1 Filed 4/22/15 Peterson v. Bonner CA1/3 NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

JAMES A. PETERSON et al., Cross-complainants and Respondents,

v. ERNEST LINCOLN BONNER, JR., Cross-defendant and Appellant. A139033
(Contra Costa County Super. Ct. No. MSC0700904)

KGMW, LP, Plaintiff and Respondent,

v. ERNEST LINCOLN BONNER, JR., Defendant and Appellant. A140846
(Contra Costa County Super. Ct. No. MSC0700904)

Ernest Lincoln Bonner, appearing in propr ia persona, appeals judgments entered in favor of James A. Peterson, doing busine ss as J&E Investments (J&E) and KGMW, LP, on their causes of action for damages, and in favor of Placer Title Company and its employee, Terese Johnson, (collectively Pl acer) on Bonner’s cross- complaint for breach of fiduciary duty. The claims at issue all aris e out of Bonner’s effo rts to obtain financing for the purchase of property in Lafayette, which was one pa rt of what the trial court
described as a “massive” real estate fra ud engineered by one Derek Wheat. Bonner
asserts that he was an innocen t victim of Wheat’s fraud, but the record amply supports the trial court’s finding that Bonner was aware of some, if not all, of Wheat’s fraudulent2 activity and knowingly attempted to ta ke advantage of his fraudulent scheme. Accordingly, we shall affirm. Factual and Procedural History 1 In 2004, Wheat and Edward Cunningham agreed to work together to “flip” — i.e., buy, improve, and resell — houses. The firs t property they purchased was located on Estates Drive in Lafayette, California. The property consisted of two parcels with the same street address: parcel 6, on which they planned to build a new residence, and parcel 7, which was a vacant and unbuildable lot. 2 It is unclear from the record whether the property was already subdivid ed or whether the subdivision occurred at the time of the purchase. In any event, Cunni ngham purchased parcel 6 for $1 and separately purchased parcel 7 for $2,250,000. Cunningham obtai ned a $999,999 loan fro m Countrywide Loans Inc. (the Countrywide loan) th at was secured by a deed of trust on parcel 7. Johnson of Placer Title Company served as the escrow agent for Cunnin gham’s purchase of parcel 7. Johnson recorded a grant d eed to Cunningham on parcel 6 as an accommodation to Cunningham, but not as part of the escr ow. Title to both parcels was placed in Cunningham’s name only. In November 2005, Cunningham secu red a $638,250 construction loan from CityFed Capital Inc. (CityFe d) for construction of im provements on parcel 6. 3 The promissory note on the loan was transferred by CityFed to J&E and a deed of trust to secure repayment of the promissory no te was recorded against parcel 6.

1 The action below involved numerous parties a nd was tried in phases. Some claims were tried before a jury and others before the court. We have narrowed the summary of the facts to those that bear direc tly on the issues on appeal.

2 Our references to the “prope rty” or “Estates Drive prop erty” are intended to include both parcels.

3 CityFed is a licensed real estate brokerage firm. Both Cunningham and Bonner testified they believed CityFed was Wheat ’s company or that Wheat had a controlling interest in CityFed.3 The relationship between Cunningham an d Wheat subsequently broke down and Wheat then suggested to Bonner that he purchase the Estates Drive property. 4 Bonner had
known Wheat for more than 10 years and Wheat was, at some point, the chief financial officer of Bonner’s biotech company, FICA RR, Inc. Bonner agr eed to purchase the property for $2.5 million. 5 With assistance by Wheat and ot hers, Bonner obtained a $2.4 million loan from Equity Fundi ng Group, LP and EFG Mortga ge Acq., LLC (collectively EFG) for the purchase of the pr operty. Plaintiff KGMW, LP is the successor in interest to
EFG.
An escrow account at Placer Title Company was used fo r the transaction, with Johnson serving as the escrow agent. On October 23, 2006 , Bonner signed the preliminary title report prepared by Placer. Th e report identifies the property by address, but the legal description of the property desc ribes only parcel 6, not including parcel 7. The preliminary title report inde ntifies, among other encumbrances, J&E’s deed of trust securing payment of the $638, 250 construction loan. On Oc tober 24, Bonner signed a document entitled “Assumption Ag reement with Release of Liability” (the assumption agreement) which provides that “[a]s part of the purchase price of the above-described property” Bonner assumes Cunni ngham’s liability under the pr omissory note secured by
J&E’s deed of trust. Within minutes of signing the assumpti on agreement, after reviewing additional documents calling for his signature, Bonner st opped the escrow proc eedings because he

4 Bonner testified at trial that he did not learn until much later th at the property was actually two separate parcels. At their first meeting, Wheat told him that “there was a possibility of subdividing a pi ece of the property at the t op end and putting another house there.”

5 The record includes a settlement statement from the U.S. Depart ment of Housing and Urban Development that shows a contract sales price of $3.2 m illion and a California Residential Purchase Agreemen t and Joint Escrow Instructions, dated September 1, 2006, which lists the purchase pri ce of the property at $4.3 m illion, both of which bear Bonner’s signature. At trial, however, Bonner denied that he signed the purchase contract claiming that there was no written contract for the purchase and that he agreed to purchase the property for $2.5 million.4 knew he “did not want that loan.” He claimed that he had just discovered the J&E deed of trust and that he had not agreed to assume the additional $638,250 obligation as part of the purchase price of the property. He told the escrow agent that he was leaving and would not sign any additional document s relating to the transaction. The following day, Bonner received a phone call from one Fidel Nwamu, who Bonner knew through a prior real estate transaction. Nwamu to ld Bonner that he had just
recorded a deed of tr ust against the Estates Drive proper ty based on a $500,000 loan that
he had made to Bonner. Bonner told Nwamu he knew nothing about such a loan and that he had not even purchased the property yet. Nwamu faxed Bonner a copy of the deed of trust. The deed of trust was recorded against parcel 7 and, according to Bonner, contained his forged signature. That afte rnoon, Bonner sent a letter to Placer directing that the escrow not be closed and immediately contacted Wheat.
Wheat told Bonner that J&E was owned by Wheat’s company, CityFed, which had originated the loan, and “that there was no r eal loan that existed or that I had an obligation to pay.” Bonner also learned that the money from Nwamu had gone directly to
Wheat. Wheat told him that because Bonner had not comp leted the purchase, Nwamu’s
loan was not valid. Wheat also told him that an application had been submitted to the city for subdivision of the property but that parcel 7, against which Nwamu’s deed of trust was recorded, was not a lega lly recognized parcel. Shortly after this conversation, Bonner and Wheat signed an agreement in which Wheat acknowledged ha ving received $570,000 from Nwamu. Wheat agreed to repay that loan and relinquish all of his stock hold ings in Bonner’s comp any, FICAAR, Inc., in exchange for Bonner’s purchase of both parcels 6 and 7. Bonner explained at trial that it
was at this time that he first “began to have suspicions abou t Mr. Wheat” and that is why he had Wheat sign the “agreement wherein he relinquished all stock ownership in my company. . . . [T]he first order of bus iness was to get him out of that.” Around the same time, Wh eat told Bonner that he would need to submit a new loan application to the lender because “the lender had a problem with [him] refusing to go through with the escrow.” At Wheat’s request, Bonner signed two blank loan5 applications. Bonner explained that he was relying on Wheat to obtain the financing needed to complete th e purchase. It was his “perception at the time, that [Wheat] had some sort of controlling or ownership interest in a mort gage company that actually funded loans, and it was [his] perception at that time that the funding was actually coming through [Wheat].”
EFG received two uniform residential loan applications, dated October 23, 2006 and November 1, 2006, from Bo nner that falsely represented that Bonner would make a cash deposit of $718,467 toward the purchase of the property and that Bonner’s assets included over $1.1 million in st ocks and bonds. Bonner does not dispute that he did not contribute any cash towards the purchase of the property and at trial acknowledged that he does not have the $1.1 m illion in assets listed on the app lication. Bonner claimed that all of the false information was filled in by Wheat after he had signed blank forms. EFG also received, in support of Bonn er’s loan applicati on, copies of bank statements showing $718,467 in cash, and securities accoun t statements showing $1.1
million in assets. Bonner ackno wledged the informa tion contained in the documents was false but claimed that all of the suppor ting documentation was manufactured by Wheat without his knowledge. Bonne r claimed that he filled out a different and accurate handwritten loan application and gave it to Wheat, but he did not keep a copy and none was presented at trial. On October 30, Bonner advised Placer that he was retracting his prior instruction
to terminate the escrow and th at the title company should pro ceed with the close. On the same day, Bonner signed “Buyer’s Instructions ” which falsely stated that he had made a $200,000 cash down payment. The buyer’s in structions acknowledge that the purchase was subject to a deed of trust in favor of J&E with an unpaid principal balance of $638,250. The estimated settlement statem ent, which Bonner acknowledges signing, showed a purchase pr ice of $3.2 million. On November 6, 2006, Placer recorded a grant deed transferring title of Parcel 6 to
Bonner.6 In February or March 2007, Bonner first learned of the Countr ywide loan against parcel 7 and immediately notified Countrywide that he suspected fraud was involved in the transaction. He also made a report to the District At torney’s office. In April 2007, EFG filed a complaint ag ainst Bonner alleging, among other things, causes of action for negligen t and intentional misreprese ntation. EFG claimed that Bonner made numerous false representations to obtain the $2.4 milli on loan and that but for the false representations, EFG would not have made the loan. EFG’s complaint also alleged causes of action against Placer and J&E, as well as many additional defendants, none of which are at issue on appeal. In October 2007, J&E filed a cross-co mplaint against Bonner alleging, among other things, claims to recover on the promi ssory note secured by the deed of trust on parcel 6. In December 2007, Bonner filed a cross- complaint against Placer alleging, among other things, a cause of action for breach of fiduciary duty based on Johnson’s failure to disclose, in connection with the recording of his 2006 purchase, the fraud allegedly committed by Wheat and ot hers against Countrywide in co nnection with the purchase of the property by Cunningham in 2004. Following a lengthy trial, the court reject ed each of Bonner’s claims and defenses, including his repeated assertion that he wa s merely an innocent victim of Wheat’s fraudulent scheme, in the course of which Wheat fraudulently obta ined some $7 million of loans from multiple lenders secured by the same property. In its decision, the court states, “The parties to this dispute agree about one thing. Cross-defendant Derek Wheat
was involved in massive fraudul ent activities that resulted in th e real property originally known as 1140 Estates Drive, Lafayette, be ing financed by four different lending entities such that almost $7 million dollars wa s extracted from the lenders by various dishonesties. From the evidence heard by the court, . . . the court concludes that while each of these parties [6] may not have been aware of ea ch and every aspect of every

6 The parties include Bonner and two other de fendants who were involved with Wheat.7 dealing in which Wheat engaged, the circumst antial evidence clearly establishes that each of them, [including] Bonner . . . , was aware that dishonesties were taking place and that lenders were being cheated. . . . [¶] Each of these three parties had a strong motive to participate in Wheat’s various dealings in whole or in part. The reason was simply the greed involved with seeing a possibility of making a large windfall profit by ‘investing’ with Wheat. [¶] Bonner saw the possibility of working with Wheat in ultimately completing construction for a relatively sma ll amount and ‘flipping’ the Estates Drive property, with absolute ly no cash outlay on his part. In order to do so he was willing to sign documents in blank that a person with his vast education and experience would never do, overlook clear indicators that thin gs were ‘wrong’, and proceed forward in hopes that at the end of the day the property could be sold for what he believed would be its finished value, $5 million.” With respect to EFG’s clai ms for negligent and intentio nal misrepresentation, the court rejected defendant’s argument that he was not liable because he had not personally made the misrepresentations that were ma de by Wheat, who engi neered the “massive fraud” without his knowledge. The court c oncluded that even assuming Bonner did not
know about the transmission of false inform ation to EFG, he was liable nonetheless
because he and Wheat were e ngaged in a joint enterprise to purchase and “flip” the property for a profit.
The court also found in favor of Placer on Bonner’s cross-complaint. The court explained that Bonner had not “established th at Placer violated an y duty which it had as the escrow holder in [the 2006 ] transaction” and that, in a ny event, “the totality of the
evidence shows that Bonner was aware of numerous facts which put him on notice of wrongdoings of Wheat, and by his conduct he clearly was willing to take abnormal risks
since he had no actual financial investme nt in the Estate Drive Property.” Finally, the court found in favor of J&E on its claim fo r payment of the promissory note. The court noted that Bonn er admitted signing the assumption agreement
and found that he understood the effect of the agreement. The court rejected Bonner’s claims that the agreement was procured by fraud.8 On June 21, 2013, Bonner filed a notice of appeal from the judgments entered in favor of J&E in the amount of $1,093,601.94 7 and in favor of Placer on Bonner’s crosscomplaint. On January 14, 2 014, Bonner filed a notice of appeal from the judgment
entered in favor of KGMW in the amount of $2,487,265.00. 8 On Bonner’s motion, the appeals were consolidated for purposes of briefing, oral ar gument and decision.
Discussion
1

. KGMW / EFG v. Bonner A cause of action for intentional misrepresentation requires: “ ‘ “(a) misrepresentation (false representa tion, concealment, or nondisclosure); (b) knowledge of falsity (or ‘sci enter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” ’ ” ( Engalla v. Permanente Medical Group, Inc., (1997) 15 Cal.4th 951, 974.) The sc ienter element may be satisfied by showing “either that defendant had actual knowledge of the unt ruth of his statements, or that he lacked an honest belief in their truth, or that the statements were carelessly and recklessly made, in a manner not warranted by the information available to defendant.” ( Yellow Creek Logging Corp. v. Dare (1963) 216 Cal.App.2d 50, 57, 58; Civ. Code, § 1710, subd. (2).) If a defendant makes a false statement, honestly believing it to be true, but without reasonable ground for such be lief, the defendant is liable for negligent misrepresentation. ( Bily v. Arthur Young & Co . (1992) 3 Cal.4t h 370, 407-408.) As noted above, the trial court found th at Bonner was liable for both negligent and intentional misrepresentation. The court ob served that Bonner “cannot sign a document without reading it and then cl aim ‘fraud in the execution’ of the document” as a defense

7 The court awarded J&E “$500, 000 in principal, plus inte rest of $480,205.56, plus attorneys’ fees in the amount of $174,516.50, plus cost s of suit in the amount of $10,279.88 for a total judgment of $1,093,601. 94.” Bonner does not separately challenge the calculation of the award.

8 The court awarded KGMW, LP. “$1,444,80 0.00 in compensatory damages plus punitive damages in the amount of $480,000.00, plus attorney fees in the amount of $562,465.00 for a tota l judgment of $2,487,265.00.” Apart from his argument, discussed below, that substantial evidence fails to s upport the award of punitive damages, Bonner does not challenge the trial court’s calculation of the award.9 to EFG’s claims and that “Bonner is bo und by those false representations on a respondeat superior basis, whether Wheat is deemed a part ner, joint venturer or a mere agent.”
Bonner contends that there is no substantial ev idence to support the court’s findings that Wheat was his agent or that he was anything other than a victim of Wheat’s fraud. We disagree. Civil Code section 2295 defines an agen t as “one who repres ents another, called the principal, in dealings with third persons.” “A principal who puts an agent in a position that enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud. The principal is liable although he is entir ely innocent, although he ha s received no benefit from the transaction, and although the agent acts sole ly for his own purposes. Liability is based upon the fact that the agent's position facilita tes the consummation of the fraud, in that, from the point of view of the third persons, the transaction seems regular on its face and the agent appears to be acting in the ordina ry course of the business confided to him [citations]. The law reasons that where one of two innocent parties must suffer, the loss should be accepted by th e principal who is responsible fo r the selection of the agent and for the definition of his authority.” ( Reusche v. California Pacific Title Ins. Co . (1965) 231 Cal.App.2d 731, 736-737.) Moreover, a pr incipal may be liable for acts of his agent if he ratifies the agents prio r unauthorized acts. “Ratification is the subsequent adoption by one claiming the benefits of an act, whic h without authority, another has voluntarily done while ostensibly acting as the agent of him who affi rms the act and who had the power to confer authority [citation]. A prin cipal cannot split an agency transaction and accept the benefits thereof without the burdens.” ( Id . at p. 737.) Here, Bonner acknowledged that Wheat arranged the purchase and that he was relying on Wheat to obtain the financing needed to complete the transaction. Bonner does not dispute that when he signe d the blank loan applications , he was expecting Wheat to fill in the missing information and that he kn ew the applications wo uld be given to the lender. By his own admission, when he si gned the blank loan applications, Bonner already had suspicions about Wheat’s honest y, having learned that Wheat forged10 Bonner’s name on Nwamu’s deed of trust and received $500,000 from Nwamu based on the forged document. De spite these red flags, Bonner did not terminate the transaction. He instructed the title company to proceed with the close of escrow and he accepted the benefit of the loan facilitated by Wheat. More over, it appears that Bonner made use of Wheat’s questionable conduct in negotiating th e relinquishment of Wheat’s interests in Bonner’s company. This evidence amply supports the conclu sion that Wheat was acting as Bonner’s agent for the purpose of securing financing for the purchase of the property and that Bonner knowingly authorized or at least ratified Wheat’s fraudulent acts. This same evidence refutes Bonner’s additional argument th at there is no substantial evidence of his “personal culpability” suffici ent to support the award of punitive damages. ( Hale v.
Farmers Ins. Exch . (1974) 42 Cal.App.3d 681, 691, overruled on ot her grounds in Egan v. Mutual of Omaha Ins. Co . (1979) 24 Cal.3d 809, 822, fn. 5 [“California follows the rule laid down in Restatement of Torts, section 909, which pr ovides punitive damages can be properly awarded against a principal be cause of an act by an agent if, but only if ‘(a) the principal authorized the doing and th e manner of the act, or (b) the agent was unfit and the principal was reckless in employ ing him, or (c) the agent was employed in a managerial capacity and was acting in the scop e of employment, or (d) the employer or a manager of the employer ratified or approved the act.’ ”]; see also Civ. Code, § 3294, subd. (b) [employer may be liable for pun itive damages based upon the acts of employee if “the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the ri ghts or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fra ud, or malice.”].)
2

. J&E v. Bonner
Bonner contends the court erred in hold ing him liable to J&E for repayment of the $638,250 loan. He argues th at no contract was ever formed between Bonner and J&E “as there was never any mutual assent” to his as sumption of the loan. The record, however,11 amply supports the court’s finding that Bo nner intended to sign the document assuming
the loan. Bonner does not dispute that he signed th e assumption agreement or that he signed the buyer’s instructions acknowledging that hi s purchase was subject to the deed of trust in favor of J&E securing the note with an unpaid principal balance of $638,250. He argues that the fact that he terminated th e escrow when he learned of the assumption
demonstrates the lack of mutual assent to the agreement. However, this argument is undermined by Bonner’s admission that he went forward with th e purchase after Wheat told him that J&E was owned by Wheat’s comp any, CityFed, which had originated the loan, and “that there was no real loan that existed or that I ha d an obligation to pay.” It is clear that Bonner knew the assumption was part of the transaction when he rescinded his objection and instructed the title company to proceed with the close of escrow. 9 The fact that Bonner may have been mi sled by Wheat with re gard to whether he would have to repay the loan does not excu se his obligation to EFG, the holder of the promissory note. As the trial court noted, “e ven to the extent that Bonner was in any manner misled in going into the transaction, the fraud if any was pe rpetrated, according to Bonner, by Derek Wheat who was, at the very least, B onner’s agent and more likely his joint venture partner. J&E cannot be char ged with the wrong-do ings of Bonner’s partner or agent.” Having found substantial ev idence to support the court’s finding that Wheat was acting as Bonner’s agent, we find no error in the courts conclusion on this
issue as well.
3

. Bonner v. Placer
Bonner contends the court erred in conclu ding that Placer had no duty to disclose to him information known to Placer agents about the 2004 escrow transaction involving

9 Bonner also claims that he refused to sign the agreement between J&E and EFG subordinating J&E’s deed of trust to EFG’s de ed of trust and that his signature on that agreement is a forgery. Bonner’s signature on the subordination ag reement, however, was not integral to his assumption of the J&E lo an and his refusal to sign that document proves little with regard to his in tent to assume the J&E loan.12 parcel 7 through which Cunningham purchased the property. He argues, “The trial court acknowledged that the escrow officers who handled appellant’s escrow in 2006 had knowledge of the fraudulent transfer of the property in the 2004 transaction and further acknowledged that the fraud involved an outs ide party, Derek Wheat, who was also involved in appellant ’s escrow in 2006. [10] Appellant was not a party to the 2004
transaction and the trial court held that the escrow holder was under no duty to disclose that prior fraud to appellant. Appellant, howe ver, asserts that the escrow holder, Placer Title Company, had a fiduciary duty to disc lose its knowledge of the prior fraud to Appellant because there was clear eviden ce of a fraudulent scheme in the 2004 transaction; the same parties and the same re al property involved in the 2004 fraudulent scheme were also involved in appellant’s 200 6 transaction; and appellant was a principal
in the 2006 transaction but not in the prior 2004 transaction . . . . The trial court’s finding that the escrow holder was under no fiduciary duty to disclose to appellant the 2004 fraudulent transfer of the property was an abus e of discretion which is reversible error.” We disagree.
While an escrow holder is an agent and fiduciary of the parties to the escrow, “[t]he agency created by the escrow is lim ited-limited to the obligation of the escrow holder to carry out the inst ructions of each of the pa rties to the escrow.” ( Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co . (2002) 27 Cal.4th 705, 711.) “In delimiting the scope of an escrow holder’s fiduciary duties, . . . we start from the principle that ‘[a]n escrow holder must comply st rictly with the instruc tions of the parties. [Citations.]’ [Citation.] On the other hand, an escrow holder ‘has no general duty to police the affairs of its deposito rs’; rather, an escrow holder’s obligations are ‘limited to faithful compliance with [the depositors’] instructions.’ [C itation.] Absent clear evidence

10 Contrary to Bonner’s argument, the court di d not find that Placer was aware in 2006 of any fraud involved in the 2004 transaction. Rather, the court noted that while the evidence presented “can certainl y be construed as establis hing a reasonable likelihood that two of the escrow agents at Placer Title were conspiring with Derek Wheat to defraud,” there was no reason to make factual findings as to their conduct because “[i]t did not occur during the Equ ity Funding/Bonner escrow.”13 of fraud, an escrow holder’s obligations ar e limited to compliance with the parties’ instructions.” ( Ibid .) There is no dispute that Placer pr operly complied with the 2006 escrow instructions and there are no allegations of fraud by Placer with respect to the 2006
transaction. The 2004 escrow included only parcel 7. Despite any agreement Bonner may have had with Wheat to the contrary, parcel 6 was the only parcel conveyed in the 2006 escrow. Johnson testified that early in the 2006 transaction, she emailed the mortgage broker, who brokered the loan with EFG, asking for “confirmation . . . as to which parcels [Placer] is covering[,] . . . both parcels or just one” a nd the broker replied that the escrow was only for parcel 6 “per Derek Wh eat.” All of the escrow documents support this understanding. The prelimin ary title report refers only to parcel 6. The deeds of trust
recorded for the EFG and J&E loans referenc e only parcel 6, and the grant deed signed by Bonner describes only parcel 6. Although Bonner testified that he as ked Johnson to rese arch the title on both parcels after receiving Nwamu’s phone call and learning about parcel 7, Johnson denied ever receiving such a request from Bonner a nd the request is not in writing. The court reasonably could have found that Bonner’s testimony was not credible. In any event, even assuming Bonner made such a request, he did not pursue that request after speaking with Wheat and instead willingl y completed the purchase. Th us, Placer had no occasion or obligation to provide Bonner any title information about parcel 7. Disposition The judgments are affirmed. Respondent s shall recover their costs on appeal.14 _ ____________ ____________ Pollak, J.

We concur:

_____________ ____________ McGuiness, P. J.

_____________ ____________ Jenkins, J.