fraudulent conveyance causes of 

action must be reversed. Consequently, the issues pertaining to the award of damages on 

those causes of action are moot. We will address the issues the Rockwater Defendants 

raise in their protective cross-appeal.
13

C. FRAUDULENT CONVEYANCE:

(1) Allegations and Procedural History—

Hasso’s causes of action for actual and constructive fraudulent conveyance 

were based on the unwinding of the contribution agreement between CFI, Fish, RMA, 

and Rockwater CFI, LLC. Hasso alleged that CFI and Fish paid no consideration for the 

unwinding of the contribution agreement. His second amended complaint stated: “. . . 

CFI and Fish were able to unwind the merger, transfer RMA property and clients to CFI 

and effectively strip RMA of all of its assets and revenue sources rendering RMA 

insolvent. Such acts were done with the intent to hinder, delay or defraud Plaintiffs of 

their investment capital, commissions, placement fees, management fees, performance 

fees, service charges and other fees.”

The jury found that RMA and Williams were liable on both the actual and 

constructive fraudulent conveyance causes of action, but that CFI and Fish were not 

liable on either cause of action. It found that the value of the property transferred was 

“$1,937,201.53 annually.” (Boldface omitted.)

Hasso, in his motion for judgment notwithstanding the verdict and new trial 

motion, argued: (1) inasmuch as the jury found RMA and Williams liable for actual and 

constructive fraudulent conveyance, it was necessarily required to find CFI and Fish 

liable as well; and (2) the evidence compelled a finding that CFI and Fish were liable for 

actual and constructive fraudulent conveyance. Hasso renews his arguments on appeal, 

contending CFI and Fish should be held liable for actual and constructive fraudulent 

conveyance.

In their motion for judgment notwithstanding the verdict, the Rockwater 

Defendants argued: (1) there was no substantial evidence of an asset transfer under the 

UFTA because income not yet earned under a management agreement is not an asset; and 

(2) there was no substantial evidence of the value of the property transferred because 

there was no evidence of the amount of fees CFI charged under the management 
14

agreements. In their new trial motion, the Rockwater Defendants reiterated the foregoing 

arguments and added that the finding of a fraudulent conveyance was contrary to law.

On appeal, the Rockwater Defendants maintain that the judgment on the 

fraudulent conveyance claims cannot stand because: (1) the future management fees of 

CFI were not an asset within the meaning of the UFTA; and (2) there was insufficient 

evidence to support the damages award.

(2) Uniform Fraudulent Transfer Act—

Under the UFTA, “a transfer of assets made by a debtor is fraudulent as to a 

creditor, whether the creditor’s claim arose before or after the transfer, if the debtor made 

the transfer (1) with an actual intent to hinder, delay or defraud any creditor, or (2) 

without receiving reasonably equivalent value in return, and either (a) was engaged in or 

about to engage in a business or transaction for which the debtor’s assets were 

unreasonably small, or (b) intended to, or reasonably believed, or reasonably should have 

believed, that he or she would incur debts beyond his or her ability to pay as they became 

due. (Civ. Code, § 3439.04[, subd. (a)(1),(2)]; [citation].) A transfer by a debtor is 

fraudulent as to creditors whose claims arose before the transfer if the debtor made the 

transfer (1) without receiving reasonably equivalent value in exchange, and (2) either (a) 

was insolvent at the time of the transfer, or (b) became insolvent as a result of the 

transfer. (Civ. Code, § 3439.05.)” (Monastra v. Konica Business Machines, U.S.A., Inc. 

(1996) 43 Cal.App.4th 1628, 1635.) A transfer described in Civil Code section 3439.04, 

subdivision (a)(1) is characterized as actual fraud, and a transfer described in either Civil 

Code section 3439.04, subdivision (a)(2) or Civil Code section 3439.05 is characterized 

as constructive fraud. (Cf. Mejia v. Reed (2003) 31 Cal.4th 657, 661, 664; Civ. Code, 

§ 3439.04, as amended by Stats. 2004, ch. 50, § 1.)

“A creditor who is damaged by a transfer described in either Civil Code 

section 3439.04 or Civil Code section 3439.05 can set the transfer aside or seek other 

appropriate relief under Civil Code section 3439.07 [Citation.] A transfer that would 
15

otherwise be voidable as intentionally fraudulent under section 3439.04, subdivision 

(a)[(1)], is not voidable against a transferee who took in good faith and for a reasonably 

equivalent value. (Civ. Code, § 3439.08, subd. (a).)” (Monastra v. Konica Business 

Machines, U.S.A., Inc., supra, 43 Cal.App.4th at pp. 1635-1636.)

(3) Evidence of Transfer—

According to Hasso, the property transferred was the business that 

generated management fees, as he puts it, “the management fees on CFI investor assets.” 

He claims the management of those investor assets was collusively transferred “back to 

CFI” upon a premature unwinding of the contribution agreement, and that the creditors of 

RMA were thereby denied an income stream upon which to levy.

The parties say little about the evidence pertaining to the nature of the 

property transferred either to or from RMA. However, we observe that Williams testified 

on the point.

Williams testified that when RMA acquired the assets of CFI, in November 

2007, it made no payments to the owners of the company. The only consideration for the 

transaction was providing those owners with an equity interest in RMA. He further 

stated that after the transaction took place, Fish continued “running the assets that came 

over from CFI.”

Williams made clear that, upon rewinding, RMA did not pay anything to 

CFI for the return of CFI’s ownership interest in RMA, which he said still had some 

value. And, CFI did not pay anything for the retrieval of the assets it had previously 

contributed. Williams further testified that the unwind transaction was simply the 

returning to CFI of the “the clients and the desks and the copiers back to them. . . . 

Because they were what went in, and they were what went out.” In terms of cash outlay, 

Williams himself put in several hundred thousand dollars of his own to meet payroll and 

assist with other things and CFI agreed to pay a share of that, amounting to $56,000. 
16

And, let us not forget that the right to unwind was a negotiated provision of the 

contribution agreement. 

(4) Evidence of Value—

In their motions, the Rockwater Defendants argued that Hasso had failed to 

present any evidence whatsoever to show that the management agreements had value. 

They said that the jury’s finding that the property transferred was “$1,937,201.53 

annually” was derived from the rebuttal argument Hasso’s counsel made before the jury. 

(Boldface omitted.) Counsel argued that CFI’s assets under management had a value of 

$553,486,150 and that CFI charged 35 basis points (35/100 of one percent) for its 

management fee. So, counsel argued, the value of CFI’s total annual management fees 

was $1,937,201.53. 

The Rockwater Defendants asserted in their motions that there was no 

evidence whatsoever to support counsel’s argument. CFI and Fish, in their oppositions to 

Hasso’s motions, also called the argument of counsel “baseless.” The parties renew their 

arguments on appeal. Indeed, Hasso has not cited any evidence that supports the figure 

his counsel put to the jury. 

However, Hasso points out that the record is not devoid of any evidence 

relevant to a determination of the amount of annual management fees generated on CFI 

investor assets. Williams testified that CFI had about $440 million in investor assets that 

it was managing before it transferred its assets to RMA. Also, when Williams and Hapke 

made their presentation to Serrano and her husband, the proposal they presented showed 

that CFI would charge 35 basis points for any assets they were to manage for the trusts, 

with fees to be paid quarterly in advance. At trial, Fish was asked whether the proposal 

provided to Serrano on May 29, 2007 described “the fee structure for CFI at that time,” 

and Fish replied that it did.

The foregoing evidence does not establish the amount of investor assets 

transferred back to CFI on unwinding. It also does not establish whether the fee structure 
17

available to new clients in May 2007 was the same as the fee structure in effect with 

respect to all investor accounts, some of which may have been opened many years earlier. 

It certainly does not quantify the amount of fees that were earned during the period 

between the date of the actual unwinding and the date originally set in the contribution

agreement, arguably the only relevant period of time. However, it does dispel the notion 

that Hasso failed to present any evidence whatsoever pertaining to the value of annual 

management fees on CFI investor assets. 

In any event, given the lack of substantial evidence to support the damages 

award, the court granted the new trial motion as to damages. The court stated “the 

evidence supporting the damage award was confused and inadequate and the jury was 

inadequately instructed on the law concerning the measure and amount of damages 

recoverable as a result of the fraudulent conveyances . . . .” It did not, however, either 

grant the motion for a new trial as to liability or the motion for judgment notwithstanding 

the verdict.

The rulings and the judgment are unsupportable absent an implied finding 

that the portfolio of management agreements must necessarily have had some value, even 

though the evidence was insufficient to establish what that value was. That begs the 

question, however: How can it be determined that there was a transfer of an asset 

without the receipt of reasonably equivalent value in exchange therefor if there is 

insufficient evidence to establish the value of the asset transferred (not to mention the 

value of the assets received in exchange)? (Civ. Code, §§ 3439.04, 3439.05.)

(5) Definition of Asset—

Issues of value aside, the Rockwater Defendants, CFI and Fish contend that 

Hasso failed to prove that any asset, within the meaning of the UFTA, was transferred to 

CFI. Citing Mejia v. Reed, supra, 31 Cal.4th 657, they say Hasso based his claim of 

fraudulent transfer on the purported transfer of management fees, but that management 

fees are not assets within the meaning of the UFTA.
18

In Mejia v. Reed, supra, 31 Cal.4th 657, a husband had transferred certain 

property to his wife pursuant to a marital settlement agreement. The court addressed, 

inter alia, whether property transferred pursuant to a marital settlement agreement was 

subject to the UFTA. The court held that it was. (Id. at p. 661.) It further addressed 

whether the husband was rendered insolvent by the transfer of property to his wife. The 

issue was whether solvency should be determined by weighing the husband’s future child 

support obligations, discounted to present value, against his future earnings. (Id. at pp. 

670-671.) In this context, the court stated, “Income not yet earned . . . is not an asset 

under the UFTA unless it is subject to levy by a creditor, as would be the case if, for 

example, the transferor possessed a promissory note payable at a future date. (See Civ. 

Code, § 3439.01, subd. (a)(2); [citation].) Thus, Husband’s future earnings, or his future 

earning capacity, would not appear on the balance sheet to offset his child support 

obligation.” (Mejia v. Reed, supra, 31 Cal.4th at p. 671.)

Notice that the question in Mejia v. Reed, supra, 31 Cal.4th 657 was not 

whether the husband’s future earnings could be levied upon. The court did not decide 

that issue. The Rockwater Defendants quote the portion of the sentence stating “[i]ncome 

not yet earned . . . is not an asset under the UFTA,” but they omit the qualifier “unless it 

is subject to levy by a creditor . . .” and the court’s citation to Civil Code section 3439.01, 

subdivision (a)(2). (Mejia v. Reed, supra, 31 Cal.4th at p. 671.) Civil Code section 

3439.01, subdivision (a)(2) provides that the term “asset,” within the meaning of the 

UFTA, excludes property “generally exempt under nonbankruptcy law.” The court 

implied that one cannot levy upon wages that have not yet been earned. (Mejia v. Reed,

supra, 31 Cal.4th at p. 671.) Query whether the same is true as to fees generated under 

existing management agreements. 

The Rockwater Defendants, CFI and Fish do not specifically address this 

issue. That does not mean, however, that they have failed to address the statutes that 

answer the question of whether, under the facts of this case, the transfer of the portfolio 
19

of management agreements, together with future fees to be earned thereon, constituted 

the transfer of an asset within the meaning of the UFTA. 

Civil Code section 3439.01, subdivision (i) defines a “transfer,” for the 

purposes of the UFTA, as a “mode . . . of disposing of . . . an asset . . . .” Section 

3439.01, subdivision (a)(1) defines an “asset” as “property of a debtor” excluding 

“[p]roperty to the extent it is encumbered by a valid lien.” Civil Code section 3439.01, 

subdivision (f), in turn, defines a “lien” as “a charge against or an interest in property to 

secure . . . performance of an obligation, and includes a security interest created by 

agreement, a judicial lien obtained by legal or equitable process or proceedings, a 

common-law lien, or a statutory lien.”

CFI and Fish argued in opposition to Hasso’s motions that CFI’s option to 

unwind the contribution agreement and receive a return of its assets was tantamount to a 

lien against those assets.4 In other words, the property returned to CFI did not constitute 

an “asset” within the meaning of the UFTA, because it was subject to a lien. (Civ. Code, 

§ 3439.01, subds. (a)(1),(f).) They renew this argument on appeal.

Hasso argues that the jury must have found there was no lien, or it could 

not have held RMA and Williams liable. It is equally arguable that the very reason the 

jury did not hold Fish or CFI liable is because it did indeed find there was a lien. In any 

event, the interpretation of the statutes at issue and their application to the contribution 

agreement and the unwind agreement are questions of law we determine de novo. 

(Wimberly v. Derby Cycle Corp. (1997) 56 Cal.App.4th 618, 625, fn. 3; Wolf v. Walt 

Disney Pictures & Television, supra, 162 Cal.App.4th at p. 1138; Harbor Island 

Holdings v. Kim (2003) 107 Cal.App.4th 790, 794.)

 

4 Interestingly, we see no indication that the Rockwater Defendants, in their 

motions, made the same argument—that they released property that was in effect subject 

to a lien in favor of CFI. However, the Rockwater Defendants did cite Civil Code section 

3439.01, as well as related sections 3439.03, 3439.04 and 3439.05, albeit without much 

analysis of the same. 
20

We conclude that the interpretation of CFI and Fish is correct. When CFI 

entered into the transaction with RMA, it contributed its assets in exchange for an 

ownership interest in RMA coupled with a right to a return of assets if the value of its 

ownership interest in RMA was compromised. It clearly had a documented right, 

supported by consideration, to seize those assets, a right that predated both the financial 

calamity that gave rise to this lawsuit and, indeed, the lawsuit itself. We construe CFI’s 

right as “an interest in property to secure . . . performance of an obligation,” or a “lien,” 

within the meaning of Civil Code section 3439.01, subdivision (f). 

Because property subject to a valid lien does not constitute an “asset” 

within the meaning of Civil Code section 3439.01, subdivision (a)(1), and a “transfer” 

within the meaning of Civil Code section 3439.01, subdivision (i) means the transfer of 

an “asset,” there was no “transfer” to trigger the application of Civil Code sections 

3439.04 and 3439.05. Consequently, there was no evidence to show either that RMA and 

Williams made a fraudulent transfer of assets within the meaning of the UFTA or that 

CFI received assets pursuant to such a fraudulent transfer. 

The judgment against RMA and Williams for actual and constructive 

fraudulent conveyance must be reversed. The orders on the motions of the Rockwater 

Defendants for judgment notwithstanding the verdict and for new trial as to the 

fraudulent transfer causes of action are moot. The judgment in favor of CFI and Fish 

with respect to the fraudulent transfer causes of action must be affirmed. The orders 

denying Hasso’s motions for judgment notwithstanding the verdict and new trial on those 

causes of action, must be affirmed. 

D. FRAUD AND MISREPRESENTATION:

(1) Causes of Action—

We first note the elements of the various fraud and misrepresentation 

causes of action at issue here. A cause of action for fraud contains “the following 
21

elements: (1) a knowingly false representation by the defendant; (2) an intent to deceive 

or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages. 

[Citation.]” (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 

1816.) 

“[T]he elements of an action for fraud . . . based on concealment are: (1) 

the defendant must have concealed or suppressed a material fact, (2) the defendant must 

have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have 

intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) 

the plaintiff must have been unaware of the fact and would not have acted as he did if he 

had known of the concealed or suppressed fact, and (5) as a result of the concealment or 

suppression of the fact, the plaintiff must have sustained damage. [Citation.]” 

(Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.) 

The elements of negligent misrepresentation are: “‘[M]isrepresentation of a 

past or existing material fact, without reasonable ground for believing it to be true, and 

with intent to induce another’s reliance on the fact misrepresented; ignorance of the truth 

and justifiable reliance on the misrepresentation by the party to whom it was directed; 

and resulting damage. [Citation.]’ [Citation.]” (Shamsian v. Atlantic Richfield Co. 

(2003) 107 Cal.App.4th 967, 983.)

(2) Introduction—

The jury found Hapke and each of the Rockwater Defendants liable for 

fraud by intentional misrepresentation and for negligent misrepresentation. It also found 

Hapke, RMA, and Williams (but not the RAM Fund) liable for fraud by concealment. It 

did not find either CFI or Fish liable on any of these causes of action. 

Hasso appeals from the judgment in favor of CFI and Fish, claiming they 

were liable for the material misrepresentations and omissions of their colleagues. In 

addition, he appeals from the orders denying a judgment notwithstanding the verdict and 

a new trial with respect to the judgment in favor of CFI and Fish.
22

Hapke and the Rockwater Defendants also appeal, claiming the judgment 

against them on the fraud and misrepresentation causes of action was erroneous because: 

(1) Colson, as the trustee who made the investments on behalf of the trusts, did not rely 

on any representations; (2) any reliance would not have been reasonable; (3) Hasso, as 

successor trustee and plaintiff, failed to show causation; and (4) Hasso failed to present 

evidence in support of damages.

Hasso says there was substantial evidence to show that Hapke and the 

Rockwater Defendants misrepresented the risks and the characteristics of the RAM Fund 

to Serrano as Colson’s representative, and that this worked a fraud upon Colson under 

both agency and indirect misrepresentation theories. Hasso also claims that each of 

Serrano and Colson reasonably relied on the misrepresentations and that the 

misrepresentations were the proximate cause of the investment losses.

(3) Effect of Representations Made to Serrano—

We start with the question of how representations made to Serrano could 

work a fraud on Colson, the trustee who made the trust investments.

(a) Agency theory

Hasso claims the purported misrepresentations to Serrano worked a fraud 

upon the trusts under agency principles, because Colson had appointed her his

representative to evaluate the investment proposal and make recommendations thereon. 

He further contends this would be true even if Serrano had never actually communicated 

the misrepresentations to Colson. In support of this position he cites Grinnell v. Charles 

Pfizer & Co. (1969) 274 Cal.App.2d 424, Toole v. Richardson-Merrell Inc. (1967) 251 

Cal.App.2d 689, and Roberts v. Salot (1958) 166 Cal.App.2d 294. 

Grinnell v. Charles Pfizer & Co., supra, 274 Cal.App.2d 424 and Toole v. 

Richardson-Merrell Inc., supra, 251 Cal.App.2d 689 were each cases arising out of 

lawsuits against drug manufacturers with respect to the sale and marketing of dangerous 

drugs. In each case the doctors who prescribed or administered the drugs relied upon 
23

misinformation about their safety. The doctors were construed as the agents of the 

patient-plaintiffs. The triers of fact were permitted to infer that the doctors read the 

package inserts at issue and relied thereon in prescribing the drugs for the patients. 

However, the doctors were the ones who made the ultimate decisions and took action in 

response to the representations. (Grinnell v. Charles Pfizer & Co., supra, 274 

Cal.App.2d at p. 441; Toole v. Richardson-Merrell Inc., supra, 251 Cal.App.2d at p. 

707.)

Those cases are distinguishable from the one before us. In Grinnell v. 

Charles Pfizer & Co., supra, 274 Cal.App.2d 424 and Toole v. Richardson-Merrell Inc.,

supra, 251 Cal.App.2d 689, the agent to whom the communications were made was the 

one who evaluated the information and took action upon it, in the form of prescribing the 

drugs. Contrast the situation before us where the purported agent, Serrano, was an 

intermediary who gathered information for Colson—the one who reviewed and evaluated 

the documentation provided to him before taking action upon it in the form of executing 

the subscription agreements and transmitting the investment monies.

Roberts v. Salot, supra, 166 Cal.App.2d 294 is also distinguishable from 

the case before us. There, a 70-year-old infirm man with limited education borrowed 

against his property in order to assist his daughter, who apparently needed money. The 

daughter was responsible for repaying the loan. When she fell behind in her payments 

and a foreclosure was scheduled, the father left it to the daughter to address the matter 

and find a replacement loan. The daughter fell in with a shyster who prepared documents 

by which he ultimately divested the father of the property. The shyster made false 

representations to the daughter, who relied upon them, took the documents to her father, 

and had him sign them. (Id. at p. 297.) The court stated in a cursory way that a fraud had 

been worked against the daughter, and thus her father, inasmuch as she was his agent in 

the transaction. (Id. at p. 300.) However, there was no discussion of whether any 

misrepresentations were communicated to the father, whether the father relied upon any 
24

misrepresentations, or even whether he knew the nature of the documents he was signing. 

Contrast the case before us, where Serrano gathered information and relayed it to Colson, 

a competent, highly successful businessman who discussed the investment with Serrano 

and reviewed the written documentation, including the private placement memorandum, 

executed the subscription agreement, and forwarded the funds.

As more recent cases show, liability for a fraud worked on an agent is 

imposed where it is the agent who not only places reliance on the misrepresentations, but 

also makes the decision and takes action based upon the misrepresentations. (See City of 

Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 212-213 [State Board of 

Equalization as agent allocated insufficient share of sales tax to plaintiff cities based on 

misrepresentations]; Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1567-1568 

[computer system as agent accepted improperly obtained access codes and permitted long 

distance calls].) As stated in Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, “a 

fraudulent misrepresentation is actionable if it was communicated to an agent of the 

plaintiff and was acted upon by the agent to the plaintiff’s damage.” (Id. at p. 95, italics 

added.) That rule is inapplicable here. In the present case, it was not Serrano, but Colson 

as trustee, who was responsible for evaluating the information, and who took action by 

executing the necessary documents and transmitting the funds.

(b) Indirect misrepresentation theory

That is not the end of the analysis, however. Hasso offers another rule of 

law that does apply here. As he observes, Mirkin v. Wasserman (1993) 5 Cal.4th 1082 

provides the following rule with respect to indirect misrepresentations, as alleged in the 

matter before us: “‘The maker of a fraudulent misrepresentation is subject to liability for 

pecuniary loss to another who acts in justifiable reliance upon it if the misrepresentation, 

although not made directly to the other, is made to a third person and the maker intends 

or has reason to expect that its terms will be repeated or its substance communicated to 

the other, and that it will influence his conduct in the transaction or type of transactions 
25

involved.’” (Id. at p. 1095; accord, Gawara v. United States Brass Corp. (1998) 63 

Cal.App.4th 1341, 1350.)

(i) intention for representations to reach Colson

Williams testified that, at the time of the initial meeting with Serrano and 

her husband, he hoped that the information he provided would be forwarded to Colson 

and that Colson would invest in the RAM Fund. Following the meeting, he sent a letter 

dated June 6, 2007 addressed to Colson, in care of Serrano. In that letter he included 

copies of: (1) a private placement memorandum; (2) an investment questionnaire; (3) an 

investor information sheet; and (4) a subscription agreement. It is clear Williams 

intended that his representations regarding the RAM Fund to be transmitted to Colson, 

through Serrano, and that Colson rely thereon in investing in the RAM Fund. 

The same is true with respect to Hapke. Hapke testified that he was aware 

Colson was the trustee of the trusts and that he thought of Serrano as the contact person 

for the trusts who would evaluate investments and make recommendations to Colson as 

trustee. The next question then, is whether Serrano conveyed the representations to 

Colson. 

(ii) conveyance of representations to Colson

Colson said that Serrano called him about the investment after she met with 

Williams and Hapke, and that he and Serrano got together. He acknowledged that he 

received copies of the investment proposal, the power point presentation, the private 

placement memorandum, an investment questionnaire, an investor information sheet, and 

a subscription agreement. 

Colson testified: “I think what gave me the most comfort was the amount 

of time that [Serrano] spent working on this and the level she felt she understood what 

she was told and was represented by RAM and CFI.” Colson said the two of them 

“talked about [the investment] for six to eight weeks.” He further stated that he would 

not have made any investment without Serrano’s approval. Given this testimony, the jury 
26

could properly infer that Serrano, who met with Colson, transmitted the written 

documentation to him, and talked to him about the investment for six to eight weeks, also 

conveyed to him the various oral representations of Williams and Hapke.

(4) Reliance—

(a) Actual reliance

We turn then, to the question of actual reliance. As the California Supreme 

Court has stated plainly enough: “. . . California law does not permit plaintiffs to state a 

cause of action for deceit without pleading actual reliance . . . .” (Mirkin v. Wasserman,

supra, 5 Cal.4th at p. 1100.) “Reliance exists when the misrepresentation or 

nondisclosure was an immediate cause of the plaintiff’s conduct which altered his or her 

legal relations, and when without such misrepresentation or nondisclosure he or she 

would not, in all reasonable probability, have entered into the contract or other 

transaction. [Citations.]” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 

1239.)

The Rockwater Defendants insist there is no evidence that Colson relied on 

any of the purported misrepresentations. However, Serrano testified that Colson asked 

her to look at the investments on his behalf. She further testified that she was the one 

who made the decision to invest, and that Colson relied on her decision. Colson did not 

put it that way. However, Colson testified that while he had not asked Serrano to act as a 

financial adviser to the trusts, he told her if she was comfortable with the investment 

based on the research she had done, then he was comfortable with it. From this, the jury 

could have inferred that Colson relied on Serrano’s analysis, based on everything she had 

heard, including information she had obtained from Williams and Hapke. (Cf. Gormly v. 

Dickinson (1960) 178 Cal.App.2d 92, 105.) 

(b) Reasonable reliance

That brings us to the question of whether Colson’s reliance on the indirectly 

conveyed representations was reasonable. “[A] plaintiff who hears an alleged 
27

misrepresentation indirectly must still show ‘justifiable reliance upon it . . . .’ [Citation.]” 

(Mirken v. Wasserman, supra, 5 Cal.4th at p. 1096, fn. omitted; accord, Gawara v. 

United States Brass Corp., supra, 63 Cal.App.4th at p. 1350.) “[T]he reasonableness of 

the reliance is ordinarily a question of fact. [Citations.] However, whether a party’s 

reliance was justified may be decided as a matter of law if reasonable minds can come to 

only one conclusion based on the facts. [Citation.]” (Guido v. Koopman (1991) 1 

Cal.App.4th 837, 843.) “In determining whether one can reasonably or justifiably rely on 

an alleged misrepresentation, the knowledge, education and experience of the person 

claiming reliance must be considered. [Citations.]” (Id. at pp. 843-844; accord, OCM 

Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 

Cal.App.4th 835, 856.)

We must, of course, take a look at the purported misrepresentations and 

omissions before we can determine whether Colson’s reliance was reasonable.

(i) characterization of market

There was a point at which Serrano paused to double check whether it was 

appropriate to make the investment at all. Hasso points out that, before Colson wired the 

monies to the RAM Fund, Serrano, on the advice of her mother, asked Hapke about the 

stability of the market.

In response, Hapke sent Serrano a June 25, 2007 e-mail with a market 

update attached, and the two of them also spoke. The market update, prepared by 

Williams,5 had to do with the “recent Bear Stearns market event” (capitalization omitted)

and it distinguished between the municipal arbitrage market and the mortgage 

 

5 In preparing this market update, Williams relied on information from two 

sources. One was Ben Bernanke, the head of the Federal Reserve. According to 

Williams, Bernanke had said in testimony before Congress “that he believed that the 

subprime market problems were contained.” Also, Williams learned from a conference 

call with the chief financial officer of one of the largest bond insurers that the subprime 

problem was “‘not going to be a problem with [his] company’s reserves.’” Given the 

information from these two sources, Williams believed everything was okay.
28

collateralized debt obligation market. It stated: “The current fiscal health of states and 

municipalities that issue tax-exempt debt is very strong . . . .” According to Serrano, 

Hapke assured her that that everything was alright and the investment was still safe and 

appropriate for the trusts, but that turned out not to be the case.

Expert witness Christopher Taylor said what had happened at the time of 

the June 25, 2007 e-mail “was two Bear Stearns Funds that invested in mortgage-backed 

securities, not munis, mortgage-backed securities, had collapsed.” According to Taylor, 

the collapse did not affect the municipal bond arbitrage market at all at that point. Taylor 

thought the market update provided in response to Serrano’s e-mail “was a very good 

discussion of what was going on at the time.” He also testified to his belief that none of 

the statements in the market update were incorrect. Given the testimony of Taylor, there 

is simply no indication that Williams or Hapke made any misrepresentations at all in 

communicating with Serrano concerning the perceived stability of the market at that 

moment in time.

(ii) leverage

Hasso asserts that the Rockwater Defendants failed to explain, at the May 

29, 2007 meeting, that the RAM Fund would invest in sub-funds which employed 

leveraged municipal arbitrage strategies with leverage up to a factor of 12 times. 

However, there is simply no question that the Rockwater Defendants disclosed that the 

RAM Fund invested in sub-funds which employed leveraged municipal arbitrage 

strategies. They disclosed it repeatedly, in the power point presentation discussed at the 

May 29, 2007 meeting, in the marketing brochure and in the private placement 

memorandum.

The power point presentation, for example, included a slide entitled 

“Municipal Arbitrage Risks,” that enumerated seven risks which were also identified in 

the marketing brochure. The enumerated risks included leverage. Both the power point 

presentation and the marketing brochure provided a specific example of leverage, where 
29

the sub-manager would use $1 million toward the purchase of a $10 million bond, and 

obtain the other $9 million from an investor.

Williams testified that the sub-funds in which the RAM Fund invested ran a 

spectrum of risk, from those that were very conservative, with leverage to a factor of 

about 2.5, to those that were highly leveraged, with leverage to a factor of about 11.9. 

But Serrano testified that Williams and Hapke omitted to disclose to her that the subfunds utilized leverage up to a factor of 12. Indeed, the Rockwater Defendants cite no 

testimony to contradict this.

That notwithstanding, both the power point presentation and the marketing 

brochure, as we have stated, disclosed the use of leverage. In addition, the power point 

presentation encouraged the viewer to ask questions. Serrano testified that the meeting 

lasted about an hour and a half and that she and her husband, who also has an MBA, 

asked a lot of questions, mainly about risks. They had every opportunity to ask about the 

degree of leverage utilized.

Furthermore, we observe the very first page of the marketing brochure 

stated: “An investment in the [RAM] Fund should be considered speculative and 

involves certain risks. Please refer to the RAM Private Placement Memorandum . . . for 

more detailed risk information.” And, when Williams sent his June 6, 2007 letter to 

Colson, via Serrano, he included a copy of the private placement memorandum. That 

letter stated with respect to the private placement memorandum: “This provides you with 

information regarding . . . the Fund’s investments and strategy . . . . It also discusses the 

risk of investing in the Fund. You should read the Memorandum carefully.”

The private placement memorandum contained two full paragraphs devoted 

to leverage. It specifically warned: “Due to the highly leveraged nature of the residual 

certificates, it is possible that these obligations of the Sub Fund would exceed the 

proceeds from the sale of the municipal bonds, resulting in a loss of all or substantially all 

of the Sub Fund’s value.” It also stated: “There is no restriction on the amount of 
30

leverage that a Sub Manager may employ for a Sub Fund and, at any given time, such 

leverage may be large in relation to the Sub Fund’s capital. [¶] . . . As a general matter, 

the prices of leveraged instruments can be highly volatile, and investments in leveraged 

instruments may, under certain circumstances, result in losses that exceed the amounts 

invested.” (Italics added.) 

Colson acknowledged that he read the private placement memorandum. 

Therefore, he should have seen that there was no upper limit to the amount of leverage

that could be used. He could have asked about the greatest amount of leverage then in 

use had he chosen to do so. Indeed, the private placement memorandum stated that any 

questions should be directed to Williams, and it provided his telephone number. 

However, Colson admitted that he never spoke with Williams about the investment. 

(iii) risk management techniques

Hasso also contends that the Rockwater Defendants misdescribed the RAM 

Fund as having built-in measures designed to minimize risks. However, minimizing risks 

and eliminating them are two different things. The RAM Fund’s risk-minimizing 

measures were described in the power point presentation, the marketing brochure and the 

private placement memorandum. 

The power point presentation and the marketing brochure each identified 

seven risks, together with seven corresponding methods of managing those risks. For 

example, the risk associated with interest rates was managed by hedging. The risk arising 

out of net asset value fluctuations was tempered by the use of a multi-manager strategy, 

described elsewhere in the brochure as “[t]he blending of multiple managers with 

differing expertise and multiple investment styles . . . .” In addition, the page of the

marketing brochure addressing the risks and corresponding risk management techniques 

again stated: “Please refer to the RAM Private Placement Memorandum . . . for more 

detailed risk information.”
31

Although Hasso claims the Rockwater Defendants misrepresented the 

existence of risk-minimizing measures, it would appear that the unarticulated problem is 

more fundamentally that the described risk-minimizing measures were not foolproof. 

They did not save the RAM Fund from catastrophic loss when the global economy 

collapsed. But Colson knowingly invested in a hedge fund, not a money market account. 

And, the private placement memorandum specifically warned about “the risk that the 

Fund’s or Sub Fund’s investment strategies and/or investment techniques may not work 

as intended[.]” (Boldface omitted.)

It stated more particularly with respect to hedging, for example: “The 

success of a Sub Fund’s hedging transactions is subject to the Sub Manager’s ability to 

correctly predict movements in and the direction of interest rates. Therefore, while a Sub 

Fund may enter into such transactions to seek to reduce risk, unanticipated changes in 

interest rates may result in a poorer overall performance of the Sub Fund than if it had not 

engaged in any such hedging transaction.”

(iv) proprietary algorithm

Continuing on, Hasso asserts that Serrano was falsely told the RAM Fund 

utilized a proprietary algorithm to generate an enhanced return. At trial, Williams 

described at length the methods he used to select the sub-funds in which the RAM Fund 

invested. At one point he was asked, “Can you tell us where the secret algorithm comes 

in . . . ?” Williams replied, “What I withheld was the names of the funds. I didn’t want 

to use the specific names of [the funds] for competitive reasons.” He explained that he 

liked to keep the names of the sub-funds secret at the first meeting, because otherwise 

prospective clients sometimes just went out and purchased those funds directly, without 

making a purchase in the RAM Fund. As for why he used the term “algorithm,” 

Williams further explained: “[T]he selection of the funds is a process. And the selection 

of the funds, you might call that an algorithm.” 
32

The Pocket Oxford American Dictionary (2d ed. 2008) at page 18 defines 

an “algorithm” as “a process or set of rules used in calculations or other problem-solving 

operations.” Here, Williams testified at length to the process he used to attack the 

problem of sub-fund selection. While he did not use calculus, he did apply a process and 

the use of the term “algorithm” does not appear to have been improper.

(v) identity of sub-managers

On a related point, Hasso asserts that, at the May 29, 2007 meeting, the 

Rockwater Defendants failed to articulate that the sub-fund managers were not RAM 

Fund employees. Indeed, the power point presentation described the RAM Fund as a 

“Multi-manager fund of funds” and noted the use of “‘Best-in-class’ municipal arbitrage 

sub-managers,” without identifying the particular sub-managers.

The marketing brochure was more specific. It stated that “RAM deploy[ed]

capital to professional municipal arbitrage managers . . .” and that its assets were invested 

“in private investment funds and separate accounts managed by top-tier professional 

money managers . . . .” These statements indicate that the RAM Fund, as a fund-offunds, invested its assets in other funds, not in house.

The language of the private placement memorandum was even more 

specific. The private placement memorandum warned of “the risks associated with the 

Manager’s use of third-party investment management firms.” (Boldface omitted.) 

Furthermore, under the topic of management risk, the private placement memorandum 

stated, in part: “The Fund ordinarily will not have custody or control over the assets it 

allocates to Sub Funds. As a result, it may be difficult for the Manager to protect the 

Fund from the risk of Sub Manager fraud, misrepresentation or simple bad judgment. 

Among other things, a Sub Manager could divert or abscond with the assets allocated to 

it, fail to follow its stated investment strategy and restrictions, issue false reports or 

engage in other misconduct. This could result in serious losses to the Fund.” This 
33

language could not make more plain the fact that the assets were allocated to sub-funds 

controlled by third party managers, not in-house personnel.

(vi) margin trading

Hasso claims the Rockwater Defendants failed to explain, at the May 29, 

2007 meeting, that the RAM Fund assets could be subject to margin calls. We first note 

that Hasso’s record references do not really support this assertion. He cites a portion of 

Serrano’s testimony wherein she commented about the investment: “But the problem is, 

they had it so highly leveraged that I guess they got margin calls and all the assets are 

gone.” This statement simply does not address whether Williams and Hapke did or did 

not disclose, at the May 29, 2007 meeting, the possible use of buying on margin. We 

could end our discussion of the point here.

However, we observe the private placement memorandum warned: “In the 

futures markets, margin deposits typically range between 2% and 15% of the value of the 

futures contract purchased or sold. Because of these low margin deposits, futures trading 

is inherently highly leveraged. As a result, a relatively small price movement in a futures 

contract may result in immediate and substantial losses to the trader.” So, even if the 

topic of buying on margin did not come up at the May 29, 2007 meeting, it is not true that 

there were no disclosures made on the topic. It was mentioned in the private placement 

memorandum, which also disclosed risks regarding, inter alia, callable certificates, short 

sales, options, hedging and leveraging.

(vii) low-risk investment

Hasso complains that, after the meeting, Hapke sent Serrano a follow-up 

email stating: “Our proposed investment strategy is designed to deliver attractive returns 

with nominal risk, a result that seems ideally suited for the trusts.” Despite Hasso’s 

intimation, however, it does not appear that this e-mail was intended to describe the RAM 

Fund itself as being low risk. Rather, Hapke testified that his e-mail referred to the 

overall investment proposal, which contained three combined components: (1) the liquid 
34

portion, which was very low risk; (2) the CFI-managed core portfolio, which was low 

risk; and (3) the RAM Fund, which was higher risk. Since the wording of the e-mail 

refers to the “proposed investment strategy” and not the RAM Fund, this would appear to 

be a fair characterization of the e-mail.

Moreover, we observe that the investment proposal suggested investing 

only 50 percent of the trusts’ total investment in the RAM Fund, not 100 percent. The 

proposal allocated 40 percent of the trusts’ total investment to the traditional municipal 

bond portfolio, to be managed by CFI, and 10 percent to the liquid portfolio, also to be 

managed by CFI. But Colson ignored the recommendation and invested 100 percent in 

the RAM Fund, thereby exposing the trusts’ investments to a higher risk than 

recommended.

In any event, Hasso’s primary complaint appears to be that Williams and 

Hapke nonetheless opined at the May 29, 2007 meeting that the RAM Fund was a 

suitable, conservative investment with nominal risk, one appropriate for the preservation 

of trust assets. According to Serrano, Williams said, “‘In the worst case scenario you 

could lose 10 percent.’” That was supposed to be “‘if the world fell apart.’”

Against this backdrop of an apparently wholehearted endorsement of the 

RAM Fund, we have the more particular disclosures contained in the various written 

documents, many of which we have described already. However, there are a few more 

notable disclosures to round out the picture.

The introduction to the investment brochure stated: “RAM’s investment 

strategy and investment techniques involve significant risks. . . . [¶] An investment in the 

Fund should be considered speculative . . . . Please refer to the RAM Private Placement 

Memorandum . . . for more detailed risk information.” (Italics added.) 

The first page of the private placement memorandum stated: “An 

investment in the Fund should be considered speculative and involves substantial risk 

. . . . You should not invest in the Fund unless you . . . are fully able to sustain the loss of 
35

all or a significant part of your investment. In light of this financial risk, you should 

consider an investment in the Fund only for an appropriate portion of your overall 

portfolio. [¶] The Manager and the Fund urge you to carefully consider the special 

considerations and risk factors relating to an investment in the Fund, as described in § 6, 

‘RISK FACTORS,’ and in other sections of this Memorandum . . . .” (Boldface omitted.) 

The risk factors identified in section 6 of the private placement 

memorandum included, among others, “the risk of deterioration in an entire market, such 

that all or most of the Sub Managers concentrating in that market incur large losses.”

(Boldface omitted.) The private placement memorandum further warned: “The ability of 

issuers of municipal bonds to make timely payments of interest and principal may be 

diminished during general economic downturn . . . .” It also said: “Due to the highly 

leveraged nature of the residual certificates, it is possible that these obligations of the Sub 

Fund would exceed the proceeds from the sale of the municipal bonds, resulting in a loss 

of all or substantially all of the Sub Fund’s value.”

Clearly, the marketing brochure and the private placement memorandum 

contained extensive warnings that the RAM Fund could sustain massive losses, 

particularly in a general economic downturn. When Colson signed the subscription 

agreements, he represented that he had read the private placement memorandum and that 

he had relied on it and not on any oral representation inconsistent with it. Furthermore, in 

both the subscription agreements and a confidential investor qualification questionnaire,

Colson further represented that he personally had sufficient knowledge and experience in

business and financial matters to be capable of evaluating the risks and merits of an 

investment in the RAM Fund, and that he was able to suffer a complete loss of the 
36

investment.6 Colson testified at trial that he read the representations before he signed the 

document, that each of the representations was accurate, and that he knew “Rockwater” 

would rely on those representations. 

(viii) analysis

As the foregoing discussion shows, there is no indication that Hapke and 

the Rockwater Defendants made any misrepresentations to either Serrano or Colson. 

While Hasso emphasizes that certain things were not mentioned in the May 29, 2007 

meeting, that was an introductory meeting not a seminar addressing every facet of the 

RAM Fund and every conceivable risk of investing therein. Moreover, on each point 

with respect to which Hasso said information was lacking, information was provided in 

the marketing brochure provided to Serrano weeks in advance of the meeting and/or in 

the private placement memorandum provided before the investment was made. Charles 

Hartman, Hasso’s own expert witness, testified that he saw no misrepresentations in the 

private placement memorandum and Colson testified that he read it. Furthermore, 

questions were encouraged and contact information for Williams was provided, but 

Colson did not contact him for additional information.

The closest thing we have to a misrepresentation is the expression of 

opinion by Williams and Hapke that the investment was low risk and suitable for the 

trusts, and the puffery that the most money that could be lost was 10 percent “if the world 

fell apart.” However, Colson acknowledged that, to describe himself modestly, he was a 

 

6 Expert witness Taylor testified: “The investor questionnaire is a document 

that is sent to the investor for the purpose of determining whether the investor qualifies 

under an exemption in the securities law that allows the sale of this security to the 

individual. . . . [P]rivate placements are available to those that have the means to assess 

them independent of the broker. And in effect, you have to have the wealth, the 

understanding, and everything else that goes with it. So for this transaction to take place, 

Rockwater had to make sure that the trusts had met certain criteria that allowed them to 

be an investor in a private placement. That’s [what] the investor questionnaire is 

designed to do.”
37

“very, very successful” businessman with a net worth exceeding nine figures. He stated 

he was familiar with financial and business analysis. He represented to the RAM Fund in 

multiple documents that he had the requisite business savvy to understand the nature and 

risks of the RAM Fund and that the trusts could withstand a loss of 100 percent. Colson 

admitted at trial that any investment could result in a significant loss and that he knew 

that was true with respect to the RAM Fund investment. He further acknowledged that 

he knew there was no guarantee the most the trust could lose on the RAM Fund 

investment was 10 percent and that there was the possibility that the entire investment 

could be lost.

Given the foregoing, the suggestion that Colson could have reasonably 

relied on such puffery as the risks of investing in the RAM Fund were so minimal that an 

investment in the RAM Fund could not lose more than 10 percent, is untenable.

7 The 

judgment against Hapke and the Rockwater Defendants must be reversed to the extent 

they are held liable for fraud by intentional representation, fraud by concealment, and 

negligent misrepresentation. The judgment in favor of CFI and Fish on those causes of 

action must be affirmed. The orders denying Hasso’s new trial motion and motion for 

judgment notwithstanding the verdict with respect to the fraud and misrepresentation 

causes of action against CFI and Fish must be affirmed.

 

7 It is irrelevant whether Serrano herself may reasonably have relied on the 

representations in question, inasmuch as she was not the trustee, did not invest the trusts’ 

assets, and is not the plaintiff. However, we note that inasmuch as she had a bachelor’s 

degree with a major in economics, an MBA, and a juris doctor, and was a paid trustee 

herself, we have a hard time accepting the notion that she reasonably relied on any 

representation that the investment could not lose more than 10 percent even “if the world 

fell apart.”
38

E. BREACH OF FIDUCIARY DUTY:

(1) Introduction—

“‘The elements of a cause of action for breach of fiduciary duty are the 

existence of a fiduciary relationship, its breach, and damage proximately caused by that 

breach. [Citation.]’ [Citation.]” (Knox v. Dean (2012) 205 Cal.App.4th 417, 432.)

“[B]efore a person can be charged with a fiduciary obligation, he must 

either knowingly undertake to act on behalf and for the benefit of another, or must enter 

into a relationship which imposes that undertaking as a matter of law. [Citation.]” 

(Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 

221, superseded by statute on other grounds.) “Fiduciary duties are imposed by law in 

certain technical, legal relationships such as those between partners or joint venturers 

[citation], . . . trustees and beneficiaries, principals and agents, and attorneys and clients 

[citation].” (GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. 

(2000) 83 Cal.App.4th 409, 416, disapproved on other grounds in Reeves v. Hanlon 

(2004) 33 Cal.4th 1140, 1154.) The investment adviser/client relationship is one such 

relationship, giving rise to a fiduciary duty as a matter of law. (Cf. Securities & E. 

Com’n v. Capital Gains Research Bur. (1963) 375 U.S. 180, 191, 194.) A fiduciary duty 

under common law may arise “when one person enters into a confidential relationship 

with another.” (GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc.,

supra, 83 Cal.App.4th at p. 417.) It is a question of fact whether one is either an 

investment adviser (James De Nicholas Associates, Inc. v. Heritage Constr. Corp. (1970) 

5 Cal.App.3d 421, 427) or a party to a confidential relationship that gives rise to a 

fiduciary duty under common law (GAB Business Services, Inc. v. Lindsey & Newsom 

Claim Services, Inc., supra, 83 Cal.App.4th at p. 417; see also Brown v. Wells Fargo

Bank, N.A. (2008) 168 Cal.App.4th 938, 960-962).

Here, Hapke and the Rockwater Defendants each correctly observe that this 

case was tried on the theory they were investment advisers. However, they assert that 
39

they were not in fact investment advisers. In addition, the Rockwater Defendants claim 

the jury instructions were erroneous in that they failed to require the jury to even make 

findings as to whether they were investment advisers. Finally, the Rockwater Defendants 

contend the finding that they breached fiduciary duties could not be sustained under the 

common law inasmuch as the jury had never been instructed on the common law. 

In retort, Hasso maintains that each of the parties was indeed an investment 

adviser within the meaning of California statutory law and that, even if this were not the 

case, the judgment in his favor should be upheld under common law. He further 

maintains that he should have prevailed on his breach of fiduciary duty cause of action 

against CFI and Fish.

As we shall show, it is correct that Hapke was not an investment adviser 

within the meaning of California statutory law. To the extent the jury instructions were 

defective for failure to require the jury to make a determination as to whether each 

defendant was an investment adviser, the error was not prejudicial, at least with respect to 

RMA and Williams. Given the evidence in the record, even if the jury had specifically 

been instructed to determine whether RMA and Williams were investment advisers, it is 

not reasonably probable that the jury would have found that RMA and Williams were not 

investment advisers. The record contains substantial evidence to show that they were. 

However, there is no evidence to show that the RAM Fund was an investment adviser. 

Moreover, because the jury was not instructed in the common law, we do not now apply 

the common law to determine whether the RAM Fund could have been found to owe a 

fiduciary duty to Colson. Finally, there is substantial evidence to support the jury’s 

finding that CFI and Fish did not breach any fiduciary duty. 

(2) Hapke—

Corporations Code section 25009, subdivision (a), provides in pertinent 

part: “‘Investment adviser’ means any person who, for compensation, engages in the 

business of advising others, either directly or through publications or writings, as to the 
40

value of securities or as to the advisability of investing in, purchasing or selling 

securities, or who, for compensation and as a part of a regular business, publishes 

analyses or reports concerning securities. ‘Investment adviser’ does not include. . . (3) an 

associated person of an investment adviser . . . .”

Hapke says he does not meet the foregoing definition for three separate 

reasons: (1) he is excluded from the definition because he is “an associated person of an 

investment adviser”; (2) he does not provide investment advisory services for 

compensation; and (3) he does not engage in the business of advising others.

(a) Associated person

Corporations Code section 25009.5, subdivision (a) defines an “associated 

person of an investment adviser” as “any partner, officer, director of . . . or other 

individual, . . . who is employed by or associated with, or subject to the supervision and 

control of, an investment adviser . . . , and who does any of the following: [¶] (1) Makes 

any recommendations or otherwise renders advice regarding securities. [¶] . . . [¶] (3) 

Determines which recommendation or advice regarding securities should be given. [¶] 

(4) Solicits, offers, or negotiates for the sale or sells investment advisory services. . . .”

Hapke says it is undisputed that RMA is an investment adviser and that he 

was RMA’s chief financial officer, so he is an “associated person of an investment 

adviser” and as such is expressly excluded from the definition of an “investment adviser.” 

Actually, the Rockwater Defendants do dispute whether RMA is an investment adviser, 

but RMA’s own written materials show that it is.8 And, no one disputes that Hapke was 

RMA’s chief financial officer. That leaves the question of whether Hapke undertook any 

 

8 To be precise, the investment proposal submitted at the May 29, 2007 

meeting stated that Rockwater Hedge, LLC was an investment advisory firm registered 

with the Department of Corporations. An RMA business plan dated June 15, 2008 stated 

that “Rockwater Hedge” had joined forces with CFI, through the contribution agreement, 

and “[t]he new entity [had] been re-named Rockwater Municipal Advisors LLC (RMA).” 

Hapke confirmed that Rockwater Hedge, LLC became known as RMA, in 2007. The 

business plan also described RMA as “an investment advisory firm.”
41

of the actions enumerated in section 25009.5, subdivision (a). Hapke overlooks this 

question, but it is one we can dispose of simply enough. Hasso’s cause of action against 

Hapke is predicated on the assertion that he rendered advice regarding securities and 

offered the sale of investment advisory services. For the purposes of this analysis, Hasso 

is stuck with that assertion.

So, Hapke satisfies all criteria for the definition of an “associated person of 

an investment adviser” such that he is excluded from the definition of “investment 

adviser” for the purposes of Corporations Code section 25009, subdivision (a). Hasso 

provides no reason to dispute this. 

However, Hasso claims that the exclusion does not save Hapke from 

liability for breach of fiduciary duty because, irrespective of the fact that Hapke was an 

officer of RMA, he was nevertheless an investment adviser in his own right. In other 

words, Hasso argues that because Hapke rendered investment advisory services, he 

should held to be an investment adviser in his own right, even though Corporations Code 

section 25009.5, subdivision (a) specifically states that officers who render investment 

advisory services are not construed as investment advisers themselves. The obvious 

import of the statute is to hold liable entity registered investment advisers, but not their 

officers. Even were we to assume that Hasso’s interpretation of the statute is correct, 

however, we could not conclude that Hapke is an investment adviser in his own right, for 

reasons we shall show.

(b) Compensation

Hapke maintains that he was not an investment adviser, within the meaning 

of Corporations Code section 25009, subdivision (a), because he was not compensated as 

such. We agree.

Hapke was chief financial officer of RMA. He was responsible for 

accounting, tax returns, and books and records, and was involved in the preparation of 

financial projections, cash flow analysis and the like. He received a flat salary from 
42

RMA for his services. Williams testified that neither he nor Hapke received commissions 

for soliciting investments in the RAM Fund and, more specifically, that Hapke received 

no compensation for soliciting Colson’s investment in the RAM Fund.

The only evidence that Hasso cites in support of the assertion that Hapke 

was compensated for rendering investment advisory services is evidence that, in January 

2008, Hapke’s role changed and his salary was cut in half. At that point, Williams put 

Hapke on commission and asked him to do business development work for the municipal 

bond business managed by Fish. A couple of months later, Hapke left the company.

This evidence only shows that, after RMA and the RAM Fund were

shattered by losses, Williams cut Hapke’s salary and asked him to undertake a different 

job function with respect to the portion of RMA that was still functional—CFI’s bond 

business. It does not show that Hapke was compensated by commission for business 

development before Colson invested in the RAM Fund in August 2007. There is simply 

no evidence to show that, at the time of the May 29, 2007 meeting, Hapke was one who 

received compensation for rendering investment advisory services, so as to qualify him as 

an investment adviser within the meaning of Corporations Code section 25009.

Hasso disagrees, citing U.S. v. Elliott (1995) 62 F.3d 1304. True enough, 

that case, arising under the Investment Advisors Act of 1940 (15 U.S.C. § 80b-1 et seq.)

(hereafter Investment Advisors Act), stated that it was unnecessary for customers to “pay 

a discrete fee specifically earmarked as payment for investment advice” in order for the 

defendant to be considered an investment adviser within the meaning of the federal 

statute. (U.S. v. Elliott, supra, 62 F.3d at p. 1311.) Although the two defendants there 

did not receive separate investment adviser’s fees, they were, nonetheless, essentially 

compensated for providing investment advice. They solicited investments through a

Ponzi scheme and were compensated through either the commingling of investor funds 

and personal funds, in the case of one defendant, or the receipt of commissions, in the 

case of the other defendant. (Id. at pp. 1305-1306.) We need not belabor the distinction 
43

between this form of “compensation” and the receipt of a salary by the chief financial 

officer of a company. Hasso has failed to prove his point.

(c) Business of advising others

Hapke also says he was not an investment adviser within the meaning of 

Corporations Code section 25009, subdivision (a), because he did not engage in the 

business of advising others. Indeed, as we have seen, the evidence showed he was the 

chief financial officer of RMA and, as such, performed functions pertaining to 

accounting, tax returns, books and records, financial projections, cash flow analysis, and 

the like.

At the same time, Hapke acknowledged that Williams would occasionally 

ask him to touch base with some of his contacts, such as Attorney Casey, to see if he 

could introduce the person to the RAM Fund and set up a meeting with Williams. Such a 

contact resulted in the situation we have here, where Williams and Hapke met with 

Serrano and pitched a three-tiered investment strategy, in which they hoped to obtain 

investments in the RAM Fund and CFI.

Even so, for one to be considered an investment adviser, it is generally 

thought that the individual must provide investment advice on something more than 

“rare, isolated and nonperiodic” occasions. (U.S. v. Elliott, supra, 62 F.3d at p. 1310.) 

Put another way, “[t]he giving of advice need only be done on such a basis that it 

constitutes a business activity occurring with some regularity . . . .” (Ibid.) Here, there is 

no indication that Hapke participated in presentations of this nature with any regularity. 

In any event, even if we were to assume that Hapke’s client contacts were 

more than isolated, this would not change the fact that there is no evidence that he was 

compensated for providing investment advisory services, such that he could properly be 

found to be an investment adviser. Rather, he was an officer of RMA, and as such was, 

as we have said, excluded from the definition of investment adviser himself. (Corp. 

Code, §§ 25009, 25009.5.)
44

(3) Rockwater Defendants—

(a) Jury instructions

The Rockwater Defendants, as we have noted, contend that they could not 

properly be held liable for a breach of fiduciary duty unless the jury specifically found 

that they were each investment advisers as defined in Corporations Code section 25009, 

which was quoted nearly verbatim in the jury instructions. They also argue that the jury 

instructions were such that the jurors were unfairly led to simply assume that each 

Rockwater Defendant was an investment adviser, rather than to understand that they had 

to first determine whether each individual defendant was an investment adviser at all 

before even considering whether the respective defendants were liable for breach of 

fiduciary duty. In addition, the Rockwater Defendants correctly observe that objections 

were timely made regarding the failure of the instructions to ask the jury to determine 

whether each individual defendant was an investment adviser before addressing the 

elements of a breach of fiduciary duty claim.

The jury instructions with respect to breach of fiduciary consisted of five 

pages. The first page stated in pertinent part: “To establish the claim, the plaintiffs must 

prove each of the following elements is more likely true than not true: [¶] 1. That 

plaintiffs were clients or prospective clients of the defendants. [¶] 2. That the defendant 

acted on behalf of the plaintiffs for purposes of obtaining an investment in the RAM 

Fund. [¶] 3. That the defendants failed to act as a reasonably careful investment advisor 

would have acted under the same or similar circumstances. [¶] 4. That the plaintiffs were 

harmed. [¶] 5. That the Defendants’ conduct was a substantial factor in causing the 

plaintiffs’ harm.” The jury instructions immediately thereafter continued, on page two: 

“An investment adviser owes what is known as a fiduciary duty to its clients and 

prospective clients. . . .” A definition of the term “investment adviser,” consistent with 

Corporations Code sections 25009 and 25009.5, was not provided until the fourth page of 

the instructions on breach of fiduciary duty.
45

It is possible to construe the instructions as meaning that as long as the 

plaintiffs were prospective clients of the defendants, and the defendants were soliciting 

plaintiffs’ investment in the RAM Fund, the defendants owed the plaintiffs the duty to act 

the way a reasonably careful investment adviser would. Under this construction, the jury 

was not required to make a determination as to whether the Rockwater Defendants were 

investment advisers. However, even assuming the jury instructions were erroneous as 

given, this does not mean that the Rockwater Defendants have shown reversible error.

“A judgment may not be reversed on appeal, even for error involving 

‘misdirection of the jury,’ unless ‘after an examination of the entire cause, including the 

evidence,’ it appears the error caused a ‘miscarriage of justice.’ (Cal. Const., art. VI, 

§ 13.) When the error is one of state law only, it generally does not warrant reversal 

unless there is a reasonable probability that in the absence of the error, a result more 

favorable to the appealing party would have been reached. [Citation.]” (Soule v. General 

Motors Corp. (1994) 8 Cal.4th 548, 574.) Put another way, instructional error in a civil 

case requires reversal “‘where it seems probable’ that the error ‘prejudicially affected the 

verdict.’ [Citations.]” (Id. at p. 580.)

Crucial here is the question whether there is a reasonable probability that, 

had the jury been specifically instructed it must make a finding as to whether each 

defendant was an investment adviser before proceeding to address the stated elements of 

a cause of action for breach of fiduciary duty, a result more favorable to the Rockwater 

Defendants would have been reached. The Rockwater Defendants say the answer is 

“yes.” The Rockwater Defendants contend the evidence clearly showed they were not in 

fact investment advisers, given that: (1) they never executed an investment advisers 

contract; (2) they did not engage in the investment adviser business; and (3) they were 

not compensated for providing investment advice. We turn to those issues now.
46

(i) lack of investment advisory contract 

The Rockwater Defendants cite Kassover v. UBS AG (S.D.N.Y 2008) 619

F.Supp.2d 28 and Norman v. Salomon Smith Barney Inc. (S.D.N.Y. 2004) 350 F.Supp.2d 

382 in support of their argument that because the parties here did not enter into an 

investment advisory contract, the Rockwater Defendants were not investment advisers. 

However, we do not read more into those cases than they say. They say only that one 

who is not a party to an investment advisory contract cannot avail himself or herself of 

the remedies under the Investment Advisors Act. (Kassover v. UBS AG, supra, 619

F.Supp.2d at p. 32; Norman v. Salomon Smith Barney Inc., supra, 350 F.Supp.2d at p. 

388; but see U.S. v. Elliott, supra, 62 F.3d at pp. 1311-1312 [investment adviser contract 

not required under federal statutes].) Kassover and Norman do not say that one who is 

not a party to an investment advisory contract cannot assert a viable breach of fiduciary 

duty claim under other provisions of law or cannot be an investment adviser within the 

meaning of California Corporations Code section 25009. Along the same lines, the 

Rockwater Defendants do not state that Hasso’s breach of fiduciary duty cause of action 

is based on any provision of the Corporate Securities Law of 1968 (Corp. Code, § 25000 

et seq.) that is analogous to a provision of the Investment Advisors Act. As an aside, we 

also observe that the Rockwater Defendants do not say they requested that the term 

“investment adviser” be defined for the jury to include only those persons who were 

parties to investment advisory contracts. (See Metcalf v. County of San Joaquin (2008) 

42 Cal.4th 1121, 1130-1131.) For these various reasons, the failure to sign an investment 

advisory contract is not determinative for our purposes.

(ii) rendering investment advice

The Rockwater Defendants also argue they are not investment advisers 

because they do not “engage[] in the business of advising others . . . as to the value of 

securities or as to the advisability of investing in, purchasing or selling securities . . .” 

within the meaning of Corporations Code section 25009, subdivision (a).
47

In support of this assertion, they cite evidence regarding the function of 

Williams in attending the May 29, 2007 meeting. Williams testified that he was at the 

meeting to speak about the RAM Fund, not to act as an investment adviser. Similarly, 

expert witness Taylor, called by the Rockwater Defendants, and expert witness Lisa 

Roth, called by CFI and Fish, each opined that Williams was at the meeting giving a sales 

pitch, not providing investment advice. However, this opinion was contrary to the one 

expressed by expert witness Hartman, called by Hasso.

So, what we have here is the battle of the expert witnesses with respect to 

the function of Williams in attending the May 29, 2007 meeting. However, the simple 

fact of his attendance is not the only evidence we have.

The first page of the investment proposal stated: “The unique 

characteristics and objectives of the [2006 May S. Hasso Serrano Family Trust] require a 

customized and thoughtful investment strategy, a strategy best executed by combining the 

focused expertise and experience of two specialty investment management firms. [¶] As 

such, this proposal is presented by the combined investment management firms of 

[RMA] and [CFI]. [¶] [RMA] and CFI are pleased to present this proposal to provide 

comprehensive investment services to the Trust.”

The proposal presented a “three-tiered investment strategy” combining a 

“laddered portfolio of diversified traditional municipal bonds,” an “investment in a taxadvantaged multi-manager arbitrage strategy,” and “[a] smaller, but vital, liquidity 

portfolio made up primarily of tax-exempt bonds and notes with an average weighted life 

of fewer than two years.” The proposal allocated 40 percent of the trusts’ total 

investment to the traditional municipal bond portfolio, to be managed by CFI, 50 percent 

to the RAM Fund, and 10 percent to the liquid portfolio, also to be managed by CFI.

The investment proposal stated: “After 25 years of investment experience 

serving high net worth clients, Bryan Williams formed Rockwater in 2005 as the 

investment advisor to the [RAM Fund]. Bryan Williams is also the founder, President 
48

and CEO of The Rockwater Group, formed in 1998 as an investment advisory firm to 

high net worth and institutional clients. Both Rockwater and The Rockwater Group are 

Registered investment Advisory firms registered with the California Department of 

Corporations.” It further stated: “CFI was founded in 1984 and is a Registered 

Investment Advisor registered with the Securities and Exchange Commission under the 

investment action of 1940 and the California Department of Corporations.” The proposal 

stated RMA and CFI offered a “highly personalized service” and sought to meet at least 

annually “to review the performance of the portfolio, confirm goals and objectives, and 

discuss the investment outlook.” The proposal concluded by stating RMA and CFI were 

“delighted with the opportunity to present [their] proposal to provide investment 

management services to the Trust.”

In short, Williams was pitching a “three-tiered investment strategy” at the 

same time as he was trying to sell the trusts on making an investment in the RAM Fund 

as one component part of that ongoing investment strategy. It is difficult to characterize 

this as something other than rendering investment advice.

(iii) lack of compensation

The Rockwater Defendants maintain that they could not be found to be 

investment advisers within the meaning of Corporations Code section 25009, subdivision 

(a), because they did not receive compensation for providing investment advice. In 

support of this assertion, the Rockwater Defendants cite the testimony of Serrano, who 

stated the reason she chose a two-year lockup period on the RAM Fund investment was 

that with a two-year lockup, no management fees were paid unless there was a profit. 

However, this evidence bears only upon compensation to RMA, and even at that the 

Rockwater Defendants are very narrow in their citation to the evidence.

Both the investment proposal and the private placement memorandum

specifically addressed the manner in which RMA would receive its compensation. They 

stated that RMA, as the managing member of the RAM Fund, received compensation 
49

from the RAM Fund. Whether that compensation was paid as a management fee or as a

profit allocation depended on the class of interest being managed. The private placement 

memorandum explained that Class A Interests were subject to a two-year lockup and 

Class B Interests were subject to a one-year lockup. The RAM Fund paid a 1 percent 

annual management fee on Class B Interests, plus a percentage of profits. It paid no 

management fee on Class A Interests, but it paid a higher percentage of profits.

So the private placement memorandum showed that while no management 

fee per se was paid with respect to interests subject to a two-year lockup, a percentage of 

profits was paid with respect to those interests. This is still compensation. And, in 

determining whether a person is an investment adviser, this type of compensation can 

suffice. (S.E.C. v. Saltzman (E.D.Pa. 2000) 127 F.Supp.2d 660, 669 [profit-based 

performance fee constitutes compensation]; see also U.S. v. Elliott, supra, 62 F.3d at p. 

1311 [discrete fee for investment advice not required].) In short, the record is not devoid 

of evidence that the RAM Fund investment was structured so as to provide compensation 

to RMA, even though we have no evidence to show that either Williams or the RAM 

Fund received compensation based on the investment. 

However, when it comes to the determination of whether they were 

investment advisers, Williams and RMA forget three critical points: (1) Williams 

testified9 that he was a registered investment adviser; (2) section 2 of the private 

placement memorandum stated: “Mr. Bryan Williams has over 25 years of successful 

investment management experience as an investment advisor in Southern California”; 

 

9 Williams explained that “[a]n investment adviser is one who registers with 

a regulatory body in a statement called the form ADV that says what it is that you do and 

how you get paid for it.” He further stated that you generally give a copy to investors. 

Williams regarded the trusts as potential investors in the RAM Fund and potential clients 

of CFI. However, the form ADV that was given to the trusts was the form ADV for CFI, 

not the form ADV for Williams, even though Williams admitted to being a registered 

investment advisor.
50

and (3) as noted previously, the written materials provided to Serrano stated that RMA 

was an investment adviser.

(iv) conclusion

Given the totality of the evidence, it is not reasonably probable that, had the 

jury been instructed that it must make a finding as to whether each individual defendant 

was an investment adviser, the outcome with respect to the breach of fiduciary duty cause 

of action would have been more favorable to either RMA or Williams. They were 

registered investment advisers presenting a comprehensive investment strategy in hopes 

of obtaining investment monies from the trusts.

However, there is a reasonable probability that the outcome would have 

been more favorable with respect to the RAM Fund. The May 29, 2007 presentation was 

given by RMA, not the RAM Fund, even though the RAM Fund was one of the available 

investments described at the meeting. Williams testified that the RAM Fund was not an 

investment adviser, that it was only a fund. Indeed, this is what the private placement 

memorandum reflects. We have seen no evidence to the contrary—nothing to show that 

the RAM Fund itself was in the business of rendering investment advisory services for 

compensation. 

(b) Colson’s testimony

Separate and apart from their arguments based upon the jury instructions 

and Corporations Code section 25009, the Rockwater Defendants claim the finding that 

they breached their fiduciary duties must be reversed because of Colson’s testimony 

alone. Colson testified that while he was empowered by the terms of the trusts to hire 

investment advisers, he nonetheless had not chosen to hire any investment advisers. 

Also, Colson testified more specifically that he had not retained either Williams or Hapke 

as an investment adviser and, for that matter, he had never spoken with either one of them 

about the risks associated with the RAM Fund investment.
51

However, the Rockwater Defendants cite no authority to support the 

proposition that Colson’s testimony standing alone is dispositive. To the contrary, the 

Rockwater Defendants are essentially making a substantial evidence argument. As we 

have shown already, there is substantial evidence to show that RMA and Williams were 

investment advisers who sought and obtained investments from Colson, and thus owed 

him a fiduciary duty. At the same time, there is no substantial evidence to show that the 

RAM Fund was an investment adviser.

(c) Common law

Hasso argues that, even if this court holds the Rockwater Defendants were 

not investment advisers within the meaning of Corporations Code section 25009, we 

should nonetheless affirm the judgment against the Rockwater Defendants on the breach 

of fiduciary duty cause of action because they were fiduciaries under common law. 

Given our holding with respect to RMA and Williams, we need only consider this 

argument with respect to the RAM Fund.

The Rockwater Defendants argue that the common law on fiduciary duty 

should not be applied in this matter because the jury was not asked to determine whether 

a fiduciary relationship arose based on common law. They have a good point. As we 

have stated, it is a question of fact whether, given the circumstances of the case, there 

exists a confidential relationship giving rise to a common law fiduciary duty. (GAB 

Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc., supra, 83 Cal.App.4th 

at p. 417; see also Brown v. Wells Fargo Bank, N.A., supra, 168 Cal.App.4th at pp. 960-

962.) 

However, the jury was not asked to determine whether such a confidential 

relationship existed. Rather, as the Rockwater Defendants correctly point out, the jury 

instructions addressed the cause of action only in the context of the fiduciary duty of an 

investment adviser. Moreover, each party must propose complete and comprehensive 

jury instructions supporting his or her theory of the case. (Metcalf v. County of San 
52

Joaquin, supra, 42 Cal.4th at pp. 1130-1131.) The Rockwater Defendants are correct 

that, to the extent Hasso desired that the jury consider a common law theory of breach of 

fiduciary duty, he should have offered jury instructions on the point. We will not 

consider a common law theory on which to base liability for breach of fiduciary duty, due 

to Hasso’s failure to offer jury apposite instructions.

(d) Breach

We could end our discussion of the breach of fiduciary duty cause of action 

against RMA and Williams right here. However, we nonetheless choose to show why the 

evidence did not support a cause of action for fraud but did support a cause of action for 

breach of fiduciary duty—a point RMA and Williams do not discuss.

Expert witness Hartman opined that there was a breach of fiduciary duty in 

connection with the May 29 meeting and the materials discussed at that time. He stated 

that the investment advisers had a duty, at the May 29 meeting, to provide a balanced 

presentation as to the advantages and disadvantages of the proposed investment and to 

make sure the prospective client fully understood the nature of the services being 

proposed. He further said that the investment proposal and the power point presentation 

provided a better disclosure of the advantages than of the disadvantages, and that the 

risks were understated. In particular, he said the materials presented at the meeting failed 

to disclose the amount of leverage. 

On a related note, Hartman expressed his understanding that Serrano had 

made plain that the trusts’ investment objective was capital preservation and that there 

was a willingness to take conservative risk to obtain an enhanced return to the extent

consistent with that objective. However, he explained that an investment adviser who 

makes a recommendation not in conformity with a prospective client’s objectives has a 

duty to explain the risks fully to make certain the client understands the risks. He 

reiterated that, in this case, the investment proposal and the presentation failed to fully 

explain the risks in terms of the amount of leverage.
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Indeed, as we have noted, Williams testified that the sub-funds were 

leveraged from 2.5 to 11.9 times. However, Serrano said she was not told that the 

investment would be leveraged up to 12 times. Serrano repeatedly testified that she told 

Williams and Hapke that the objective was capital preservation and that she understood 

based on their presentation that the investment was a low-risk investment well suited for 

the trusts. Given the totality of Serrano’s testimony, the jury could infer that had the 

amount of leverage been disclosed in the meeting, Serrano would not have recommended 

to Colson that he make an investment in the RAM Fund, Colson would not have invested, 

and the trust monies would not have been lost.

(4) CFI and Fish—

In his appeal, Hasso argues he should have prevailed against CFI and Fish 

on the breach of fiduciary duty cause of action. He asserts that the court erred in failing 

to grant his motions for judgment notwithstanding the verdict and for a new trial with 

respect to the breach of fiduciary duty cause of action as against CFI and Fish.

In order to prevail on his cause of action for breach of fiduciary duty, Hasso 

had the burden to prove the existence of a fiduciary relationship, a breach of that duty, 

and damages proximately caused by the breach. (Knox v. Dean, supra, 205 Cal.App.4th 

at p. 432; Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820-821.) We first 

observe there is no dispute that CFI was a registered investment adviser. Consequently, it 

owed a fiduciary duty to its clients and prospective clients. (Cf. Securities & E. Com’n 

v. Capital Gains Research Bur., supra, 375 U.S. at pp. 191, 194.)

Hasso says both CFI and Fish owed fiduciary duties to Colson because the 

May 29, 2007 presentation was made on behalf of RMA and CFI jointly and the 

investment proposal pitched investments in both the RAM Fund and CFI. Consequently, 

he argues, Colson, as the intended recipient of the investment proposal, was not only the 

prospective client of CFI, but after investing in the RAM Fund, was also the actual client 

of CFI. He says CFI and Fish “breached their fiduciary duty by crafting the deceptive 
54

presentation” and persuading Colson “to invest $6 million in the RAM Fund, whose 

leveraged municipal arbitrage strategy was antithetical to [the] goals of capital 

preservation and safe, tax-advantaged yield.” Hasso maintains that it is irrelevant that 

Fish did not attend the presentation or that Colson did not invest in any assets managed 

by CFI.

We first note that the May 29, 2007 presentation was given about six 

months before CFI officially joined up with RMA pursuant to the contribution 

agreement. Nonetheless, the investment proposal itself stated that it was “presented by 

the combined investment management firms of [RMA] and [CFI].” And, the investment 

proposal clearly recommended investments in both the RAM Fund, managed by RMA, 

and traditional municipal bonds and liquid short-term investments, managed by CFI. 

Similarly, the investment proposal showed that RMA would be compensated with respect 

to the portion of the portfolio invested in the RAM Fund and CFI would earn a 

management fee on the portions of the portfolio it managed.

In weighing this information, the jury nonetheless did not find either CFI or 

Fish liable for breach of fiduciary duty. Neither Fish nor any other representative of CFI 

attended the meeting or made any verbal representation to Serrano. True, one could infer 

that because CFI was listed as a presenter of the investment proposal, it recommended all 

investments mentioned in that proposal, both those it would manage and with respect to 

which it would earn fees and those it would not manage and with respect to which it 

would earn no fees. However, one could also infer that CFI recommended only the 

investments that it would manage and with respect to which it would earn fees. It is not 

up to this court to reweigh the evidence. (In re Marriage of Balcof (2006) 141 

Cal.App.4th 1509, 1531.) Here, substantial evidence supports the implied finding that 

CFI and Fish breached no duty in connection with the May 29, 2007 meeting and the 

investment proposal. (Virtanen v. O’Connell (2006) 140 Cal.App.4th 688, 709.)
55

Consequently, Hasso has failed to meet his burden to show error in the 

judgment on the breach of fiduciary duty claim against CFI and Fish or in the order 

denying the motion for judgment notwithstanding the verdict on that claim. (Wolf v. Walt 

Disney Pictures & Television, supra, 162 Cal.App.4th at p. 1138.) Similarly, he has 

failed to show that the court abused its discretion in denying the new trial motion on that 

claim. (Fassberg Construction Co. v. Housing Authority of City of Los Angeles, supra,

152 Cal.App.4th at pp. 751-752.)

F. PROFESSIONAL NEGLIGENCE:

“The elements of a cause of action for professional negligence are (1) the 

existence of the duty of the professional to use such skill, prudence, and diligence as 

other members of the profession commonly possess and exercise; (2) breach of that duty; 

(3) a causal connection between the negligent conduct and the resulting injury; and (4) 

actual loss or damage resulting from the professional negligence. [Citation.]” (Oasis 

West Realty, LLC v. Goldman, supra, 51 Cal.4th at p. 821.)

The professional negligence cause of action was tried on the theory that 

Hapke and the Rockwater Defendants were investment advisers who failed “to use the 

skill and care that a reasonably careful investment advisor would have used in similar 

circumstances.” Because the breach of fiduciary duty cause of action was also based on 

the assertion that Hapke and the Rockwater Defendants were investment advisers, they 

and Hasso offer perfunctory arguments that essentially state the professional negligence 

cause of action should rise or fall the same way as the breach of fiduciary duty cause of 

action.

As we have already stated, Hapke and the RAM Fund were not investment 

advisers. This being the case, they are not liable for professional negligence based on the 

duties of an investment adviser any more than they are liable for breach of the duty of an 

investment adviser. That leaves Williams and RMA.
56

Williams and RMA say that given the lack of either reliance or reasonable 

reliance on their conduct, any negligence on their part could not have been a substantial 

factor in causing harm to the trusts. In so stating, they provide no citations to legal 

authority and no citations to the record. Perhaps they expect this court to extrapolate 

from their arguments under the fraud topic headings and apply those arguments in the 

professional negligence context. We decline to do so.

As we have already discussed, the evidence does not support a cause of 

action based on fraudulent misrepresentation or omission, but does support a cause of 

action based on breach of fiduciary duty. We noted that expert witness Hartman testified 

as to the nature of an investment adviser’s fiduciary duty and the breach of that duty in 

this case. Williams and RMA make no mention of Hartman’s testimony on these points 

and certainly do not tell us whether there should be any distinctions in the context of 

professional negligence. We do not intend to research the matter on our own. (Paterno 

v. State of California (1999) 74 Cal.App.4th 68, 106.) Inasmuch as Williams and RMA 

have failed to provide record references or citations to authority in support of their 

argument, their argument is waived. (Roden v. AmerisourceBergen Corp. (2010) 186 

Cal.App.4th 620, 648.)

G. HASSO’S EQUITABLE CLAIMS REGARDING CFI AND FISH:

(1) Introduction—

In his appeal, Hasso requests this court to: (1) reverse the portion of the 

judgment regarding the ruling on his equitable theories of alter ego and single enterprise; 

and (2) remand the matter to the trial court with directions to enter new findings that 

RMA and CFI are jointly and severally liable to him, and that CFI and Fish are jointly 

and severally liable to him. In other words, Hasso seeks to have CFI held liable to the 

same extent as RMA, on the basis of single enterprise liability, and then to have Fish held 

liable to the same extent as CFI, on the basis of alter ego liability. As we shall show, 
57

substantial evidence supports the trial court’s finding that RMA and CFI were not a 

single enterprise, so CFI was not liable for the debts of RMA. Furthermore, inasmuch as 

we affirm the judgment in favor of CFI on all grounds, we need not address whether the 

court erred in finding that Fish was not the alter ego of CFI.

(2) Principles of law—

“In California, two conditions must be met before the alter ego doctrine 

will be invoked. First, there must be such a unity of interest and ownership between the 

corporation and its equitable owner that the separate personalities of the corporation and 

the shareholder do not in reality exist. Second, there must be an inequitable result if the 

acts in question are treated as those of the corporation alone. [Citations.] ‘Among the 

factors to be considered in applying the doctrine are commingling of funds and other 

assets of the two entities, the holding out by one entity that it is liable for the debts of the 

other, identical equitable ownership in the two entities, use of the same offices and 

employees, and use of one as a mere shell or conduit for the affairs of the other.’ 

[Citations.] Other factors which have been described in the case law include inadequate 

capitalization, disregard of corporate formalities, lack of segregation of corporate records, 

and identical directors and officers. [Citations.] No one characteristic governs, but the 

courts must look at all the circumstances to determine whether the doctrine should be 

applied. [Citation.] Alter ego is an extreme remedy, sparingly used. [Citation.]” 

(Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-539; see also 

Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 510-513.)

“‘Generally, alter ego liability is reserved for the parent-subsidiary 

relationship. However, under the single-enterprise rule, liability can be found between 

sister companies. The theory has been described as follows: “‘In effect what happens is 

that the court, for sufficient reason, has determined that though there are two or more 

personalities, there is but one enterprise; and that this enterprise has been so handled that 

it should respond, as a whole, for the debts of certain component elements of it. . . .’”’ 
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[Citations.]” (Greenspan v. LADT LLC, supra, 191 Cal.App.4th at p. 512.)

Whether alter ego has been established “‘is primarily a question of fact 

which should not be disturbed when supported by substantial evidence.’ [Citation.]” 

(Greenspan v. LADT LLC, supra, 191 Cal.App.4th at p. 512.)

(3) Statement of decision—

The court stated at the outset that Hasso had failed to prove that either Fish 

or CFI had acted in bad faith or engaged in misconduct so as to justify the application of 

either the alter ego or the single enterprise doctrine. Citing Sonora Diamond Corp. v. 

Superior Court, supra, 83 Cal.App.4th at page 539, the court held that without evidence 

of wrongdoing by Fish or CFI, one of the two essential elements of the alter ego doctrine 

could not be established. The court noted that in phase I, the jury had found in favor of 

Fish and CFI on causes of action for fraud, concealment, breach of fiduciary duty, and 

professional negligence. It further stated that in phase III, Hasso had failed to present 

sufficient evidence of bad faith. 

The court also found that Hasso had failed to show that the failure to hold 

Fish or CFI liable would result in injustice or inequity. Finally, the court found that 

Hasso had failed either to present sufficient evidence of a unity of interest between CFI 

and RMA to establish single enterprise liability or to present sufficient evidence of a

unity of interest between CFI and Fish to establish alter ego liability.

With regard to the purported unity of interest between CFI and RMA, the 

court summarized the testimony of Hasso’s expert witness, certified public accountant 

and certified fraud examiner Michael Spindler, in the following manner: “Plaintiffs’

expert witness . . . testified that CFI did not dominate or control RMA. He did not find 

that CFI and RMA shared common ownership or that CFI used RMA as a mere conduit 

for its affairs. He further testified that after the Contribution Agreement, Defendant 

Bryan Williams was the President, managing member and controlling shareholder of 

RMA. Spindler further agreed that CFI was not involved in RMA’s business operations.
59

“Spindler, a forensic accountant, also testified that he found no evidence 

that CFI and RMA commingled assets. CFI maintained separate bank accounts, separate 

credit card accounts, separate accounting books and filed its own tax returns. CFI and 

RMA maintained their own legal formalities. CFI maintained its corporate status with 

the California Secretary of State, it maintained a board of directors, it held board of 

directors meetings, and board members voted on important corporate actions. In 

addition, dealings between CFI and RMA involved written contracts (i.e., Contribution 

Agreement), and CFI and RMA were each represented in such transactions by separate 

counsel. None of the factors Spindler identified in support of Plaintiffs’ single enterprise 

claim show that CFI held itself out as liable for RMA’s debts. CFI and RMA did not 

share ownership of any assets. CFI and RMA did not share obligations for any liabilities. 

CFI never held any of Plaintiffs’ assets. CFI never agreed to pay any of RMA’s 

liabilities. None of RMA’s controlling shareholders or managing members has ever been 

a CFI employee or a member of CFI’s board of directors. Finally, Spindler found no 

evidence that RMA was undercapitalized.” (Record references omitted.)

(4) Substantial Evidence Regarding RMA and CFI—

We have reviewed the testimony of Spindler in its entirety and see that it 

fully supports the court’s characterization. However, we also observe that the foregoing

testimony notwithstanding, Spindler opined that CFI and RMA were a single enterprise, 

as least from the time they entered into the contribution agreement and until the time of 

the unwind agreement. As he put it, after the contribution agreement was signed, “CFI . . 

. and RMA essentially became one.” In addition, he provided certain testimony that 

would support factors in favor of a finding of a unity of interest between CFI and RMA. 

Nonetheless, we need not detail all that testimony here. Suffice it to say, as 

the trial court well showed, Spindler provided ample testimony in support of factors 

contrary to a finding of a unity of interest, so much so, that we need not even address the 

testimony of Professor Hugh Friedman, the expert witness of Fish and CFI. Without 
60

question, the testimony of Spindler alone provided substantial evidence in support of the 

court’s finding that there was a lack of unity of interest between CFI and RMA, such that 

CFI was not liable for the debts of RMA on the basis of single enterprise liability.

III

DISPOSITION

The judgment against RMA and Williams for fraud by intentional 

misrepresentation, fraud by concealment, negligent misrepresentation and actual and 

constructive fraudulent conveyance is reversed. The judgment against RMA and 

Williams for breach of fiduciary duty and professional negligence is affirmed. 

The orders on the Rockwater Defendants’ motions for new trial and for judgment 

notwithstanding the verdict are moot. 

The judgment against the RAM Fund is reversed. 

The judgment against Hapke is reversed. The order denying his motion for 

judgment notwithstanding the verdict is moot.

The judgment in favor of CFI and Fish is affirmed. The orders denying 

Hasso’s motions for judgment notwithstanding the verdict and for new trial are affirmed. 

Hapke, CFI and Fish shall receive their costs on appeal. Hasso and the 

Rockwater Defendants shall bear their own costs on appeal. 

MOORE, J.

WE CONCUR:

O’LEARY, P. J.

RYLAARSDAM, J.