JET SOURCE CHARTER, INC.,v. DOHERTY

Filed 1/30/07; part. pub. & mod. order 2/28/07 (see end of opn.)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

STORY CONTINUED FROM PART I..

III

Defendants contend that the trial court erred in failing to give agency instructions it offered and in instructing the jury that brokers are fiduciaries.

A. Defendant's Proposed Instructions

The defendants offered a series of instructions on agency relationships and the relationships between buyers and sellers. However, the defendants did not make the proffered instructions part of the record on appeal until after Jet Source's respondent's brief had been filed. Thus Jet Source was not able and did not fully respond to the defendants' contentions with respect to the instructions. On that basis alone we could find that no error occurred. (See Singh v. Lipworth (2005) 132 Cal.App.4th 40, 43, fn. 2; Sparks v. Bledsaw (1966) 239 Cal.App.2d 931, 940.)

However, we also note the trial court is not required to give instructions which are duplicative, incomplete, or erroneous. (See Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 654.) Here the trial court fully instructed the jury on the central question of whether a fiduciary relationship existed. The court instructed the jury: "Although a fiduciary relationship may be created by the express words of an oral or written contract, such express agreement is not necessary or determinative. A fiduciary relationship may be created or implied by the conditions or circumstances found in the facts, including the parties' conduct and statements.

"You shall, therefore, find that a fiduciary relationship existed between Jet Source and defendants, or any one of them, if you find that the facts or circumstances indicated that a relationship arose where Jet Source reposed a special confidence in defendants, or any one of them, such that in good conscience, defendants, or any one of them, were bound to act in good faith and with due regard for the interest of Jet Source."

The instructions offered by the defendants are largely duplicative of these instructions, and in some instances erroneous or misleading.^[1] Thus the trial court did not abuse its discretion in declining to give them to the jury.

B. Trial Court's Instruction

The trial court gave the jury the following instruction: "It is the law of the state that brokers and agents are fiduciaries towards their clients. If you find that -- from the evidence that Jet Source Charter . . . retained defendants, or any of them, as a broker and/or agent and that defendants, or any one of them, carried out transactions for Jet Source as a broker and/or agent, then you must find that defendants, or any one of them, had a fiduciary relationship with Jet Source for these transactions."

As the defendants note this instruction was not an accurate statement of the law. Although in many contexts brokers are agents of their clients and hence fiduciaries (see Cross v. Bonded Adjustment Bureau, supra, 48 Cal.App.4th at p. 277), in a number of contexts brokers are not fiduciaries. (See Petersen v. Securities Settlement Corp. (1991) 226 Cal.App.3d 1445, 1451 [settling brokers]; Marsh & McLennan of Cal., Inc. v. City of Los Angeles (1976) 62 Cal.App.3d 108, 118 [insurance brokers]; Anderson v. Thacher (1946) 76 Cal.App.2d 50, 67 [brokers acting as middlemen].)

However, "[a] judgment may not be reversed on appeal, even for error involving 'misdirection of the jury,' unless 'after an examination of the entire cause, including the evidence,' it appears the error caused a 'miscarriage of justice.' [Citation.] When the error is one of state law only, it generally does not warrant reversal unless there is a

reasonable probability that in the absence of the error, a result more favorable to the appealing party would have been reached. [Citation.]

"Thus, when the jury receives an improper instruction in a civil case, prejudice will generally be found only ' "[w]here it seems probable that the jury's verdict may have been based on the erroneous instruction . . . ." ' [Citation.] That assessment, in turn, requires evaluation of several factors, including the evidence, counsel's arguments, the effect of other instructions, and any indication by the jury itself that it was misled. [Citation.]" (Soule v. General MotorsCorp. (1994) 8 Cal.4th 548, 621-622.)

Here the record contains fairly convincing documentary evidence the defendants repeatedly misrepresented the prices they paid for the aircraft Jet Source acquired. We also note that notwithstanding the defendants' arguments to the contrary, their own expert testified that aircraft brokers owed their clients the duties of a fiduciary. According to the defense expert, in the aircraft industry a person does have "fiduciary obligations if you're holding yourself out as a broker."^[2] This strong evidentiary record makes it unlikely the jury was confused as to what duties the defendants believed they owed Jet Source. In this regard we also note the substantial amount the jury awarded in punitive damages. That award makes it clear not only that the jury disapproved of the defendants' conduct, but that the jury believed the defendants' conduct was knowing and willful. Thus the punitive damage award also shows that the jury was not confused about the duties the defendants owed Jet Source. In sum the trial court's erroneous instruction was not prejudicial.

IV

On appeal the defendants dispute the amount of compensatory damages awarded on the first and fifth transactions.

With respect to the first transaction, contrary to the defendants' argument on appeal, in reviewing an escrow statement on the stand Moyous did concede the statement showed that an entity Mach I controlled earned $985,000. That testimony was sufficient support the jury's award in that amount.

With respect to the fifth transaction, for which the jury awarded Jet Source $556,667 in damages, the defendants dispute the evidence of what they paid for the plane. However, Moyous himself testified Mach I paid around $3.85 million for the plane; in light of evidence that Mach I incurred $243,333 in expenses and that Jet Source paid $4.6 million for the plane, the record fully supports the jury's award.

The defendants also dispute the $20,396 the jury awarded for defendants' misuse of Jet Source's credit card. However, at trial Doherty conceded he felt that when he was traveling on Jet Source's credit card he was free to pursue his own business interests or the interests of other clients. On the basis of that testimony, and the evidence that the defendants did use the credit card to pay expenses of transactions that did not involve Jet Source, the jury could reasonably apportion the $100,000 in expenses the defendants incurred on Jet Source's credit card and award it as damages.

V

Finally, the defendants challenge the punitive damages awarded to Jet Source. We agree with the defendants' contention that the punitive damages awarded in this case are excessive under the principles and holding in State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 419-427 [123 S.Ct. 1513] (Campbell).

We review a punitive damage award de novo, "making an independent assessment of the reprehensibility of the defendant's conduct, the relationship between the award and the harm done to the plaintiff, and the relationship between the award and civil penalties authorized for comparable conduct. [Citations.] This '[e]xacting appellate review' is intended to ensure punitive damages are the product of the ' " 'application of law, rather than a decisionmaker's caprice.' " ' [Citation.]" (Simon v. San Pablo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1172, fn. omitted.)

A. Reprehensibility of Conduct

" '[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct.' [Citation.] We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. [Citation.] The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect. It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant's culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence. [Citation.]" (Campbell, supra, 538 U.S. at p. 419.)

In Campbell the defendant, a nationwide insurer, had been guilty of bad faith in defending one of its insureds in a wrongful death lawsuit. The state court awarded the insureds $1 million in compensatory damages for the 18 months of emotional distress they suffered as a result of the insurer's conduct. In addition the state court awarded the insureds $145 million in punitive damages based largely on evidence the insurer had engaged in unethical and oppressive conduct with respect to other insureds and its own employees. In characterizing the reprehensibility of the insurer's conduct, the court stated: "Applying these factors in the instant case, we must acknowledge that State Farm's handling of the claims against the Campbells merits no praise. The trial court found that State Farm's employees altered the company's records to make Campbell appear less culpable. State Farm disregarded the overwhelming likelihood of liability and the near-certain probability that, by taking the case to trial, a judgment in excess of the policy limits would be awarded. State Farm amplified the harm by at first assuring the Campbells their assets would be safe from any verdict and by later telling them, postjudgment, to put a for sale sign on their house. While we do not suggest there was error in awarding punitive damages based upon State Farm's conduct toward the Campbells, a more modest punishment for this reprehensible conduct could have satisfied the State's legitimate objectives, and the Utah courts should have gone no further." (Campbell, supra, 538 U.S. at pp. 419-420, fn. omitted.)

B. The Ratio Between the Harm Suffered by the Plaintiff and the Punitives

"Our jurisprudence and the principles it has now established demonstrate . . . that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In [Pacific Mut. Life Ins. Co. v. Haslip (1991) 499 U.S. 1], in upholding a punitive damages award, we concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. [Citation.] . . . .

"Nonetheless, because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where 'a particularly egregious act has resulted in only a small amount of economic damages." [Citations.] . . . . The converse is also true, however. When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. The precise award in any case, of course, must be based upon the facts and circumstances of the defendant's conduct and the harm to the plaintiff." (Campbell, supra, 538 U.S. at p. 425, italics added.) Thus, "courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered." (Id. at p. 426.)

In Campbell in discussing the compensatory award the insureds recovered and its relationship to the punitive damages, the court stated: "The compensatory award in this case was substantial; the Campbells were awarded $1 million for a year and a half of emotional distress. This was complete compensation. The harm arose from a transaction in the economic realm, not from some physical assault or trauma; there were no physical injuries; and State Farm paid the excess verdict before the complaint was filed, so the Campbells suffered only minor economic injuries for the 18-month period in which State Farm refused to resolve the claim against them. The compensatory damages for the injury suffered here, moreover, likely were based on a component which was duplicated in the punitive award. Much of the distress was caused by the outrage and humiliation the Campbells suffered at the actions of their insurer; and it is a major role of punitive damages to condemn such conduct. Compensatory damages, however, already contain this punitive element. (See Restatement (Second) of Torts 908, Comment c, p. 466 (1977) ('In many cases in which compensatory damages include an amount for emotional distress, such as humiliation or indignation aroused by the defendant's act, there is no clear line of demarcation between punishment and compensation and a verdict for a specified amount frequently includes elements of both')." (Campbell, supra, 538 U.S. at p. 426.)

C. Civil Penalties

"The third guidepost . . . is the disparity between the punitive damages award and 'the civil penalties authorized or imposed in comparable cases.'" (Campbell, supra, 538 U.S. at p. 428.) In Campbell the maximum civil penalty for fraud was a $10,000 fine, which was entirely dwarfed by the $145 million in punitive damages.

In light of its consideration of all three factors, the court in Campbell found the Constitution would not permit an award of punitive damages which was greater than the compensatory damages. (Campbell, supra, 538 U.S. at p. 429.) The court in particular noted the substantial amount of compensatory damages and the fact that they already included a punitive element. (Ibid.)

D. This Verdict

Application of the Campbell factors to the record in this case requires that the jury's punitive damages award be reduced.

Although, in the words of the Campbell court, the defendants' fraudulent scheme, repeated over a number of transactions, "merits no praise;" nonetheless, the harm the defendants caused was solely economic and did not involve, in any sense, a vulnerable victim. Indeed, Jet Source was a far less vulnerable plaintiff than the insureds considered in Campbell. Moreover, the total of $6.5 million in compensatory damages and prejudgment interest was, to say the least, substantial. We must note however, that unlike the emotional distress damages awarded in Campbell, it is difficult to ascribe to this compensatory award a very large punitive element. The amounts awarded in compensatory damages were largely in the way of restitution to Jet Source for funds which had been improperly taken from it. Nonetheless, the total of $26 million in punitive damages awarded, representing four times the compensatory damages, is excessive viewed in light of the principles set forth in Campbell. In light of all the circumstances, we do not believe a total punitive damage award in excess of the $6.5 million compensatory award is appropriate.

Because varying amounts of punitive damages were awarded separately against all the defendants, evidently reflecting the jury's determination as to varying degrees of culpability, we remand to the trial court for further proceedings by which it can reduce on a pro rata basis the punitive damage award so that the total does not exceed the $6.5 million compensatory award.

That portion of the judgment awarding punitive damages is reversed and remanded for further proceedings; in all other respects the judgment is affirmed.

Respondent to recover its costs of appeal.

BENKE, J.

WE CONCUR:

McCONNELL, P. J.

O'ROURKE, J.

Filed 2/28/07

CERTIFIED FOR PARTIAL PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

THE COURT:

The opinion filed January 30, 2007, is modified as follows:

1. At the fourth paragraph, last sentence beginning with "Where, as here," and ending with "with due process" (slip opn. p. 2), delete the sentence and replace it with "Where, as here, substantial compensatory damages have been awarded, and the conduct in question only involves economic damage to a single plaintiff who is not particularly vulnerable, an award which exceeds the compensatory damages awarded is not consistent with due process."

2. At DISCUSSION V, D. This Verdict, second paragraph, after third sentence beginning with "Moreover," and ending with "substantial" (slip opn. p. 22), insert the following citation: "(Compare Bardis v. Oates (2004) 119 Cal.App.4th 1, 23, 27 [relatively small compensatory award justifies 9 to 1 ratio of punitives to compensatory damages].)"

3. At DISCUSSION V, D. This Verdict, third paragraph beginning with "Because" and ending with "award" (slip opn. pp. 22-23), insert footnote reference number 7 at the end of the sentence. Footnote 7 text should read: "We reject Doherty's argument that allocation to him of a pro rata share of $6.5 million in punitive damages would impose on him a penalty disproportionate to his ability to pay. Given Doherty's underlying conduct and his lack of credibility, in reviewing the record we are not bound by his statement of his net worth. (See Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577, 581.) Rather, our review of the record demonstrates that at the time of trial Doherty had access to considerable resources and that imposition as punitive damages of a pro rata portion of $6.5 million will not impoverish him. (See Rufo v. Simpson (2001) 86 Cal.App.4th 573, 625.)"

3. At DISCUSSION V, D. This Verdict, third paragraph, after footnote 7 reference (slip opn. p. 23), insert the following citation: "(See Bardis v. Oates, supra, 119 Cal.App.4th at pp. 21, fn. 8, 27.)"

As modified, the opinion is ordered certified for publication with the exception of DISCUSSION parts I, II, III and IV. The attorneys of record are:

Niddrie, Fish & Buchanan and David A. Niddrie for Defendant and Appellant Brian J. Doherty.

John P. Mouyos, in pro. per.

William P. Fennell for Defendant and Appellant Leslie T. Gladstone, Trustee, etc.

Rutan & Tucker, Richard K.. Howell, Paul J. Sievers and Treg A. Julander for Plaintiff and Respondent.

There is no change in the judgment.

The petition for rehearing is denied.

McCONNELL, P. J.

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^[1] For instance, one of the proffered instructions states: "A fiduciary relationship exists where the parties intended, either by written contract or the facts and circumstances, to create a special confidence to act in good faith to each other." This was clearly covered in the trial court's instruction. Another proffered instruction states: "The law requires that an agency relationship exist in order to confer a fiduciary relationship between the parties." This of course is not an accurate statement of the law. A host of other relationships may create fiduciary obligations.

^[2] During his cross-examination the defense expert gave the following testimony:

"Q. And do you also recall testifying that when one holds themself out as a broker, they have the same fiduciary obligations that a real estate broker has?

"A. I would say similar.

"Q. Okay.

"A. They do have fiduciary obligations if you're holding yourself out as a broker.

"Q. Okay.

"A. The obligation is to be truthful.

"Q. And it's more than just truthful, isn't it? You have an obligation affirmatively to tell your client if you're making any money on the side, don't you?

"[Objection overruled by trial court]

"A. A broker normally will be working for either a salary or a commission or something for doing that particular piece of work, as opposed to a dealer who is there to make a profit on a transaction.

"So I would say that a broker who also makes a profit as well as getting a commission is not fulfilling all of his duties that he should disclose to his principal that he's making a profit on this transaction.

"Q. And there's an affirmative obligation to make that disclosure; correct? That's what you testified to at your deposition.

"A. Right, uh-huh."