Behrmann v. Baker
Filed 7/3/13 Behrmann v. Baker 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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
>
JOHN R. BEHRMANN et al., Plaintiffs and Appellants, v. JOEL R. BAKER et al., Defendants and Respondents. | 2d Civil No. B241830 (Super. Ct. No. 1341686) (Santa Barbara County) |
Plaintiffs John and
Nancy Behrmann (the Behrmanns) sued Joel Baker and his related companies
(collectively Baker) for damages allegedly caused by a life insurance-based
investment tool Baker invented and by breach
of the fiduciary duty Baker allegedly owed them. After the Behrmanns rested their case at
trial, the trial court granted a nonsuit.
Because the nonsuit was properly granted, we affirm.
A. Facts
Because we are reviewing
the trial court's grant of a nonsuit, we construe the evidence presented at
trial in the light most favorable to the Behrmanns, and resolve all
presumptions, inferences and doubts in their favor. (Castaneda
v. Olsher (2007) 41 Cal.4th 1205, 1214-1215; Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291 (
In the mid-1990s, Baker
created a proprietary investment "tool" he called the "Financial
Independence Plan" (FIP). Under the
FIP, an investor would buy a variable life insurance policy and place title to
the policy in an irrevocable life insurance trust. The policy would be a "split dollar
policy." Ten percent of the
policy's premiums would be paid directly by the investor; the remaining 90
percent would be paid by a private charity the investor created and funded
specifically for that purpose. The
policy's death benefit was also split, with the charity and the investor's
designated beneficiaries receiving a share upon the investor's death. Baker's plan advised investors up front that
the Internal Revenue Service (IRS) might, at some point, disallow split dollar
policies. Baker's plan also suggested
that Hartford Life provide the life insurance policy; that the investor's
private charity be housed at the National Heritage Foundation (NHF); and that
attorney Michael Goldstein (Goldstein) be hired to draft the required legal
documents.
The Behrmanns met with
their insurance agent around this time.
The agent had heard Baker discussing the FIP at a conference, and
brought in a second agent more familiar with the FIP to help him advise the
Behrmanns. The Behrmanns met only with
the insurance agents; they never met Baker, and only spoke with him over the
phone once years later. Baker provided
the agents information about the FIP, and answered the agents' questions.
After conducting
"due diligence" on the FIP with their personal attorney, the
Behrmanns decided to use the FIP notwithstanding the possibility that split
dollar policies might be disallowed. The
Behrmanns then took out three insurance policies with Hartford Life (one for
themselves and one for each of their two adult children); created the
Highbourne Foundation as a private charity housed at NHF; and retained
Goldstein to create the necessary legal documents. As the FIP promised, the Behrmanns avoided
capital gains taxes, and were able to declare as charitable deductions the
hundreds of thousands of dollars in stock they donated to the Highbourne
Foundation to pay the life insurance premiums.
Baker received 15 percent of the commissions on the life insurance
policy (the two agents split the other 85 percent); Baker was also listed as
the Philanthropic Development Officer (PDO) for the Highbourne Foundation,
which according to NHF's manual obligated him to answer questions and provide
requested help regarding the foundation.
In 1999, Congress
outlawed split dollar policies. The
Behrmanns sought advice on what to do with their FIP-related policies from
several advisors, including Baker. The
Behrmanns did not follow Baker's advice.
Instead, they repaid the Highbourne Foundation for the premiums they had
funneled through it, and then terminated and "cashed out" all three
insurance policies. The Behrmanns left
the proceeds of these cash-outs in the Highbourne Foundation's account, had
their son manage the money in that account, and donated some of that money to
charity.
By 2009, the Behrmanns
still had $643,000 in the Highbourne Foundation account. NHF declared bankruptcy, and the bankruptcy
court determined that the Behrmanns had donated this money to the Highbourne
Foundation (and hence NHF), so those funds could be used to satisfy NHF's
debts.
B. Procedural History
The Behrmanns sued Baker
and his affiliated companies for violating the Consumer Legal Remedies Act
(CLRA), Civil Code section 1750 et seq.,
for breach of fiduciary duty, for negligence, and for negligent
misrepresentation.
title="">[2] Although they ultimately recovered $590,000
of the $643,000, the Behrmanns sued Baker for the full account balance, for
lost earnings on that amount, and for over $450,000 in attorney's fees and
costs incurred litigating the bankruptcy.
The case proceeded to
trial. After the close of the Behrmanns'
case, Baker moved for a nonsuit. The
trial court granted the motion. The court
reasoned that Baker had not violated the CLRA because the FIP gave the Behrmanns
all of the benefits Baker promised. The
court found that the Behrmanns were, at bottom, seeking to hold Baker
responsible for not anticipating that NHF would declare bankruptcy 13 years
after the Behrmanns adopted the FIP. The
court further determined that Baker did not owe the Behrmanns a fiduciary duty
because he "basically sold his product" to the insurance agents,
"who sold it to" the Behrmanns.
Alternatively, the court ruled that Baker had not breached any duty.
DISCUSSION
The Behrmanns assail the
trial court's grant of a nonsuit. We
independently review the trial court's determination that the evidence
presented by the Behrmanns at trial was insufficient, as a
in their favor. (Nally, supra,
I. The
Consumer Legal Remedies Act Claim
The CLRA empowers
consumers to sue a defendant for enumerated "unfair or deceptive acts or
practices" during "transaction[s] intended to result or which result[]
in the sale or lease of goods or services . . . ." (§ 1770, subd. (a).) The Behrmanns argue that the jury should have
considered this claim. Baker responds
that the trial court properly rejected this claim as a matter of law because
(1) he never sold a "good" or provided a "service"
within the meaning of the CLRA; and (2) the Behrmanns did not prove the causal
link between his conduct and their losses.
We need not decide the first issue because the nonsuit was proper on the
causation element alone.
In addition to proving
that the defendant engaged in proscribed acts or practices in relation to a
"good[]" or "service[]," a plaintiff must establish that
the defendant's acts or practices damaged her.
(E.g., Bower v. AT & T
Mobility, LLC (2011) 196 Cal.App.4th 1545, 1556.) Causation is a question of fact
"[e]xcept in the rare case[s] where the undisputed facts leave no room for
a reasonable difference of opinion . . . ." (Blankenheim
v. E.F. Hutton & Co. (1990) 217 Cal.App.3d 1464, 1475 (
The damages the
Behrmanns seek all arise from the loss of the funds sitting in the
Highbourne Foundation account at NHF in 2009.
Those damages were not proximately caused by anything Baker did. Baker was undoubtedly the
"architect" of the FIP, but the FIP advised that the NHF account was
to be used as a conduit for paying insurance policy premiums. More to the point, the FIP performed as
promised: The Behrmanns were able to
take full advantage of all promised tax breaks and were never audited, even
after Congress disallowed split dollar policies.
The losses the Behrmanns
incurred in 2009 stemmed from the cumulative effect of Congress'
disallowance of split dollar policies; of the Behrmanns' decision—upon the
advice of others—to ignore Baker's advice and instead cash out the life
insurance policies and leave the proceeds in the Highbourne Foundation account;
and of NHF's subsequent bankruptcy. To
be sure, the Behrmanns would not have created an account at NHF absent the
FIP. But the Behrmanns' decision to use
that account in a manner not recommended by Baker and not contemplated by the
FIP was theirs and theirs alone. (See
1324, 1333 [reliance on advice of others is a superseding cause that severs
causation]; Goehring v. Chapman Univ.
(2004) 121 Cal.App.4th 353, 365-366 [damages arising from independent causes
sever chain of causation].) Under these
facts, the loss of the money in that account cannot be attributed to Baker, and
the Behrmanns' CLRA claim was properly dismissed.
II.
Fiduciary Duty Claim
A fiduciary duty arises
when one party is "'". . . duty bound to act with the utmost good
faith for the benefit of the other party. . . ."'" (Wolf
v. Super. Ct. (2003) 107 Cal.App.4th 25, 29, quoting Herbert v. Lankershim (1937) 9 Cal.2d 409, 483.) The Behrmanns argue that Baker owed them a
fiduciary duty by virtue of (1) his role as their investment advisor; (2)
his role as the PDO to the Highbourne Foundation account; and (3) the
statutory duty under Business and Professions Code section 17510.8. The existence of a fiduciary duty is a
question of law we review de novo. (
158 Cal.App.4th 1582, 1599.) We reject
each of the Behrmanns' proffered rationales.
First, the evidence
establishes as a matter of law that Baker did not owe the Behrmanns any
fiduciary duties as their investment advisor.
Investment advisors owe fiduciary duties to their clients. (See Twomey
v. Mitchum Jones & Templeton, Inc. (1968) 262 Cal.App.2d 690, 709
[investment counselor and stock broker owes client fiduciary duty];
p. 1475 [same, as to stock broker].) But
Baker was not the Behrmanns' investment advisor. He was never retained for that purpose; he
made no contracts with them; and he never met them. What Baker did was invent the FIP. Yet it was the Behrmanns' insurance agents
who presented the FIP and the Behrmanns' own lawyer and other advisors who
encouraged them to adopt it.
Second, the evidence
establishes as a matter of law that the role of a PDO is not fiduciary in
nature. The NHF's manual defines the PDO
as the person to whom questions can be directed. Consistent with this purpose, the Behrmanns
called Baker with questions, but when it came to renegotiating NHF fees, they
called their insurance agent—not Baker.
The Behrmanns point out that they thought
they were Baker's clients, and that NHF's founder thought of them as
Baker's "clients." However,
subjective belief is not enough to create a fiduciary relationship. (Zenith
Ins. Co. v. O'Connor (2007) 148 Cal.App.4th 998, 1010.) The Behrmanns also point to their expert's
opinion that Baker's status as their PDO rendered him a "watchdog"
owing them a fiduciary duty. The trial
court rejected that opinion as grounded in unsupported reasoning and hence not
entitled to any weight. (
Southern California (2012) 55 Cal.4th 747, 771-772.) The court did not abuse its discretion in rejecting
the expert's opinion while resolving the nonsuit motion. (City
of San Diego v. Sobke (1998) 65 Cal.App.4th 379, 396 [trial court's
gatekeeping rulings evaluated for abuse of discretion]; People ex rel. Dept. of Transportation v. Dry Canyon Enterprises, LLC
(2012) 211 Cal.App.4th 486, 493 [trial court should not consider rejected
expert testimony in evaluating nonsuit motion].)
Lastly, Business and
Professions Code section 17510.8 does not apply here. That section creates a fiduciary duty between
those who solicit on behalf of a charity, and the persons donating to the
charity. (Ibid.) However, the
Behrmanns were donating their own money to their own private charity at NHF,
and then distributing that money to other charities. Baker was not involved in these
transactions. Baker initially suggested
that the Behrmanns use NHF to house their private charity, but this does not
constitute a "solicitation" of funds for NHF because the Behrmanns retained control over their donations
and further directed them as they saw fit.
III. Remaining
Claims
The Behrmanns' negligent
performance of financial services and negligent misrepresentation claims were
properly dismissed for the same reasons as their claim under the CLRA: Baker did not proximately cause the
Behrmanns' damages. (E.g.,
(2009) 45 Cal.4th 1244, 1256 [causation is element of negligent
misrepresentation claim].)
IV.
Evidentiary Errors
The Behrmanns contend
that the trial court erred in excluding evidence that (1) Goldstein (the
attorney Baker recommended) sought to obtain a conflict of interest waiver from
an unrelated client in 1998; and (2) NHF later amended its application
form for private charities to spell out that donors would lose "control"
of their donations as well as "ownership" and
"custody." Because these two
exhibits do not affect our analysis, their exclusion is harmless.
v. Hirano (2007) 158 Cal.App.4th 1, 8 [reversal mandated if wrongly
excluded evidence "could have enabled appellant to overcome the
nonsuit"].)
DISPOSITION
The judgment is
affirmed. Costs on appeal are awarded to
Baker.
NOT TO BE PUBLISHED.
HOFFSTADT,
J.
We concur:
GILBERT, P. J.
YEGAN, J.
Denise
de Bellefeuille, Judge
Superior
Court County of Santa Barbara
______________________________
Nye, Peabody, Stirling,
Hale & Miller, LLP, Karen K. Peabody, Schendzielos & Associates, LLC,
Daniel J. Schendzielos (pro hac vice)
for Plaintiffs and Appellants.
Gordon & Rees LLP,
Theresa A. Kristovich and David L. Jones for Defendants and Respondents.
name="_ftn1" title=""> [1] Unless otherwise indicated, all statutory references
are to the Civil Code.
name="_ftn2" title=""> [2] The Behrmanns also alleged civil conspiracy and breach
of contract, but they do not challenge on appeal the trial court's rulings on
these claims.
