Opinion
and defendants Roman Praszker (Praszker) and West & Praszker Realtors, Inc. (West & Praszker) have filed a joint application for stipulated reversal of a judgment against the defendants as part of a settlement of the above action, which is now pending on appeal in this court.
For the reasons explained below, we will grant the request as to West & Praszker, but under the “extraordinary circumstances” exception to the rule pronounced in Neary v. Regents of the University of California (1992) 3 Cal.4th 273 [10 Cal.Rptr.2d 859, 834 P.2d 119], we will deny the request as to defendant Roman Praszker.
[1817]Background
The judgment the parties now seek to have reversed was entered after the case was remanded to the superior court for reasons set forth by this court in Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35 [269 Cal.Rptr. 228] (Krug).
In that opinion we affirmed the judgment of the trial court in favor of Krug but remanded to the superior court to make new findings and an apportionment of Krug’s damages based on his own comparative negligence. (Krug, supra, 220 Cal.App.3d at p. 45.) On remand, the superior court issued an amended judgment reducing Krug’s damage award from $27,144.73 to $14,929.60. Krug appealed from the amended judgment.
Soon after the appeal was filed, counsel for the parties requested a settlement conference (Ct. App., First Dist., rule 3(c)(1)), which was held before a justice of another division. On March 15, 1993, counsel jointly filed a “Stipulation Regarding Dismissal, Costs and Remittitur” stating in its entirety that the parties “hereby stipulate, by and through their attorneys of record, that the appeal be dismissed, that the parties are to bear their own costs and that the remittitur issue forthwith.” Two days later the presiding justice of this division issued an order stating that “Counsel having so stipulated, the appeal on file herein is ordered dismissed with each party to bear its own costs on appeal and the remittitur is to issue forthwith.” The remittitur issued the same day.
On March 29, 1993, the parties filed a stipulation seeking recall of the remittitur so that we could reassert jurisdiction and issue another remittitur in line with an intention of the parties not previously disclosed. As stated in this second stipulation, the parties “miscommunicated their intentions as to the filing of the Stipulation with the court and did not intend for a remittur [sic] to issue solely pursuant to that Stipulation.” Evidently, the stipulation filed on March 15, upon which the court acted, did not accurately represent the intention of the parties and was inconsistent with a “Joint Application” filed two days later, which the court had not seen at the time it issued the order dismissing the appeal.
The joint application states:
“1. Appellant and respondents have entered into an agreement pursuant to which they have resolved their disputes embodied in this appeal and the underlying Superior Court action.
“2. Appellant and respondents agree that the September 24, 1992 judgment of the Superior Court of the City and County of San Francisco . . . should be reversed. [Italics added.]
[1818]“3. On remand, appellant and respondents further agree that the Superior Court in and for the City and County of San Francisco should be directed to dismiss this entire action with prejudice.
“4. Appellant and respondents agree that this agreement and joint application have not been obtained by fraud or deceit but rather were entered into based upon good faith negotiations and after consultation with their respective counsel.
“5. Appellant and respondents agree to bear their own costs of appeal.
“6. This joint application is based upon this application, the points and authorities filed herewith, and the record on file herein.”
The points and authorities filed with the joint application consists of five sentences and relies entirely on the holding in Neary v. Regents of the University of California, supra, 3 Cal.4th 273 (Neary). In Neary, the California Supreme Court held “that, when the parties to an action agree to settle their dispute and as part of their settlement stipulate to a reversal of the trial court judgment, the Court of Appeal should grant their request for the stipulated reversal absent a showing of extraordinary circumstances that warrant an exception to this general rule.” (Id., at p. 284.) The parties’ joint application states simply that because “no extraordinary circumstances exist herein [the] joint application should be granted and the lower court’s judgment reversed with instructions to dismiss the case with prejudice.”
Discussion
I
Neary states that “[s]imple fairness requires that the first and most weighty consideration be given to the parties’ interests and that they be accommodated except in the [most] extraordinary case. The parties are the persons (or entities) most affected by a judgment, which is the ultimate product of their sustained effort and expense. [Citation.] Homilies about ‘judicial integrity’ and ‘legal truth’ will ring hollow in the ears of the parties. The courts exist for litigants. Litigants do not exist for courts.” (Neary, supra, 3 Cal.4th at p. 280.)
Neary goes on to hold that an “extraordinary circumstance” justifying denial of a request for stipulated reversal exists when reversal would adversely affect the public interest. (Neary, supra, 3 Cal.4th at p. 284.) The particular public interest, however, may not be “amorphous and speculative,” but must be “specific, demonstrable, well established, and compelling.” (Id., at p. 283.) The opinion provides little guidance, however, as to [1819]the nature of the “extraordinary circumstances” warranting an exception to the general rule that such requests will be granted. The court simply announced a “presumption in favor of stipulated reversal” while at the same time stating that the determination whether extraordinary circumstances exist “must be made on a case-by-case basis.” at p. 284.)
Since Neary creates a presumption in favor of a stipulated reversal and the parties are under no requirement to come forward with evidence that the public interest exception does not apply, we face a considerable handicap in performing our duty to ensure that, in any given case, “no countervailing factors are present, e.g., a contrary public interest.” (Neary, supra, 3 Cal.4th at p. 284.) Indeed, under normal circumstances, no facts will be available to the court unless a nonparty comes forward and objects to the settlement or unless some problem is apparent from the record. Thus, Neary imposes an unusual and difficult responsibility on the courts of appeal.
In an effort to fulfill our duty to ascertain whether the proposed stipulated reversal might fall within the Neary exception, we asked the parties to submit letter briefs responding to a series of questions on the subject. One of our inquiries stated: “In making the ‘ case-by-case ’ analysis required to determine whether ‘extraordinary circumstances’ exist warranting departure from the presumption in favor of stipulated reversal, . . . should this court rely solely on the joint representation of the parties that there are no such circumstances[?] Is there any reason the court should not require the stipulating parties to provide notice of their request to the trial judge and/or other parties known to be interested in the case or the public, advising that objections to the request (on the ground that the judgment in question may have collateral estoppel effect or because of ‘extraordinary circumstances’) may be submitted to the appellate court within a specified period?”
In response, counsel for defendants wrote “[t]he underlying action and this resulting appeal involve a 1982 real estate dispute between two brokers. . . . [And] ... it does not seem possible that the resolution of this dispute by settlement could prejudice third parties and no such interested parties are known to counsel for either broker.”
Fortuitously, information not called to our attention by the parties suggests that reversal of the entire judgment in this case might well adversely affect a “specific, demonstrable, well established, and compelling” public interest.
II
Unlike the vast majority of cases in which stipulated reversal will be sought, the present case was the subject of an earlier appeal in which the [1820]underlying substantive issues were addressed in a published opinion. Our opinion in the earlier appeal, which issued more than three years ago, was not adverted to in the request for stipulated reversal. The opinion relates the following facts.
Krug, a real estate investor, possessed a promissory note from a former partner secured by a third deed of trust on an apartment building. Krug agreed not to record the deed in order to facilitate refinancing of the property. When the former partner defaulted on the note and the building was put up for sale, Praszker was the listing real estate broker. Praszker disclosed the existence of the unrecorded deed of trust to a buyer initially interested in the building, but that sale collapsed. One month later, however, the property was sold to the Noble Group, with Praszker acting as the realtor for both buyer and seller. “At no time did Praszker inform Krug of the pending sale to the Noble Group, nor did he tell the Noble Group of the existence of Krug’s unrecorded lien.” (Krug, supra, 220 Cal.App.3d 35, 40.) As a result of the sale, Krug lost his security interest in the property. Krug sued Praszker and the court ruled in his favor. The chief issue on appeal was whether Praszker owed a duty to disclose to the buyer the existence of the third deed of trust or inform Krug of the impending escrow and sale. We held that he did. (Id., at p. 43.) After discussing the case law that recognizes “a fundamental duty on the part of a realtor to deal honestly and fairly with all parties in the sale transaction [citations]” (id, at p. 42), we pointed out that “[t]he imposition of a duty on a realtor to disclose a known unrecorded lien interest is [also] supported by standards already existing in the indus try.” (Id., at p. 42, citing provisions of the code of ethics of the National Association of Realtors.) We emphasized that “[b]oth the policy of preventing future harm and considerations of moral blame compel the imposition of a duty on the part of a realtor never to allow a desire to consummate a deal or collect a commission to take precedence over his fundamental obligation of honesty, fairness and full disclosure toward all parties.” (Id., at p. 43.)
Although we explicitly found that Praszker had a duty of care and that the evidence supported the trial court’s determination that the duty had been breached, we agreed with Praszker that “the trial court erred in failing to apportion the damages suffered by Krug to the extent by which they were proximately caused by his own negligence.” (Krug, supra, 220 Cal.App.3d at p. 45.)
As noted earlier, the trial court on remand simply filed an amended judgment reducing the dollar amount of the award. Thus, our holding that Praszker’s failure to disclose violated a real estate broker’s duty of care is implicit in the amended judgment and remains intact.
[1821]The public interest exception to the presumption that requests for stipulated reversal will be granted cannot be defined by formula, though it will more likely be present when the judgment in question involves important public rights, unfair, illegal or corrupt practices, or torts affecting a significant number of persons. Whether stipulated reversal would deprive the public of an important benefit must in every case be determined “ ‘from a realistic assessment of all the pertinent circumstances.’ [Citation.]” (California Common Cause v. Duffy (1987) 200 Cal.App.3d 730, 745 [246 Cal.Rptr. 285].)
Civil judgments against state licensed professionals or tradespersons obtained upon grounds of “[djishonesty, fraud or gross negligence” (see, e.g., Bus. & Prof. Code, § 5100, subd. (c) [accountants]), or failure to comply with certain contractual obligations (see, e.g., id., §§ 7113 [contractors] and 9993, subd. (h) [employment agencies]), often provide a basis for license suspension or revocation. Entry of a judgment in these cases thus carries a salutary effect which goes beyond the dispute between the parties and affects the public interest. A reversal of such a judgment not due to legal error but solely to effectuate settlement between the parties might deprive the state and its regulatory boards of information necessary to protect the public against incompetent or unethical licensees.
Here, stipulated reversal of the judgment against Praszker would interfere with the disciplinary scheme set forth in California’s Real Estate Law. Section 10177.5 of the Business and Professions Code (all further unspecified statutory references are to that code) states that “When a final judgment is obtained in a civil action against any real estate licensee upon grounds of fraud, misrepresentation, or deceit with reference to any transaction for which a license is required under this division, the commissioner may [after hearings] . . . suspend or revoke the license of such real estate licensee.” “Deceit” is defined in the Civil Code as including “The suppression of a fact, by one who is bound to disclose it. . . .” (Civ. Code, § 1710, subd. (3).) Misrepresentation may be intentional or negligent. (1 Miller & Starr, Cal. Real Estate (2d ed. 1989) §§ 1:103, 1:104 [Miller & Starr].) “A negligent misrepresentation is a species of ‘actual fraud’ and a form of deceit.” § 1.104, at p. 334.)
One of the purposes of the Real Estate Law, of which that statute is a part, “is to insure, as far as possible, that real estate licensees will be honest and truthful in their dealings with members of the public.” (State of California v. Superior Court (1984) 150 Cal.App.3d 848, 856 [197 Cal.Rptr. 914], italics added, citing Brown v. Gordon (1966) 240 Cal.App.2d 659, 667 [49 [1822]Cal.Rptr. 901]; Buckley v. Savage (1960) 184 Cal.App.2d 18, 31-32 [7 Cal.Rptr. 328].) Accordingly, the real estate commissioner may discipline a licensed broker for failure to disclose even if the broker was not intentionally fraudulent or dishonest (De St. Germain v. Watson (1950) 95 Cal.App.2d 862, 867 [214 P.2d 99]) and it is immaterial that he received no advantage from his failure to disclose. (Id., at p. 870.) Praszker’s breach of duty here falls within the type of conduct which could be grounds for disciplinary action.
Recently this court (Division One) held that under section 10177.5, “. . . if the elements of fraud have been proved in the civil action, collateral estoppel principles bar the licensee from attempting to relitigate those facts” in disciplinary proceedings before the commissioner. (California Real Estate Loans, Inc. v. Wallace (1993) 18 Cal.App.4th 1575, 1582 [23 Cal.Rptr.2d 462], review den. Dec. 30, 1993.)
Here, a reversal of the judgment against Praszker, stipulated or not, would effectively deprive the commissioner of the ability to act pursuant to section 10177.5.1 It would be unconscionable to make it possible for a real estate broker who may have acted unethically to purchase disciplinary immunity from one of the consequences of his impropriety. Our conclusion is underscored by the fact that, unlike analogous statutes pertaining to professional licensees,2 the Real Estate Law does not require licensed brokers or their insurers to notify the regulatory agency of the settlement of [1823]a claim for damages caused by the broker’s fraud, deceit, negligence, incompetence or recklessness.
A reversal of this judgment would also be contrary to the public interest for other reasons. First, unlike vacatur, the analogous remedy allowed by some federal courts, “reversal” connotes the affirmative rejection of a judgment. “To reverse a judgment, according to Webster’s dictionary, means to over-throw it by a contrary decision, to make it void, to undo or annul it for error.” (Atlantic Coast Line Railroad Co. v. St. Joe Paper Co. (5th Cir. 1954) 216 F.2d 832, 833.) A court-ordered reversal of the judgment could well be interpreted as a judicial nullification of our holding in Krug that Praszker violated his professional duty of care as a real estate broker. Because of this common understanding of the effect of “reversal,” the danger cannot be obviated by a provision in our order that the reversal “is pursuant to settlement and does not constitute either approval or rejection of the trial court’s judgment,” as Neary allows. (Neary, supra, 3 Cal.4th 273, 283.)
Second, the precedent caused by a settlement-generated reversal in a case such as this would have dangerous public policy implications. Permitting a licensee to “buy his way out” from under a judgment which might form the basis for disciplinary action by settling at the appellate level would not only reduce incentives for wealthier licensees to conform their conduct to the standards imposed by their profession but also render it less likely that they will settle cases prior to judgment, since a licensee-defendant is more apt to gamble on taking his case to trial if the disciplinary consequences of an unfavorable judgment may ultimately be avoided by settling the case in the Court of Appeal. (See Neary, supra, 3 Cal.4th at p. 290 (dis. opn. of Kennard, J.).)
We conclude that when a judgment in a civil action is against a state licensee and such judgment may provide the basis for disciplinary action against that licensee, an appellate court may deny an application for stipulated reversal based upon the “public interest” exception carved out in Neary.
Ill
In a prior decision of this court which this opinion supersedes, we denied the motion as to both Praszker and West & Praszker. We granted rehearing [1824]and calendared this motion for oral argument after being advised of the fact that Praszker no longer owns West & Praszker, having sold the business in 1985 to Michael Klestoff under whose license it now operates. Counsel for defendants informs us that Klestoff wishes to have the judgment vacated for reasons which include bonding, insurance and business reputation. Counsel further represents that Praszker is of advanced age, no longer licensed as a broker, and in ill health.
The incremental and haphazard fashion in which important information regarding this case has come to us highlights the dilemma posed by Neary. Faced with a presumption in favor of reversal but concurrent duty to apply the extraordinary circumstance exception on a “case-by-case” basis, we made a general inquiry as to the effect of the proposed reversal on third parties. Counsel represented that to their knowledge no third parties would be affected, but failed to mention our earlier published decision and the possible ramifications of a stipulated reversal due to the provisions of the Real Estate Law noted above. Only after we issued an opinion denying the motion in its entirety did the parties step forward with further information causing us to reevaluate our earlier conclusions.
In order to alleviate such problems in future cases, this district has adopted local rule 8 (eff. Jan. 18, 1994) entitled “Motions for Stipulated Reversal of Judgment” which requires the parties to inform the court of certain facts which might indicate that reversal of the judgment would be contrary to the public interest.3
The facts brought to our attention in the petition for rehearing warrant granting the motion as to West & Praszker. That agency has been sold by Praszker and is now owned and operated by a third party, who had nothing to do with the transaction underlying the judgment. Consequently, there are no extraordinary circumstances which merit denial of the motion as to the agency.
We reach a different conclusion as to Praszker, the individual. Defendants’ representations which indicate the unlikelihood that the judgment will [1825]in fact ever be used as a basis for disciplining Praszker are, as we see it, irrelevant. One of the purposes for the Neary rule is to spare appellate courts the burden of expending significant resources necessitated by detailed fact-finding inquiries in individual cases (3 Cal.4th at p. 284). That Praszker is no longer active in the real estate community is a fortuitous event which in no way diminishes the policy reasons against court-ordered reversal in a case such as this.
In our view, it is enough that the judgment may provide the basis for disciplinary action against the defendant and that reversal impinges, or appears to impinge, upon the authority of a state agency to regulate real estate licensees and thereby protect the public. As noted, reversal would also present the appearance of judicial eradication of an important prior published opinion of this court defining the duties of real estate brokers. For all of these reasons, we find that reversal of the judgment against Roman Praszker would be contrary to the public interest as defined in Neary and that his application for stipulated reversal should be denied.
Disposition
The joint application for recall of remittitur is granted. Pursuant to the parties’ stipulation for settlement, the judgment appealed from is reversed and the trial court directed to dismiss the action with prejudice as to defendant West & Praszker only. Said reversal does not represent a considered rejection by this court of the judgment below. This order shall not affect the judgment against defendant Praszker.
Benson, J., concurred.
Defendants claim that the judgment no longer can form the basis for disciplinary action against Praszker because section 10101 provides that an accusation against a state licensee must be filed no later than three years from the occurrence of the alleged grounds for disciplinary action unless it involves “fraud, misrepresentation or false promise in which case the accusation shall be filed within one year after the date of discovery by the aggrieved party” of the fraud, etc. Since Krug’s complaint was filed on March 18, 1985, defendants hypothesize that the commissioner’s power to impose discipline expired, at the latest, on March 18, 1988.
The argument is misconceived. Krug is not the “aggrieved party” referred to in section 10101. Under the statutory scheme, the commissioner is not limited to responding to complaints from third parties, but may act on his own motion. (§ 10176.) Here, the commissioner’s authority under section 10177.5 is based on the entry of a final judgment against the licensee on grounds of fraud or misrepresentation. It is the judgment, not the misconduct, which is the triggering event enabling the Commissioner to launch an investigation, possibly leading to an accusation and disciplinary proceedings. (See 2 Miller & Starr, supra, § 4:47, pp. 323-327.) Because the ground for discipline is the entry of a final judgment (of which none exists here yet) the commissioner’s power to act under section 10177.5 is not time-barred under section 10101.
A few statutes require certain state licensing agencies to be informed by licensees or their insurers of settlement or arbitration awards on claims for damages caused by the licensee’s “fraud, deceit, negligence, incompetency, or recklessness in practice” (§§ 5588, 5589 [architects]; see also §§ 801, 802 [health care providers].) Such statutes complement related [1823]statutes requiring that the regulatory agency be directly notified by the trial court where such an unsettled claim results in a civil judgment against the licensee. (§§ 803, 5590.)
Local rule 8 provides: “A motion filed in this court for stipulated reversal of a judgment of a trial court must include a joint declaration of counsel that (1) describes the parties and the factual and legal issues presented at trial; (2) indicates whether the judgment involves important public rights or unfair, illegal or corrupt practices, or torts affecting a significant number of persons, or otherwise affects the public or a significant number of persons not parties to the litigation (if the judgment is against a state licensee, the declaration must also disclose whether it exposes such person to any possible disciplinary proceeding); and (3) discloses whether the judgment sought to’ be reversed may have collateral estoppel or other effects in potential future litigation and, if so, whether any third parties who might be prejudiced by stipulated reversal of the judgment have received notice of the motion therefor. A copy of the judgment must accompany the motion.”