Court Opinion

ID: 2794395
Source: CourtListenerOpinion
Date Created: 2015-04-16 19:12:07.791796+00
Date Added: 2024-06-11T11:29:09.458533
License: Public Domain

Filed 4/16/15 Brown v. Zive CA2/5
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION FIVE

CHERIE BROWN,                                                        B250561

         Plaintiff and Appellant,                                    (Los Angeles County Super. Ct.
                                                                     No. BC440484)
         v.

YOUVAL ZIVE et al.,

         Defendants and Appellants.

         APPEAL from a judgment and orders of the Superior Court of Los Angeles
County, Victor E. Chavez, Judge. Affirmed in part, reversed in part, and remanded.
         Cheong, Denove, Rowell & Bennett, John D. Rowell, for Plaintiff and Appellant.
         Law Offices of Ilene Kurtzman, Ilene Kurtzman, Andrea Breuer, for Defendants
and Appellants.
                                         ________________________
       Defendants and appellants Youval Zive and VACA Partnership (VACA), of which
Zive was a partner (collectively appellants), sold a home to plaintiff and respondent,
Cherie Brown. Brown brought several claims against Zive and VACA, including fraud,
negligent misrepresentation, and failure to disclose seller financing. She also brought
claims for legal malpractice and breach of fiduciary duty, as to Zive only.1
       Appellants contend that the trial court erred in denying their motions for nonsuit
and judgment notwithstanding the verdict (JNOV) as to Brown’s cause of action for
failure to disclose seller financing, and that there was insufficient evidence to support the
jury’s verdict in favor of Brown and award of damages of $392,500 with respect to that
claim. Appellants argue that the evidence compels the conclusion that seller financing
was timely and properly disclosed, and that the damages award was unlawful and
excessive. Brown cross-appeals the trial court’s grant of nonsuit as to the fraud, negligent
misrepresentation, legal malpractice, and breach of fiduciary duty causes of action, and
the trial court’s ruling that there was no basis for an award of punitive damages.
       We hold that substantial evidence supports a damages award of only $325,283 on
Brown’s failure to disclose seller financing claim and reduce the award accordingly. We
reverse the trial court’s order of nonsuit in favor of appellants on the fraud cause of
action, as well as its related ruling that there is no basis for the jury’s consideration of an
award of punitive damages as to the fraud cause of action. We remand for limited retrial
on Brown’s fraud claim. In all other respects, we affirm the judgment as modified.

                                           FACTS2

       1 Pacific
               Holdings, another partnership in which Zive was a partner, was also
named as a defendant, but is not a party to this appeal.

       2 Inaccordance with the applicable standards of review, we recite the facts in a
light most favorable to Brown.

                                               2
       On July 20, 2006, Brown entered into a purchase agreement with VACA for a
furnished home. The price was $1,207,500, including $57,000 for furniture.
       Brown had never prequalified for a loan, owned a house, or had any dealings in
real estate transactions. She viewed the house for the first time on July 20, 2006. VACA
held title to the house, and the transaction was conducted by Zive. Brown had not
previously met Zive. Zive represented to Brown that he was a lawyer and a real estate
expert. He said that he had been involved in the sale and purchase of numerous houses,
and would represent them both and “do all of the transaction.” Zive questioned Brown
concerning her employment and salary, and proposed seller financing. Zive said his
payments on his mortgage were approximately $2,700 to $2,800 per month, and that
although the rate was variable the payments would not increase much over $200 to $300.
Zive would obtain a wrap-around note so that Brown could take over his mortgage.
Brown agreed, and said she could make the payments.
       Zive handled the paperwork for the transaction. The purchase agreement provided
for a $25,000 cash deposit, which was nonrefundable and payable directly to Zive.
Brown paid the $25,000 the night she met Zive. Brown spent approximately 20 minutes
with Zive prior to signing the purchase agreement. The transaction did not go through
escrow, despite provisions for escrow in the purchase agreement. Brown’s entire down
payment was to be $155,000, also payable directly to Zive. Zive provided Brown with a
copy of the purchase agreement and a buyer’s inspection advisory. The purchase
agreement stated that there would be seller financing.
       On July 31, 2006, Zive took out a second mortgage on the house for $46,142.
       On November 1, 2006, Zive provided Brown with a seller financing disclosure
statement. The statement utilized a standard form that Zive had obtained from a lawyer
he consulted. Zive filled out the form by hand. The disclosure statement showed that
there were two mortgages on the house which would mature in 2036, with balances of
$993,843 and $40,000, respectively. It stated that the rates were “variable,” but did not
provide the specific interest rates or disclose any terms related to the interest rates. No
copies of the notes or further descriptions of their terms were attached. The disclosure

                                              3
statement advised that the credit extended provided for deferred interest, and warned that
if refinancing was required it might be difficult or impossible to obtain. It advised that
the transaction involved the use of an all-inclusive (wrap-around) deed of trust providing
that in the event of an acceleration of any senior encumbrance, Brown would be
responsible for payment. It did not disclose the limit on the deferred interest allowed
before a change in interest rates would occur on the first loan, or address the
ramifications of negative amortization. Zive told Brown that the second mortgage would
require that she pay $200 to $300 more per month. Brown signed the disclosure
statement.
       As of November 1, 2006, Brown had paid $125,000 toward the purchase price of
the house, and made one payment of $3,030 on the underlying mortgage. She took
possession of the house, but because she had not made the full down payment, transfer of
title was delayed until the full down payment was made.
       Title was transferred from VACA to Brown on January 3, 2007. Brown signed an
all-inclusive purchase money promissory note dated December 30, 2006, in the amount
of either $1,072,000 or $1,082,000, in favor of Zive.3 The note had a maturity date of
March 1, 2008. It stated that the total principal included a March 31, 2006 promissory
note given by Zive with an original amount of $980,000, and a July 31, 2006 promissory
note given by Zive with an original amount of $46,142. The note had an interest rate of
7.2 percent, which was “variable.” Beginning November 1, 2006, loan payments of
$3,030 per month “or more” were due at the start of each month. A late fee of 6 percent
would be assessed for payments made after the 10th of the month. The note provided for
a principal payment of $20,000, due December 31, 2006, with a late fee of $3,000 if
payment was more than 10 days late. An interest rate of 18 percent would be assessed
beginning January 10, 2007. The second page of the note provided that Brown would
pay all principal and interest installments due on the note that were due under the terms

       3   The note references both amounts.

                                               4
of the underlying mortgages. There was no additional information about the terms of the
mortgages.
       Per Zive’s instructions, Brown made note payment checks payable to Washington
Mutual, which held the underlying mortgages, and delivered the checks to Zive’s office.
Zive would then deliver the checks to Washington Mutual.
       On January 4, 2007, Brown executed a second note secured by deed of trust in the
amount of $11,283. A single payment of $11,283 was due by March 1, 2008. No interest
would be charged if payment was timely. In the event of late payment the balance would
bear interest at a rate of 16 percent. Brown timely paid the second note.
       Brown received a letter sent from Washington Mutual to Zive dated March 22,
2007. The letter stated that the payment on the first mortgage had been adjusted to
$2,906.86, based on an interest rate of 7.68 percent, there was a remaining term of 468
months, and projected principal balance of $1,015,681.13. The letter noted that the new
payment was determined by the payment amount adjustment limitation provision in the
promissory note. Without the limitation, the new payment would have been $6,848.38.
The letter contained a list of prior interest rate adjustments. The new payment rate would
take effect on May 1, 2007. A written note on the letter in Zive’s handwriting requested
that Brown make an additional $203 payment to add to the May payment, and also
requested that checks in the amount of $2,906 be prepared for June through August. This
was the first communication that Brown received from Zive which informed her of the
interest rate on the first loan.
       On March 2, 2008, Zive and Brown executed an addendum to the all-inclusive
purchase money promissory note, which modified the note and extended the due date to
March 1, 2010. The addendum provided for additional payments totaling $30,000 on a
specified monthly schedule. The addendum stated that it would be void if Brown failed
to make timely payments or otherwise breached any of the terms of the note and/or deed

                                            5
of trust, and that Zive would then have the option to file a notice of default.4
       In a letter dated August 18, 2008, Washington Mutual informed Zive that it would
recast the first mortgage loan, increasing the payment to $5,380.89 as of February 2009,
unless the total amount of interest due was paid monthly. The previous payments made
on the loan were for less than the total amount of interest due. All unpaid interest had
been added to the principal, and the principal was soon to reach its limit. Only payments
of the full interest would prevent the recast.
       In December 2008, Zive communicated to Brown that the first loan would be
recast to $5,380.89, although there would be no change in the payment due on the second
loan. Brown was distraught. Zive told her not to worry about the increase, but to
continue to make her regular payments to him. He assured her that he would attempt to
get a loan modification so that the payments would remain at around $3,000 per month.
Brown continued to make the payments in the amount she had previously.
       Washington Mutual stopped accepting Brown’s checks on the underlying first
mortgage after the recast took effect in February 2009, because the payments were less
than the total monthly amount due. It continued to accept Brown’s payment on the
underlying second mortgage because payment was made in full. Zive deposited the
payments on the first mortgage into an escrow account. Brown was unaware that the
payments were not being accepted, and continued to make payments.
       In September 2009, Zive asked Brown to meet him for dinner, and suggested that
she short-sell the house. An outside investor would purchase it, and the house would
come back to Zive. He would then try to get Brown back into possession of the house.
Brown refused. Zive instructed her to keep making payments.
       A few days later, there was a notice of an auction sale on Brown’s door. She
called Zive, who assured her that he would get the sale delayed. Brown was confused
because she had not missed any payments. This was the first time she heard that her

       4In her opening brief, Brown states that she executed the addendum, but the copy
admitted into evidence bears only Zive’s signature.

                                                 6
house was in foreclosure. Zive told Brown to contact a broker to whom he had paid
$4,000 to work on a loan modification. When Brown contacted the broker, he wanted an
additional $4,000.5
       Brown stopped making payments on the promissory note and addendum in
September 2009. Since 2006, she had made a total of $115,000 in monthly payments.
She had also paid the full $155,000 down payment, paid $19,000 in payments per the
2008 addendum to the all inclusive purchase money promissory note, and made
approximately $25,000 in property tax payments to Zive. She made unspecified extra
payments on the second underlying mortgage, security alarm payments, insurance
payments, and payments to a gardener for an unspecified period of time. Brown
continued to live in the house after she ceased making payments under the note and
addendum.
       Brown received a foreclosure notice from Zive. The house was auctioned on
September 12, 2011. Zive took the house as the beneficiary on the note. He transferred
ownership to Phoenix Realty Investment, LLC (PRI), in which he held 98 percent
ownership. PRI evicted Brown, and sued her for unlawful detainer, resulting in a
judgment against her for $11,000.

                                PROCEDURAL HISTORY

       Brown brought suit against Zive, VACA, and Pacific Holdings, on June 25, 2010.
Relevant here, at the time of trial, the operative second amended complaint alleged fraud,
negligent misrepresentation, and failure to disclose seller financing as to VACA and
Zive, and legal malpractice and breach of fiduciary duty as to Zive alone.
       After Brown concluded her case-in-chief, appellants moved for nonsuit.
Following oral argument by the parties, the trial court granted nonsuit in favor of

       5   It does not appear from the record that Brown paid the $4,000.

                                              7
appellants on Brown’s causes of action for fraud and negligent misrepresentation, and in
favor of Zive on Brown’s causes of action for legal malpractice and breach of fiduciary
duty. It also ruled there was insufficient basis to support an award of punitive damages
as to Brown’s fraud claim. The court denied the motion with respect to Brown’s cause of
action for failure to disclose seller financing, finding that there was sufficient evidence
for the issue to be presented to the jury.
       Appellants were represented by counsel at trial. Brown appeared in pro per. On
May 1, 2013, the failure to disclose seller financing cause of action, and another cause of
action for conversion against Zive only, were submitted to the jury. Before the case was
submitted to the jury, the trial court directed the parties to confer on jury instructions and
special verdict forms. To the extent that there was disagreement, the trial court accepted
the relevant jury instructions and special verdict form requested by appellants. The jury
was instructed that Brown claimed general and special damages (CACI No. 3900), that
monies paid by Brown and special damages were recoverable only once under the two
remaining legal theories (CACI No. 3934), and that the economic damages Brown
claimed included mortgage payments, down payment, deed payment, Zive’s note, and
storage (CACI No. 3903). The special verdict form did not provide for itemization of the
damages award, and did not require the jury to find that respondent’s failure to disclose
seller financing, if any, was willful. The jury found in favor of Brown with respect to the
failure to disclose seller financing cause of action, and awarded her a total of $392,500 in
damages. It found in favor of Zive on the conversion cause of action.
       On May 8, 2013, appellants moved for JNOV. The trial court denied the motion
and entered judgment on June 13, 2013. Appellants made an ex parte application for
clarification on the basis that the trial court did not include its reasoning in its minute
order denying JNOV. The trial court took the matter under submission, and issued its
order denying the ex parte application on June 28, 2013.
       Appellants timely appealed, and Brown cross-appealed.

                                               8
                                       DISCUSSION

Standards of Review

       A nonsuit is properly granted only when, disregarding conflicting evidence, giving
plaintiff’s evidence all the value to which it is legally entitled, and indulging in every
legitimate inference that may be drawn from the evidence, there is insufficient evidence
to support a verdict in the plaintiff’s favor. (Carson v. Facilities Development Co. (1984)
36 Cal.3d 830, 838-839 (Carson).) The de novo standard of review applies to an order
granting nonsuit. (CC–California Plaza Associates v. Paller & Goldstein (1996) 51
Cal.App.4th 1042, 1050-1051.)
       “When considering a claim of insufficient evidence on appeal, we do not reweigh
the evidence, but rather determine whether, after resolving all conflicts favorably to the
prevailing party, and according the prevailing party the benefit of all reasonable
inferences, there is substantial evidence to support the judgment.” (Scott v. Pacific Gas
& Electric Co. (1995) 11 Cal.4th 454, 465, disapproved on other grounds in Guz v.
Bechtal Nat. Inc. (2000) 24 Cal.4th 317, 336.)
       A judgment notwithstanding the verdict is proper only if there is no substantial
evidence to support the verdict and the evidence compels a judgment in favor of the
moving party as a matter of law. (Code Civ. Proc., § 629; Sweatman v. Department of
Veterans Affairs (2001) 25 Cal.4th 62, 68 (Sweatman).) The trial court must view the
evidence in the light most favorable to the verdict. (Sweatman, supra, at p. 68.) On
appeal, we must independently determine whether substantial evidence supports the
verdict and whether the moving party is entitled to judgment in its favor as a matter of
law. (Ibid.)

Failure to Disclose Seller Financing

       Appellants contend that the trial court erred in denying their motion for nonsuit

                                              9
with respect to Brown’s cause of action for failure to disclose seller financing, the
evidence is insufficient to support the jury’s verdict, and the trial court erred in denying
its motion for JNOV. These claims lack merit.
       Civil Code section 29566 provides as follows: “In a transaction for the purchase
of a dwelling for not more than four families in which there is an arranger of credit,
which purchase includes an extension of credit by the vendor, a written disclosure with
respect to that credit transaction shall be made . . . .” Section 2963 outlines specific
disclosures that must be made, including:

       “(b) A description of the terms of the promissory note or other credit
       documents or a copy of the note or other credit documents.
       “(c) Insofar as available, the principal terms and conditions of each
       recorded encumbrance which constitutes a lien upon the property which is
       or will be senior to the financing being arranged, including the original
       balance, the current balance, the periodic payment, any balloon payment,
       the interest rate (and any provisions with respect to variations in the interest
       rate), the maturity date, and whether or not there is any current default in
       payment on that encumbrance.
       “(d) A warning that, if refinancing would be required as a result of lack of
       full amortization under the terms of any existing or proposed loans, such
       refinancing might be difficult or impossible in the conventional mortgage
       marketplace.
       “(e) If negative amortization is possible as a result of any variable or
       adjustable rate financing being arranged, a clear disclosure of this fact and
       an explanation of its potential effect.”

       6   All further statutory references are to the Civil Code, unless stated otherwise.

                                               10
Such disclosure must be made “as soon as practicable, but before execution of any note
or security documents.” (§ 2959.)
       Here, Brown testified that she received and signed a California Association of
Realtors Seller Financing Disclosure Statement for the first time on November 1, 2006.
The disclosure statement provided the amounts and maturity dates of the underlying
loans, but disclosed only that the interest rates were “variable.” It did not contain the
specific interest rates or disclose any related provisions. The disclosure statement
advised that the credit extended to Brown provided for deferred interest, and warned that
if refinancing was required it might be difficult or impossible to obtain. It did not
disclose the limit on the deferred interest allowed before a change in interest rates would
be triggered on the first loan, or address the ramifications of negative amortization.
Brown testified that prior to providing her with the disclosure statement, Zive assured her
that her payments would not increase much over $200 to $300 per month, when in fact
they increased by over $2,000 a month.
       Given the numerous omissions from the disclosure statement and Zive’s
misstatement regarding the monthly payments, substantial evidence supports the
conclusion that the disclosure was inadequate. Section 2963 requires that the loans be
described or attached, that the interest rates be specified, that the buyer be informed of
any provisions with respect to the interest rate, and be warned of the consequences of
negative amortization. Brown produced substantial evidence that none of these
disclosures were made prior to the execution of the note, and that the assurances she was
given were inaccurate, at best.
       Additionally, Brown signed the purchase agreement, and made a partial down
payment of $25,000 on July 20, 2006. VACA’s expert witness testified that the
disclosure statement should have been given to her at that time or within a reasonable
time afterwards. Zive was making payments on the first loan when the purchase
agreement was executed, and was aware of the terms. He took the second loan out after
the purchase agreement was executed, and was ostensibly aware of its terms as well.
Despite this, Zive did not make any disclosures until several months later, on November

                                             11
1, 2006. By that date, Brown had paid $125,000 toward the purchase price of the house,
made one payment of $3,030 on the underlying mortgage, and taken possession of the
house. Zive did not disclose further details of the loans until sometime after March 22,
2007, long after “execution of any note or security documents.” There is substantial
evidence to support the conclusion that the disclosures were not made “as soon as
practicable,” as required under section 2959.

Damages for Failure to Disclose Seller Financing

       Section 2965 provides that actual damages may be awarded when a party willfully
fails to make required seller financing disclosures under section 2963.
       Appellants contend that Brown should not have been awarded damages for failure
to disclose seller financing because the jury never found that they willfully failed to
disclose the statutorily required information. Alternately, appellants argue that the award
of $392,500 in damages was excessive. We conclude that appellants forfeited the
argument that damages in any amount are improper, but agree that damages must be
reduced to those supported by substantial evidence.
       With respect to the first argument, appellants requested all instructions pertaining
to disclosure of seller financing and the special verdict on that cause of action. If
appellants wanted the jury to be instructed that a finding of willfulness was required to
impose liability, they had ample opportunity to request such an instruction, but failed to
do so. Appellants instead drafted and submitted instructions and a special verdict that
omitted any mention of willfulness and submitted them to the trial court. Appellants
cannot now complain about the instructions or special verdict form that they requested.
(Transport Ins. Co. v. TIG Ins. Co. (2012) 202 Cal.App.4th 984, 1000; Stevens v. Owens-
Corning Fiberglas Co. (1996) 49 Cal.App.4th 1645, 1653.)
       As to the question of the amount of damages, the testimony of a single witness,
including the party, is ordinarily sufficient. (Jensen v. BMW of N. America, Inc. (1995)
35 Cal.App.4th 112, 134.) As appellants concede, Brown testified that she made

                                             12
$115,000 in payments to Zive on the note, a $155,000 down payment, an $11,283
additional payment to Zive, and $25,000 in property taxes to Zive, for a total of
$306,283. Brown further testified that she made $19,000 in payments per the 2008
addendum to the all inclusive purchase money promissory note in addition to her
mortgage payment. She therefore provided substantial evidence of damages in the
amount of $325,283.
       There is no basis for reducing the amount of damages based on the rent Brown
“should have paid” while living in the house or elsewhere, as appellants urge. The
burden of proving facts in mitigation of damages rests upon the defendant. (Jackson v.
Yarbray (2009) 179 Cal.App.4th 75, 97; Carnation Co. v. Olivet Egg Ranch (1986) 189
Cal.App.3d 809, 817-818, and cases cited therein.) In this case, appellants offered no
evidence by which the jury could estimate what Brown’s rental costs would have been,
and did not meet their burden.
       Nor is there any basis for concluding that there was substantial evidence of other
expenses, as Brown argues. It does not appear from the record that Brown made more
than $25,000 in tax payments. Additionally, Brown offered no evidence that would allow
the jury to estimate the costs for which she gave no exact amounts or payment duration,
including extra payments on the second underlying mortgage, security alarm payments,
insurance payments, and payments to a gardener.
       Finally, a plaintiff must prove a causal connection between the damages she seeks
and the defendant’s wrongful conduct, and demonstrate that the detriment she suffered
was a natural and probable consequence of the defendant’s conduct. (Chaparkas v. Webb
(1960) 178 Cal.App.2d 257, 260.) In this case, the unlawful detainer judgment was not a
natural and probable consequence of the failure to disclose seller financing, it was the
natural and probable consequence of Brown’s choice to remain in the house for two years
after it had been foreclosed.

                                            13
Fraud and Negligent Misrepresentation

       Brown contends that the trial court erred in granting appellants’ motion for nonsuit
with respect to her claims for fraud and negligent misrepresentation. We agree.
       Generally, “‘“[t]he elements of fraud, which give[ ] rise to the tort action for
deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b)
knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d)
justifiable reliance; and (e) resulting damage.”’ [Citation.]” (Small v. Fritz Companies,
Inc. (2003) 30 Cal.4th 167, 173 (Small).) Additionally, to establish fraud through
nondisclosure or concealment of facts, it is necessary to show the defendant “was under a
legal duty to disclose them.” (Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735.)
       Claims for negligent misrepresentation deviate from this set of elements. “The
tort of negligent misrepresentation does not require scienter or intent to defraud.
[Citation.] It encompasses ‘[t]he assertion, as a fact, of that which is not true, by one who
has no reasonable ground for believing it to be true’ [citation], and ‘[t]he positive
assertion, in a manner not warranted by the information of the person making it, of that
which is not true, though he believes it to be true’ [citations].” (Small, supra, 30 Cal.4th
at pp. 173-174.)
       Here, the first and last elements of fraud and negligent misrepresentation have
been established. There is more than sufficient evidence to support the conclusion that
appellants failed to disclose seller financing, which they were legally required to do, and
that Brown was damaged as a result.
       There was also sufficient evidence to support a finding of scienter. Zive was
paying on the first mortgage at the time the parties entered into the purchase agreement,
and took out the second mortgage soon thereafter. He had access to the loan statements,
and thus was either aware (fraud) or should have been aware (negligent
misrepresentation) that his statements about the first mortgage payment were untrue and
that the information he provided was woefully incomplete.

                                              14
       The requirement of intent to defraud or induce reliance to establish liability for
fraud was also supported by sufficient evidence to support a verdict in Brown’s favor.
Brown produced evidence that Zive knew she was making payments that would not cover
the interest on the first mortgage, and that the principal limit would be reached, causing
the loan to be recast. Despite this, he urged her to keep making her regular payments,
and assured her that making payment would keep the house in her possession.
       Finally, Brown presented evidence that she justifiably relied on Zive’s
misrepresentations. To establish reliance was justifiable, a plaintiff must show the
“‘circumstances were such to make it reasonable for [her] to accept [the] defendant’s
statements without an independent inquiry or investigation.’ [Citation.] The
reasonableness of the plaintiff’s reliance is judged by reference to the plaintiff’s
knowledge and experience. [Citation.]” (OCM Principal Opportunities Fund v. CIBC
World Markets Corp. (2007) 157 Cal.App.4th 835, 864 (OCM).) “Generally, ‘[a]
plaintiff will be denied recovery only if his conduct is manifestly unreasonable in the
light of his own intelligence or information. It must appear that he put faith in
representations that were “preposterous” or “shown by facts within his observation to be
so patently and obviously false that he must have closed his eyes to avoid discovery of
the truth.” [Citation.] Even in case of a mere negligent misrepresentation, a plaintiff is
not barred unless his conduct, in the light of his own information and intelligence, is
preposterous and irrational. [Citation.]’ [Citation.]” (Id. at p. 865; see Beckwith v. Dahl
(2012) 205 Cal.App.4th 1039, 1067 (Beckwith).) Reasonable reliance is an inherently
factual inquiry rarely amenable to resolution as a matter of law. As the California
Supreme Court explained in Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226,
1239: “‘Except in the rare case where the undisputed facts leave no room for a
reasonable difference of opinion, the question of whether a plaintiff’s reliance is
reasonable is a question of fact.’ [Citations.]”
       Brown testified to her complete lack of experience in real estate transactions, and
in her trust in Zive. “[T]he law is clear that ‘“‘[n]o rogue should enjoy his ill-gotten
plunder for the simple reason that his victim is by chance a fool.’”’ [Citation.] . . . .

                                              15
‘“‘Nor is a plaintiff held to the standard of precaution or of minimum knowledge of a
hypothetical, reasonable man.’ [Citation.]”’” (Beckwith, supra, 205 Cal.App.4th at p.
1067; see also Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1666-1667;
Hartong v. Partake, Inc. (1968) 266 Cal.App.2d 942, 964-965 (Hartong).) In light of
Brown’s circumstances and inexperience, it would not be irrational for her to rely on the
disclosure statement. Brown testified that Zive told her he was a lawyer and real estate
expert. It would not be unreasonable for Brown to expect Zive to know what disclosures
were necessary and to timely make all required disclosures. There is substantial evidence
that the disclosure statement was incomplete in material respects, and a jury could
reasonably find that, considering Brown’s naiveté, her failure to investigate would not be
“preposterous.” (OCM, supra, 157 Cal.App.4th at p. 865.) Nothing on the face of the
disclosure statement was “so patently and obviously false” that she must have “‘closed
[her] eyes to avoid discovery of the truth.’” (Ibid.) Moreover, Zive’s false statements
regarding the possible fluctuation in interest rates on the first mortgage were plausible,
particularly in light of the other material information and warnings that were omitted
from the disclosure statement. (Hartong, supra, at pp. 965-966 [“If the defendant makes
a plausible explanation of fact, the plaintiff is not required to further investigate”].)
Taking into account the highly factual nature of the inquiry, there is sufficient evidence to
support a finding that Brown’s reliance was justifiable.
       Because Brown provided sufficient evidence of all the elements of fraud and
negligent misrepresentation to support a verdict in her favor, the trial court erred in
granting nonsuit as to both causes of action. The error was harmless with respect to
Brown’s negligent misrepresentation cause of action, however, because the jury awarded
the maximum amount of actual damages supported by substantial evidence. (Cal. Const.,
art. VI, § 13; Code Civ. Proc., § 475 [“No judgment, decision, or decree shall be reversed
or affected by reason of any error, ruling, instruction, or defect, unless it shall appear
from the record that such error, ruling, instruction, or defect was prejudicial . . . and that a
different result would have been probable if such error, ruling, instruction, or defect had
not occurred or existed”].) A plaintiff may only recover actual damages for negligent

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misrepresentation. (Fragale v. Faulkner (2003) 110 Cal.App.4th 229, 236-237.) Brown
cannot be prejudiced, because no other damages are available to her.
       With respect to Brown’s fraud cause of action, section 3294, subdivision (a)
allows the recovery of punitive damages “[i]n an action for the breach of an obligation
not arising from contract, where it is proven . . . the defendant has been guilty of
oppression, fraud, or malice . . . .” As appellants concede, Brown’s complaint requested
punitive damages with respect to her fraud claim. We cannot conclude that the grant of
nonsuit as to her fraud claim was harmless. Brown is entitled to present her fraud claim
to the jury, and to recover punitive damages, if warranted by the evidence.

Legal Malpractice and Breach of Fiduciary Duty

       Brown contends that the trial court erred in granting appellants’ motion for nonsuit
with respect to her legal malpractice and breach of fiduciary duty claims. Appellants
argue that the claims fail as a matter of law, and that Brown failed to properly state a
cause of action for punitive damages with respect to either claim.
       Appellants are correct that Brown did not state a cause of action for punitive
damages as to the legal malpractice claim in the operative complaint. Moreover, she
failed to argue that punitive damages should adhere to the legal malpractice claim in her
opening brief, thus waiving the issue on appeal. (People v. Baniqued (2000) 85
Cal.App.4th 13, 29.) As we discussed above, Brown was awarded the maximum amount
of actual damages supported by substantial evidence, which are the only damages
available to her relating to her legal malpractice cause of action. As a consequence of
Brown’s failure to state a cause of action for punitive damages, any error that the trial
court might have made in granting nonsuit on the legal malpractice claim would be
harmless, because it would not affect Brown’s recovery. (Cal. Const., art. VI, § 13; Code
Civ. Proc., § 475.)
       However, Brown’s contention that the trial court erred in granting nonsuit on her
breach of fiduciary duty cause of action cannot be resolved on this basis. Brown’s

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complaint stated a cause of action for punitive damages with respect to her claim for
breach of fiduciary duty, and section 3294, subdivision (a) allows for the recovery of
punitive damages as to that cause of action, if appropriate. (Scott v. Phoenix Schools, Inc.
(2009) 175 Cal.App.4th 702, 715.)
       As stated above, in resolving the issue of whether nonsuit was properly granted,
we “must give . . . plaintiff’[s] evidence all the value to which it is legally entitled, . . .
indulging every legitimate inference that may be drawn from the evidence . . . .”
(Carson, supra, 36 Cal.3d at pp. 838-839.) “‘The rules governing the granting of a
nonsuit, however, do not relieve the plaintiff of the burden of establishing the elements of
his case. The plaintiff must therefore produce evidence which supports a logical
inference in his favor and which does more than merely permit speculation or conjecture.
[Citation.] If a plaintiff produces no substantial evidence of liability or proximate cause
then the granting of a nonsuit is proper. [Citation.]’ (Jones v. Ortho Pharmaceutical
Corp. (1985) 163 Cal.App.3d 396, 402.)” (Alvarez v. Jacmar Pacific Pizza Corp. (2002)
100 Cal.App.4th 1190, 1209.)
       “‘The elements of a cause of action for breach of fiduciary duty are the existence
of a fiduciary relationship, its breach, and damage proximately caused by that breach.
[Citation.]’ [Citation.]” (Knox v. Dean (2012) 205 Cal.App.4th 417, 432.) A fiduciary
duty may arise as a consequence of either a fiduciary relationship or a confidential
relationship. “‘“[A] fiduciary relationship is a recognized legal relationship such as
guardian and ward, trustee and beneficiary, principal and agent, or attorney and client . . .
whereas a ‘confidential relationship’ may be founded on a moral, social, domestic, or
merely personal relationship as well as on a legal relationship.”’ [Citations.]” (Persson
v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1160.) “‘The essence of a
fiduciary or confidential relationship is that the parties do not deal on equal terms because
the person in whom trust and confidence is reposed and who accepts that trust and
confidence is in a superior position to exert unique influence over the dependent party.’
[Citation.]” (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 271
(Richelle L.).)

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       Brown contends that she presented evidence of both a fiduciary relationship and a
confidential relationship between herself and Zive sufficient to withstand a motion for
nonsuit. We disagree.
       Brown first asserts that she and Zive had a fiduciary relationship as attorney and
client. “‘“Except for those situations where an attorney is appointed by the court, the
attorney-client relationship is created by some form of contract, express or implied,
formal or informal. [Citation.]” [Citations.] . . . [¶] “An implied contract is one, the
existence and terms of which are manifested by conduct.” [Citation.] “The distinction
between express and implied in fact contracts relates only to the manifestation of assent;
both types are based upon the expressed or apparent intention of the parties.” [Citation.]
[¶] . . . [¶] . . . [I]n determining whether an attorney-client relationship exists . . . primary
attention should be given to whether the totality of the circumstances, including the
parties’ conduct, implies an agreement by the . . . attorney not to accept other
representations adverse to the [putative client’s] personal interests. (See Friedman, The
Creation of the Attorney-Client Relationship: An Emerging View [(1986)] 22 Cal.
W[estern] L.Rev. [209,] 231 suggesting that one of the most important facts involved in
finding an attorney-client relationship is “the expectation of the client based on how the
situation appears to a reasonable person in the client’s position.”) [¶] . . . [¶] The
question of whether an attorney-client relationship exists is one of law. [Citation.]
However, when the evidence is conflicting, the factual basis for the determination must
be determined before the legal question is addressed. [Citation.]’ [Citation.]”
(Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th
1399, 1404 (Strasbourger).) Because we review the grant of a motion for nonsuit, we do
not consider conflicting evidence, but rather resolve all conflicts in favor of Brown.
       Here, the evidence of an attorney/client relationship consisted of Brown’s
testimony that Zive told her he was an attorney and that he would represent them both

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and handle the transaction.7 Even assuming the truth of Brown’s testimony, and drawing
all inferences in her favor, the totality of the circumstances do not imply an agreement in
which Zive would not “accept other representations adverse to [Brown’s] personal
interests,” nor would a reasonable person believe that to be the case. (Strasbourger,
supra, 69 Cal.App.4th at p. 1404.) It is undisputed that Brown met Zive approximately
20 minutes before she signed the purchase agreement. They met at the residence—not a
law office—for the sole purpose of transacting for the purchase of a house. As buyer and
seller, their postures were clearly adverse. Zive would unquestionably benefit from
selling the property to Brown and arranging financing, and could be expected to do so on
terms favorable to himself. Moreover, the buyer’s inspection advisory provided to
Brown by Zive that evening warned repeatedly that the interests of buyer and seller were
adverse. Finally, although neither a written contract nor compensation is required to
establish an attorney/client relationship, the absence of both militate against the
conclusion that Zive intended to act in Brown’s best interests rather than in his own.
Absent payment and written obligation, he had no obvious motivation to act as an
attorney representing Brown’s best interests. The trial court did not err in determining
that there was no attorney/client relationship as a matter of law.
       “‘A “confidential relationship,” as that term is used in the cases, refers to an
unequal relationship between parties in which one surrenders to the other some degree of
control because of the trust and confidence which he reposes in the other. When a
confidential relationship is found to exist, the one in whom confidence was reposed may
be held to a higher standard of disclosure and fairness than in an arm’s-length
relationship . . . .’” (Richelle L., supra, 106 Cal.App.4th at p. 272, fn. 6.) The essential
elements of a confidential relationship are as follows: “‘1) The vulnerability of one party
to the other which 2) results in the empowerment of the stronger party by the weaker
which 3) empowerment has been solicited or accepted by the stronger party and 4)

       7Zive testified that he was an Israeli attorney, and had registered with the
California Bar as a foreign legal consultant. He was not barred in California.

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prevents the weaker party from effectively protecting itself.’ [Citation.]” (Id. at p. 272.)
“The vulnerability that is the necessary predicate of a confidential relation, and which the
law treats as ‘absolutely essential’ (Bogert, Trusts & Trustees (2d ed. 1978) § 482, at pp.
288-289), usually arises from advanced age, youth, lack of education, weakness of mind,
grief, sickness, or some other incapacity.” (Id. at p. 273.)
       In her opening brief on cross appeal, Brown alleges that, “[b]y telling Brown he
was an attorney and an expert in real estate finance, Zive fostered the impression that he
was much more knowledgeable than Brown.” The crux of her argument appears to be
that because Zive told her he had more education and experience than she did in the areas
of law and real estate, she was necessarily vulnerable. But a mere difference in degree of
experience or education does not create a fiduciary duty. Such differences abound. If
having less experience or education constituted incapacity, virtually every purchase and
sale transaction would give rise to a fiduciary duty, because people vary in their
experience and education and “[e]very contract requires one party to repose an element of
trust and confidence in the other to perform.” (Wolf v. Superior Court (2003) 107
Cal.App.4th 25, 31.) Absent a showing of vulnerability, which is an essential element of
her cause of action, Brown cannot demonstrate that she and Zive had a confidential
relationship. The evidence is necessarily insufficient to support a verdict in Brown’s
favor as to her breach of fiduciary duty cause of action. The trial court did not err in
granting the motion for nonsuit as to the claim.

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                                     DISPOSITION

       The judgment is modified to reduce the damages awarded to $325,283. The order
granting nonsuit as to the fraud cause of action and the related claim for punitive
damages is reversed. The cause is remand for limited retrial on Brown’s cause of action
for fraud, and if appropriate, punitive damages. In all other respects the judgment is
affirmed. Brown is awarded costs on appeal.

              KRIEGLER, J.

We concur:

              TURNER, P. J.

              GOODMAN, J. *

       *Judge of the Los Angeles County Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.

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