Proven Results · Real Estate & Business Litigation · Jury verdict and judgment, no settlement
$2.2 Million Jury Verdict for an Investor in a Real Estate Fraud Case
Summary: A California jury found for an overseas investor who put more than $5 million into the purchase of a commercial building in California through a limited liability company. At the end of the trial, the jury held his business partner liable for intentional misrepresentation, breach of fiduciary duty and breach of contract. It awarded $2,000,000 in compensatory damages, found by clear and convincing evidence that the partner acted with malice, oppression or fraud, and awarded $200,000 in punitive damages. The court also ruled for the investor on all four claims in the partner’s cross-complaint, imposed a constructive trust over all assets and equity of the company that the partner acquired, and awarded attorneys’ fees and costs of $377,085.50 plus 10% interest. The judgment was appealed. The appeal was denied, and the judgment did not change. The case did not settle.
About these figures. The $2.2 million in the headline is the total of the $2,000,000 in compensatory damages and the $200,000 in punitive damages that the jury awarded. The amounts on this page are the amounts awarded by the jury and the court in the judgment, which was not changed on appeal. The $2,000,000 is compensatory damages and the $200,000 is punitive damages. The $377,085.50 in attorneys’ fees and costs was awarded by the court against the opposing party. The matter was handled on an hourly basis, so no attorneys’ fees or litigation expenses were withheld from any recovery. This page does not state what has been collected on the judgment. Prior results do not guarantee, warrant, or predict a similar outcome in any future matter. This result depended on the facts of this case, and results will differ on different facts.
Case at a glance
Case type
Real estate investment fraud; breach of fiduciary duty; breach of contract
Court
California superior court (state trial court)
Our client
An overseas investor and member of the limited liability company that bought the building
Opposing party
The investor’s business partner and fellow LLC member
Amount invested
More than $5 million
Trial
Five-day jury trial
Jury verdict
For the investor on all three claims tried
Compensatory damages awarded
$2,000,000
Punitive damages awarded
$200,000
Attorneys’ fees and costs awarded
$377,085.50, against the opposing party
Other relief
Constructive trust over the LLC assets and equity the partner acquired; cross-complaint defeated; 10% interest
Appeal
The judgment was appealed. The appeal was denied, and the judgment did not change.
Outcome
Verdict and judgment for our client. No settlement.
Counsel
Brandon C. Fernald of Fernald & Zaffos was lead counsel.
Background
The investor lived outside the United States and invested through a limited liability company formed to buy a commercial building in California. His business partner, who described himself as a seasoned real estate investor and developer, asked him to contribute more than $5 million to close the purchase. The complaint alleged that the partner said the property was already in escrow, that time was short, and that the investor’s contribution was the only additional capital needed. It alleged the partner also said he would contribute millions of dollars of his own funds, that he and another investor had already put in millions, and that the investor could expect at least an 8% return.
The investor signed the operating agreement and transferred his contribution to the company’s operating account.
What the investor alleged
The complaint alleged that the partner never put any of his own money into the deal and that:
- Shortly after receiving the investor’s funds, the partner prepared a company resolution bearing the investor’s forged signature, without the investor’s knowledge, authorizing a multimillion-dollar purchase-money loan secured by the building.
- Only part of the investor’s contribution reached escrow. The balance was allegedly moved to other entities the partner controlled and then routed back, so it looked as though the partner had invested.
- The company paid loan origination fees and points that the investor never authorized, and a further sum remained unaccounted for in the closing numbers.
- The loan was later extended without the investor’s knowledge. He learned of it only after he hired counsel to look into a separate investment with the same partner.
By the time the investor sued, the loan was in default and the building faced foreclosure.
The trial
The investor tried three claims to the jury: intentional misrepresentation, breach of contract and breach of fiduciary duty. Three other claims (negligent misrepresentation, unfair competition under Business and Professions Code section 17200, and breach of the implied covenant of good faith and fair dealing) were voluntarily dismissed. The trial lasted five days.
The verdict
At the close of trial, the jury found:
- for the investor and against the partner on intentional misrepresentation
- for the investor and against the partner on breach of fiduciary duty
- for the investor and against the partner on breach of contract
- that the investor’s compensatory damages were $2,000,000
- by clear and convincing evidence, that the partner acted with malice, oppression or fraud (the finding required for punitive damages under Civil Code section 3294)
- that punitive damages against the partner were $200,000
The partner’s cross-complaint
The partner had filed a cross-complaint against the investor and a corporation, alleging breach of contract, unfair competition, breach of fiduciary duty and declaratory relief. On motions for judgment under Code of Civil Procedure section 631.8, the court ruled for the investor on all four claims and for the corporation on three claims.
Post-trial rulings: constructive trust, fees and interest
The investor also asked the court for equitable remedies. After post-trial briefing and a hearing, the court indicated it would impose a constructive trust, and it then entered the original judgment.
After ruling on fee motions and the partner’s motions to tax costs, the court later signed a second amended judgment that provides:
- Compensatory damages: $2,000,000
- Punitive damages: $200,000
- Constructive trust: over all assets and equity of the LLC that the partner acquired, ordered transferred to the investor effective as of the original judgment, to prevent the partner’s unjust enrichment
- Attorneys’ fees and costs: $377,085.50 to the investor, and $195,207.00 to the other cross-defendant, a corporation, against the partner
- Interest: 10% per year, the legal rate, for the investor and the corporation
Appeal
The judgment was appealed. The appeal was denied, and the judgment did not change.
What this case shows
- Depending on the facts, an investor can pursue fraud and fiduciary duty claims against a business partner who allegedly misstates his own contribution. Here the jury found for the investor on all three claims it decided.
- Courts can impose a constructive trust to prevent unjust enrichment. Here the court ordered the assets and equity of the LLC that the partner acquired transferred to the investor, instead of limiting relief to money damages.
- A cross-complaint is not a shield. The court rejected every claim the partner made against the investor.
- Fees and costs can add to a judgment. The court added attorneys’ fees and costs to the damages, with interest.
Frequently asked questions
Can an investor sue a business partner who lied about contributing his own money?
Yes, depending on the facts. A partner or LLC manager who misrepresents material facts to induce an investment can face claims for intentional misrepresentation, breach of fiduciary duty and breach of contract. In this case, a California jury found for the investor on all three claims.
What does a “malice, oppression or fraud” finding mean?
It is the finding California Civil Code section 3294 requires before a jury can award punitive damages. The plaintiff must prove it by clear and convincing evidence, a higher standard than most civil claims require. Here the jury made that finding against the partner and awarded $200,000 in punitive damages.
What is a constructive trust?
A constructive trust is a court-ordered remedy that treats a wrongdoer as holding property for the person who was wronged, to prevent unjust enrichment. In this case the court imposed one over all assets and equity of the LLC that the partner acquired and ordered them transferred to the investor.
Was the judgment appealed?
Yes. The judgment was appealed. The appeal was denied, and the judgment did not change.
Can an overseas investor sue in a California court?
Yes. In this case the investor lived outside the United States, and the case was tried in California because the property, the alleged conduct and the defendant were in California.
What interest does a California judgment earn?
California’s legal rate on most civil judgments is 10% per year. The judgment in this case provides for 10% interest on the damages and awards.
How long did the case take?
The jury returned its verdict at the end of a five-day trial, the court entered judgment after post-trial briefing on equitable remedies, and it signed a second amended judgment after fee and cost motions. The full process, including the appeal, took several years from filing to the final judgment. The judgment was appealed, and the appeal was denied.
Does this result guarantee the same outcome in my case?
No. Prior results do not guarantee, warrant, or predict a similar outcome in any future matter. This result depended on the facts of this case, and results will differ on different facts.
About the legal team
Fernald & Zaffos represents investors, LLC members and businesses in real estate fraud, fiduciary duty and business disputes in California courts. Brandon C. Fernald of Fernald & Zaffos was lead counsel in this case.
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Attorney advertising. Case results depend on the facts and legal issues of each case. Prior results do not guarantee, warrant, or predict a similar outcome in any future matter. Names of the parties, locations and case identifiers have been omitted. Because this page gives dates and amounts from a public court judgment, the matter can be located in court records. The background section describes the investor’s contentions as stated in the complaint except where the page states what the jury or the court decided. This page is general information, not legal advice.
This advertisement is the responsibility of Brandon C. Fernald, Fernald & Zaffos, 15910 Ventura Blvd, Suite 1702, Encino, CA 91436.