Court Opinion

ID: 9838233
Source: CourtListenerOpinion
Date Created: 2023-09-05 19:05:35.743174+00
Date Added: 2024-06-11T15:47:18.424569
License: Public Domain

Filed 9/5/23 Wong v. Wong CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION ONE

 CHIK PUI WONG et al.,                                        B314931

           Plaintiffs and                                     (Los Angeles County
           Respondents,                                       Super. Ct. No. BC655122)

           v.

 YIM POOI WONG et al.,

           Defendants and
           Appellants.

      APPEAL from a judgment of the Superior Court of Los
Angeles County, Michael L. Stern, Judge. Affirmed as modified.
      Murtaugh Treglia Stern & Deily, Robert T. Lemen, and
Devin E. Murtaugh for Defendants and Appellants.
      Grignon Law Firm, Margaret M. Grignon, and Anne M.
Grignon; Cracolice & Associates and James R. Cracolice for
Plaintiffs and Respondents.
                _______________________________
       Defendants appeal from a judgment entered after a court
trial in which the trial court awarded plaintiffs $2,522,515 in
compensatory damages and $5,045,030 in punitive damages plus
prejudgment interest and costs.
       The individual defendants and plaintiffs, who are family
members, co-owed seven apartment buildings that defendants
(the individuals and their companies) managed. For at least a
decade, defendants embezzled profits from the apartment
buildings. On appeal, defendants do not challenge the trial
court’s liability determinations, including that defendants
committed fraud and breached their fiduciary duties to plaintiffs.
Defendants concede plaintiffs are entitled to an award of both
compensatory and punitive damages based on the wrongdoing.
       Defendants (the individuals) challenge the amount of the
awards. As to compensatory damages, they contend plaintiffs’
lost profits calculation is too speculative to support the award.
As to punitive damages, they contend the award is excessive and
not supported by substantial evidence of their ability to pay
“without being financially destroyed.” The judgment also
includes a permanent injunction enjoining defendants (the
individuals and their companies) from managing, maintaining, or
caring for the co-owned apartment buildings. Defendants
challenge the injunction as overbroad.
       For the reasons explained below, we agree with defendants
that the punitive damages award is excessive as a matter of law,
and we reduce the award accordingly. In all other respects, we
reject defendants’ contentions and affirm the judgment as
modified.

                                2
                        BACKGROUND
I.    The Parties
      Defendant Yim Pooi Wong (Jimmy Wong) is the elder
brother of plaintiff Chik Pui Wong (Chris Wong). There is a 10-
year age difference between the two. Chris Wong went to
medical school and earned a Doctor of Medicine (M.D.) degree. At
the time of trial, he worked as a hospital consultant in areas such
as workflow and software installation. His wife, Biyu Liao (Mary
Wong), earned a master’s degree in business taxation and owned
a company where she worked as a certified public accountant.
Chris and Mary Wong (collectively, plaintiffs) lived in the San
Francisco area.
      Defendant Jimmy Wong and his wife Lai Hung Wong (Polly
Wong) lived in the Los Angeles area and worked full time
managing real estate properties in which one or both of them had
an ownership interest. In 2010, Jimmy Wong formed defendant
Productive Maintenance, LLC (Productive). He represented that
he and his son Derek Wong performed repairs and maintenance
work on various properties through Productive, including the
properties at issue in this action. Polly Wong is a licensed real
estate broker. In 2011, she formed and became sole owner of
defendant Premier Investors Real Estate, Inc. (Premier), a
property management and real estate brokerage firm that
managed various properties, including the properties at issue
                                                                1
here. Productive and Premier used the same business address.

      1
         Defendants Productive and Premier are not liable for the
compensatory or punitive damages awards. As explained more
fully below, they are enjoined under the permanent injunction
from managing, maintaining, or caring for the co-owned

                                3
II.   The Jointly Owned Properties and Management of
      Same
      Between 2000 and 2006, Jimmy Wong and Chris Wong
acquired ownership interests in seven apartment buildings in Los
Angeles County, comprising a total of 120 rental units, and
ranging from 10 to 28 units each (collectively, the Properties).
They each owned a 50 percent interest in four of the apartment
buildings, referred to in this action as Andrita, Hellman, Pomelo,
and 5th Street. Regarding the apartment building referred to as
Cogswell, Chris and Mary Wong owned a one-third interest,
Jimmy and Polly Wong owned a one-third interest, and unrelated
third parties owned a one-third interest. With respect to the
apartment building referred to as Hazelhurst, Chris and Mary
Wong owned a 31.5 percent interest, Jimmy and Polly Wong
owned a 42 percent interest, and an unrelated third party owned
a 26.5 percent interest. Finally, regarding the apartment
building referred to as Willis, Chris Wong owned a two-sevenths
interest and Jimmy and Polly Wong owned a five-sevenths
interest.
      Jimmy and Polly Wong assumed responsibility for
managing and maintaining the Properties, at first as individuals,
and then through Premier (Polly Wong’s property management
company formed in 2011) and Productive (the entity that
purportedly repaired and maintained the Properties beginning in
2010). There were no written operating or management
agreements between the parties. Productive, which was not

properties that are the subject of this action. Defendants Jimmy
and Polly Wong are jointly and severally liable for the
compensatory and punitive damages awards, and they are also
bound by the injunction.

                                4
licensed as a contractor between 2010 and 2016, received more
than $1.1 million in payments from the Properties’ bank
accounts. Premier received more than $380,000 in management
fees, paid from the Properties’ bank accounts. Over the years,
Premier sometimes charged the Properties a percentage of rents
(e.g., seven percent) as its management fee and sometimes it
charged a flat rate.
        Each year, Polly Wong/Premier sent Chris and Mary Wong
operating statements that purported to show the Properties’
gross income (from rent, laundry), itemized operating expenses
(e.g., payments to Productive and Premier), and net income.
Plaintiffs and defendants used the data in these operating
statements to prepare their tax returns.
        In 2013, defendants sent plaintiffs $18,075, as their share
of profits from the Properties. In 2014, plaintiffs received
$20,700.21 in profits, and in 2015 they received $16,849.
Plaintiffs did not receive any payments of profits for 2007
through 2012 or from 2016 forward.
III. Plaintiffs’ Partition Actions and Discovery of
        Defendants’ Embezzlement Scheme
        In late 2016, plaintiffs believed the co-owned Properties
were not profitable, based on the data reflected in the operating
statements they received from defendants. Therefore, plaintiffs
decided to sell their interests in the Properties. They were
unable to reach an agreement with Jimmy Wong regarding his
purchase of their interests. Thus, in March and April 2017, Chris
Wong filed a separate partition action for each of the seven co-
owned Properties, and Mary Wong joined him as a plaintiff in the
partition actions related to the two properties she co-owns.

                                5
Jimmy Wong filed cross-complaints in the partition actions, and
the trial court consolidated the seven cases.
       In order to conduct an appraisal of the Properties for
purposes of the partition actions, Chris Wong requested a rent
roll from defendants, which would show the amount of rent
collected from the tenants in each of the 120 apartments. Over
the years, plaintiffs did not receive rent rolls, only the operating
statements from Polly Wong/Premier. Beginning in 2015,
Plaintiffs had online access to review the bank accounts for the
co-owned Properties. In response to the request for a rent roll,
plaintiffs received a December 2016 rent roll. When they
compared it to the operating statement and bank deposits for
December 2016, they noticed that Premier collected significantly
more in rent than was reflected on the operating statement and
deposited into the Properties’ bank accounts. When plaintiffs
later reviewed additional accounting records from various years
provided by defendants, and compared those records to the
operating statements received from defendants and the online
banking records, plaintiffs observed the same pattern:
Defendants consistently underreported the rents collected on the
operating statements, and deposited less money in the Properties’
bank accounts than they collected in rental payments.
        In late April 2017, plaintiffs served a subpoena for the
production of the Properties’ accounting and banking records on
Jason Wong, the son of the individual defendants and Premier’s
accountant. Shortly thereafter, Jason Wong altered a November
2016 cash flow report for the co-owned Properties to reflect a
much higher amount in total operating income (more than
double) to account for defendants’ previous underreporting of rent
collected. Also in April 2017, defendants deposited more money

                                 6
in the Properties’ bank accounts than the amount they collected
that month.
       In June 2017, Jason Wong formed a repair and
maintenance company called Rustic Craftsman Corp., which used
the same business address as defendants Productive and
Premier. As discussed more fully below, Rustic Craftsman, like
Productive and Premier, was paid out of the Properties’ bank
account for work purportedly performed for the Properties.
IV. Plaintiffs’ First Amended Complaints
       In July 2017, plaintiffs filed first amended complaints in
the seven consolidated actions, asserting causes of action for (1)
partition; (2) an accounting; (3) conversion; (4) unjust enrichment
by means of theft and embezzlement; (5) money had and received;
(6) fraud and deceit; (7) violation of Business and Professions
Code section 17200 by theft, embezzlement, and fraud; (8) breach
of fiduciary duty; (9) recovery of compensation paid to unlicensed
contractor (Productive); (10) declaratory relief regarding
plaintiffs’ rights and defendants’ duties; (11) injunctive relief and
request for an independent professional property manager for the
Properties; and (12) negligence. Jimmy Wong and Polly Wong, as
co-owners of the respective properties, were named in the first
cause of action for partition and the second cause of action for an
accounting. Jimmy Wong, Polly Wong, and Premier were named
as the defendants in all other causes of action, except the ninth
cause of action for recovery of compensation paid to an unlicensed
contractor which was asserted against Productive only, and the
twelfth cause of action for negligence which was asserted against
Premier only. Productive was also named as a defendant in the
tenth cause of action for declaratory relief and the eleventh cause
of action for injunctive relief.

                                 7
       Jimmy Wong filed a first amended cross-complaint against
plaintiffs. Because the cross-action is not at issue in this appeal,
we need not address it further here.
       During discovery, defendants produced complete rent rolls
and bank records for the years 2014 to 2018, but they did not
produce complete financial records for the years 2007 through
2013. Among the documents produced by defendants in
discovery, plaintiffs found spreadsheets listing the “actual rents”
for years 2013 through 2015 that defendants sent to their
accountant so the accountant could amend defendants’ tax
returns. Although defendants knew plaintiffs had used the false
data in the operating statements from Polly Wong/Premier to
prepare their tax returns, defendants did not advise plaintiffs to
amend their tax returns to accurately report income generated by
the Properties.
       Plaintiffs learned during discovery and through a forensic
audit that the Properties were profitable, contrary to the false
data in the operating statements they received from defendants.
After deciding they no longer wanted to sell their interests in the
Properties, plaintiffs dismissed their partition causes of action.
They also dismissed their causes of action for an accounting and
negligence.
V.     Phase 1 of Court Trial – Liability and Compensatory
       Damages
       The court trial was held in two phases. Phase 1 regarding
liability and compensatory damages commenced on December 16,
2019, and the presentation of evidence concluded on December
18, 2019. The following witnesses testified in plaintiffs’ case-in-
chief, in the following order: accounting expert Frank Wisehart;
plaintiff Mary Wong; plaintiff Chris Wong; defendant Polly Wong;

                                 8
                                                         2
Jason Wong; Derek Wong; and defendant Jimmy Wong.
Defendants called one witness: their accounting expert, Stacy
Kinsel, and they cross-examined the other witnesses.
      A.     Testimony regarding the embezzlement scheme
      Jason Wong, the son of the individual defendants and
Premier’s accountant, testified at trial regarding defendants’
embezzlement of rental payments from the co-owned Properties.
The employee at Premier who received the rental payments
would enter the amount paid by each tenant into an excel
spreadsheet that became the rent rolls. Another employee would
deposit the rental payments that were made by checks and
money orders into the Properties’ bank accounts and turn over to
Polly Wong the rental payments made in cash. Polly Wong would
place the cash in a safe in her office. She testified at trial that
she typically gave Jimmy Wong more than half of this cash “to
purchase stuff,” and there was no accounting of these purchases.
She also used some of the cash herself. The operating statements
that Polly Wong/Premier sent to plaintiffs underreported the
Properties’ rental income by excluding the cash rental payments.
      B.     Testimony of plaintiffs’ accounting expert
      Plaintiffs retained Frank Wisehart, a certified public
accountant, certified fraud examiner, and master analyst in
financial forensics, to conduct a forensic audit of the Properties
and calculate the amounts defendants owed plaintiffs.
      Wisehart reviewed the rent rolls and bank records for the
Properties for 2014 through 2018, the years for which defendants
produced complete records. For 2014, Wisehart found that

      2
       The individual defendants and their sons, Jason and
Derek Wong, testified as adverse witnesses in plaintiffs’ case.

                                 9
$168,748 in cash rental payments were not deposited into the
Properties’ bank accounts; for 2015, the amount of cash not
deposited was $188,010; for 2016, the amount was $217,000; and
in 2017, $11,372 in cash was not deposited. As set forth above,
plaintiffs filed the first of the partition actions in March 2017.
Thereafter, defendants deposited the cash rental payments into
the Properties’ bank accounts.
      Wisehart also reviewed outflows from the Properties’ bank
accounts for 2014 through 2018, as reflected in the Properties’
bank records. He separated the payments made from the bank
accounts into four categories: general expenses that he found to
be reasonable and whose legitimacy he did not question;
payments to Productive; payments to defendants; and “other
nonexpenses.”
      Wisehart audited payments made to Productive from the
Properties’ bank accounts. He found no evidence that Productive
actually performed any of the maintenance or repair work for
which it purportedly was paid. In response to plaintiffs’
document requests, defendants produced handwritten invoices
from Productive, but no accounting records supporting the
invoices, such as receipts for materials purchased or payroll
records (e.g., timecards) reflecting labor. Wisehart also found
anomalies in the pattern of the payments to Productive. For
example, on Christmas Eve in 2015, Derek Wong wrote nine
checks to Productive, totaling $41,760. Between 2014 and 2018,
Productive received more than $580,000 in payments from the
Properties’ bank accounts. Wisehart concluded the money paid to
Productive—which was owned by Jimmy Wong and later his son
Derek Wong—was misappropriated, and he declined to treat

                               10
those payments as expenses. Disallowing the expenses increased
the Properties’ profits.
      Wisehart also declined to treat payments to Rustic
Craftsman ($185,952 in 2017 and 2018) and King Leung
($45,000) as proper expenses of the Properties. As set forth
above, Jason Wong formed Rustic Craftsman after plaintiffs filed
the partition actions. Wisehart found no evidence Rustic Canyon
actually performed any work for which it was paid because
                                                       3
defendants did not produce underlying documentation. King
Leung, an unlicensed contractor, was Derek Wong’s business
partner, and defendants produced no documentation evidencing
work performed by King Leung. Wisehart did treat as reasonable
and legitimate expenses payments to unrelated parties for
maintenance on the Properties.
      Wisehart also declined to treat the payments to Premier
(Polly Wong’s property management company) as expenses of the
Properties because defendants did not produce underlying
documentation supporting the management fees in response to
plaintiffs’ document requests. Wisehart noted in his testimony
that when defendants filed amended tax returns for 2013 through
2015, they did not deduct from the revised income figures as
expenses any management fees paid to Premier.
      Wisehart testified about other outflows from the Properties’
bank accounts that he disallowed as reasonable expenses. On
June 30, 2015, for example, Polly Wong wrote four checks from
the Properties’ bank accounts, totaling $40,000 and made payable

      3
          Jason and Derek Wong testified at trial that Rustic
Craftsman did not perform any repair or maintenance work
itself; rather, it did billing for Productive.

                                11
to Century West BMW, for the purchase of a vehicle. Between
2014 and 2016, Jimmy and Polly Wong made payments to
themselves and their LLC from the Properties’ bank accounts
totaling $181,000. Polly Wong also paid the mortgage and taxes
on a different property (where her mother-in-law lived) out of the
Properties’ bank accounts.
       For 2014 through 2018, Wisehart calculated the Properties’
net profits, and plaintiffs’ proportional share, based on the rent
rolls and his determination of reasonable expenses documented
by the records defendants produced. For 2007 through 2013,
defendants did not produce adequate financial records for
Wisehart to conduct a forensic audit of the Properties. Thus, to
calculate 2013 net profits, Wisehart used 2014 figures and
deflated the rental income and expenses based on applicable
consumer price indices. Then, he subtracted the debt service
(which he found held constant for all years). For 2012, he used
his 2013 figures and deflated the rental income and expenses in
the same manner. And so on, back to 2007. For 2019, another
year for which he did not have adequate financial records, he
calculated net profits through October by using 2018 monthly
averages for rental income and expenses.
       Wisehart testified that defendants owed plaintiffs
$4,801,027: plaintiffs’ collective proportional share of the
Properties’ net profits from 2007 through 2019 in the amount of
$2,747,332; prejudgment interest on that amount, or $1,463,831;

                                12
and $589,864 in projected tax penalties plaintiffs would incur
                                 4
when filing amended tax returns.
      C.     Statement of decision and partial judgment
      The parties submitted written closing arguments in
February 2020. After taking the matter under submission and
receiving objections to the proposed statement of decision, on
June 22, 2020, the trial court issued a 24-page statement of
decision and partial judgment.
      In the statement of decision, the court detailed defendants’
embezzlement scheme, as summarized above. For years 2014
through 2016, the court found defendants embezzled more than
$754,000 in cash rental payments that were not deposited as well
as withdrawals from the Properties’ bank accounts. The court
found that during the same period, defendants only paid
plaintiffs $37,549 as their share of the profits.
      The trial court concluded plaintiffs met their burden on all
causes of action in the operative complaint. The court found
plaintiffs were entitled to an award of $2,522,515 in
compensatory damages on their causes of action for conversion,
unjust enrichment, fraud and deceit, and breach of fiduciary
duty. The court stated these causes of action “overlap with the
damages and relief requested in the remaining causes of action,”
so the court did “not consider that it is necessary to rule

      4
         Using spreadsheets prepared by defendants’ accountants
in 2019, defendants’ expert testified that defendants owed
plaintiffs a total of $487,592. In their appellate briefing,
defendants do not discuss their expert’s methodology or
conclusions. The trial court found their expert’s conclusions were
unreliable, and defendants do not challenge this finding on
appeal.

                                13
separately on liability and damages on those overlapping causes
of action.” The court did not explain how it calculated the
                                          5
$2,522,515 compensatory damages award. The court noted
Wisehart calculated plaintiffs’ compensatory damages as
$4,801.027, and the court did not reject Wisehart’s methodology
or any of his figures.
       The trial court found Wisehart “provided a thorough and
reliable analysis of the damages incurred by [p]laintiffs due to
[d]efendants’ embezzlement and fraud scheme,” including his
extrapolation methodology for years 2007 through 2013 and 2019.
The court also concluded Wisehart’s “analysis of the outflow from
the property bank accounts was proper.” In support of this
conclusion, the court found payments to Productive were not
“verifiable expenses,” as the “lack of supporting documentation”
indicated either Productive “did not actually perform the work” or
Productive “grossly inflated its billings, which it did not want
exposed.” The court found payments to Rustic Craftsman were
not “proper expenses,” as “Rustic Craftsman had every
appearance of a sham entity used to funnel money from the
[Properties’ bank] accounts to Jason Wong . . . .” The court did
not find credible Jason Wong’s testimony that Rustic Craftsman
was a “ ‘billing agency’ ” for Productive. The court noted that

      5
         Defendants objected to the proposed statement of decision
on the ground, among others, that it provided “no explanation of
how the $2.5 million award was calculated, including what it
represents or what years are encompassed by such amount.” The
court issued the statement of decision with no further
explanation of its calculation. Defendants do not contend on
appeal, however, that the matter must be reversed because the
statement of decision was inadequate.

                               14
Rustic Craftsman was paid $185,952 in 2017 and 2018, and
during that same period, Productive submitted its own “direct
billings of $197,176.” Moreover, Productive did not produce any
documents showing it performed work for which Rustic
Craftsman billed. Regarding King Leung, the court found the
$45,000 in payments to him were not “verifiable expenses,” given
he was Derek Wong’s business partner, he had no contractor’s
license, and “no documentation showed he performed work.” The
court also concluded “payments to Premier should not be treated
as proper expenses” because Premier, a fiduciary, participated in
the embezzlement and fraud scheme, so the management “fees
paid to Premier should be disgorged.”
       The trial court granted plaintiffs’ “request for declaratory
and injunctive relief for the removal of Premier, Productive [],
and all persons associated with them, at any time from
managing, maintaining or caring for the subject properties.” The
court also concluded plaintiffs are entitled to punitive damages
because they proved by clear and convincing evidence that
                                       6
defendants committed fraudulent acts.
VI. Phase 2 of Court Trial – Punitive Damages
      The punitive damages trial, or Phase 2, commenced on
April 20, 2021, delayed due to the COVID-19 pandemic, and the
presentation of evidence concluded on April 30, 2021. Much of
the evidence of defendants’ financial condition was undisputed.
The parties stipulated to the fair market value of 16 of the 19
properties the individual defendants or their LLC owned in whole

      6
        The trial court found Jimmy Wong was not entitled to
any relief on his operative cross-complaint. As stated above, the
cross-action is not at issue in this appeal.

                                15
or in part; their ownership interests in the 19 properties; their
share of the real estate debt on the properties they owned in
whole or in part; the valuation of Premier; and data from the
individual defendants’ tax returns for 2018 and 2019. The
parties presented evidence that defendants’ liquid assets were
between $6.5 and $6.8 million. Plaintiffs did not dispute
defendants’ evidence indicating defendants’ average annual net
income was $578,150.
       A.     Other evidence presented in plaintiffs’ case-in-
              chief
       Wisehart again testified as an expert for plaintiffs. In
addition to his qualifications listed above, he stated that he is
accredited in business valuation and is a certified valuation
analyst. Plaintiffs retained him to determine, among other
things, the individual defendants’ net worth. He opined that
Jimmy Wong’s and Polly Wong’s collective net worth as of
October 31, 2020 was $37,969,426. Wisehart testified that he
calculated net worth using Generally Accepted Accounting
Principles and National Association of Certified Valuation
Principles.
       Regarding the value of defendants’ real property, Wisehart
relied on the parties’ stipulation regarding the value of
defendants’ interests in the 16 properties, and the report from
plaintiffs’ real estate appraiser (Laurence Sommer) regarding the
valuation of defendants’ interests in the other three properties for
which there was no stipulation. In his net worth analysis,
Wisehart did not include costs of liquidating assets, and he did
not discount the value of defendants’ property interests as to
properties in which they owned a partial interest (based on a

                                16
possible lack of marketability or control because of the fractional
interest).
       Plaintiffs’ expert real estate appraiser, Laurence Sommer,
testified regarding his opinions on the valuation of the three
properties in which defendants owned an interest and there was
no stipulation regarding valuation. Sommer also testified that
the fractional discount analysis of Stephen Smith, defendants’
real estate appraiser, as reflected in Smith’s November 2020
report, was unsupported because, among other things, Smith
cited general factors for application of a fractional interest
discount that are not specific to the subject properties. Sommer
stated that Smith did not compare the subject properties to the
purported comparables on which he based his fractional discount
claim. Sommer pointed out (as did plaintiffs’ counsel) that Smith
indicated in his November 2020 report that a comparative
financial analysis of the purported comparables would be set
forth in an attached exhibit, but the exhibit was not attached to
the report. Sommer opined that nothing in Smith’s November
2020 report supported applying a fractional interest discount in
this case. In his career, Sommer had analyzed fractional
discount claims on a few hundred occasions. In this case, he did
not conduct a fractional discount appraisal for the subject
properties.
       B.    Defendants’ evidence
       Stephen Smith, defendants’ expert real estate appraiser,
testified regarding his discounted valuation of the properties in
which defendants owned a fractional interest based on a lack of
marketability and control of the interests.
       By way of background, Smith prepared two different
reports on his fractional discount analysis. In his first report,

                                17
dated November 2020, he discounted defendants’ fractional
interests by 19 percent using a sales comparison approach. This
was the report that plaintiffs’ expert Sommer reviewed and
critiqued, as discussed above. Smith prepared a second report,
dated March 2021, after plaintiffs took his deposition and a few
weeks before the Phase 2 trial. In the latter report, he relied on
an article he had recently discovered by Dennis Webb, titled
“Using the Income Approach for Minority Interests,” published a
few years before the Phase 2 trial (the Webb method). Applying
this methodology, Smith significantly increased his original
discount to the valuation of each property in which defendants
owned a partial interest, ranging from a discount of 32.5 percent
to a discount of 46 percent.
       In his trial testimony, Smith described the Webb method
and his application of it as follows: “Mr. Webb takes into
consideration a lot of factors of each of the propert[ies] in
question. We look at the net asset value, we look at the
mortgage, we look at the return on the investment, the cash flow,
the yield rate and in doing kind of a discounted cash flow, so
hypothetical over a 10-year period on all of these we ultimately
come up with a discount for lack of control that is specific to each
of the properties.” Smith acknowledged that the income
approach for determining a discount for lack of control “is
relatively new in my industry.” He explained that “there is not a
database that exists for sales of private partnerships,” so he
looked to the “public securities market” where “lack of control is
pretty much mirrored,” in his opinion.
       Concerning lack of marketability, Smith stated: “That is
mostly an issue that is dealt with by business appraisers, and I
am not a business appraiser but what I do know is that on sales

                                 18
of fee simple interest there is a big market out there of people
ready, willing and able to buy your property. Now, that pool has
diminished quite a bit when you have a partial interest. And also
the fact that there is litigation may even preclude potential
investors from wanting to consider becoming a partner in [sic]
with you. . . .”
        Regarding his discovery of the Webb article, Smith
testified that when he “uncovered” the article, “it was sort of the
ninth inning of the game, but I came up with utilizing the Webb
approach. I saw it, I digested it, I understood it and then I
utilized it.” Smith stated that he calculated the discounts using
certain multipliers from Webb’s article. When plaintiffs’ counsel
asked him how Webb derived the multiplier, Smith responded,
“[i]t was a little over my head to be honest with you but [Webb]
talked about the REIT [real estate investment trust] average cost
of capital, and from that he deducted the implied yield premium
which came to the 2.4%.” He was not familiar with the source of
the data for the multiplier. He acknowledged that the real estate
investment trusts that Webb referenced in his article held eight
billion dollars in assets, on average.
       Plaintiffs’ counsel asked Smith about a study conducted in
1998 that Smith cited in his report which found that out of 100
partial interest sales, 61 percent were sold at a discount and 39
percent were not. Smith stated he was “a little bit familiar with”
this study that he cited in his report.
       In the midst of cross-examination, plaintiffs’ counsel moved
to strike Smith’s opinions in his second report on fractional
interest discounts. The trial court deferred its ruling until the
end of cross-examination. At that time, the court asked
defendants’ counsel if Smith testified that the Webb method “is

                                19
the standard for such evaluation in the industry.” After hearing
argument from the parties on the issue, the court allowed
defendants to recall Smith. Smith reiterated that he was
unaware of the Webb method until recently (less than two
months before he testified at trial). Smith testified that Webb’s
article was peer-reviewed, but he had never used the Webb
method before, and he had no knowledge of any other appraiser
using the Webb method. Smith had conducted around 15
fractional interest discount analyses in his 40-year career and
stated he was “very familiar with discount cash flowing.” Using
his “own independent research, analysis and judgment,” he felt
“extremely confident that Mr. Webb’s methodology with respect
to minority interests in income producing properties is valid.”
       After hearing Smith’s additional testimony and further
argument from the parties, the trial court granted plaintiffs’
motion to strike Smith’s testimony about his second report,
stating: “Based on this discussion I find that the second report
does not have foundation for an expert’s testimony. He does not
have the expertise nor the reliance upon an accepted
methodology to reach the conclusions that he has in that second
report, all that we are discussing right now.”
       Deborah Dickson, defendants’ accounting expert, testified
about defendants’ net worth and financial condition. She is a
certified public accountant, a certified fraud examiner, a master
analyst in financial forensics, and holds a certification in
financial forensics. Dickson opined that defendants’ net worth
was approximately $36,148,036 (relatively close to Wisehart’s
calculation of $37,969,426). Applying Smith’s fractional interest
discount of 19 percent (from his first report) to all of the
properties in which defendants owned a partial interest, and

                                20
considering liquidation costs for all of the properties, Dickson
                                                            7
opined that defendants’ net worth was really $20,460,170.
VII. Judgment, Amended Judgment and Motion for New
      Trial
      In their written closing argument on punitive damages,
plaintiffs urged the trial court to “apply[] the ten percent limit”
and award them 10 percent of defendants’ net worth, or around
$3.8 million, based on Wisehart’s calculation of defendants’ net
worth. (Bold and italics in original omitted.) Defendants argued
an appropriate award of punitive damages was between $400,000
to $750,000, “something in range of [defendants’] average
[annual] net income, $578,150, or the actual amount embezzled
from 2014-2016, $753,000.” (Bold in original omitted.)
      After taking the matter under submission, the trial court
entered judgment on June 30, 2021, awarding plaintiffs
$5,045,030 in punitive damages (“two times the amount of
compensatory damages awarded”). The judgment is 23 pages and
reads like a statement of decision, setting forth the court’s
findings and conclusions as to both phases of the trial. Regarding
punitive damages, the court found “defendants’ conduct
intentionally misrepresented the true facts regarding the
finances regarding those properties. They acted with a
reprehensible intention to take financial advantage of the
vulnerabilities of the plaintiffs, who relied upon the defendants to
be honest fiduciaries and partners. For years, the defendants
deceitfully misrepresented the financial condition of the

      7
        Polly Wong also testified for defendants in the Phase 2
trial. Her testimony is not germane to our punitive damages
analysis and therefore we do not summarize it here.

                                 21
properties for the defendants[’] own personal financial gain.” The
court added: “Jimmy and Polly Wong consistently and blatantly
cheated their own closest relatives by pocketing large amounts of
rental proceeds to which they were not entitled, falsifying and
misrepresenting the property and business records, diverting
funds to other family members, keeping double accounting
records, failing to keep accurate records, misreporting the true
amounts on records on which they reported to and knew would be
reported to federal and state tax authorities and lying to cover
their conduct. [¶] Even after a lengthy COVID-caused time
between the liability and damages [phase] and the punitive
damages phase of this protracted trial, the defendants remained
indifferent to their own actions and failed to make any amends
for their selfish misdeeds.” The court concluded the “testimony at
the punitive damages phase indicates that the defendants have
substantial assets to pay punitive damages to deter future such
[sic] reprehensible conduct.” The court also stated that it found
the testimony of defendants’ accounting expert Dickson to be
“convoluted and confusing,” and her calculation of defendants’ net
worth “appear[ed] low.”
       Defendants moved for new trial, arguing the compensatory
damages and punitive damages were excessive. The trial court
denied the motion.
       On August 27, 2021, the trial court entered a three-page
“Amended Judgment,” which is the final judgment in this case.
Under the Amended Judgment, Jimmy Wong and Polly Wong are
jointly and severally liable for the $2,522,515 compensatory
damages award and the $5,045,030 punitive damages award
(totaling $7,567,545), as well as $179,962.44 in prejudgment
interest and $56,394.44 in costs, for a grand total of

                               22
$7,803,901.88. Polly Wong, Jimmy Wong, Premier, and
Productive are “permanently enjoined and restrained from
directly or indirectly managing, maintaining or caring, at any
time, for” the subject Properties.
                           DISCUSSION
I.    Compensatory Damages
      The individual defendants (Jimmy and Polly Wong)
contend plaintiffs’ lost profits calculation, based on Wisehart’s
expert testimony, is too speculative to support the compensatory
damages award. Specifically, they argue (1) Wisehart improperly
excluded from his net profits calculation defendants’ claimed
maintenance and management expenses (payments to
Productive, Premier, etc.); (2) “the amount of annual
maintenance expenses he did include” lacked “consistency” from
year to year; and (3) Wisehart “did not rely on any actual data
about the [P]roperties’ income or expenses from 2007-2013 or for
2019.” Defendants also argue the tax penalties plaintiffs
included in their compensatory damages calculation (based on
Wisehart’s testimony) were speculative because there was “no
evidence that any penalties actually have been or are likely to be
             8
incurred.”

      8
         Defendants initially argued in their opening brief on
appeal that Wisehart improperly included compound
prejudgment interest in his calculation of what defendants owed
plaintiffs. In their reply brief, however, defendants abandoned
this challenge to the compensatory damages award, conceding
that “the trial court had discretion to include compound interest
in the damages award due to [defendants’] breach of fiduciary
duty.”

                                23
       An “appellate court must accept as true all evidence
tending to establish the correctness of the judgment, taking into
account all inferences which might reasonably have been thought
by the trial court to lead to the same conclusion. [Citation.]
Every substantial conflict in the testimony is to be resolved in
favor of the judgment. [Citation.] Thus, the judgment of the trial
court is presumed to be correct. All presumptions not
contradicted by the record on appeal are indulged to support the
judgment, and the appellant has the burden to affirmatively
show, based on the record, the trial court’s commission of
reversible error.” (GHK Associates v. Mayer Group, Inc. (1990)
224 Cal.App.3d 856, 872 (GHK Associates).)
       A.     Exclusion of defendants’ claimed maintenance
              and management expenses
       Defendants argue the trial court erred in adopting
Wisehart’s exclusion of payments to Productive, Rustic Canyon,
King Leung, and Premier in the calculation of expenses to deduct
from the Properties’ gross profits. Defendants also argue it was
error to not “replace” these excluded payments with a reasonable
estimate of maintenance and management expenses to be
deducted from gross profits in calculating plaintiffs’ share of net
profits. We reject both arguments for the following reasons.
       The trial court’s factual findings regarding defendants’
claimed maintenance expenses—i.e., the payments to Productive,
Rustic Canyon, and King Leung—are supported by substantial
evidence. None of these entities had records evidencing work
performed, other than handwritten invoices (e.g., documents
indicating purchases of materials for maintenance and repairs,
documents reflecting amount of time spent on jobs, etc.). The
trial court’s inferences from the evidence are reasonable: that the

                                24
work billed was not performed or the billings were grossly
inflated. Moreover, the court’s inference that these billings were
a fraudulent money-making scheme for defendants and related
parties is supported by the pattern of the billings and payments
(e.g., nine checks written to Productive on Christmas Eve in
2015; Jason Wong’s testimony that Rustic Craftsman served as a
billing entity for Productive at a time when Productive was also
submitting its own billings). The court did not err in concluding
Wisehart properly declined to treat these payments as legitimate,
reasonable expenses of the Properties.
       Defendants fault Wisehart and the trial court for failing to
“replace” the improper payments to Productive, Rustic Canyon,
King Leung, and Premier with an estimate of “reasonable
expenses” of the Properties. As discussed above, the trial court
found the payments to the contractors were part of defendants’
fraudulent scheme and the work did not occur or was grossly
inflated; and we concluded these findings are supported by
substantial evidence. In any event, defendants did not present
any evidence in the Phase 1 liability and compensatory damages
trial regarding a reasonable amount of maintenance/repair
expenses for the Properties to “replace” the illegitimate amounts
                                                            9
charged by Productive, Rustic Craftsman, and King Leung.

      9
         In support of their argument regarding replacement
expenses for maintenance, defendants reference the testimony of
Sommer, plaintiffs’ expert real estate appraiser, who appraised
three of defendants’ properties for purposes of establishing
defendants’ net worth in the Phase 2 punitive damages trial. As
part of his appraisal, he estimated expenses for the three
properties he appraised (only one of which is co-owned with

                                25
      Defendants complain that the amount of
maintenance/repair expenses Wisehart gave them credit for
varied widely from year to year over the five-year period for
which defendants produced complete financial records. This was
not a flaw in Wisehart’s methodology. As explained above,
Wisehart credited legitimate, reasonable maintenance/repair
expenses documented in the financial records defendants
produced. Without evidence of other legitimate, reasonable
expenses (or an estimate of such), the trial court did not err in
crediting Wisehart’s methodology.
      Turning to the payments to Premier, the trial court
concluded these payments from the Properties’ bank accounts
should be disgorged, based on the court’s finding that Premier, a
fiduciary wholly owned by Polly Wong, participated in the
embezzlement and fraud scheme. “Disgorgement of profits is
particularly applicable in cases dealing with breach of fiduciary
duty, and is a logical extension of the principle that . . .
fiduciaries cannot profit by a breach of their duty.” (County of
San Bernardino v. Walsh (2007) 158 Cal.App.4th 533, 543.)
Substantial evidence demonstrates Premier collected
management fees while it embezzled the cash rental payments
from the Properties; made payments to Productive, etc. from the
Properties’ bank accounts for maintenance and repair services
not performed; made unauthorized payments from the Properties’
bank accounts to the individual defendants and for the benefit of
the individual defendants (e.g., a BMW for Polly Wong); and
prepared false operating statements for the Properties to hide

plaintiffs). This testimony has no application to the present
discussion because it was not presented in the Phase 1 liability
and compensatory damages trial.

                                26
defendants’ embezzlement scheme. Accordingly, the trial court
did not err in declining to treat the payments to Premier as
legitimate, reasonable expenses of the Properties.
       Defendants assert disgorgement of profits requires a
deduction for reasonable expenses, and they argue Wisehart and
the trial court should have deducted a reasonable management
fee. (See, e.g., Liu v. Securities and Exchange Commission (2020)
140 S.Ct. 1936, 1950 [“It is true that when the ‘entire profit of a
business or undertaking’ results from the wrongdoing, a
defendant may be denied ‘inequitable deductions’ such as for
personal services. [Citation.] But that exception requires
ascertaining whether expenses are legitimate or whether they
are merely wrongful gains ‘under another name.’ [Citation.]
Doing so will ensure that any disgorgement award falls within
the limits of equity practice while preventing defendants from
profiting from their own wrong”].) “In measuring the amount of
the defendant’s unjust enrichment, the plaintiff may present
evidence of the total or gross amount of the benefit, or a
reasonable approximation thereof, and then the defendant may
present evidence of costs, expenses, and other deductions to show
the actual or net benefit the defendant received. ‘The party
seeking disgorgement “has the burden of producing evidence
permitting at least a reasonable approximation of the amount of
the wrongful gain,” ’ and the ‘ “[r]esidual risk of uncertainty in
calculating net profit is assigned to the wrongdoer.” ’ ” (Meister v.
Mensinger (2014) 230 Cal.App.4th 381, 399.) Here, plaintiffs
sought disgorgement of all management fees paid to Premier out
of the Properties’ bank accounts as wrongful gain, contending
Premier (wholly owned by Polly Wong) used its position as
property manager to help the individual defendants embezzle the

                                 27
Properties’ profits; it provided no legitimate (lawful) services; and
it should not be permitted to profit from its wrongful acts. To the
extent defendants contend some of Premier’s management
services were legitimate and not part of the wrongful scheme,
Premier did not produce underlying documentation in response to
plaintiffs’ document requests evidencing its services, as Wisehart
testified. Thus, there was no evidence Premier engaged in any
legitimate services that should be treated as proper expenses,
and the trial court did not err in denying defendants credit for
unproven reasonable management fees.
       We note that the trial court did not explain in its statement
of decision how it calculated the $2,522,515 figure it awarded
plaintiffs in compensatory damages. Wisehart testified that the
total amount due and payable to plaintiffs was $4,801,027,
consisting of (1) plaintiffs’ collective proportional share of the
Properties’ net profits from 2007 through 2019 in the amount of
$2,747,332; (2) prejudgment interest on that amount, or
$1,463,831; and (3) $589,864 in tax penalties that plaintiffs
would incur. The trial court did not indicate in the statement of
decision that it disagreed with any part of Wisehart’s
methodology or any of his figures, but the court discounted
plaintiffs’ damages calculation by $2,278.512. On appeal,
defendants challenge plaintiffs’ compensatory damages
calculation without taking into account the court’s discounted
award and its relation to defendants’ arguments regarding the
propriety of amounts awarded as compensatory damages. For
example, in light of our conclusion that defendants did not show
that Wisehart’s methodology for calculating profits is improper,
even if we had concluded that defendants’ claimed maintenance
and management expenses should have been subtracted from

                                 28
gross profits, defendants do not explain why the compensatory
damages award should be modified. The trial court steeply
discounted Wisehart’s damages calculation in an amount greater
than any reduction that would result from inclusion of
defendants’ claimed expenses. Thus, the compensatory damages
would still be supported absent exclusion of the maintenance and
management expenses.
      B.     Wisehart’s methodology for calculating profits
             in the absence of adequate financial records
      Defendants criticize the extrapolation methodology
Wisehart applied for calculating plaintiffs’ share of the
Properties’ net profits for 2007 through 2013 and 2019. First,
defendants complain that Wisehart “did not rely on any actual
data.” Defendants, who were responsible for managing and
maintaining the Properties, did not produce the data for these
years in response to plaintiffs’ document requests. Defendants
appear to claim that plaintiffs are entitled to profits for five years
only (2014-2018) because defendants failed to produce adequate
records from which a forensic audit could be conducted on the
other eight years (2007-2013 & 2019). Such a claim is without
merit. Defendants do not explain why, in the absence of records
they failed to produce, Wisehart’s extrapolation methodology is
not a suitable method for calculating profits. (See, e.g., Orozco v.
WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 397-398
[concluding trial court did not abuse its discretion in admitting
expert witness testimony where the expert witness “relied on

                                 29
actual sales data” and “made logical extrapolations of that data to
                                                    10
arrive at his conclusions” regarding lost profits].)
      “Where the fact of damages is certain, the amount of
damages need not be calculated with absolute certainty.
[Citations.] The law requires only that some reasonable basis of
computation of damages be used, and the damages may be
computed even if the result reached is an approximation.
[Citation.] This is especially true where, as here, it is the
wrongful acts of the defendant that have created the difficulty in
proving the amount of loss of profits.” (GHK Associates, supra,
224 Cal.App.3d 856, 873-874; Asahi Kasei Pharma Corp. v.
Actelion Ltd. (2013) 222 Cal.App.4th 945, 975 [“once the
occurrence of lost profits is established a plaintiff has greater
leeway in establishing the extent of lost profits, particularly if the
defendant was shown to have prevented the relevant data from
being collected through its wrongful behavior”].)
      C.     Plaintiffs’ Expected Tax penalties
      To the extent the trial court’s compensatory damages
award includes an allowance for plaintiffs’ projected tax
penalties, defendants’ challenge to the propriety of such an
amount is without merit. Defendants argue there was “no
evidence that any penalties actually have been or are likely to be

      10
         Defendants rely on cases in which appellate courts
concluded lost profits analyses for unestablished ventures or
businesses were speculative. (See, e.g., Greenwich S.F., LLC v.
Wong (2010) 190 Cal.App.4th 739; Kids’ Universe v. In2Labs
(2002) 95 Cal.App.4th 870.) That is very different from this case
where Wisehart used existing data from established income-
generating properties and made logical extrapolations from the
existing data.

                                 30
incurred.” Not so. Wisehart, a certified public accountant,
calculated the penalties plaintiffs will incur for underreporting
their income (due to defendants’ wrongdoing) when they file their
amended tax returns. Indeed, defendants’ accounting expert did
not dispute the amount or state that such penalties would not be
incurred. Moreover, the evidence showed that by the time of
trial, the individual defendants, themselves, had already filed
amended tax returns that reflected the prior substantial
underreporting of income from the Properties.
        Based on the foregoing, defendants have not demonstrated
error with respect to the compensatory damages award.
II.     Punitive Damages
        The individual defendants concede that plaintiffs are
entitled to an award of punitive damages. Defendants contend,
however, that the $5,045,030 punitive damages award (double
the compensatory damages award) is “grossly excessive” and
“raises a presumption of passion and prejudice” under state law
because (1) it exceeds 10 percent of defendants’ net worth, using
plaintiffs’ calculation of defendants’ net worth; (2) it “wipes out
almost a decade of defendants’ net income”; and (3) in
combination with the $2,522,515 compensatory damages award,
it equals $1 million more than the value of defendants’ liquid
assets, using plaintiffs’ calculation of defendants’ liquid assets.
Defendants also contend the punitive damages award violates
federal due process principles because it exceeds the amount of
the compensatory damages award. Finally, defendants contend
the punitive damages award is not supported by substantial
evidence of their ability to pay “without being financially
destroyed” because (1) it “forces defendants to sell properties to
pay the [entire] judgment, but the award does not consider the

                                31
properties’ liquidation costs”; and (2) it does not “account for the
discounted value of defendants’ fractional property interests.”
Defendants also assert the trial court committed reversible error
when it struck their expert’s (Smith’s) testimony regarding his
second report on fractional interest discounts.
      “When faced with a challenge to the amount of a punitive
damages award, our traditional function has been to determine
whether the award is excessive as a matter of law or raises a
presumption that it is the product of passion or prejudice.”
(Adams v. Murakami (1991) 54 Cal.3d 105, 109-110.) “In so
doing, we evaluate the award under three criteria: the nature of
the defendant’s wrongdoing; the actual harm to the plaintiff; and
the defendant’s wealth.” (Bankhead v. ArvinMeritor, Inc. (2012)
205 Cal.App.4th 68, 77 (Bankhead).) “Because the quintessence
of punitive damages is to deter future misconduct by the
defendant, the key question before the reviewing court is whether
the amount of damages ‘exceeds the level necessary to properly
punish and deter.’ ” (Adams, at p. 110.)
      In the trial court, plaintiffs took the position that an award
of punitive damages equal to 10 percent of the individual
defendants’ net worth was the upper “limit” the court should
impose in this case. In their written closing argument on the
punitive damages phase of trial, plaintiffs explained, in pertinent
part: “A line of California cases indicate that if the statement of
a defendant’s net worth presents a reliable measure of the
defendant’s financial condition, then punitive damages generally
should not exceed ten percent of the defendant’s net worth.” We
agree with this analysis of California case law. (See, e.g., Bigler-
Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 308 [“ ‘Punitive
damages constitute a windfall. [Citation.] Such awards

                                32
generally are not allowed to exceed 10 percent of the net worth of
the defendant’ ”]; Sierra Club Foundation v. Graham (1999) 72
Cal.App.4th 1135, 1163 [affirming punitive damages award equal
to two or three percent of the defendant’s net worth, noting the
award was “far less than the 10 percent cap generally recognized
by our courts”].)
       Plaintiffs further explained in their written closing
argument: “Given that Mr. Wisehart’s report presents a reliable
statement of [d]efendants’ net worth, it would be appropriate for
a ten percent limitation to apply here.” Wisehart testified that
the individual defendants’ net worth was approximately
$38,000,000. Accordingly, plaintiffs urged the trial court to
award them around $3.8 million in punitive damages, or 10
percent of net worth. The trial court awarded $5,045,030, or
around 13 percent of defendants’ net worth.
       On appeal, plaintiffs urge us to affirm the punitive
damages award, pointing to cases where awards exceeding 10
percent of net worth were upheld. But those cases are consistent
with the principle set forth above that where the statement of a
defendant’s net worth presents a reliable measure of the
defendant’s financial condition, punitive damages generally
should not exceed 10 percent of the defendant’s net worth. (See.
e.g., Bankhead, supra, 205 Cal.App.4th at pp. 82-83 [“reject[ing]
the [defendant’s] argument that 10 percent of net worth
constitutes a ceiling above which juries may not go in setting the
amount of punitive damages” where expert’s “uncontroverted
testimony” showed that the defendant “was far wealthier than its
stated net worth would indicate, and that net worth alone is an
untrustworthy standard, because it is so easily manipulated”];
Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001)

                               33
89 Cal.App.4th 577, 583 [affirming punitive damages award of
$300,000 where the defendant had negative net worth on paper
but “had a credit line of $50 million of which $5.3 million was
unexpended”].)
       We agree with defendants that the trial court erred in
awarding punitive damages in an amount greater than 10
percent of the individual defendants’ net worth. Although
defendants engaged in reprehensible conduct, a punitive
damages award of $5,045,030, around 13 percent of defendants’
net worth, exceeds the level necessary to punish defendants and
deter future misconduct, especially in light of the substantial
compensatory damages award of $2,522,515. For these reasons,
we conclude that a punitive damages award of more than the
generally accepted 10 percent is excessive as a matter of law, and
we reduce it accordingly to $3,796,943, or 10 percent of
Wisehart’s calculation of defendants’ net worth.
       For the reasons explained below, we reject defendants’
arguments in support of a further reduction of punitive damages
to an amount below 10 percent of their net worth.
       A.     Due process concerns
       First, we disagree with defendants’ contention that a
punitive damages award in excess of compensatory damages
violates due process in this case. We review this contention de
novo. (Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th
1, 8.) “ ‘Our jurisprudence and the principles it has now
established demonstrate . . . that, in practice, fee awards
exceeding a single-digit ratio between punitive and compensatory
damages, to a significant degree, will satisfy due process.’ ” (Id.
at p. 9.) “When compensatory damages are substantial, then a
lesser ratio, perhaps only equal to compensatory damages, can

                                34
reach the outermost limit of the due process guarantee. The
precise award in any case, of course, must be based upon the
facts and circumstances of the defendant’s conduct and the harm
to the plaintiff.” (Id. at p. 10.) Here, the reduced punitive
damages award will equal around 1.5 times the compensatory
damages award. We cannot conclude this ratio violates due
process based on the circumstances of this case, where
defendants systematically embezzled profits from their family
members for more than a decade.
       B.    Liquidation costs and fractional interest
             discounts
       Next, we reject defendants’ contentions that the punitive
damages award is not supported by substantial evidence of their
ability to pay “without being financially destroyed” because (1) it
“forces defendants to sell properties to pay the [entire] judgment,
but the award does not consider the properties’ liquidation costs”;
and (2) it does not “account for the discounted value of
defendants’ fractional property interests.” We note that the
reduced punitive damages award will not require defendants to
sell properties, as their liquid assts are sufficient to pay the
modified judgment.
       And we have no cause to disturb the trial court’s rejection
of defendants’ claim for fractional interest discounts in
calculating their net worth. The trial court apparently accepted
Wisehart’s net worth methodology, which did not include
fractional interest discounts. Defendants conceded that such a
discount is not always appropriate by Smith’s reference to a 1998
study, in which 31 percent of the fractional interests surveyed
were not sold at a discount. Moreover, Sommer testified that
Smith’s 19 percent fractional interest discount analysis was

                                35
flawed in that Smith did not adequately compare the subject
properties to the purported comparables to justify a fractional
interest discount as to the Properties in this case. Based on the
evidence before it, the trial court did not err in rejecting
defendants’ fractional interest discount claim.
       We disagree with defendants’ assertion that the trial court
erred in excluding Smith’s testimony regarding his second report
(the March 2021 report) on fractional interest discounts based on
the Web method. The court found that Smith did not have the
expertise to give the opinions in the second report, and the
opinions were not based on “an accepted methodology.” We note
that this was a bench trial, and the court heard the entirety of
Smith’s testimony before excluding the portion based on the
second report.
       The “ ‘trial court acts as a gatekeeper to exclude expert
opinion testimony that is (1) based on matter of a type on which
an expert may not reasonably rely, (2) based on reasons
unsupported by the material on which the expert relies, or (3)
speculative.’ ” (Zuniga v. Alexandria Care Center, LLC (2021) 67
Cal.App.5th 871, 886.) “ ‘The trial court’s preliminary
determination whether the expert opinion is founded on sound
logic is not a decision on its persuasiveness. The court must not
weigh an opinion’s probative value or substitute its own opinion
for the expert’s opinion. Rather, the court must simply determine
whether the matter relied on can provide a reasonable basis for
the opinion or whether that opinion is based on a leap of logic or
conjecture. . . . The goal of trial court gatekeeping is simply to
exclude “clearly invalid and unreliable” expert opinion.’ ” (Ibid.)
We review the trial court’s ruling for abuse of discretion. (Ibid.)

                                36
       The trial court did not abuse its discretion. This was
Smith’s first time applying the Webb method, which he had only
recently discovered, and he was unaware of the Webb method
ever being used in a case like the present. He could not fully
explain how Webb derived the multiplier used to calculate the
discounts, acknowledging, “[i]t was a little over my head to be
honest with you.” Nor was he familiar with the source of the data
for the multiplier. And he could not articulate why the multiplier
Webb used in relation to REITs was applicable to the Properties
at issue here. In short, Smith’s application of the Webb method
was unreliable and speculative, and the trial court did not abuse
its discretion in excluding this portion of Smith’s testimony.
III. Permanent Injunction
       The permanent injunction in this case provides that Polly
Wong, Jimmy Wong, Premier, and Productive are “permanently
enjoined and restrained from directly or indirectly managing,
maintaining or caring, at any time, for” the subject Properties.
Defendants contend the permanent injunction is overbroad, in
that it “includes no time, place, or manner restrictions,” and it is
“totally unnecessary to prevent defendants from repeating their
past wrongs.” They assert: “No matter what, neither Jimmy and
Polly Wong nor anybody in any way associated with them, can
ever do anything to safeguard their own property. They cannot
hire workers to perform needed repairs, or pay workers who have
done legitimate work. They cannot pay mortgages or property
taxes, or take any other action to prevent foreclosure. And
although defendants may in some circumstances be able to seek
modification of the injunction in the trial court, there is nothing
they can do to respond to an emergency such as a break-in, a fire,
or a flood.”

                                37
       In support of their assertion the injunction is overbroad,
defendants cite one case, Balboa Island Village Inn, Inc. v. Lemen
(2007) 40 Cal.4th 1141, 1160, in which our Supreme Court
concluded an injunction preventing speech was “broader than
necessary to provide relief to plaintiff while minimizing the
restriction of expression.” The case is not instructive here.
Defendants, due to their breaches of fiduciary duty, fraud, and
other misdeeds, have been removed of the responsibility of
managing and maintaining the Properties. The Properties are
under new management. There is no reason for defendants to
manage, maintain, or care for the Properties. The injunction
properly prevents defendants from continuing to engage in the
wrongdoing of which they have been found liable in this action or
the opportunity to do so in the future. It is not impermissibly
overbroad.
                          DISPOSITION
      The award of punitive damages is reduced to $3,796,943,
and the judgment is affirmed as so modified. Each side is to bear
its own costs on appeal.
      NOT TO BE PUBLISHED

                                                CHANEY, J.

We concur:

             ROTHSCHILD, P. J.                  WEINGART, J.

                               38