California Court of Appeal May 17, 2016 No. D067835Unpublished
Filed 5/17/16 Maguire v. Burns CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
JANIE L. MAGUIRE et al., D067835
Plaintiffs and Appellants,
v. (Super. Ct. No. 37-2011-00058607- CU-BC-NC) MARK BURNS,
Defendant;
PICKFORD REALTY, LTD.
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County, Earl H.
Maas III, Judge. Reversed with directions.
Business Law Group, Lowell Robert Fuselier and David J. Hart, for Plaintiffs and
Appellants.
Rheinheimer Smigliani and Jane A. Rheinheimer, for Defendant and Respondent
Pickford Realty.
No appearance for Defendant Mark Burns.
This case arises out of Janie and James Maguire's purchase of a vacant movie
theater in Escondido, California (the City), with hopes of turning it into a dinner theater.
Mark Burns, a real estate agent working under broker Pickford Realty Ltd. (Pickford),
represented the Maguires in the transaction. The Maguires eventually determined the
project was not feasible and sued Burns and Pickford, alleging Burns failed to adequately
investigate and misadvised them regarding obstacles to develop the property. Burns did
not appear in the action and the court entered default against him. After a bench trial, the
court awarded the Maguires $180,619.22 in damages against Burns plus prejudgment
interest. The court found the Maguires suffered the same amount of damages in regard to
Pickford, but reduced the award based on principles of comparative fault and declined to
award prejudgment interest. The Maguires appeal, contending the trial court erred in
reducing their damages because: (1) under principles of agency and respondeat superior,
Pickford was responsible for all damages caused by its agent, Burns; (2) the court's
finding that Burns committed fraud entitled them to an award of prejudgment interest
against Pickford; and (3) comparative fault principles do not apply. The Maguires also
argue the trial court failed to address their claim that Pickford's failure to supervise Burns
provided an alternative basis for a judgment against Pickford. Lastly, the Maguires
contend the trial court erred by granting Pickford summary adjudication on their claim
for breach of contract. We conclude that under the doctrine of respondeat superior,
Pickford is liable for Burns's fraud, the resulting damages and prejudgment interest.
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FACTUAL AND PROCEDURAL BACKGROUND
In 2007, Janie started to search for property to develop into a dinner theater.
James supported the project, but did not have as much involvement in it. Janie worked as
a short sale specialist for Chase Bank and, at one point, had a real estate license.
However, she wanted a realtor to assist her with purchasing a property for her project
because she did not have experience with commercial real estate transactions.
Janie retained an architect and engineer to assist her with evaluating properties for
the dinner theater project. She also contacted Burns about her project. Burns was a real
estate licensee working under broker Pickford, doing business as Prudential California
Realty. Burns explained to Janie that he had extensive experience with commercial real
estate transactions and had worked with redevelopment agencies.
In February 2008, Janie utilized Burns to submit an offer on the Ritz Theater, a
former movie theater in the City. The building was old and in a dilapidated condition.
The parties went through multiple rounds of counteroffers.
Recognizing the substantial repairs needed on the property, the sellers' agents told
Burns that the seller was willing to enter into an option agreement, which would allow
the Maguires to do their due diligence. Burns did not convey this information to Janie.
In March 2008, while negotiations were ongoing, Burns informed the sellers' agents that
he did not believe the project was risky and was acting as Janie's real estate advisor for
the next two years. Burns also stated he had experience with entitlements and
redevelopment agencies and would "make certain we get thru & get fully entitled."
Burns had a dispute with the sellers' agents regarding payment of commissions, with
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Burns requesting full commission at the close of escrow, despite seller financing terms
over two years.
Approximately two weeks later, Burns accompanied Janie and her architect to a
meeting with representatives of the City to discuss the dinner theater project. According
to Janie, the City was enthusiastic about the project and encouraged her to move forward
with it. Janie did not do any investigation regarding the feasibility of her dinner theater
project with the City's planning, utilities, or engineering departments because she
believed Burns was doing the investigation for her.
In May 2008, Burns drafted an offer for the Maguires to purchase the property for
$950,000, which included $875,000 in seller financing, with a closing in 21 days. Like
the Maguires' previous offer, Burns wrote the new offer on a standard California
Association of Realtors Commercial Property Purchase Agreement form (Purchase
Agreement). That Purchase Agreement set forth the scope of the broker's duties in the
transaction. In that regard, it provided that the Maguires agreed brokers:
"(ii) do not guarantee the condition of the Property[;] (iii) do not guarantee the performance, adequacy or completeness of inspections, services, products or repairs provided or made by Seller or others; (iv) shall not be responsible for identifying defects that are not known to Broker(s); (v) shall not be responsible for inspecting public records or permits concerning the title or use of the Property; . . . and (ix) shall not be responsible for providing other advice or information that exceeds the knowledge, education and experience required to perform real estate licensed activity. Buyer and Seller agree to seek legal, tax, insurance, title and other desired assistance from appropriate professionals."
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The Maguires also agreed to a Buyer's Inspection Advisory, which provided:
"Brokers do not have expertise in all areas and therefore cannot advise you on many items, such as . . . the condition of roof, plumbing, heating, air conditioning, electrical, sewer, septic, waste disposal, or other systems. The only way to accurately determine the condition of the Property is through an inspection by an appropriate professional selected by you. . . . YOU ARE STRONGLY ADVICED TO INVESTIGATE THE CONDITION AND SUITABILITY OF ALL ASPECTS OF THE PROPERTY. IF YOU DO NOT DO SO, YOU ARE ACTING AGAINST THE ADVICE OF BROKERS."
When Burns provided the Purchase Agreement to Janie for approval, they had a
discussion concerning Burns's investigation of the property with the City. Burns stated
that he had not found anything detrimental to the project and "everything was a go." The
sellers accepted Janie's offer in late May 2008.
In June 2008, the sellers sent the Maguires a letter stating they were willing to
cancel or restructure the deal because they believed the Maguires were "uninformed
buyer[s]" and did not understand obstacles to redeveloping the property. The sellers also
stated they believed the property was worth only between $600,000 and $750,000. Prior
to the close of escrow, the Maguires met with the sellers to discuss the sellers' concerns.
The sellers stated the Maguires were paying too much for the property and Burns was not
representing the Maguires well. The Maguires did not contact anyone at Pickford
regarding the sellers' concerns. The escrow for the property closed in late June 2008.
In October 2010, Janie submitted a plan to the City for development of the dinner
theater project. Thereafter, the City informed Janie that her project was not feasible as
proposed because the City's waterline infrastructure was not sufficient to serve the needs
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of the development. The Maguires eventually concluded the infrastructure issues were
too big of a hurdle for them and deeded the property back to the sellers.
The Maguires incurred costs in connection with their ownership of the property,
including interest, taxes, utilities, and development costs, totaling $180,619.22. They
sued Burns and Pickford to recover these costs, alleging causes of action for breach of
oral contract, negligence, breach of fiduciary duty, and fraud. The Maguires asserted that
Pickford and Burns failed to disclose the opportunity for an option agreement, allowed
escrow to close without recommending that the purchase be contingent on development
approvals from the City, and failed to conduct an adequate investigation to determine if
the property was feasible for its intended use.
The trial court granted Pickford summary adjudication on the Maguires' breach of
oral contract claim. After a bench trial on the remaining causes of action, the trial court
found Burns was negligent in his representation of the Maguires and breached his
fiduciary duties to them. The court also found that Burns, but not Pickford, committed
fraud "in asserting his knowledge of the development potential of the property, inspecting
public records and interacting with public officials, determining the quality of public
utilities representing himself as having knowledge and skills that exceed that generally
required to perform real estate activity." The court awarded the Maguires $180,619.22 in
damages against Burns plus prejudgment interest. The court found the Maguires suffered
the same amount of damages in regard to Pickford, but reduced the award based on
principles of comparative fault and declined to award prejudgment interest.
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DISCUSSION
I. Agency and Respondeat Superior Liability
The Maguires argue the trial court erred in finding Pickford was not liable for all
damages caused by Burns. Specifically, they assert that under principles of agency and
respondeat superior, Pickford was responsible for Burns's fraudulent acts and their
resulting damages. We agree.
Under the respondeat superior doctrine, a principal is vicariously liable for the
conduct of its agent or employee acting within the scope of the agency relationship. (Otis
Elevator Co. v. First Nat. Bank of San Francisco (1912) 163 Cal. 31, 39; Civ. Code,
§ 2338.) The plaintiff has the burden of proving that the agent's tortious act was
committed within the scope of his employment. (Mary M. v. City of Los Angeles (1991)
54 Cal.3d 202, 209.) Ordinarily this is a question of fact, but it becomes one of law
"when the facts are undisputed and no conflicting inferences are possible." (Perez v. Van
Groningen & Sons, Inc. (1986) 41 Cal.3d 962, 968.)
" ' "[W]here the question is one of vicarious liability, the inquiry [with respect to
the question whether an employee was acting within the scope of his employment] should
be whether the risk was one 'that may fairly be regarded as typical of or broadly
incidental' to the enterprise undertaken by the employer." ' " (Farmers Insurance Group
v. County of Santa Clara (1995) 11 Cal.4th 992, 1003 (Farmers), citations and italics
omitted.) "Categorization of an employee's action as within or outside the scope of
employment . . . begins with a question of foreseeability." (Lazar v. Thermal Equipment
Corp. (1983) 148 Cal.App.3d 458, 464 (Lazar).) " ' "[F]oreseeability" as a test for
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respondeat superior merely means that in the context of the particular enterprise an
employee's conduct is not so unusual or startling that it would seem unfair to include the
loss resulting from it among other costs of the employer's business.' " (Farmers, at
p. 1004, italics omitted.)
"In California, the scope of employment has been interpreted broadly under the
respondeat superior doctrine." (Farmers, supra, 11 Cal.4th at p. 1004.) "An employer
may therefore be vicariously liable for the employee's tort—even if it was malicious,
willful, or criminal—if the employee's act was an 'outgrowth' of his employment, ' "
'inherent in the working environment,' " ' ' " 'typical of or broadly incidental to' " ' the
employer's business, or, in a general way, foreseeable from his duties. [Citation.] By
contrast, an employer will not be held liable under the respondeat superior doctrine for
conduct that occurs when the employee 'substantially deviates from the employment
duties for personal purposes' or acts out of personal malice unconnected with the
employment, or where the conduct is ' "so unusual or startling that it would seem unfair
to include the loss resulting from it among other costs of the employer's business." ' "
(Yamaguchi v. Harnsmut (2003) 106 Cal.App.4th 472, 482.)
Here, there is no dispute that Burns was acting as Pickford's agent when he
represented the Maguires. The trial court found that Burns committed fraud upon the
Maguires in asserting his knowledge of the property's development potential, inspecting
public records and interacting with public officials, determining the quality of public
utilities, and representing himself as having knowledge and skills exceeding those
generally required to perform licensed real estate activity. The court concluded Pickford
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was not responsible for Burns's fraud. In reaching this conclusion, the trial court relied in
part on its finding that "[t]here was no evidence that [the Maguires'] and Burns'[s]
decision to go beyond the [Purchase Agreement's] exclusions [concerning the scope of a
broker's duties] was ever conveyed to Pickford." However, this is not the proper test for
determining respondeat superior liability. Rather, the appropriate inquiry is whether
Burns was acting within the scope of his employment, which requires a determination of
forseeability.
Under the proper test, the evidence established Burns's wrongful conduct was
foreseeable and an outgrowth of and incidental to Pickford's real estate business. The
evidence showed that Burns's statements regarding the property's development potential
and that "everything was a go" with the City were part and parcel of his representation of
the Maguires in their purchase of the property. Burns marketed himself to Janie by
telling her that he had extensive experience with commercial real estate transactions and
had worked with redevelopment agencies. Further, while negotiations regarding the
theater property were ongoing, Burns accompanied Janie to a meeting with City
representatives to discuss the dinner theater project. Pickford's own expert conceded that
if an agent agrees to engage in an investigation of a property to determine if it would
work for a particular project, that investigation "may be" within the scope of a real estate
agent's licensed activity. Thus, Burn's activities were reasonably foreseeable. Even if
Burns's misrepresentations were for personal purposes, "where the servant is combining
his own business with that of his master, or attending to both at substantially the same
time, no nice inquiry will be made as to which business the servant was actually engaged
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in when a third person was injured." (Lazar, supra, 148 Cal.App.3d at pp. 466-467.)
Based on the foregoing, we conclude Burns was acting within the scope of his
employment when he committed fraud.
Like the trial court, Pickford relies on the exclusions in the Purchase Agreement
and Buyer's Inspection Advisory regarding the scope of a broker's duties to assert that it
should not be responsible for Burns's fraud because the Maguires were aware of
limitations on Burns's work. In that regard, Pickford points to Civil Code section 2318,
which states: "[e]very agent has actually such authority as is defined by [Title 9 of the
Civil Code pertaining to agency], unless specially deprived thereof by his principal, and
has even then such authority ostensibly, except as to persons who have actual or
constructive notice of the restriction upon his authority." (Italics added; undesignated
statutory references are to this code.) Pickford's reliance on section 2318 is unavailing.
Although the Purchase Agreement and Buyer's Inspection Advisory set forth the
scope of a broker's duties generally, nothing in those documents prevented Burns from
voluntarily assuming those responsibilities. The experts in this case agreed that although
a broker is not obligated to conduct a due diligence investigation for his client, he can
assume that responsibility and, if he does so, such an investigation would fall within the
scope of a real estate license. Accordingly, despite their knowledge of the limitations on
a broker's duties set forth in the Purchase Agreement and Buyer's Inspection Advisory,
the Maguires could rely on Burns's apparent authority to perform investigatory duties for
them. As the principal, Pickford was responsible for Burns's wrongful conduct stemming
from the agency.
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At oral argument, Pickford argued that a principal is not liable for actions
undertaken by its agent before the buyer and seller to a real estate transaction enter into a
purchase and sale agreement and open escrow. Pickford did not offer any authority to
support this proposition. Regardless, we need not address this argument, as it was made
for the first time at oral argument. (BFGC Architects Planners, Inc. v. Forcum/Mackey
Construction, Inc. (2004) 119 Cal.App.4th 848, 854 ["We will not consider an issue not
mentioned in the briefs and raised for the first time at oral argument."].) Further, we
would reject the argument because even before the Purchase Agreement, Burns, as an
agent for Pickford, engaged in extensive negotiations and submitted multiple offers to
purchase the dinner theater property on behalf of the Maguires. As required by his
independent contractor agreement with Pickford, Burns conducted this licensed activity
in the name of Pickford and the Maguires' offer to purchase confirmed the agency
relationship. Thus, Pickford can be held liable for Burns's conduct before the Purchase
Agreement that was foreseeable and incidental to Pickford's business.
Based on the foregoing, we conclude Pickford was liable for the full amount of
damages caused by Burns's fraud upon the Maguires.
II. Comparative Fault
The Maguires argue the trial court erred in applying comparative fault principles
to reduce their damages because that doctrine does not apply to fraud. We agree.
Comparative fault is not a defense to a claim for fraud. (Godfrey v. Steinpress
(1982) 128 Cal.App.3d 154, 176.) In Carroll v. Gava (1979) 98 Cal.App.3d 892, a
property buyer sued the seller alleging the seller misrepresented that the property was
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zoned for mobile home use. (Id. at p. 894.) The seller argued comparative negligence
should defeat the damage award in favor of plaintiff. (Id. at p. 895.) In rejecting this
argument, the court reasoned: "the concept has no place in the context of ordinary
business transactions. . . . This straightforward approach provides an essential
predictability to parties in the multitude of everyday exchanges; application of
comparative fault principles, designed to mitigate the often catastrophic consequences of
personal injury, would only create unnecessary confusion and complexity in such
transactions." (Id. at pp. 896-897.)
Here, Pickford does not dispute the proposition that comparative fault principles
do not apply to fraud. Instead, it argues that the trial court correctly applied comparative
fault because it found Pickford was liable only for Burns's negligence, not his fraud. As
we explained, Pickford is liable for Burns's fraud under the doctrine of respondeat
superior. Accordingly, comparative fault does not apply to reduce the Maguires'
damages resulting from fraud upon them.
III. Prejudgment Interest
The Maguires argue the trial court erred by declining to award them any
prejudgment interest as against Pickford. We agree.
Under section 3288, "in every cause of oppression, fraud, or malice, interest may
be given, in the discretion of the [trier of fact]." "[S]ection 3287, subdivision (a) provides
that a party is entitled to recover prejudgment interest on an amount awarded as damages
from the date that the amount was both (1) due and owing and (2) certain or capable of
being made certain by calculation. . . . [¶] Damages are certain or capable of being made
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certain by calculation, or ascertainable, for purposes of . . . section 3287, subdivision (a)
if the defendant actually knows the amount of damages or could compute that amount
from information reasonably available to the defendant. . . . In contrast, damages that
must be judicially determined based on conflicting evidence are not ascertainable.
[Citations.] A legal dispute concerning the defendant's liability or uncertainty concerning
the measure of damages does not render damages unascertainable. [Citations.] On
appeal, we independently determine whether damages are ascertainable for purposes of
the statute." (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 919.)
Here, the trial court declined to award prejudgment interest pursuant to section
3288. The court also determined that prejudgment interest "[was] not recoverable
under . . . [section] 3287 [subdivision] (a) since damages were not certain as to Defendant
Pickford until the Court apportioned fault." Assuming without deciding that the trial
court acted within its discretion in not awarding prejudgment interest under section 3288,
we consider whether the court properly concluded prejudgment interest was not
recoverable under section 3287, subdivision (a).
As we explained, comparative fault does not apply in this case because Pickford is
responsible for Burns's fraud under the doctrine of respondeat superior. Given that the
trial court calculated and awarded the Maguires prejudgment interest against Burns in the
amount of $70,196.02, the amount was clearly ascertainable. Thus, the Maguires were
entitled to recover the same prejudgment interest from Pickford on the damages resulting
from Burns's fraud.
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IV. Failure to Supervise Claim
The Maguires argue Pickford's failure to supervise Burns provided an alternative
and independent basis to award the full amount of damages against Pickford. Pickford
claims the Maguires waived the issue on appeal by failing to object to the trial court's
statement of decision on that issue. Having concluded that Pickford is liable for the full
amount of damages resulting from Burns's fraud, we need not address the failure to
supervise claim.
V. Breach of Contract
A. Additional Background
The Maguires asserted a breach of contract cause of action, claiming they had an
oral contract with Burns in which he agreed to act as their agent in the purchase of the
property, conduct an investigation with the City regarding the feasibility of the project,
and draft a purchase agreement which protected the Maguires' interests. The trial court
granted Pickford summary adjudication on the Maguires' breach of oral contract claim.
B. Analysis
The Maguires argue the trial court erred by granting Pickford summary
adjudication on their claim for breach of contract. They contend, however, that the
argument is moot "[i]f the trial court is reversed with respect to the award of all
compensatory damages as against [Pickford]." Having concluded that Pickford is liable
for all damages arising from Burns's fraud, we accept the Maguires' concession that their
breach of contract argument is moot.
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DISPOSITION
The judgment is reversed and the trial court is directed to enter a new judgment
against Pickford awarding the Maguires $180,619.22 in compensatory damages plus
prejudgment interest to the date of the new judgment. The Maguires are entitled to their
costs on appeal.
McINTYRE, J.
WE CONCUR:
McCONNELL, P. J.
HALLER, J.
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AI Brief
AI-generated · verify before citing
Holding. The court held that a real estate broker is vicariously liable under the doctrine of respondeat superior for the fraud committed by its agent, and that comparative fault principles do not apply to reduce damages in cases of fraud.
Issues
Whether a real estate broker is vicariously liable for an agent's fraud under the doctrine of respondeat superior.
Whether comparative fault principles apply to reduce damages in a fraud action.
Whether the plaintiffs are entitled to prejudgment interest against the broker for the agent's fraud.
Disposition. reversed
Quotations verified verbatim against the opinion
“We conclude that under the doctrine of respondeat superior, Pickford is liable for Burns's fraud, the resulting damages and prejudgment interest.”
“Comparative fault is not a defense to a claim for fraud.”
“The judgment is reversed and the trial court is directed to enter a new judgment against Pickford awarding the Maguires $180,619.22 in compensatory damages plus prejudgment interest to the date of the new judgment.”