Filed 2/18/14 

CERTIFIED FOR PARTIAL PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA 

SECOND APPELLATE DISTRICT 

DIVISION FIVE 

DAVID ASH, as Trustee, etc., 

 Plaintiff and Appellant, 

 v. 

NORTH AMERICAN TITLE COMPANY,

 Defendant and Appellant; 

RICHARD LERNER, as Trustee, etc., 

 Defendant and Respondent. 

 B237404 

 (Los Angeles County 

 Super. Ct. No. YC059517) 

 APPEAL from a judgment of the Superior Court of Los Angeles County, J. 

Stephen Czuleger and William G. Willett, Judges. Affirmed in part and reversed in part 

and remanded. 

 Samuels, Green & Steel, Orlando F. Cabanday and Frederick H. Choi for Plaintiff 

and Appellant David Ash, as Trustee. 

 Richard D. Marks Professional Corporation, Richard D. Marks; Garrett & Tully, 

Ryan C. Squire and Tammy Chow Weaver for Defendant and Appellant North American 

Title Company. 

 Callahan, Thompson, Sherman & Caudill, Robert W. Thompson and George N. 

Koumbis for Defendant and Respondent Richard Lerner, as Trustee. 

 



 Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is 

certified for publication with the exception of part D of the Discussion. 
2

INTRODUCTION

 Defendant, a seller of real property, breached the real estate sales contract with 

plaintiff, the buyer, by causing the closing of the escrow to be delayed so that it did not 

close on the agreed-upon Friday set forth in the contract. The sale was part of an Internal 

Revenue Code (Title 26) section 1031 (section 1031) transaction to defer the buyer’s 

capital gain tax on the buyer’s sale of another property. The buyer had the money 

payable on his sale of the other property deposited in a segregated account with a section 

1031 qualified exchange intermediary (section 1031 intermediary).1

 On the Monday after 

the sale had been scheduled to close, the section 1031 intermediary closed and then filed 

for bankruptcy. The bankruptcy court did not release the buyer’s money until after it was 

too late legally to qualify for deferral of taxes under section 1031. 

 A jury found the seller and the escrow company at fault for the escrow not closing 

on time—i.e., on Friday—and awarded the buyer damages against the seller for the delay, 

including the loss of the tax benefits. The jury also found the escrow company liable for 

breach of fiduciary duty and awarded the buyer damages against the escrow company for 

losses resulting from the delay in the closing of escrow. 

 We reverse in part because, as discussed in the published portion of the opinion, 

(a) there was insufficient evidence the contract damages assessed against the seller based 

on the bankruptcy were foreseeable and (b), as to the escrow company, the trial court 

failed to instruct the jury on an intervening and superseding cause—the bankruptcy. 

 

1

 See Department of Treasury Internal Revenue Service Regulations: IRC section 

1031, “Definition of Qualified Intermediary,” Preamble to Regulations: Deferred 

Exchange R.23; section 1.1031(k)-1(g)(4) R.34. 
3

FACTUAL BACKGROUND2

Plaintiff David Ash as trustee of the David Ash Trust (Ash), in connection with his 

sale of commercial real estate that realized a taxable gain, desired to defer the capital gain 

tax under section 10313

 by purchasing commercial property from defendant Lerner.4 On 

October 8, 2008, Ash and Lerner entered into an agreement by which Lerner agreed to 

sell to Ash commercial property. Defendant North American Title Company (NAT) was 

selected to be the escrow company for the purchase, for which escrow opened shortly 

thereafter, and was scheduled to close on November 21, 2008—the “expected closing 

date.” 

Ash was in the real estate business, and, after talking to different brokers, selected 

LandAmerica Exchange Services (LandAmerica) to receive proceeds from the sale of his 

property in order to comply with section 1031.5 When he entered into the agreement 

 

2 We do not state in detail the facts concerning the liability of the defendants 

because the issues in the published portion of this opinion involve damages and jury 

instructions. 

3 “Under section 1031, no taxable gain or loss is recognized on the exchange of 

properties of like kind if both the property surrendered and the property received are held 

either ‘for productive use in a trade or business or for investment.’ (26 U.S.C. 

§ 1031(a)(1).) This section ‘allows taxpayers with profitable real estate investments to 

swap them for other real estate without paying tax.’ (2 Greenwald & Asimow, Cal. 

Practice Guide: Real Property Transactions (The Rutter Group 2009) ¶ 13:305.1, p. 13-

58 (rev. #1, 2009).” (Sharabianlou v. Karp (2010) 181 Cal.App.4th 1133, 1140, fn. 5.) 

4 The defendants were Richard and Gloria Lerner, as trustees of the Exemption 

Trust of the Lerner Family Trust dated November 17, 1986. Also referred to as 

defendants and owners of the property are Richard and Gloria Lerner, as trustees of the 

Ray Learner Irrevocable Trust dated December 30, 1992. They are collectively referred 

to as Lerner. 

 

5 Ash originally said he was going to use TIMCOR as an intermediary, “and I think 

WAMU [Washington Mutual] bought them or something happened, and both of them 

disappeared or went bankrupt or something. . . . I’m not sure if they went out of business 

or if they were bought out by Washington Mutual and then Washington Mutual closed 

them down and then went out of business. But somehow, it was all lumped together, 

from what I know, or what I was told.” 
4

with LandAmerica, he had no concerns about its “financial viability.” He chose 

LandAmerica based on “the opinion of the [p]eople [he] spoke to about it.” When asked 

if he was “scared to lose [his] money if he got into a 1031 exchange,” he responded “no.” 

Ash was told LandAmerica had various branches and was part of LandAmerica 

Commercial Services. Ash had used LandAmerica for another replacement property. 

At some point during the escrow period after the purchase and escrow agreements 

were executed, Ash had concerns, “I was afraid of the whole industry everywhere . . . the 

banking system was, like, collapsing at the time. So -- I also needed income. So I 

wanted to do something as quick as possible to get my income and also to be protected.” 

He had nevertheless chosen to use LandAmerica, signing the papers on November 13, 

2008, over a month after escrow opened, although the paperwork with LandAmerica was 

dated as of October 9, 2008. He later said that near the closing date he was worried about 

his money because he wanted the income: “I wanted to get it done.” Ash had told NAT 

that he needed the income from the property he purchased to have the escrow completed 

because he wanted to have his funds safely reinvested. Ash never said he was concerned 

at any time specifically about the financial condition of LandAmerica. 

Under section 1031, in order to defer paying the capital gains tax on the sale of his 

other property, Ash was required to close his transaction with Lerner within 180 days of 

the sale of Ash’s property.6

 Ash had the proceeds from the sale of his property on which 

the escrow had closed deposited with LandAmerica, using an account at Citibank. This 

was a segregated account that paid a lower interest rate than an account that pooled 

money from other investors. Ash verified that the funds were in the Citibank account. 

 Neither Lerner nor NAT had any involvement with the selection of LandAmerica. 

As noted, the escrow was to close on Friday, November 21, 2008, but it was anticipated 

 

6

 The property being purchased must be identified within 45 days after the sale, and 

the purchase must take place within 180 days of the sale. (Title 26 U.S.C. § 1031(a)(3).) 

Up to three potential properties may be identified. (Title 26 U.S.C. § 1031(a)(3).) 

Section 1031 can be simply a deferral of the capital gains tax if the taxpayer later sells the 

property he or she acquired. 
5

by both defendants that the escrow would take a few more days to close. When so 

informed, Ash responded, “no problem do I get a discount[] (jk) [just kidding]. Thank 

you!!” Ash’s response expressed no concern about the status of LandAmerica. On 

Monday, November 24, 2008, LandAmerica froze all of its accounts, including 

segregated accounts, and then filed for bankruptcy. 

Ash’s real estate broker was aware of LandAmerica and the number of people who 

used it. He believed it was a “very substantial company” and a “very large company” 

and knew of its affiliated companies. He said he told Ash it was a reputable company. 

Ash’s broker said he too was “shocked” and “everybody was shocked” when 

LandAmerica closed its doors. Ash had expressed no concerns to Lerner or to NAT 

about the financial solvency of LandAmerica. The escrow officer at NAT who had 

worked with LandAmerica had no concerns about the solvency of LandAmerica prior to 

the bankruptcy. She said she was “shocked” upon hearing LandAmerica had closed. 

Ash’s expert, who once worked for LandAmerica, said it was “unusual,” 

“alarming,” and “unique” that LandAmerica closed its doors. She added that escrow 

holders would not get information about rumors concerning a section 1031 qualified 

intermediary, and if they did, they would not necessarily inform the principals to escrow 

accounts of such rumors. She could not say that any such rumors about LandAmerica 

were generally known by people in the real estate industry in Southern California. There 

is no evidence that Ash, and more importantly defendants, were aware of any such 

rumors about LandAmerica. The real estate agents involved, in addition to the escrow 

officer for NAT, said they were “shocked” and surprised about LandAmerica’s 

bankruptcy. A LandAmerica employee handling the matter said she had been involved in 

5000 or more section 1031 exchanges and apparently had no warning of an impending 

LandAmerica bankruptcy. That LandAmerica employee said, “There was never any 

doubt until 9:00 a.m. on the morning of November 24 [the date the business closed] that 

the money would be available.” She added that the event was so traumatic that it was 

even worse than the death of her father—“worse than anything”; “absolutely beyond 

description.” She added, “everybody [at LandAmerica] was very angry and couldn’t 
6

understand how it could happen.” Another LandAmerica employee said she had no 

awareness of any financial problems with LandAmerica. Ash’s real estate agent, who 

had been in the industry for more than 35 years and involved with section 1031 

exchanges, said this was the first one in which a qualified intermediary failed to fund the 

escrow.

7

 Despite Ash’s hopes and the fact that the money was in a segregated account, 

the bankruptcy court refused to allow depositors, including Ash, to have access to their 

deposited monies. 

Ash did not cancel the transaction because he was concerned he might lose his 

deposits and would be unable to complete the tax-deferred exchange. He continued to 

pay interest on the bank loan he had taken out to purchase the property without the 

income from the property to use for loan payments. The bank required Ash to repay the 

loan after five months because there was no deed of trust recorded to secure the loan. 

Without income from the property, he was required to borrow money from his mother. 

He also needed to hire an attorney to attempt to convince the bankruptcy court to release 

his money in order to complete the transaction. 

The escrow did not close until March 2010, after the bankruptcy court finally 

released Ash’s funds. The closing of escrow was too late for Ash to obtain the section 

1031 tax deferral of his capital gain taxes.8 

 

7

 LandAmerica apparently failed because it invested its funds in auction rate 

securities, the market for which collapsed in February of 2008. (See Funk, So You 

Thought Your Proceeds Belong To You? The Interplay Between Like-Kind Exchanges 

Under the Tax and Bankruptcy Codes (2011) 25 No. 2 Prac. Tax Law 43, 50-51 (Funk). 

The Chief Operating Officer of LandAmerica told “everybody how great everything was 

. . . and that he had no idea there was a bankruptcy imminent.” He added that the 

“mother company” “had promised to, if necessary, buy those securities to make the 

accommodator [1031 intermediary] liquid.” He also said that the “mother company” had 

guaranteed the accommodator funds. 

8 Ash, nevertheless, on his tax return treated his sale of property as nontaxable, and 

then later amended the return to show the gain. 
7

As a result of the delayed escrow and the delay in recovering his funds resulting 

from the bankruptcy, Ash sued Lerner and NAT for damages, including Ash’s legal 

expenses of $140,000 incurred in the bankruptcy proceeding and tax liability of $465,000 

due to the failure of the section 1031 exchange. Additionally, Ash claimed $166,000 in 

income from the property if the sale had been timely completed, payments to the lender 

of $42,000, $189,000 paid for a new loan above what he would have paid for the original 

loan that was terminated by the original lender, and $28,000 of interest on a loan to meet 

expenses. These direct damages totaled $1,033,000.9 Ash also sought indirect damages 

of $1 million attributed to his loss of cash flow to retain and purchase properties. 

Defendants’ made motions for nonsuit based on a lack of causation and the 

defense of intervening and superseding cause. The trial court denied the motions and 

refused to give defendants’ proposed instructions on causation and intervening/ 

superseding cause. 

 The jury returned its verdict finding that Lerner breached its contract by delaying 

the timely close of escrow, and was liable to Ash for $300,000, and that NAT breached 

its contract with Ash to provide proper and timely escrow and title services and was 

liable for $250,000 in contract damages. The jury also found that NAT was liable for 

negligence in the amount of $500,000 and for $250,000 for breach of fiduciary duty. The 

jury imposed punitive damages on NAT in the amount of $750,000. The trial court 

granted NAT’s motion for judgment notwithstanding the verdict as to the punitive 

damage award, but otherwise denied the motions for new trial and judgment 

notwithstanding the verdict. Lerner and NAT timely appealed. Ash cross-appealed in 

connection with the punitive damages. 

 

9

 The $3,000 discrepancy is due to rounding off some figures by the expert. 
8

DISCUSSION 

 A. Standard of Review 

The determinations of whether there was a breach of contract and whether the 

contract damages are foreseeable are questions of fact (Plut v. Fireman’s Fund Ins. Co. 

(2000) 85 Cal.App.4th 98, 105-106; Sun-Maid Raisin Growers v. Victor Packing Co. 

(1983) 146 Cal.App.3d 787, 790; Porter v. Arthur Murray, Inc. (1967) 249 Cal.App.2d 

410, 421;) and are governed by the substantial evidence test (Garlock Sealing 

Technologies, LLC v. NAK Sealing Technologies Corp. (2007) 148 Cal.App.4th 937, 

955-956; Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959, 968)—i.e. whether 

there is substantial evidence to support the findings of the trier of fact. “‘Substantial 

evidence . . . is not synonymous with “any” evidence. Instead, it is “‘substantial proof of 

the essentials which the law requires.’”’ [Citation.]” (Roddenberry v. Roddenberry 

(1996) 44 Cal.App.4th 634, 651.) We view the evidence in the light most favorable to 

the prevailing party and draw all reasonable inferences and resolve all conflicts in its 

favor. (Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 

1114, 1128-1129.) Regarding whether the failure to give an instruction on intervening 

and superseding cause was error, we use the de novo standard of review. (Collins v. 

Navistar, Inc. (2013) 214 Cal.App.4th 1486, 1500.) 

B. Damages Against Lerner and NAT for Breach of 

 Contract—Forseeability 

“Contract damages are generally limited to those within the contemplation of the 

parties when the contract was entered into or at least reasonably foreseeable by them at 

that time; consequential damages beyond the expectations of the parties are not 

recoverable. [¶] In contrast, tort damages are awarded to compensate the victim for 

injury suffered. [Citation.] ‘For the breach of an obligation not arising from contract, the 
9

measure of damages . . . is the amount which will compensate for all the detriment 

proximately caused thereby, whether it could have been anticipated or not.’ (Civ. Code, 

§ 3333.)” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 

515-516.) 

The court in Lewis Jorge Construction Management, Inc. v. Pomona Unified 

School Dist. (2004) 34 Cal.4th 960, 969 (Lewis Jorge) discussed this principle, pointing 

out that California follows the common law rule set forth by an English court in Hadley 

v. Baxendale (1854) 156 Eng.Rep. 145. In that venerable English case, a shaft in 

Hadley’s mill broke rendering the mill inoperable. Hadley contracted with Baxendale to 

transport the shaft to an engineer to make a duplicate. Hadley told Baxendale the shaft 

should be sent immediately, and Baxendale promised to have it delivered the next day. 

Baxendale did not know the mill would be inoperable until the new shaft arrived. 

Baxendale did not transport the shaft in the promised time, causing the mill to be shut 

down for an additional five days. Hadley sued, inter alia, for lost profits resulting from 

the delay. The court held that although a plaintiff is entitled to an amount that will place 

it in the same position it would have been had the breaching party performed, damages 

for special circumstances, such as in that case, can be assessed against the breaching 

party only when they were within the contemplation of both parties as a probable 

consequence of a breach. Baxendale did not know that the mill would be shut down and 

would remain shut until the new shaft arrived. Loss of profits could not fairly or 

reasonably have been contemplated by both parties without Hadley having communicated 

the special circumstances to Baxendale. Thus, the court, in reversing the judgment, held 

that lost profits could not be awarded to Hadley. (Id. at p. 152.) 

 The court in Lewis Jorge, supra, 34 Cal.4th at pages 969 through 970 added, 

“Hadley did not expressly distinguish between general and special damages. But such a 

distinction flows naturally from that case; hence the rule that a party assumes the risk of 

special damages liability for unusual losses arising from special circumstances only if it 

was ‘advised of the facts concerning special harm which might result’ from breach—it is 

not deemed to have assumed such additional risk, however, simply by entering into the 
10

contract. [Citations.] [¶] The Hadley rule has long been applied by California courts, 

which view it as having been incorporated into California Civil Code section 3300’s 

definition of the damages available for breach of a contract. [Citations.] Contract 

damages, unlike damages in tort (Civ. Code, § 3333), do not permit recovery for 

unanticipated injury. [Citation.] Parties may voluntarily assume the risk of liability for 

unusual losses, but to do so they must be told, at the time the contract is made, of any 

special harm likely to result from a breach [citations]. Alternatively, the nature of the 

contract or the circumstances in which it is made may compel the inference that the 

defendant should have contemplated the fact that such a loss would be ‘the probable 

result’ of the defendant’s breach. [Citation.] Not recoverable as special damages are 

those ‘beyond the expectations of the parties.’ [Citation.] Special damages for breach of 

contract are limited to losses that were either actually foreseen [citation] or were 

‘reasonably foreseeable’ when the contract was formed. [Citation.]” (See Erlich v. 

Menezes (1999) 21 Cal.4th 543, 550; Greenwich S.F., LLC v. Wong (2010) 190 

Cal.App.4th 739, 760 [special damages not foreseeable as a matter of law]; see also 

California Press Mfg. Co. v. Stafford Packing Co. (1923) 192 Cal. 479, 483.) In III 

Farnsworth on Contracts (3d ed. 2004) section 12.14, pages 260 to 262 (Farnsworth), the 

author sets forth the criteria for foreseeability in part as follows: “foreseeability is to be 

determined as of the time of the making of the contract”; “what must be foreseeable is 

only that the loss would result if the breach occurred”; “it is foreseeability only by the 

party in breach that is determinative”; “foreseeability has an objective character”; and 

“the loss need only have been foreseeable as a probable, as opposed to a necessary or 

certain, result of the breach.” 

 The instant case is governed by the Hadley v. Baxendale, supra, 156 Eng.Rep. 145 

principle adopted by our Supreme Court. To the extent any part of the $250,000 of 

damages for the breaches of contract by Lerner and NAT is attributable to expenses 

incurred in connection with the bankruptcy and the loss of the deferral of the capital gains 

tax, such damages are not general damages, i.e., those “‘which, in the ordinary course of 

things, would be likely to result’” from the breach (Civ. Code, § 3300) and which “flow 
11

directly and necessarily from a breach of contract, or that are a natural result of a 

breach” and are within the contemplation of the parties. (Lewis Jorge, supra, 34 Cal.4th 

at p. 968.) Rather, they “are secondary or derivative losses arising from circumstances 

that are particular to the contract or to the parties.” (Ibid.) These “[s]pecial damages are 

recoverable if the special or particular circumstances from which they arise were actually 

communicated to or known by the breaching party (a subjective test) or were matters of 

which the breaching party should have been aware at the time of contracting (an objective 

test).” (Id. at pp. 968-969.) Moreover, “[s]pecial damages ‘will not be presumed from 

the mere breach’ but represent loss that ‘occurred by reason of injuries following from’ 

the breach. [Citation.]” (Id. at p. 969.) 

Because counsels’ arguments to the jury are not evidence, we look to the 

testimony of the witnesses and the documents introduced as exhibits to assess the 

foreseeability of the bankruptcy. There is no evidence in the record that Ash 

communicated to Lerner or NAT at the time of contracting—the relevant time—or at 

anytime, that the bankruptcy of LandAmerica and indefinite freezing of segregated 

accounts could result from a short but untimely delay in the escrow closing. There is no 

evidence in the record, expert or otherwise, that Lerner or NAT knew or should have 

known of this risk at the time of contracting or anytime. The transaction in issue took 

place in the fall of 2008, during an economic recession. Evidence of the various events 

that allegedly took place during 2008 and their timing is not in the record. There is no 

evidence as to what facts Lerner or NAT knew concerning those events. Whatever Ash’s 

apprehensions were are irrelevant. Only the communications to or knowledge of Lerner 

and NAT are relevant to foreseeability. 

Ash, even though ostensibly risk averse, having been in the real estate business 

and having consulted others in the business, chose the 1031 exchange intermediary and 

purportedly protected himself by having the proceeds of his sale deposited in a 

segregated account. There is not substantial, if any, evidence that under these 

circumstances, Ash was aware of any risk to the funds he placed in a segregated account, 

much less that he communicated any such risk to Lerner or NAT or that Lerner or NAT 
12

should have known of any such risk. That Ash was not aware of any risk supports the 

position that neither Lerner nor NAT was aware or should have been aware of any such 

risk at the time of the contract. 

The real estate brokers and agents involved, an escrow expert, and a LandAmerica 

employee, all testified that they did not foresee any risk to the funds deposited with 

LandAmerica. Ash’s damages expert stated that what occurred is “a fairly rare 

occurrence” and is “fairly unusual.” Again, this evidence dispels any notion that Lerner 

or NAT were or should have foreseen the risk of bankruptcy. Lerner just wanted to sell 

his property, and NAT was just the escrow company. Presumably, it did not matter to 

Lerner or NAT whether the sale was part of a section 1031 exchange, other than the 

exchange was what motivated the buyer, Ash. 

To suggest that Lerner and NAT should have known of the risk is speculation and 

not based on any evidence. There is no evidence that the parties to the transaction were 

concerned that the economy or other institutional failures created a risk to the funds 

placed in a segregated account with LandAmerica. The evidence does not show that 

LandAmerica was part of purported banking system problems of which Ash was aware. 

He had used LandAmerica for escrow and other services before. There is nothing in the 

record or even argued by Ash concerning the precise nature of economic conditions at the 

time of the contract and how they might have impacted a section 1031 qualified 

intermediary such as LandAmerica, which is not a bank. There was no evidence that 

Lerner and NAT knew or should have known at the time of contracting that if the escrow 

did not close in time, the section 1031 qualified intermediary selected by Ash would or 

could go bankrupt or that Ash would or might not be able to recover his funds in time to 

qualify for a tax deferral. The papers appointing LandAmerica to serve as a section 1031 

intermediary were signed over a month after the escrow opened. Thus, defendants did 

not contemplate the LandAmerica bankruptcy or the consequences thereof. 

That there is no evidence in the record that at the time of the contracts the 

bankruptcy of LandAmerica was reasonably foreseeable by any of the participants—most 

importantly, Lerner and NAT—is consistent with the general view that bankruptcies 
13

normally are not within the contemplation of the parties at the time of a contract. (See

Fiduciary Trust Co. v. Bingham Dana & Gould & Others (2003) 789 N.E.2d 171, 178 

[“plaintiffs offered nothing to refute or even to suggest Gaston’s bankruptcy was 

reasonably foreseeable . . . at the time” of defendant’s alleged malpractice]; Martin 

Marietta Corp. v. Fireman’s Fund Ins. Co. (4th Cir. 1988) 852 F.2d 566, 570 [“financial 

ruin of an apparently sound company is not normally a foreseeable consequence of those 

acts”]; Held Construction Co. v. Michigan National Bank of Detroit (Mich.App. 1983) 

335 N.W.2d 8, 10; In re Construction Diversification, Inc. (D.C. Mich. 1983) 36 B.R. 

434, 439 [bankruptcy damages not recoverable in breach of contract action absent bad 

faith]; Howard v. Nicholson (Mo.App. 1977) 556 S.W.2d 477, 483 [“While the 

possibility of bankruptcy of businesses in general is a foreseeable and all-too-frequent 

occurrence, the future bankruptcy of a particular company, the continuing existence of 

which was essential to complete the entire transaction, was not reasonably within the 

contemplation of the parties at the time of contracting such that the parties would have 

made provision for such an event”].)10 As stated in one authoritative work, “[u]nless 

financial ruin is a consequence arising naturally from a breach of contract, damages 

sought by the nonbreaching party for financial ruin are not recoverable unless a risk of 

insolvency was within the actual contemplation of the parties at the time the contract was 

made.” (Henshaw and Kempflen, 7 Mich. Civ. Jur. Damages (2013) § 77.) 

 There are certain situations, unlike the one here, in which a bankruptcy is 

foreseeable if there is a breach of contract. For example, when a health maintenance 

organization improperly terminates a contract with a healthcare provider, it can expect 

dire financial consequences will arise for the latter. (See In re Doctors Health, Inc. v. 

Nylcare Health Plans of the Mid-Atlantic, Inc. (D.Md. 2005) 335 B.R. 95, 121.) If the 

breaching party breaches a contract to purchase stock when he knows of the other party’s 

desperate financial need to sell the stock, a bankruptcy might be considered foreseeable. 

(See Hallmark v. Hand (Tex.App. 1992) 833 S.W.2d 603, 612.) When an insurer 

 

10 These cases appear to have decided the issue of foreseeability as a matter of law. 
14

wrongfully refuses to pay a claim, the adverse financial consequences can be foreseeable. 

(Cf. Reichert v. General Ins. Co. of America (1968) 68 Cal.2d 822 [issue not reached].) 

Here, there was no evidence the parties considered the bankruptcy of LandAmerica to be 

a foreseeable consequence of any delay. As noted, Ash deposited the sums in a 

segregated account with the understanding they would be safe. If he thought they were 

safe, there was no reason to conclude that defendants nevertheless should have 

contemplated that the deposit was unsafe. 

Also, there was no evidence that Lerner or NAT had any knowledge at the time of 

contracting of the possibility that a bankruptcy judge for such a lengthy period of time 

would not release the money in a segregated account. Indeed, under the circumstances, it 

was unforeseeable that a bankruptcy court would not release the funds in an account, 

especially in a segregated account, in time to meet the requirements for a tax free 

exchange. (See Funk, supra, 25 No. 2 Prac. Tax Law 43; Roth et al., Committee 

Educational Session: Bankruptcy Taxation/Real Estate Lessons from LandAmerica: Who 

Has My Money? The Unexpected Perils of § 541, Dec. 1, 2011 American Bankruptcy 

Institute 449 [“Outrage and Acrimony over the Court’s decision [in the LandAmerica 

case]”]; Siegel v. Boston (In re Sale Guar. Corp.) (9th Cir. 1998) 220 B.R. 660, aff’d (9th 

Cir. 2000) 199 F.3d 1375 [funds deposited in a separate trust account of qualified 

intermediary are not property of the bankruptcy estate].) Moreover, there was no 

evidence that defendants at the time of the contracts had knowledge that Ash would incur 

expenses related to the bankruptcy. 

 As stated in Williston on Contracts, “If the contract is silent with respect to the 

risks the defendant has assumed, the court will determine what risks were foreseen or 

foreseeable when the contract was made by viewing the matter in the light of common 

sense; and the courts will consider the nature and purpose of the contract, and the 

surrounding circumstances known by the parties to exist at that time, as well as what the 

breaching party may reasonably be supposed to have assumed consciously.” (24 

Williston on Contracts (4th ed. 2013) § 64.13.) Because there was no evidence that the 

bankruptcy and bankruptcy judges’s refusal to release funds in a segregated account 
15

were, at the time of the contracts, within the contemplation of the Lerner and NAT or that 

at those times they should have contemplated the probability of the result, the damages 

arising from those events were not foreseeable for purposes of awarding contract 

damages. 

 Accordingly, the trial court should reduce the contract damages judgment against 

Lerner and NAT by amounts attributable to the bankruptcy and bankruptcy court’s delay 

in releasing the deposited funds. The matter is remanded for determination of damages 

not attributable to the bankruptcy, including the legal fees in that proceeding and the 

bankruptcy court’s delay in releasing the funds. 

C. Intervening and Superseding Cause 

The defendants invoked the tort defense of intervening and superseding cause, but 

the trial court refused to instruct the jury on those defenses. A principle in tort law is that 

when “subsequent to the defendant’s negligent act, an independent intervening force 

actively operates to produce the injury, the chain of causation may be broken. It is 

usually said that if the risk of injury might have been reasonably foreseen, the defendant 

is liable, but that if the independent intervening act is highly unusual or extraordinary, not 

reasonably likely to happen and hence not foreseeable, it is a superseding cause, and the 

defendant is not liable.” (6 Witkin, Summary of Cal. Law (10th ed 2005) Torts § 1197, 

p. 574 and case cited therein.) 

The Restatement Second of Torts distinguishes between “superseding cause” and 

“intervening force.” The Restatement Second of Torts, section 440, provides that “a 

superseding cause is an act of a third person or other force which by its intervention 

prevents the actor from being liable for harm to another which his antecedent negligence 

is a substantial factor in bringing about.” The Restatement Second of Torts, section 441, 

subdivision (1) states, “An intervening force is one which actively operates in producing 

harm to another after the actor’s negligent act or omission has been committed.” Another 

authority states, “An intervening act is regarded as a superseding cause when it is outside 

the scope of the risk the defendant negligently created. This idea is usually expressed in 
16

shorthand by saying that if the intervening act is itself unforeseeable then it may become 

a superseding cause.” (1 Dobbs et al., The Law of Torts (2d ed. 2013) § 212, p. 741 

(Dobbs).) 

A superseding cause relieves a defendant from tort liability for a plaintiff’s 

injuries, if both the intervening act and the results of the act are not foreseeable. “[W]hat 

is required to be foreseeable is the general character of the event or harm . . . not its 

precise nature or manner of occurrence.” (Bigbee v. Pacific Tel. & Tel. Co. (1983) 34 

Cal.3d 49, 57-58.) “Whether an intervening force is superseding or not generally 

presents a question of fact, but becomes a matter of law where only one reasonable 

conclusion may be reached. [Citation.]” (Chanda v. Federal Home Loans Corp. (2013) 

215 Cal.App.4th 746, 756; see also Perez v. VAS S.p.A. (2010) 188 Cal.App.4th 658, 680-

681.) 

The defense of intervening and superseding cause applies in tort cases. In contract 

cases, the defense does not absolve the defendant of liability, although closely related is 

the principle that if the special damages are not foreseeable and proximately caused by 

the breach of contract they are not recoverable.11 As one authority has noted, “Breach 

may not be precluded, however, by the presence of other contributing causes—multiple 

or intervening. Although the injured party’s own failure to avoid loss may bar recovery 

for that loss, this is not thought of as a consequence of a requirement of causation but of a 

limitation under a ‘mitigation’ rule.” (III Farnsworth, supra, at § 12.1, p. 151, fns. 

omitted.) Thus, the Lerners cannot invoke the defense of intervening and superseding 

cause applicable to torts because no tort claims were asserted against them.12

 

11 See VerSteeg, Perspectives on Foreseeability in the Law of Contracts and Torts: 

The Relationship Between “Intervening Causes” and “Impossibility” (2011) 2011 Mich. 

St. L.Rev. 1497, 1510 (“The Contract doctrine that we typically label as ‘impossibility, 

impracticability, frustration of purpose,’ or, as the Uniform Commercial Code refers to it, 

‘failure of presupposed conditions,’ and the Tort doctrine of ‘intervening and superseding 

causes’ are actually one and the same”). 

12 See Schneider, Consequential Damages in the International Sale of Goods: 

Analysis of Two Decisions (1995) 16 U. Pa. J. Int’l Bus. L. 615, § 2.2.4.1, fn. 74 (“When 
17

Ash contends that the claims against NAT include an intentional tort, and 

therefore the intervening and superseding act doctrine does not apply, as it applies only to 

NAT’s negligence. Ash asserts that so long as the intentional tort of breach of fiduciary 

duty was a substantial factor in causing the harm, NAT cannot escape liability even if 

there were an intervening and superseding cause. (United States Fid. & Guar. Co. v. 

American Employer’s Ins. Co. (1984) 159 Cal.App.3d 277, 285 [“‘[T]he notion of 

independent intervening cause has no place in the law of intentional torts, so long as there 

is a factual chain of causation,’” quoting Tate v. Canonica (1960) 180 Cal.App.2d 898, 

907]; disapproved in other grounds in J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 

Cal.3d 1009, 1019, fn. 8; Bank of New York v. Fremont General Corporation (9th Cir. 

2008) 523 F.3d 902, 910; Null v. City of Los Angeles (1988) 206 Cal.App.3d 1528, 1535, 

fn. 6; Rest.2d Torts, §§ 435A, 435B; but see Brewer v. Teano (1995) 40 Cal.App.4th 

1024, 1036 [“This comes close to pleading an intentional tort. From that prospect, the 

doctrine of superseding cause is less likely to cut off the chain of events put in motion by 

the original conduct of the tortfeasor . . . even the ‘but for’ consequences of an intentional 

tort are not without limitation”]; Wright, Symposium, Baseline and Counterfactuals in 

the Theory of Compensatory Damages: What Do Compensatory Damages Compensate? 

(2003) 40 San Diego L.Rev. 1425, 1478 [“The superseding cause limitation applies to all 

tort actions, including the intentional torts”].) Assuming, without deciding, that the 

defense of intervening and superseding cause does not apply to any intentional tort, we 

must examine the claim against NAT, which claim was breach of fiduciary duty. 

“‘The elements of a cause of action for breach of fiduciary duty are: (1) existence 

of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused 

 

a contract is breached or a tort committed, resulting losses or damages may not be caused 

by the actual breach or the tort itself, but rather by multiple or intervening causes . . . . 

Such multiple or intervening causes are less likely to relieve a defendant from contractual 

liability than from tort liability”); III Farnsworth, supra, at section 12.1, page 151, 

footnote 9 (“Although the same problems of multiple causes and of intervening causes 

that enliven the law of torts also arise in connection with contract damages, they are 

relatively less important than in the law of torts”). 
18

by the breach.’” (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 932.) The breach of 

fiduciary duty can be based upon either negligence or fraud depending on the 

circumstances. (See Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 

563; see also Federal Deposit Ins. Corp. v. McSweeney (S.D. Cal. 1991) 772 F.Supp. 

1154, 1157.) It has been referred to as a species of tort distinct from causes of action for 

professional negligence (Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1534) and 

from fraud (Salahutdin v. Valley of California, Inc., supra, 24 Cal.App.4th at p. 562). 

The trial court instructed the jury as follows: “The Ash Trust claims that it was 

harmed by NATCO’S breach of the fiduciary duty to use reasonable care. To establish 

this claim, the Ash Trust must prove all of the following: 1. That NATCO was the Ash 

Trust escrow holder; 2. That NATCO acted on the Ash Trust’s behalf for purposes of 

purchasing a commercial property; 3. That NATCO failed to act as a reasonably careful 

escrow holder would have acted under the same or similar circumstances; 4. That the Ash 

Trust was harmed; and 5. That NATCO’s conduct was a substantial factor in causing the 

Ash Trust’s harm.” The trial court did not instruct the jury that it was required to find the 

breach of fiduciary duty to be intentional. And the trial court refused to instruct the jury 

on constructive fraud. 

As it appears that the breach of fiduciary duty might have arisen from negligence, 

the intervening and superseding act doctrine could have been applicable. As suggested 

above, there is a question as to whether the intervening and superseding act doctrine is 

applicable to intentional torts. And, as noted above, in Brewer v. Teano, supra, 40 

Cal.App.4th at page 1036, the court said that the doctrine “is less likely to cut off the 

chain of events put in motion by the original conduct of the tortfeasor.”13 In Tate v. 

 

13 In Ventas, Inc. v. Health Care Prop. Investors, Inc. (W.D. Ky. 2009) 635 

F.Supp.2d 612, 624, the court predicted Kentucky law would apply the intervening and 

superseding cause doctrine to intentional torts, relying on a Kentucky comparative fault 

statute that applied to both negligent and intentional torts. In California, comparative 

fault only applies to negligence causes of action. (People v. Brunette (2011) 194 

Cal.App.4th 268, 282.) In Hibma v. Odegaard (7th Cir. 1985) 769 F.2d 1147, the court 
19

Canonica, supra, 180 Cal.App.2d at page 909, the court noted that the rule on an 

intervening and superseding act would apply “where the act of the defendant was 

intentionally done, but there was no intent to cause injury.” We do not have to decide 

whether an intervening or superseding act can be a defense to an intentional tort because 

here the trial court did not instruct the jury that in order to find a breach of fiduciary duty, 

it had to find that NAT intentionally breached its fiduciary duty. 

Also, the intervening and superseding act itself need not necessarily be a negligent 

or intentional tort. For example, the culpability of the third person committing the 

intervening or superseding act is just one factor in determining if an intervening force is a 

new and independent superseding cause. (Rest.2d Torts, § 442, subds. (e) and (f); see 

also 1 Dobbs, supra, § 210, pp. 729-732 [acts of nature]; 4 Harper et al. on Torts (3d ed. 

2007) § 20.5, p. 179 [“extreme force”].) 

 Our Supreme Court has pointed out that “[a] tort is a legal cause of injury only 

when it is a substantial factor in producing the injury.” (Soule v. General Motors Corp.

(1994) 8 Cal.4th 548, 572 (Soule).) As relevant here, the court added, “This principle is 

distinct from the defense of ‘superseding cause,’ which absolves a tortfeasor, even though 

his conduct was a substantial contributing factor, when an independent event intervenes 

in the chain of causation, producing harm of a kind and degree so far beyond the risk the 

original tortfeasor should have foreseen that the law deems it unfair to hold him 

responsible. [Citations.] It is also distinct from the doctrine of ‘concurrent causes,’ 

which holds that when two or more tortious acts combine, each contributing significantly 

to a single ultimate harm, each act is deemed a substantial and legal cause of injury, 

making each concurrent tortfeasor fully liable. [Citations.]” (Id. at p. 573, fn. 9.) 

 The trial court refused a proposed jury instruction on intervening and superseding 

cause (CACI No. 432), which instruction was based on NAT’s defense theory. A party is 

entitled to nonargumentative and correct instructions it requests on every theory 

advanced by that party if the theory is supported by substantial evidence. (Soule, supra, 8 

 

held that the deputy sheriffs who framed the plaintiff were not liable to the plaintiff for a 

sexual assault on the plaintiff by other prisoners. 
20

Cal.4th at p. 572.) We review the evidence most favorable to the applicability of the 

requested instruction, as a party is entitled to that instruction if that evidence could 

establish the elements of the theory presented. (Scott v. Rayhrer (2010) 185 Cal.App.4th 

1535, 1540.) But “‘[a] judgment will not be reversed for error[] in jury instructions 

unless it appears reasonably probable that, absent the error, the jury would have rendered 

a verdict more favorable to the appellant. [Citation.]’ [Citation.]” (Ibid.) 

 NAT contended at trial that LandAmerica’s bankruptcy, the ensuing freezing of 

the segregated account, and the bankruptcy court’s refusal to release the funds occurred 

after NAT’s conduct caused Ash his damage and was highly unusual. NAT claimed it 

had no reason to expect such occurrences, and the resulting harm was different than that 

which could be expected from NAT’s conduct. There was sufficient evidence that the 

bankruptcy constituted “an independent event [intervening] in the chain of causation, 

producing harm of a kind and degree so far beyond the risk” (Soule, supra, 8 Cal.4th at p. 

573, fn. 9) that NAT should have foreseen, that the jury should have been given the 

intervening and superseding cause instruction. The failure to give that instruction 

constituted error. (See id. at p. 573 and at fn. 10.) 

 Moreover, the error was prejudicial. The general instructions on causation do not 

render the error harmless because the doctrine of intervening and superseding cause 

assumes that a defendant’s conduct was a substantial contributory factor—i.e. that there 

was causation. (Soule, supra, 8 Cal.4th at p. 573, fn. 9.) The jury finding that NAT was 

responsible for $250,000 as foreseeable contract damages suggests that the remaining 

$750,000 of Ash’s tort damages against NAT for negligence and breach of fiduciary duty 

were not based on the contract standard of damages but on tort principles. As the jury 

was not given an instruction on the defenses of intervening and superseding cause, it 

could not properly consider whether NAT should be responsible for a tort or tort 

damages. That NAT’s conduct was found to be wrongful does not determine whether an 

intervening and superseding event relieves NAT of liability. Had the jury been instructed 

on intervening and superseding cause, it is reasonably probable that it would have come 

to a different result, for damages were caused by the bankruptcy proceedings—an 
21

independent event that caused a harm that could not be foreseen by NAT. (Soule, supra, 

8 Cal.4th at p. 573, fn. 9.) 

This conclusion is evident from our determination that, in view of the evidentiary 

presentations in this case, the bankruptcy events were unusual and not reasonably 

foreseeable. “Since the court’s general instruction on causation did not go into the 

circumstances of this particular case but dealt with the defense of superseding cause by 

negative implication only, the jury may well have overlooked that defense in untangling 

the issues and arriving at its verdict.” (Self v. General Motors Corp. (1974) 42 

Cal.App.3d 1, 10 (overruled on other grounds in Soule, supra, 8 Cal.4th at p. 580).) 

Moreover, as the contract damages for the bankruptcy were not foreseeable, those 

damages should not be invoked to render the instructional error harmless. 

 D. Other Contentions

 In view of our conclusions, we do not have to address many of the other 

contentions by the parties. 

 1. Accountant’s Testimony 

 Because of the decisions on foreseeability and intervening and superseding cause, 

whether the accountant’s testimony on the transaction and damages was appropriate need 

not be addressed. 
22

 2. Special Instruction on Estoppel 

NAT and Lerner contend that the trial court erred by refusing to give a special 

instruction on estoppel based on Ash’s alleged acquiescence in the escrow delay. The 

elements of estoppel are that the party to be estopped must be aware of the facts, he must 

intend that his conduct be relied upon or acted on so that the other party should 

reasonably believe it was so intended, the other party must not know the true facts, and 

the other party must rely on the conduct. (Longshore v. County of Ventura (1979) 25 

Cal.3d 14, 28.) Estoppel may not be applied if any of these elements is missing. (Hair v. 

State of California (1991) 2 Cal.App.4th 321, 328.) There was no evidence Lerner relied 

on anything Ash said in this regard. Moreover, Ash did not know that NAT did not 

intend to follow his directions. Thus, there was no error in not giving an estoppel 

instruction. 

 3. Special Instruction on Causation 

 NAT and Lerner contend that the trial court erred by refusing to give their 

proposed instruction on speculative causation. The trial court correctly instructed the 

jury that the breach must be a substantial factor in causing the damages and that the 

causal occurrence be reasonably certain. (See US Ecology, Inc. v. State of California 

(2005) 129 Cal.App.4th 887, 909.) The intervening and superseding cause instruction 

that should have been given as to NAT and the elimination of damages that are not 

foreseeable should cover Lerner’s and NAT’s contentions on this instruction. 

 4. CACI No. 361 and Special Verdict

 CACI No. 361 provides, “The Ash Trust has made claims against NATCO for 

breach of contract; breach of fidiciary duty; and negligence. If you decide that the Ash 

Trust has proved all of . . . those claims, then the same damages that resulted from those 

claims can be awarded only once.” Defendants claim this instruction along with the use 

of a special verdict form was error, citing Singh v. Southland Stone, U.S.A. Inc. (2010) 

186 Cal.App.4th 338, as well as the instruction to the jury not to total the damage award. 
23

But defendants requested CACI No. 361 and did not object to the special verdict form. 

Any error in giving the instruction in the language of CACI No. 361 was invited 

(Transport Ins. Co. v. TIG Ins. Co. (2012) 202 Cal.App.4th 984, 1000), and the failure to 

object to the special verdict form was forfeited. Moreover, the damages awarded did not 

exceed the amount requested. The jury awarded different sums for each cause of action 

and did not write the total amount of the damages on the verdict form. On remand, the 

trial court may take further steps to avoid any duplicate damages awards. 

 5. Instruction Not to Total Damages

 Any contention that the trial court erroneously instructed the jury not to total the 

damages award was forfeited because NAT and Lerner requested the instruction based on 

CACI No. 361, did not object to the jury form on the ground that it allowed damages to 

improperly be calculated, and stipulated to the responses that the trial court provided to 

the jury questions during deliberations. 

 6. Interpretation of Jury’s Verdict

 NAT contends the trial court incorrectly added together the jury’s findings on 

damages for contract and tort causes of action. It contends that Ash cannot obtain tort 

damages for a breach of the escrow instructions (see Money Store Investment Corp. v. 

Southern Cal. Bank (2002) 98 Cal.App.4th 722, 732) or at least must elect between 

causes of action. It appears that Ash introduced evidence that NAT’s conduct went 

beyond a breach of contract. But, in view of our reversal, we need not reach this issue. 

 7. Sufficiency of the Evidence 

Because of our reversals on both the contract and tort causes of action, we need 

not reach the issue of damages as to Lerner or liability as to NAT. There was substantial 

evidence to support the findings that Lerner and NAT breached their contracts with Ash. 

The expected closing date as set forth in the parties’ agreement was November 21, 2008. 

The purchase agreement and escrow instructions stated that time was of the essence. 
24

There was testimony that the closing date was mandatory. With the acquiescence of 

NAT, Lerner did not submit his deeds of trust or vesting information into escrow in time 

to close. There was evidence that Ash had done everything required of him to close 

escrow on November 21, 2008. There was evidence that the funds could have been wired 

on November 21, 2008. As noted above there was substantial evidence that Ash did not 

know what prevented Lerner from providing the necessary material to close, and there 

was substantial evidence that Lerner and NAT did not rely on anything Ash said or did to 

cause the escrow not to close on time. 

 8. Attorney Fees 

 In view of our decision, the issues regarding attorney fees will have to be resolved 

upon remand. 

 9. Rulings on Motions

 Defendants contend their motions for nonsuit, judgment withstanding the verdict, 

and new trial should have been granted. In view of our decision, we need not deal with 

these issues except that we remand for a new trial on whether NAT is liable on the 

damages issue. 

 10. Punitive Damages 

 Ash contends the trial court erred in granting NAT’s motion for judgment 

notwithstanding the verdict on the issue of punitive damages. In view of our decision, we 

do not have to resolve this issue. 

 11. Amendment of Complaint 

 Ash contends he should have been granted leave to file a second amended 

complaint adding a cause of action that Lerner aided and abetted NAT’s breach of 

fiduciary duty, even though Ash waited more than two years from the filing of the 

complaint and more than one year after filing the operative amended complaint before 
25

seeking leave to file another amended complaint. This issue may be considered by the 

trial court upon remand. 

 E. Conclusion 

 We reverse and remand the matter for retrial on the issue of damages for breach of 

contract and as to tort liability of NAT consistent with this opinion. (See Torres v. 

Automobile Club of So. California (1997) 15 Cal.4th 771, 782; Bowman v. Wyatt (2010) 

186 Cal.App.4th 286, 332; Bliss v. Cal. Cooperative Producers (1952) 112 Cal.App.2d 

507.) The issues to be retried are not so inextricably intertwined that a complete new trial 

as to the breach of contract claims is required. (See Liodas v. Sahadi (1977) 19 Cal.3d 

278, 284-285.) 

DISPOSITION 

 We affirm as to the liability of Lerner and NAT for breach of contact. We reverse 

and remand the matter as to contract damages as to Lerner and NAT and tort liability of 

NAT. Each party shall bear his or its own costs of appeal. 

CERTIFIED FOR PARTIAL PUBLICATION 

 MOSK, Acting P. J. 

I concur: 

 KUMAR, J.

 



 Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to 

article VI, section 6 of the California Constitution. 
KRIEGLER, J., Dissenting. 

 I respectfully dissent. 

 My colleagues reverse the judgment on the theory the evidence is insufficient as a 

matter of law to establish that the damages suffered by the buyer were foreseeable. I 

disagree and would hold, after viewing the evidence in the light most favorable to the 

judgment, that the issue of foreseeability was properly left to the jury’s determination. 

 The escrow company breached an agreement with the buyer to secure his funds by 

a specified date, leaving the funds with an intermediary. Whether the intermediary’s 

bankruptcy was foreseeable to the escrow company based on the facts and circumstances 

of this case is a question on which reasonable minds can differ, making it an appropriate 

issue for the jury to decide. There is sufficient evidence to support the jury’s 

determination that the bankruptcy and the buyer’s damages were foreseeable to the 

escrow company. The seller breached the agreement as well, by failing to meet the 

escrow deadline, although the jury found the majority of the buyer’s damages (including 

the tax consequences) were not foreseeable to the seller. However, the jury’s finding that 

some of the damages were foreseeable to the seller as a result of missing the escrow 

deadline is supported by substantial evidence. 

 I agree with the majority opinion that a superseding cause instruction was 

warranted with respect to the tort actions against the escrow company. However, in light 

of the arguments at trial and the jury’s findings, I do not believe it is reasonably probable 

that the jury would have come to a different result if the instruction had been given. 

FACTS AND PROCEDURAL BACKGROUND 

 Our duty on appeal is to view the facts in the light most favorable to the judgment. 

(Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114, 

1128-1129.) Because my view of the facts supporting the judgment differs significantly 

from the majority, I set forth the facts in accordance with the standard of review. 
2

I. Property Purchase Agreement 

 Plaintiff and appellant David Ash, as trustee of the David Ash Trust dated January 

10, 2008, owned commercial property on Wilshire Boulevard. He entered into an 

agreement to sell the Wilshire property on September 8, 2008. His brokers and 

accountant said he could defer capital gains tax under Internal Revenue Code section 

1031 (section 1031) by using the proceeds to purchase a replacement property. Ash 

researched tax deferred exchanges. Under section 1031, he was required to place the sale 

proceeds with a qualified intermediary, identify a replacement property within 45 days, 

and complete the purchase within 180 days. Ash intended to use TIMCOR Exchange 

Corporation 1031, a subsidiary of Washington Mutual, as the intermediary, because it 

was the most familiar company. 

 Ash found a commercial property for sale on Venice Boulevard that fit his needs. 

The property was owned by defendants and appellants Richard Lerner, as trustee of the 

Lerner Family Trust, and Richard and Gloria Lerner, as trustees of the Exemption Trust 

of the Lerner Family Trust (collectively Lerner).1

 Ash submitted a purchase offer for the Venice property on September 29, 2008. 

Lerner’s counteroffer on October 6, 2008, signed by Richard, stated that the seller was 

“Lerner Family Trust” and provided Lerner the right to select the escrow holder. Ash 

accepted the counteroffer on October 8, 2008, and delivered a deposit of $50,000. 

 Ash could not use TIMCOR as an intermediary, however, because Washington 

Mutual had declared bankruptcy in the interim and closed operations. Ash spoke with 

brokers and selected qualified intermediary LandAmerica Exchange Services, Inc. He 

arranged for LandAmerica to receive the sale proceeds from the escrow on the Wilshire 

property and place them in a segregated account held by LandAmerica for Ash’s benefit. 

LandAmerica prepared an agreement for the transaction dated October 8, 2008. 

 

1 Because more than one party or participant shares the last name Lerner, they are 

referred to individually by their first names.
3

 Lerner’s real estate agent was Rick Rivera at Centers Business Management 

(CBM). Rivera selected defendant and appellant North American Title Company (NAT) 

to provide escrow services and title insurance. NAT title officer Victor Greene prepared 

a preliminary title report for the Venice property dated October 10, 2008, which he sent 

to CBM. The report stated that title to the property was held as follows: a 50 percent 

interest held by Barbara Simkin, Bernard David Lerner, Richard Scott Lerner, Gloria Lee 

Lerner, and Irving Reifman as trustees of the Ray Lerner Irrevocable Trust; and a 50 

percent interest held by Barbara Simkin, Bernard David Lerner, Richard Scott Lerner, 

and Gloria Lee Lerner as trustees of the Exemption Trust of the Lerner Family Trust 

dated November 17, 1986. The report included a form that Lerner needed to complete to 

certify that the signatories had authority to act for the trust. 

 Rivera contacted NAT escrow officer Maria Jennings on October 13, 2008, to act 

as the escrow officer. Jennings prepared escrow instructions on October 17, 2008, which 

identified the seller as “The Lerner Family Trust” and stated the expected closing date for 

escrow was November 21, 2008. 

 Richard decided to record a note and deed of trust on the Venice property to 

secure a debt that Lerner owed to a third party. He would use the sale proceeds to pay off 

the note. Paying the debt through escrow would provide tax benefits to Lerner. Richard 

arranged for his attorney, James Fisher, to manage the transaction. Attorney Fisher did 

not know the escrow deadline. 

 Richard also planned to defer Lerner’s capital gains tax on the sale through a 

section 1031 exchange. On November 4, 2008, CBM’s in-house attorney, Jeffrey 

Adelman, wrote an e-mail to Richard stating, “So that we avoid the vesting issues we had 

to clean up at [two other properties], please confirm EXACTLY how title is held for [the 

Venice property] and EXACTLY who will be doing a [section] 1031 exchange.” Richard 

asked him to send information showing the recorded title for the Venice property. 

 On November 5, 2008, Ash removed all of the buyer contingencies and instructed 

NAT to meet the escrow deadline. Lerner learned that Ash planned to get a loan from US 

Bank for part of the purchase price. 
4

 On November 6, 2008, Jennings alerted Rivera that vesting information was 

required for the property. Rivera asked her to identify the necessary information. 

Jennings replied that the title to the property reflected two trusts, so NAT needed copies 

of the trust agreements and all amendments, a confirmation that Richard had authority to 

sign on behalf of both trusts, and death certificates for previous trustees. Rivera e-mailed 

NAT’s request to Richard. 

 Richard responded that his mortgage broker Barry Weinstock had handled vesting 

information five times previously, and Attorney Fisher had replaced one of the former 

trustees. Richard requested Attorney Fisher send certain documents to Rivera, and that 

Rivera obtain the rest of the information from Weinstock. 

 Escrow closed on Ash’s Wilshire property and the sale proceeds were deposited 

with LandAmerica in the segregated account for Ash’s benefit. After Ash had entered 

into the agreement with LandAmerica, he developed concerns about LandAmerica’s 

financial viability. The banking system was collapsing and Ash was afraid of the state of 

the entire industry. He needed the income from the Venice property. He wanted to move 

forward as quickly as possible to get the income and be protected. 

 Ash could not direct LandAmerica to transfer his funds to the Venice property 

escrow without violating the section 1031 exchange requirements. On November 12, 

2008, Ash asked LandAmerica employee Sarah Blankenship to communicate with 

Jennings to transfer $120,000 to escrow. Ash also instructed Jennings to demand the 

wire transfer from LandAmerica. On November 13, 2008, Blankenship and Jennings 

exchanged documents by e-mail, including wiring instructions. Blankenship transferred 

$120,000 into escrow that day. LandAmerica was already holding the sale proceeds in 

accordance with the intermediary agreement dated October 8, 2008, when Ash finally 

signed the agreement on November 13, 2008. 

 Weinstock provided some of Lerner’s vesting information on November 14, 2008, 

which Jennings forwarded to Greene on November 17, 2008. 

 On November 19, 2008, two days before escrow was scheduled to close, US Bank 

employee Robert Kaempen delivered the following to NAT on Ash’s behalf: cashier’s 
5

checks totaling $842,000, a deed of trust, a document verifying that Ash was the sole 

authorized trustee of the Ash Trust, and amended escrow instructions directing NAT to 

record the deed of trust before the close of escrow. Ash began accruing interest on the 

loan at the rate of $500 per day. 

 That same day, Ash repeatedly asked Jennings to request the rest of the purchase 

funds from LandAmerica, which she confirmed that she would do. Ash told Jennings 

several times that he needed the income from the Venice property, wanted to get the 

escrow completed, and wanted to have his funds safely reinvested. 

 Ash’s real estate broker Robert Laswell spoke with Jennings in the late afternoon. 

She told him that all the funds were in. He believed NAT had received Ash’s funds from 

LandAmerica and escrow would close a day early. 

 On the afternoon of November 19, 2008, Attorney Fisher spoke to Jennings for the 

first time. He said he would be giving her two deeds of trust securing notes payable to 

third parties which he wanted recorded prior to the close of escrow. Jennings told him to 

get the deeds of trust to her by 3:30 p.m. the next day, if he wanted them recorded by 

Friday. Jennings agreed to prepare payoff demands, escrow instructions, and an 

acknowledgement. In an e-mail confirming their responsibilities, Attorney Fisher 

referred to “the escrow tentatively scheduled to close the following week.” Jennings 

opened a separate escrow for Lerner’s transaction with the third party. 

 On the morning of November 20, 2008, Jennings gave Attorney Fisher’s contact 

information to Greene. Greene said he was reviewing Lerner’s trust documents and they 

probably would need additional information. 

 Before noon on November 20, 2008, Richard sent an e-mail to Rivera in which he 

expressed regret if the third party transaction delayed the escrow closing. He added, “It 

is my fault because I thought the escrow was not closing until the end of the month. I 

will do my best to urge [Attorney Fisher] to expedite his matters.” 

 LandAmerica needed an estimated closing statement from Jennings stating the 

amount to transfer. Shortly after noon, Ash sent an e-mail to Jennings asking if she had 
6

received his funds from US Bank. “If so, is it possible to get me something so I can ask 

LandAmerica to wire you the remaining balance?” 

 Attorney Fisher, Jennings, and Greene continued to exchange documents and 

instructions about Lerner’s transaction with the third party. Jennings wrote an e-mail to 

Ash, “I got the funds today, I am working on your file exclusively today. I will have an 

estimate for you shortly. I am working on some last minute things for the Seller that is 

going to delay us a bit. I will keep you posted on how that is all progressing. I am 

thinking that we are going to be pushed to Monday or Tuesday of next week.” Ash 

responded, “No Problem. Do I get a discount;) (jk).” However, in a later telephone 

conversation, Jennings said escrow would not close on time and Ash said he was not 

approving a delay. Jennings said she would see what she could do to get it done. 

 Jennings prepared and e-mailed documents for the third party to sign. At 4:15 

p.m., Jennings sent an e-mail to Rivera explaining that attorneys in the third party 

transaction were reviewing documents. She said she had told Richard that every day the 

deeds of trust were not recorded pushed the escrow closing one day later. She told 

Richard and Attorney Fisher that if they wanted the deeds of trust recorded the next day, 

she needed them by 3:30 p.m., but they had not been delivered. She added, “Richard 

asked me if all these last minute issues were preventing this escrow from closing 

tomorrow and I respectfully told him ‘Yes.’” She noted Greene had contacted Attorney 

Fisher for trust certifications, so he could finalize the seller vesting issues. 

 At 4:34 p.m., Jennings e-mailed a revised closing estimate to Ash. She sent a trust 

certification for him to complete, but acknowledged later that she already had the trust 

certification he signed for US Bank. 

 Ash forwarded the closing estimate to Blankenship. At 4:48 p.m., Blankenship 

requested that Ash send a signed copy of the closing estimate and asked Jennings for 

wiring instructions. Ash faxed Blankenship a signed copy of the closing estimate. 

Jennings did not reply. 

 On Friday, November 21, 2008, the day escrow was scheduled to close, Jennings 

had all the funds necessary from Ash to close the transaction except the wire transfer 
7

from LandAmerica. Blankenship sent another e-mail to Jennings asking, “When do you 

need the funds wired?” Jennings did not respond. Ash tried to call Jennings several 

times but was not able to reach her. He believed the wire transfer from LandAmerica had 

been completed. 

 At 1:16 p.m. on November 21, 2008, Jennings sent documents for the third party 

to sign. She notified Lerner that escrow could close if they got copies of the documents 

back by e-mail or fax. Lerner asked NAT to record the third party deeds of trust as an 

accommodation, releasing NAT from claims arising from the recording. 

 At 4:24 p.m. on November 21, 2008, Richard e-mailed some of the remaining 

vesting documents to Jennings. He could not find a copy of the exemption trust. He 

wrote, “I will look over the weekend at my home storage unit for a copy. Please [ask] 

your title person if the waiver is sufficient especially in light of the recorded deeds.” The 

third party e-mailed executed documents to Jennings at 4:55 p.m., but without the 

complete vesting documents, escrow could not close. 

 On Monday, November 24, 2008, LandAmerica notified its clients that it was 

filing for bankruptcy. The bankruptcy court froze all of the assets that LandAmerica 

controlled. Jennings wrote an e-mail to Blankenship and Ash asking, “Sarah or David, 

can you confirm how much you will be wiring and when you will wire?” NAT recorded 

the third party deeds of trust that day. 

 Lerner’s vesting issues were later resolved, and the parties eventually executed 

agreements to extend escrow. Ash would not have signed the extension agreements, 

however, if he had known of Lerner and NAT’s actions that prevented escrow from 

closing. Ash did not cancel the transaction, because he would have lost his deposits and 

been unable to complete the tax-deferred exchange. He paid interest on the US Bank 

loan. After five months, US Bank required Ash repay the loan, because no deed of trust 

had been recorded to secure it. Ash was not receiving income from the property and had 

to borrow money from his mother. He hired an attorney to represent his interests in the 

bankruptcy and try to get his money released in order to complete the transaction. The 

bankruptcy court eventually released Ash’s funds in January 2010. With the funds and a 
8

new loan at a higher interest rate from Wells Fargo, escrow closed in March 2010. 

However, the tax-deferred exchange was not completed within the time allowed and Ash 

had to pay significant taxes on his gain from the sale of the Wilshire property. 

 Ash sustained direct damages totaling $1,033,000 as a result of the failure to meet 

the escrow deadline, including his tax exposure, the interest that he paid on the US Bank 

loan, the increased interest rate on the Wells Fargo loan, and his attorney fees to obtain 

his funds from the bankrupt estate. 

II. Legal Proceedings 

 On April 13, 2009, Ash filed a complaint against Lerner for breach of the purchase 

agreement and against NAT for breach of the escrow instructions and breach of fiduciary 

duty. On March 2, 2010, Ash filed an amended complaint, adding a cause of action 

against NAT for negligence. 

 A jury trial began on July 20, 2011. Ash’s escrow expert Vickie Crestani 

explained that although LandAmerica’s bankruptcy was unusual, it was not the first time 

in her history of working with qualified intermediaries that an intermediary had declared 

bankruptcy. Crestani was disturbed to hear that LandAmerica had closed its doors, but 

could not say that she was surprised. There had been rumors among LandAmerica 

employees that LandAmerica would fold up and close its doors. Crestani could not say 

whether these rumors were generally known by people in the real estate industry in 

Southern California. 

 Crestani testified that Jennings had a fiduciary duty to follow Ash’s instructions to 

obtain his funds. Jennings failed to secure the funds from Ash’s qualified intermediary 

when he requested them, which she should have done even if escrow was going to be 

delayed by a day or two. 

 In addition, the escrow instructions did not allow Lerner to encumber the property 

before escrow closed. When Jennings received information that constituted a material 

change to the escrow, she needed to immediately advise Ash of the seller’s intentions to 
9

encumber the property and give Ash the opportunity to work out his options. NAT and 

Jennings accommodated Lerner and assisted in the delay of escrow closing, rather than 

closing the transaction. 

 Ash had completed everything that he needed to do to close the transaction. 

According to Crestani, when Jennings accepted loan proceeds from US Bank, she should 

have communicated with Ash that she would not be able to record the transaction and did 

not have his funds from LandAmerica. She should have gone over his options, including 

returning the loan proceeds, obtaining the funds from LandAmerica, or investing Ash’s 

funds in commercial paper or an interest-bearing account. 

 Ash’s accountant testified that when the section 1031 exchange failed, Ash’s tax 

liability included $465,000 attributable to the Venice property transaction. Ash’s 

damages expert Winston Elton testified that as a result of the failure to close escrow on 

time, Ash suffered the following damages: $166,000 of lost income from the property 

which Lerner collected instead; the additional tax liability of $465,000; legal costs of 

$140,000; payments and fees on the US Bank loan totaling $42,000; interest of $28,000 

on a loan from his mother; and an additional $189,000 for the new loan from Wells 

Fargo. Therefore, the total amount of Ash’s direct damages was $1,033,000. 

 During closing arguments, Ash argued that LandAmerica’s bankruptcy was the 

elephant in the room, but Lerner and NAT invited the elephant in by shirking their 

obligations to meet the escrow deadline. Lerner had breached the purchase agreement by 

recording deeds of trust that changed the title and failing to deliver title by the escrow 

deadline. NAT breached its agreement with Ash by failing to request Ash’s funds from 

LandAmerica and breached fiduciary duties by failing to act on Ash’s behalf. 

Specifically, NAT failed to follow Ash’s instructions to get his funds from LandAmerica, 

concealed information about the delay and entered into a side agreement with Lerner to 

record third party deeds of trust. NAT was negligent because Jennings failed to properly 

determine the property owners at the outset of escrow, did not timely send out 

documents, ignored the escrow deadline, and did not disclose conflicts to Ash. Ash 
10

sought four categories of damages totaling approximately one million dollars: the taxes 

incurred, lost profits, legal costs from the bankruptcy, and his costs related to the loans. 

 In Lerner’s closing argument, Lerner argued that a section 1031 exchange is not 

tax forgiveness, but simply tax deferral, so it was pure speculation as to what Ash’s tax 

liability would have ultimately been. In addition, Ash was seeking duplicative damages 

by asking for lost income as well as the payments made on the loans to acquire the 

property. Lerner noted that everyone was shocked when LandAmerica went into 

bankruptcy, and ultimately, it was LandAmerica that took Ash’s money. 

 NAT also argued that LandAmerica’s bankruptcy was an unforeseeable and 

extraordinary event. No one had expected or foreseen that it was going to happen. 

Escrow did not close on Monday, November 24, 2008, or later, because LandAmerica 

closed its doors, which was not caused by NAT or Lerner. Ash could not blame NAT 

that the bankruptcy judge refused to disburse funds held by LandAmerica. 

 On August 2, 2011, the jury returned its verdict. The jury found NAT breached its 

contract with Ash. All the conditions occurred that were required for NAT’s 

performance. NAT failed to act as required under the contract and Ash was harmed. The 

total damages attributable to NAT for breach of contract were $250,000. NAT also 

breached a fiduciary duty owed to Ash, which caused damages of $250,000. In addition, 

the jury found that NAT was negligent, which was a substantial factor in causing harm to 

Ash, and attributed damages of $500,000 to NAT for negligence. Moreover, the jury 

found that NAT acted with malice, oppression, or fraud, and a managing agent of NAT 

authorized the conduct. Therefore, the jury also awarded punitive damages of $750,000 

against NAT. 

 As against Lerner, the jury found that Lerner entered into a contract to sell 

commercial real property to Ash, and Ash had substantially performed under the 

agreement. Lerner failed to act as the contract required and Ash was harmed as a result. 

The jury attributed $300,000 of Ash’s damages to Lerner’s breach of the purchase 

agreement. 
11

 On September 19, 2011, the trial court entered judgment against NAT in the 

amount of $1,750,000 and against Lerner in the amount of $300,000. Lerner and NAT 

filed motions for new trial and judgment notwithstanding the verdict, while Ash filed a 

motion seeking attorney and expert fees from Lerner and NAT. The court granted NAT’s 

motion for judgment notwithstanding the verdict as to the claim for punitive damages and 

otherwise denied the motions. On November 8, 2011, the court entered an amended 

judgment. 

DISCUSSION 

Standard of Review 

 “‘When findings of fact are challenged on appeal, we are bound by the familiar 

and highly deferential substantial evidence standard of review. This standard calls for 

review of the entire record to determine whether there is any substantial evidence, 

contradicted or not contradicted, to support the findings below. We view the evidence in 

the light most favorable to the prevailing party, drawing all reasonable inferences and 

resolving all conflicts in its favor.’ (People ex rel. Brown v. Tri–Union Seafoods, LLC

(2009) 171 Cal.App.4th 1549, 1567.)” (Hub City Solid Waste Services, Inc. v. City of 

Compton (2010) 186 Cal.App.4th 1114, 1128-1129.) 

Foreseeability of Contract Damages 

 The majority accepts the contention of Lerner and NAT that Ash’s damages were 

unforeseeable as a matter of law and there is no substantial evidence to support the jury’s 

finding that the damages were foreseeable. I disagree. 

 “Damages awarded to an injured party for breach of contract ‘seek to approximate 

the agreed-upon performance.’ [Citation.] The goal is to put the plaintiff ‘in as good a 

position as he or she would have occupied’ if the defendant had not breached the 
12

contract. [Citation.] In other words, the plaintiff is entitled to damages that are 

equivalent to the benefit of the plaintiff’s contractual bargain. [Citation.]” (Lewis Jorge 

Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 

967-968 (Lewis).) 

 There are two types of contractual damages: “general damages (sometimes called 

direct damages) and special damages (sometimes called consequential damages).” 

(Lewis, supra, 34 Cal.4th at p. 968.) General damages are “those that flow directly and 

necessarily from a breach of contract, or that are a natural result of a breach. (Civ. Code, 

§ 3300 [damages ‘which, in the ordinary course of things, would be likely to result’ from 

breach]; Mitchell v. Clarke (1886) 71 Cal. 163, 167-168 [general damages are those that 

naturally and necessarily result from breach].) Because general damages are a natural 

and necessary consequence of a contract breach, they are often said to be within the 

contemplation of the parties, meaning that because their occurrence is sufficiently 

predictable the parties at the time of contracting are ‘deemed’ to have contemplated them. 

(Calamari & Perillo, The Law of Contracts (2d ed. 1977) § 14-5, p. 525; Hunt Bros. Co. 

v. San Lorenzo Water Co. (1906) 150 Cal. 51, 56 [parties need not ‘actually have 

contemplated the very consequence that occurred,’ but they would have supposed such a 

consequence was likely to follow a breach].)” (Lewis, supra, 34 Cal.4th at p. 968.) 

 Special damages “are those losses that do not arise directly and inevitably from 

any similar breach of any similar agreement. Instead, they are secondary or derivative 

losses arising from circumstances that are particular to the contract or to the parties. 

Special damages are recoverable if the special or particular circumstances from which 

they arise were actually communicated to or known by the breaching party (a subjective 

test) or were matters of which the breaching party should have been aware at the time of 

contracting (an objective test). [Citations.] Special damages ‘will not be presumed from 

the mere breach’ but represent loss that ‘occurred by reason of injuries following from’ 

the breach. [Citation.] Special damages are among the losses that are foreseeable and 

proximately caused by the breach of a contract. [Citation.]” (Lewis, supra, 34 Cal.4th at 

pp. 968-969.) 
13

 “Contract damages, unlike damages in tort (Civ. Code, § 3333), do not permit 

recovery for unanticipated injury. [Citation.] Parties may voluntarily assume the risk of 

liability for unusual losses, but to do so they must be told, at the time the contract is 

made, of any special harm likely to result from a breach [citations]. Alternatively, the 

nature of the contract or the circumstances in which it is made may compel the inference 

that the defendant should have contemplated the fact that such a loss would be ‘the 

probable result’ of the defendant’s breach. [Citation.] Not recoverable as special 

damages are those ‘beyond the expectations of the parties.’ [Citation.] Special damages 

for breach of contract are limited to losses that were either actually foreseen (see, e.g., 

Dallman Co. v. Southern Heater Co. (1968) 262 Cal.App.2d 582, 586 [in contract 

negotiations, supplier was put on notice that its failure to perform would result in lost 

profits]) or were ‘reasonably foreseeable’ when the contract was formed. [Citation.]” 

(Lewis, supra, 34 Cal.4th at pp. 969-970.) 

 Ash testified that just before the parties entered their transaction, the most wellknown intermediary closed its doors due to Washington Mutual’s bankruptcy. Ash 

developed concerns about the financial viability of LandAmerica, and he told Jennings 

that he was anxious to have his money safely reinvested in the property. In other words, 

Ash communicated his fear to NAT that his funds were not safe with the intermediary. 

The extent of Ash’s concern was underscored by the fact that he had LandAmerica 

transfer a significant portion of his funds into escrow early. 

 The jury understood Ash’s testimony about the collapse of the banking system and 

the state of the industry referred to the economic crisis of 2008, the worst financial crisis 

in the United States since the Great Depression. (Brian R. Cheffins, Did Corporate 

Governance “Fail” During the 2008 Stock Market Meltdown? The Case of the S&P 500

(2009) 65 Bus. Law. 1, 1-2.) Venerable investment bank Bear Sterns was an early 

casualty of the financial crisis in March 2008. (Financial Crisis Inquiry Report, Pub.L. 

No. 111-21 (Jan. 2011) pp. 289-291, available at http://fcic.law.stanford.edu/report 

(Financial Crisis Report).) From there, financial market conditions deteriorated rapidly 
14

in the late summer and early fall of 2008. (West v. JPMorgan Chase Bank, N.A. (2013) 

214 Cal.App.4th 780, 786.) 

 On September 7, 2008, the federal government placed two iconic mortgage 

institutions, the Federal National Mortgage Association (Fannie Mae) and the Federal 

Home Loan Mortgage Corporation (Freddie Mac), into conservatorship. (Financial Crisis 

Report, supra, Pub.L. No. 111-21 at p. 309.) Investment bank Lehman Brothers declared 

bankruptcy on September 15, 2008, and American International Group, Inc. (AIG) failed 

as well. (Id. at p. 353.) Investors began pulling deposits out of strong banks far removed 

from the businesses at the center of the crisis. (Id. at pp. 353-354.) In a span of eight 

days, depositors withdrew $16.7 billion from Washington Mutual. (Id. at p. 365.) On 

September 25, 2008, the Office of Thrift Supervision (OTS) issued an order closing 

Washington Mutual and appointing the Federal Deposit Insurance Corporation (FDIC) as 

receiver. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 879, citing 

U.S. Dept. of the Treasury, Office of Thrift Supervision Order No. 2008-36 (Sep. 25, 

2008); 12 U.S.C. § 1821(c).) Washington Mutual’s collapse was the largest bank failure 

in United States history. (Douglas W. Arner, Michael A. Panton and Paul Lejot, Central 

Banks and Central Bank Cooperation in the Global Financial System (2010) 23 Pacific 

McGeorge Global Bus. & Dev. L.J. 1, 23.) 

 On October 8, 2008, in the midst of the economic crisis, Ash and Lerner entered 

into their purchase agreement. The Financial Crisis Report described the economic 

climate at that time: “as massive losses spread throughout the financial system in the fall 

of 2008, many institutions failed, or would have failed but for government bailouts. As 

panic gripped the market, credit markets seized up, trading ground to a halt, and the stock 

market plunged.” (Financial Crisis Report, supra, Pub.L. No. 111-21 at p. 386.) 

 The jury was entitled to interpret the evidence in light of common human 

experience and matters of common knowledge. (Gottloeb v. Melrose Health Baths 

(1957) 148 Cal.App.2d 313, 317.) The economic crisis of 2008 had a significant impact 

on American lives. (Stavros Gadinis, From Independence to Politics in Financial 

Regulation (2013) 101 Cal. L. Rev. 327, 350.) “Dramatic government initiatives and 
15

violent market reactions kept the crisis in daily headlines. The eleventh-hour bailouts of 

Bear Stearns, Merrill Lynch, and AIG, and Lehman's spectacular collapse, increased the 

salience of the issue and the visibility of the main actors. In a 2008 poll on the thenevolving financial crisis, an impressive 84 percent of respondents stated that they pay at 

least some attention to reports about failing financial institutions such as Lehman, AIG, 

and Washington Mutual, with 57 percent stating that they pay a lot of attention.” (Id. at 

pp. 350-351, fn. omitted.) “Although the national and state economies already were in 

dire straits [in September 2008], shortly thereafter the economy further deteriorated 

dramatically in light of the financial credit crisis and the resulting stock market collapse 

in October 2008 and a sharp decline in real estate values and consumer spending.” 

(Professional Engineers in California Government v. Schwarzenegger (2010) 50 Cal.4th 

989, 1001.) 

 The economic crisis that gripped the United States in 2008 and the risk of 

bankruptcy were not particular to LandAmerica. The conditions created a foreseeable 

risk in any similar agreement at that time. Ash’s damages from the delay in closing 

escrow were general damages, not special damages. It was sufficiently predictable at the 

time that the parties entered into their agreement that if NAT failed to obtain Ash’s funds 

and left them with the intermediary, NAT gambled on whether LandAmerica would be 

the next financial institution to fail. Larger, established institutions collapsed before the 

parties even entered their agreement. Richard was as sophisticated an investor as Ash, if 

not more so. If escrow failed to close on time, it was certainly predictable to Lerner that 

Ash would lose income from the property and might have to arrange a new loan on 

less favorable terms. Whether the bankruptcy and damages resulting from delay were 

foreseeable to the parties at the time of contracting were factual issues for the jury to 

determine. The jury heard the evidence and found the damages were foreseeable, and I 

would conclude from the above that the jury’s findings are supported by substantial 

evidence. 

 I agree with the majority that a superseding cause instruction was warranted in 

connection with the tort causes of action against NAT. However, NAT fully argued that 
16

LandAmerica’s bankruptcy was an unforeseeable event and the cause of Ash’s damages. 

The breach of contract instructions required the jury to find that either the harm was 

likely to arise in the ordinary course of events from the breach, or both parties could 

reasonably have foreseen the harm as a probable result of the breach when the contract 

was made. The jury not only awarded contract damages against NAT, but they awarded 

the entire amount of Ash’s damages and found punitive damages were warranted as well. 

Based on the arguments and the jury’s findings, I do not believe it is reasonably probable 

that the jury would have reached a different result had they been given a superseding 

cause instruction as to a few of the claims. 

 KRIEGLER, J.