WARREN v. MERRILL

Filed 9/21/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from a judgment of the Superior Court of Los Angeles County. Leon S. Kaplan, Judge. Affirmed.

Roger James Agajanian for Defendant and Appellant.

James C. Fedalen for Plaintiff and Respondent.

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The buyer of a condominium brought an action against his real estate agent seeking to quiet title and other relief. The agent had promised the buyer (who supplied the down payment) his name would be placed on the title once the loan in the agent’s daughter’s name funded and escrow closed. However, the agent did not honor her promise as her undisclosed intent was to keep the condominium as an investment. The trial court found the agent had acquired the condominium through fraud, had made material misrepresentations, and had breached her fiduciary duties to the buyer. The court quieted title to the unit in favor of the buyer, imposed a constructive trust on the property in favor of the buyer and awarded the buyer $15,000 in noneconomic damages on his fraud, breach of fiduciary duty and ejectment causes of action. The court also awarded the buyer $50,000 in punitive damages offset by amounts the agent had paid to keep various obligations current. The agent appeals to challenge the court’s findings of fact and to present numerous legal defenses to the court’s conclusions of law. We find the agent’s arguments and contentions do not withstand scrutiny. We accordingly affirm.

FACTS AND PROCEEDINGS BELOW

In July 2001 plaintiff and respondent, John Warren, had all sorts of problems. He suffered from Tourette ‘s syndrome and other related neurological disorders affecting his short term memory and cognitive abilities. His movie set rental business was not doing well. At the time he was also in the process of getting divorced. He wanted to buy a house for himself. He attended an open house for a condominium in Woodland Hills near the Warner Center Apartments where he was then living. At the open house Warren met defendant and appellant Hildegard Merrill, doing business as Calabasas Realty, who was the agent for the seller of the condominium. Merrill told Warren the condominium was a good buy. She told him the seller was motivated to sell, the condominium had the largest square footage of any of the townhouses in Woodland Hills and would make a good investment.

Merrill is very experienced in the real estate field. She acquired her real estate license in 1967 and had been a licensed real estate broker since 1981. She had bought and sold so many condominiums over the years she sometimes referred to herself by her professional nickname of the “condo queen.” In due course Merrill also acquired a mortgage broker’s license.

With his permission Merrill ordered a credit report for Warren. Although his personal credit was fine, a studio set business in which he had been a partner had sustained a $1 million judgment for nonpayment of rent when the business collapsed. As a result, Warren’s credit rating was poor and his FICO score was very low. Merrill told Warren he would have to make at least a 20 percent down payment or he would have to pay a very high mortgage interest rate. Although Merrill denied it at trial, Warren testified he informed Merrill he only had $50,000 to put toward a down payment until his family residence was sold as part of the divorce proceedings.

Merrill told Warren he needed a co-borrower with a good credit rating in order to secure a mortgage at a reasonable rate. Warren told Merrill he knew of no one who could be a co-borrower with him. Merrill suggested her own daughter, Charmaine Merrill, for this purpose. Warren indicated he was interested in pursuing this arrangement and Merrill told Warren she would discuss it with her daughter.

A day or so later Merrill told Warren her daughter Charmaine had agreed to go on title with him and to be the co-borrower on the mortgage provided he pay Charmaine $10,000 for her assistance. Warren testified Merrill explained her plan for the transaction as follows: Charmaine would be the co-owner and co-borrower on the loan. However, once escrow closed Charmaine would execute a quit claim deed to him to remove her name from title in exchange for the $10,000.

As the loan broker Merrill knew it was important to make a 20 percent down payment in order to secure a reasonable interest rate. Because Warren did not have the money Merrill offered to defer her commissions of $27,000 and to loan this amount to Warren in order to attain a 20 percent down payment of $77,000.

Warren agreed to Merrill’s plan. The parties discussed committing their arrangement to written form but never did. According to Warren he asked Merrill several times, both before and after escrow closed, to put their agreement to transfer title in writing.

Merrill wrote up a purchase offer for the condominium. The purchase offer indicated her daughter Charmaine and Warren were the proposed co-purchasers. Merrill never had Warren fill out a loan application form and Merrill never attempted to secure a loan with Warren as a co-borrower with her daughter Charmaine. Instead Merrill applied for and secured a loan in Charmaine’s name alone.

Through Charmaine’s and Merrill’s testimony it became apparent Merrill misrepresented the facts when she filled out Charmaine’s loan application. For example, Merrill stated the source of the proposed $77,000 down payment was a combination of savings and gifts. The application stated Charmaine then resided in a condominium at 5800 Kanan Road in Agoura Hills, conducted catering and shuttle businesses out of the residence on Kanan Road, and had been doing so since 2001, earning a monthly income of $7,500 from those businesses. In reality, Charmaine had resided for years in Aspen, Colorado and had never lived at or conducted a business out of the 5800 Kanan Road residence. Also, the businesses Charmaine purportedly conducted had shut down sometime in 1990. Charmaine was instead employed as a waitress in Aspen, Colorado and periodically conducted her shuttle business there. She otherwise relied on her mother for support. Although Merrill indicated on the loan application Charmaine intended the condominium to be her primary residence, the parties’ plan all along was for Warren to live in the condominium instead. As Merrill later conceded in her testimony, she would never have gotten the loan had she been truthful in the loan application.[1]

Charmaine was not involved in any part of the transaction other than to sign the documents her mother told her to sign. She had never met or talked to Warren and by the time of trial had never even seen the interior of the condominium. Charmaine stated Merrill supported her and she trusted her mother and her mother’s judgment implicitly. Charmaine testified she never questioned or concerned herself with her mother’s investment decisions.

As with most of the evidence, how the $77,000 down payment was cobbled together was the subject of conflicting evidence. According to Warren, he paid the entire $77,000 down payment: $50,000 into escrow by writing checks to different persons and entities as directed by Merrill and by repaying the $27,000 Merrill loaned him toward the down payment. Specifically, Warren testified he and Charmaine each deposited a check for $10,000 into escrow. Then at Merrill’s direction, he repaid Charmaine this $10,000 by writing two checks of approximately $5,000 each: one to pay toward Charmaine’s Chase Platinum credit card balance and the other to pay toward Charmaine’s MBNA credit card balance.

Warren wrote a check for $30,000 to Merrill’s boyfriend, again at Merrill’s direction. Merrill then deposited into escrow a check for $30,000 written on her and her boyfriend’s Paine Webber investment account. In exchange for her boyfriend’s services, Merrill had Warren write her boyfriend another check for $2,000.

Merrill deferred her combined sales commission and loan broker commission of $27,000 to complete the $77,000 down payment. Warren wrote Merrill a check for $27,000 which Merrill held uncashed until Warren repaid her this amount. He accomplished repayment of the $27,000 by writing Merrill checks of between $3,000 and $4,000 over the course of about six months. Unbeknownst to Warren, the seller had agreed to credit $6,000 in escrow to defray closing costs which should have reduced the amount Warren repaid Merrill.

Merrill knew the lender would not fund the loan request with different people proposed to hold legal title than had applied for the loan. Merrill had Warren sign an amendment in escrow to remove his name from title, explaining the document was just a formality required to secure the loan and to close escrow. The amendment stated title would vest solely in Charmaine Merrill. The amendment further stated “John Warren is no longer a party to this escrow. All monies currently on deposit to this date shall accrue to Charmaine Merrill. . . . “

Escrow closed in October 2001 and Warren moved into the condominium. Merrill did not have Charmaine execute a quit claim deed to transfer title to Warren after escrow closed or at any time thereafter.

Warren and/or his attorney made the mortgage payments directly to the lender for several months. However, Warren developed substance abuse problems. He checked into the Betty Ford Center for treatment. He had not made arrangements for someone to handle his personal and financial affairs in his absence. Previously the State of California had provided him with a personal assistant to see to his personal needs and this person had previously been the one to deal with his mail and to pay his bills.

Merrill learned the homeowners’ association was about to foreclose on Warren’s unit. A few days before the scheduled foreclosure date Merrill paid the association the approximately $5,000 then claimed as arrearages to prevent the foreclosure.

Warren also defaulted on his mortgage payments while in treatment. Merrill filed an unlawful detainer action to have him removed from the unit. The unlawful detainer complaint prepared by Merrill alleged Charmaine was the owner of the condominium. The complaint further alleged Warren occupied the condominium under a land/sale contract and this agreement permitted him to occupy the unit so long as he made monthly payments of $2,500.

While Warren was still in the Betty Ford Center receiving treatment Merrill secured a judgment against Warren, got a writ of possession and evicted him from the premises. She removed all his belongings and either placed them in a storage facility or in the garage of her home in Woodland Hills.[2] According to Warren, his belongings included original artwork, sports memorabilia, the personal papers of his grandfather, the former California Governor and Chief Justice of the United States, Earl Warren, antique furniture, jewelry, medals, and several filing cabinets containing all his business records.

When he left the Betty Ford Center in September 2002 Warren discovered he had been locked out of the condominium. He called Merrill from San Diego and offered to repay her all the money she had advanced to save the condominium from foreclosure. Warren explained he would request an advance on his inheritance from his brother who was the executor of their parents’ estates. He talked to Merrill many times but she would not permit him to return to the residence. He did not understand how or why she could remove him from his own residence, or how or why she knew about the homeowners’ association arrearages when he was not even aware of the requirement of homeowners’ association dues. In his last conversation with Merrill, Warren explained he was desperate and homeless. Over a four month period he had stayed with various friends or slept in his car, but was then sleeping in the park and using public facilities to attend to his personal hygiene. Merrill told Warren he just “didn’t get it.” Merrill informed Warren he did not owe her any money and directed Warren not to call her any more. After evicting Warren, Merrill rented the condominium to a series of renters.

At trial, Warren agreed he would have lost the condominium through foreclosure had he been the sole person on the title and trust deed absent extraordinary intervention by his brother who controlled additional funds as the executor of their parents’ estates.

In her testimony Merrill acknowledged Warren paid the initial $10,000 into escrow. She also admitted she had held his $27,000 check until he repaid her this amount representing her loan to him of her commissions as the sales agent and loan broker. However, Merrill denied knowing anything about the $30,000 check Warren wrote to her boyfriend. On the other hand, Merrill admitted she recognized the endorsement on the back of Warren’s $30,000 check as her boyfriend’s signature. Merrill also denied knowing Warren had written her boyfriend a check for $2,000. She stated she had no idea why Warren would do such a thing, but acknowledged her handwriting appeared on the upper portion of the $2,000 check. She also acknowledged the endorsement on the check was her boyfriend’s signature. Merrill denied knowing Warren had written any checks to Charmaine’s credit card accounts and further denied knowing whether credit card accounts identified on Warren’s checks even belonged to her daughter. Merrill claimed she paid the $30,000 plus out of her Paine Webber account toward the down payment as a gift to her daughter Charmaine.

Merrill explained her arrangement with Warren in varying terms. She claimed they had an equity sharing agreement. As she explained it, he was to make lease payments covering the mortgage and all related expenses for a year. At the end of the year he was to refinance the loan and Merrill would arrange to have Charmaine’s name taken off title. Although she alleged in her unlawful detainer complaint they had a land/sale contract, Merrill claimed this was a mistake. She denied they had agreed to anything more than a lease arrangement which might have evolved into a land/sale contract if he had made all “option” payments in a timely fashion and was later able to refinance the loan. Later in her testimony Merrill described her arrangement with Warren as a sort of partnership, with Charmaine lending her credit and Warren making all the payments. However, because Warren defaulted on his payments within the first year, Merrill testified, he had forfeited all monies he had put into the deal.

As Merrill conceded in her testimony, when she undertook to represent Warren in the real estate transaction she owed him a fiduciary duty which required her to place his interests above her own. However, Merrill testified she saw no conflict of interest from her simultaneous representation of the seller, Warren and her daughter in the various transactions.

Warren filed a verified complaint against Merrill, Charmaine and others asserting 14 causes of action. Merrill and Charmaine filed a verified answer and asserted numerous affirmative defenses. Trial was to the bench. At the conclusion of the evidence and closing arguments the court ruled as follows: “With respect to the cause of action for quiet title, first cause of action, and the eighth cause of action for a constructive trust, the court finds in favor of the plaintiff. The court finds that the plaintiff has satisfied the elements of each and every one of those causes of action.

“As to both Mrs. Hildegard Merrill and Ms. Charmaine Merrill, I wanted to make some comments with respect to my view of the evidence and the element of the procurement by fraud and breach of the fiduciary duty.

One of the problems I’ve had in evaluating the testimony, particularly of Ms. Hildegard Merrill, is that it’s absolutely unreliable and lacks credibility. She has at various times described the transaction as a land sale contract, as a lease option, as a joint venture, as it may have suited her flexible purposes in the particular context in which the statements were made.

“She created for her daughter a loan application that, oh, to say mildly, puffed up the truth. But beyond that, her manner and demeanor and her attitude toward the statements were: Did she live there? No, but she could have lived there. It’s one admission and avoidance after another.

“She also failed to disclose that she was a real party in interest in this matter, and I think that’s just an incredible breach of fiduciary duty.

“And I entirely disbelieve her testimony that she has no idea how come Mr. Warren paid American Express [sic] and the MBNA cards of her daughter. She just simply doesn’t know that. And she also doesn’t know why Mr. Warren would have paid Mr. Lincoln Tate the two checks that were made out to him. That, to me, is totally beyond credibility based on the testimony that I have heard.

“And when I put all those circumstances together, what it appears to me is that she obtained from Mr. Warren the full 20 percent down payment, either by direct reimbursements or by causing him to make the full 20 percent down payment by paying to other people who were close to her and causing Mr. Warren, at her direction, to make those payments.

“When all is said and done, the reality of the transaction was that Mrs. Hildegard Merrill made it possible for Mr. Warren to buy the condominium under circumstances where she made $10,000 for her daughter and she collected $27,000 in commissions for herself. And the most that can be said for her alleged generosity is basically that she lent him her commission to help him out with the down payment and he repaid it in big, big chunks of 3- and $4,000 as soon as possible in a rather timely manner. So--and in addition to that, she had him write a check for $27,000, which she herself referred to during her testimony in court as a note. And I think her own testimony lends credibility to Mr. Warren’s version of the facts, which is yes, she lent him the $27,000. He was going to pay it, and in fact, he did.

“With respect to the characterization of the transaction, I must say that the circumstances, as I see them--of course, I wasn’t there and I’m totally human and therefore fallible--but from the evidence, as I understand it, and the reasonable conclusions that can be drawn from it, I don’t understand the alternative explanation, or at least I’m not persuaded by it, that this was going to be a joint venture, because why would I make my daughter Charmaine jeopardize her credit for a period of 30 years. According to Ms. Hildegard Merrill’s own testimony that the way she structured the transaction was that within a year Mr. Warren was to, quote, clean up his credit and take my daughter out and reimburse her in an uncertain proportion, at least nothing specific enough, for her equity.

“. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“The logical explanation is that at the time, she made $10,000 for her daughter, she earned a $27,000 commission. She got to represent both sides, so she could earn the full commission on the real estate. She was able to close the transaction within the time frame of her agency, whatever that was. And she was able to get a second commission on the mortgage, on the loan, which is, again, nothing wrong with that, but it hardly represents a fiduciary interest in Mr. Warren’s well-being absent a conflict.

“But all of that would be less important to me other than my final conclusion from the evidence, which is that I believe that a promise was made to Mr. Warren, and I hold him responsible for knowing what he was signing when he signed [the escrow amendment removing his name from title], I have no problem with that, but I am persuaded by the testimony that clearly a promise was made to him that after the close of escrow he would be on title. And I do believe that based on the subsequent conduct and the totality of the circumstances, that there was no intention to do that at all, and in fact, it wasn’t done, and that forms--so I’m not articulating every basis for my findings in favor of the plaintiff in these two causes of action, but I’m basing that on the totality of the evidence, but I simply want to highlight that I’m making a finding of fact that it has been established that part of the agreement was that he would be put on title at the conclusion of--after closing of escrow. . . . “

The court subsequently found by clear and convincing evidence Merrill had acted outrageously and with at least reckless disregard in perpetrating the fraud on Warren sufficient to warrant an award of punitive damages.

The court entered judgment quieting title in favor of Warren. The court imposed a constructive trust on the property and ordered Merrill and Charmaine as constructive trustees to convey the property to Warren forthwith. The court awarded Warren noneconomic damages in the amount of $15,000 on his causes of action for fraud, breach of fiduciary duty and ejectment. Regarding the fraud and breach of fiduciary duty causes of action, the court also awarded Warren $50,000 in punitive damages against Merrill. Pursuant to the parties’ stipulation Merrill received credits against these damage awards of $18,765 to reimburse her for storage and related expenses and $32,000 to reimburse her for mortgage, taxes, homeowners’ association dues and other payments she made with regard to the condominium. In another stipulation, Merrill agreed to return all of Warren’s personal property and in exchange Warren agreed to dismiss his causes of action for conversion, for return of his personal property, and for an injunction. The court found in favor of Charmaine and Merrill on Warren’s causes of action for intentional infliction of emotional distress and conspiracy. The court found in favor of Charmaine on all causes of action against her, except as noted, the causes of action to quiet title and to impose a constructive trust.

Merrill appeals from the adverse judgment.[3]

To be continue as Part II ...

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Analysis and review provided by Poway Property line Lawyers.

[1] The trial court was so alarmed by Merrill’s testimony and her apparent lack of concern about admitting she had committed a form of fraud on the lender, the court recessed the proceedings to permit Merrill to consult with counsel regarding her Fifth Amendment right not to incriminate herself. After the recess Merrill indicated she wished to proceed. On the advice of her counsel Merrill believed she had not committed any truly fraudulent act and for this reason stated she had no concerns she might be incriminating herself.

[2] There was some indication in the evidence Merrill held a lien sale of Warren’s personal property and was herself the successful bidder at the sale.

[3] The court apparently awarded Warren costs and attorney’s fees although these post-judgment matters are not part of the record on appeal and were not included in Merrill’s notice of appeal.

Charmaine did not appeal from the judgment. The court found in her favor on all of Warren’s causes of action except his causes of action to quiet title and to impose a constructive trust. “As a general rule, where only one of several parties appeals from a judgment, the appeal includes only that portion of the judgment adverse to the appealing party’s interest, and the judgment is considered final as to the nonappealing parties.” (Estate of McDill (1975) 14 Cal.3d 831, 840.) The exception to this general rule is where the part of the judgment appealed from is so interwoven and connected with the remainder on appeal the court must consider the whole case; and if a reversal is ordered it should extend to the entire judgment as deemed necessary to accomplish justice. (Ibid.) In this case the issues are sufficiently connected and intertwined. Thus, if we were to reverse the judgment we would reverse as to Charmaine as well.