Green v. Johnson CA2/6

Filed 4/25/13 Green v. Johnson CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 SIX

KEVIN GREEN et al., 2d Civil No. B239546 (Super. Ct. No. 56-2008- Plaintiffs and Respondents, 00330015-CU-BT-SIM) (Ventura County) v.

PAUL D. JOHNSON,

Defendant and Appellant.

Investors in trust deeds sued the broker who arranged the loans when the loans went into default. The trial court found the broker liable for negligent misrepresentation and breach of fiduciary duty, and awarded damages measured by the benefit of the bargain. The trial court also found the broker violated numerous provisions of the Business and Professions Code, and awarded restitution of commissions and fees. On appeal, the broker contends the judgment for negligent misrepresentation and breach of fiduciary duty is not supported by substantial evidence. The investors have declined to submit a respondents' brief. We remand for a redetermination of damages. In all other respects we affirm. FACTS Paul D. Johnson is a licensed real estate broker. He is married to Sheila Newman, an attorney.

Johnson's business included selling fractionalized interests in notes and deeds of trust. The loans were for the construction and rehabilitation of single family residences. Kevin and Susan Green met Johnson in 2002. They were referred to Johnson by Kevin's father. Kevin's father had invested with Johnson and had been satisfied with the investments. Although susan Green was a licensed real estate agent, she had limited experience. Neither of the Greens had any experience with fractionalized interests in trust deeds. The Greens invested in a number of loans brokered by Johnson. Three of the loans developed problems. Sand Quill Loan Johnson arranged for a construction loan for a project on San Quill Street in Salton City, California. Johnson invited the Greens to participate in funding the loan. The Greens agreed to fund $50,000 of the $140,000 loan. The loan was to bear interest at a rate of 14 percent and be due within a year. They deposited $47,666.67 into escrow. The difference was prepaid interest. Johnson prepared a disclosure statement on his own form. The form was not prepared or approved by the California Department of Real Estate. According to the disclosure statement, the lenders included the Greens and Johnson's wife, Newman. Johnson estimated the value of the property upon completion would be $200,000. Johnson did not provide an independent appraisal. Johnson received a commission of four percent plus $1,200 in fees. Part of the fees was for Johnson to monitor construction and authorize distributions to the borrower. Johnson was not qualified to authorize the distribution of funds. (Bus. & Prof. Code, § 10238, subd. (h)(4)(D).) Johnson recorded the trust deed without having funded Newman's portion of the loan. Recording the trust deed without the loan being fully funded violated Business and Professions Code section 10238, subdivision (h)(4)(B).