Filed 11/16/17 Daedalus Property Mgmt., Inc. v. Pensco Services, LLC CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA



DAEDALUS PROPERTY MANAGEMENT, INC.,

Plaintiff and Appellant,

v.

PENSCO SERVICES, LLC, etc.,

Defendant and Respondent.
D069208



(Super. Ct. No. ECU08120)


APPEAL from a judgment of the Superior Court of Imperial County, Jeffrey B. Jones, Judge. Affirmed.

David A. Kay for Plaintiff and Appellant.
Hilbert & Satterly and Jason L. Satterly for Defendant and Respondent.
Daedalus Property Management, Inc. (Daedalus) appeals from a judgment against it after a bench trial in its lawsuit against Pensco Services, LLC, FBO Robert L. Earl IRA (Pensco) in which Daedalus sought to cancel a deed of trust held by beneficiary Pensco as a result of a loan that was secured by real property currently owned by Daedalus and that was obtained by Daniel Rivas on behalf of Daedalus's predecessor corporation, Costa Casa Property Management, Inc. (Costa Casa). According to Daedalus, the evidence presented at trial established that Rivas lacked authority to obtain the loan and encumber real property on behalf of Costa Casa. We conclude that substantial evidence supports a finding that Rivas had ostensible authority to bind Costa Casa to the loan and the deed of trust, and we accordingly affirm the judgment.
I.
FACTUAL AND PROCEDURAL BACKGROUND
A. Thompson's Creation of Costa Casa and Installation of Rivas as Its Sole Officer and Director

Lawrence Thompson is a wealthy man who made money in the overseas pharmaceutical business. In 2009, Thompson was engaged to be married to Yolanda Robinson, the mother of Daniel Rivas. Thompson wanted to diversify his assets by starting a business that would own and rent residential real property. However, he wanted to keep his name and that of his business entities from being associated with the new venture and subject to the jurisdiction of the United States courts. He also wanted to avoid paying repatriation taxes on the income that his international corporations made overseas.
Thompson consulted with an organization called "I Beat the System" to figure out how to set up the new real estate venture to accomplish those goals. As a result of that consultation, Thompson asked his future stepson, Rivas, to act as the sole officer and director of Costa Casa, a corporation that Thompson would create and incorporate in New Mexico and through which he would run his real estate investment venture. Rivas had no business experience or training.
On June 1, 2009, prior to the incorporation of Costa Casa, Thompson and Rivas entered into a preincorporation agreement. That agreement states that Rivas will be named as the sole officer, director and incorporator of Costa Casa. It also provides that, prior to incorporation, Thompson may act in his own name to take all actions the corporation could take, such as buying property, and that upon incorporation, those actions will become the acts of Costa Casa. In connection with this provision, the last paragraph of the agreement states, "Be it further done that Daniel Rivas does give and transfer to Thompson, the full right, power, and action, to do all things, and cause all things to be done, and all papers to be signed, in the name of Thompson [as preincorporator] and to do all things as to the purchase, mortgaging, buying, auctioning, bidding, selling, insuring, or any other action that may be done to property, improved or not, as if Daniel Rivas could do if present, and as such holds the Power of Attorney and agent in fact for Daniel Rivas and as preincorporator of Costa Casa . . . ."
Consistent with the preincorporation agreement, when Costa Casa was incorporated, Rivas was identified in corporate documents — created at Thompson's direction — as the corporation's sole officer and director. Specifically, the articles of incorporation adopted July 8, 2009, stated that Rivas was the sole director. Moreover, the information on file with the New Mexico Secretary of State reflected that Rivas was the sole director as well as the only officer of the corporation, holding the offices of president, secretary and treasurer. Rivas was also issued 1,999 shares of the corporation's 2,000 authorized shares of stock, and in July 2009, he signed the corporation's by-laws in his capacity as shareholder.
Thompson testified that at the time he made Rivas the sole officer and director of Costa Casa, he expected Rivas to act only with Thompson's consultation and approval on any matter that involved the expenditure of money other than for daily expenses, but there was no agreement to that effect set forth in any documentation. Thompson helped Rivas set up a corporate bank account, but he did not make himself a signatory on the account. Thompson repeatedly characterized his role and that of his international company as that of a lender to third parties conducting business with Costa Casa.
Shortly after Costa Casa opened its corporate bank account, Thompson's company wired approximately $1 million into the account. Over time, Thompson continued to wire funds into the Costa Casa bank account, which Rivas used to acquire real property on behalf of Costa Casa and to pay the corporation's operational expenses. From June 2009 through January 11, 2011, as much as $5.75 million of Thompson's or his company's money went into Costa Casa. By January 2011, Costa Casa owned or managed as many as 17 real properties. Thompson gave Rivas almost complete autonomy to run Costa Casa and was not involved in or informed about day-to-day operations and did not exercise any oversight over Rivas's activities on behalf of Costa Casa.
Among the properties that Rivas acquired on behalf of Costa Casa, without any involvement by Thompson, was a home in El Centro on Quail Run Drive (the Quail Run Property), which was purchased in September 2009.
B. Thompson Attempts to Remove Rivas from His Corporate Positions
In January 2011, Thompson and Rivas's mother decided to get a divorce. On January 17, 2011, Thompson held a meeting with two of his business associates to discuss the removal of Rivas from his position as sole officer and director of Costa Casa, without giving notice of the meeting to Rivas. At the meeting, Thompson purported to vote Rivas's corporate shares to remove Rivas from the corporation and to install his two business associates as the corporation's officers and directors. Thompson believed that the last paragraph of the preincorporation agreement gave him a proxy or power of attorney to vote Rivas's corporate shares.
Thompson instructed his business advisors to change the records on file with the New Mexico Secretary of State to reflect that Rivas had been replaced as the corporation's officer and director. The information was temporarily changed in the Secretary of State's records, but Rivas found out about the change and had the information changed back in February 2011 to reflect that he was the corporation's sole officer and director. Although Thompson became aware in March 2011 that Rivas had changed back the corporate information on file with the New Mexico Secretary of State, he took no further action to correct it.
In March 2011, on behalf of himself and Costa Casa, Rivas sued Thompson and others in Clark County, Nevada, to determine the rightful ownership of Costa Casa. The Nevada lawsuit was at issue until July 2013 when the court approved a stipulated judgment, under which Thompson agreed to pay Rivas $50,000 in exchange for Thompson being declared the sole shareholder and owner of Costa Casa and for the removal of Rivas as officer and director. Thompson agreed that he would not sue Rivas for any transactions set forth in Costa Casa's corporate records, and neither party admitted any wrongdoing.
Around the time the lawsuit was filed in March 2011, Thompson and his business associates took steps to put the public on notice regarding the ownership dispute involving Costa Casa. Accordingly, as to several of the real properties owned by Costa Casa, at Thompson's direction, one of Thompson's business associates recorded (1) deeds of trust, (2) records of wire transfers from Thompson or his company, and (3) lis pendens. However, no such documents were recorded as to the Quail Run Property.
C. Rivas Obtains a Loan on Behalf of Costa Casa Secured by a Deed of Trust on the Quail Run Property

In April 2011, as Thompson had stopped providing funds for the operating expenses of Costa Casa, Rivas sought to obtain a loan on behalf of Costa Casa to fund the corporation's expenses, using the Quail Run Property as collateral. Rivas submitted a uniform residential loan application to a loan broker, which was reviewed by Chris Boulter of Val-Chris Investments, Inc. (Val-Chris), which is an experienced private money lender specializing in residential and commercial loans. Rivas sought to obtain a loan in the amount of $114,000 on behalf of Costa Casa, secured by a deed of trust on the Quail Run Property.
In reviewing the loan application on behalf of Val-Chris, Boulter followed the steps he normally takes in reviewing similar loan applications. Specifically, Boulter obtained and reviewed the following documents, among others: (1) a homeowner's insurance policy showing that the Quail Run Property was insured; (2) an appraisal showing the Quail Run Property to be valued at $229,000; (3) a preliminary title report showing title in the Quail Run Property was vested in Costa Casa and subject to no preexisting liens; (4) a notarized statement by Rivas in his capacity as president and sole officer of Costa Casa, stating that the loan proceeds would be used for corporate business purposes; (5) a certificate of non-owner residency signed by Rivas; (6) a notarized statement of confidential information by signed by Rivas; (7) Costa Casa's articles of incorporation showing Rivas to be the sole director and authorizing the corporation to borrow funds secured by the corporation's property; (8) Costa Casa's bylaws, signed by Rivas as stockholder; (9) a resolution of the Costa Casa board of directors authorizing Rivas to sign any and all documents relating to a loan secured by the Quail Run Property; and (10) a credit report on Rivas, which Boulter interpreted as showing Rivas to have good credit. None of the documentation that Boulter reviewed raised any red flags about Rivas's authority to bind Costa Casa to the loan transaction.
In connection with the loan, Boulter also obtained title insurance on the Quail Run Property. The title officer testified that in reviewing the title to the Quail Run Property, he took steps to ensure that Rivas had authority to bind Costa Casa to the loan it was obtaining. To this end, the documents the title officer reviewed included (1) a notarized statement of confidential information signed by Rivas; (2) Costa Casa's articles of incorporation; (3) Costa Casa's bylaws; (4) a record of stock certificates issued and transferred showing Rivas to be the holder of 1,999 of Costa Casa's 2,000 total authorized shares; (5) the board of director's resolution authorizing Rivas to sign any and all documents relating to a loan secured by the Quail Run Property; (6) a printout from the New Mexico Secretary of State showing Rivas to be Costa Casa's sole officer and director; (7) the grant deed by which Costa Casa took title to the Quail Run Property; and (8) records from "the title plant," which are records maintained by the title company consisting of searchable public records from each California county showing documents recorded in those counties. The title officer found no reason to believe that Rivas lacked authority to bind Costa Casa to the loan transaction and no reason to believe that Thompson or anyone else claimed an interest in Costa Casa or the Quail Run Property. Moreover, had a deed of trust, evidence of wire transfers, or a lis pendens been recorded in connection with the Quail Run Property, those documents would have been discovered during the title plant searches that the title officer conducted.
After Boulter conducted due diligence, Val-Chris completed the loan transaction between it and Costa Casa, loaning a total of $114,000 and obtaining a deed of trust on the Quail Run Property. The note evidencing the loan was signed by Rivas on behalf of Costa Casa on April 7, 2011, and the deed of trust was dated April 6, 2011.
Robert Earl is an investor who had invested in loans originated by Val-Chris on several occasions, which he did by using money held in his individual retirement account (IRA), which is currently managed by Pensco. Val-Chris presented the loan secured by the Quail Run Property to Earl as an investment opportunity. After reviewing documentation, Earl agreed to take over the loan and had his IRA manager send Val-Chris a check for $114,000. On April 12, 2011, Val-Chris endorsed the promissory note between it and Costa Casa to Pensco and also assigned the deed of Trust to Pensco. Pensco has subsequently assigned to Earl all rights to bring or defend against litigation relating to the assets in Earl's IRA, including claims related to the Quail Run Property. It was agreed at trial that Earl is the real party in interest with respect to the deed of trust at issue here.
According to Rivas, he used the proceeds from the loan secured by the Quail Run Property to pay Costa Casa's corporate expenses, and he did not use the funds for any personal expenses. Rivas testified that any funds left from the loan were in Costa Casa's bank account when a receiver was appointed to take over Costa Casa's financial affairs as a result of the Nevada litigation.
D. The Instant Lawsuit
Daedalus, which is controlled by Thompson, succeeded Costa Casa as the owner of the Quail Run Property. As Daedalus's appellate brief states, "Thompson, through the successor Daedalus" filed the instant lawsuit against Pensco to obtain a cancellation of its deed of trust on the Quail Run Property. As a basis for its lawsuit, Daedalus contended that the deed of trust should be cancelled because Rivas entered into it without authority to bind Costa Casa, as he had already been voted out as director and officer of Costa Casa at the time of the loan in April 2011.
The trial court held a bench trial, after which it issued a written tentative ruling on July 30, 2015. In the tentative ruling, the trial court considered (1) whether Rivas established that he had actual authority to bind Costa Casa to the loan and deed of trust, and (2) whether Rivas had ostensible authority to do so. The trial court explained in its tentative ruling that Rivas did not have actual authority because Thompson set up the corporation as "a sham to conceal the involvement of Thompson in the corporate activities" and "the corporation was Thompson's alter ego." However, the trial court concluded that Rivas had ostensible authority because, among other things, "Thompson intentionally created the impression that Rivas was the sole agent with authority to act on behalf of Costa Casa" and "[d]efendants' failure to discover the dispute between Thompson and Rivas, and therefore Rivas['s] lack of actual authority was not negligent." The trial court pointed out that Thompson was negligent in failing to take action to record a deed of trust or a lis pendens on the Quail Run Property and concluded that "plaintiff has shown no evidence that would have put defendants on notice that Rivas did not, or might not, have the authority he was claiming."
The trial court entered judgment in favor of Pensco on September 17, 2015. The judgment states that "[a] statement of decision was requested by [counsel for Daedalus]." However, for reasons not explained in the record or by the parties, the trial court did not issue a statement of decision.
II.
DISCUSSION
Daedalus appeals from the judgment, contending that the trial court should have found that Rivas lacked ostensible authority to bind Costa Casa to the loan and the deed of trust on the Quail Run Property. In considering Daedalus's contention that the evidence does not support the trial court's judgment in favor of Pensco, we apply a substantial evidence standard of review. (Ripani v. Liberty Loan Corp. (1979) 95 Cal.App.3d 603, 611 ["The question whether an agent acted within his authority is a question of fact for the trier of fact, and on appeal the finding of the trial court will not be disturbed where it is supported by substantial evidence."]; Gulf Ins. Co. v. TIG Ins. Co. (2001) 86 Cal.App.4th 422, 439 (Gulf Ins.) ["We must accept the trial court's findings on agency as conclusive if supported by substantial evidence, whether contradicted or uncontradicted."].) When applying a substantial evidence standard of review, we "view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor." (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660.)
The sole disputed issue is whether Rivas had ostensible authority as the agent of Costa Casa to bind it to the loan and deed of trust. "An agent has such authority as the principal, actually or ostensibly, confers upon him." (Civ. Code, § 2315.) "[O]stensible authority arises as a result of conduct of the principal which causes the third party reasonably to believe that the agent possesses the authority to act on the principal's behalf." (Tomerlin v. Canadian Indem. Co. (1964) 61 Cal.2d 638, 643.) As set forth in statute, "An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him." (Civ. Code, § 2300; see also Civ. Code, § 2317 ["Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess."].) " 'Ostensible authority must be established through the acts or declarations of the principal and not the acts or declarations of the agent. . . . Also, where the principal knows that the agent holds himself out as clothed with certain authority, and remains silent, such conduct on the part of the principal may give rise to liability.' " (Gulf Ins., supra, 86 Cal.App.4th at p. 439.) A principal is bound by acts of his ostensible agent to those persons "who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof." (Civ. Code, § 2334.)
Thompson, as the person who claims to have been in control of Costa Casa and accordingly its principal, took steps that would reasonably lead third parties to believe that Rivas possessed authority to bind the corporation as its sole officer and director. Specifically, as we have described, with the intention of concealing any relationship he had with Costa Casa, Thompson specifically installed Rivas as Costa Casa's sole officer and director. The articles of incorporation, the by-laws, and the information on file with the New Mexico Secretary of State reflected Rivas's position in Costa Casa as its officer and director and shareholder. After Thompson changed the information on file with the New Mexico Secretary of State, he learned that Rivas had changed it back. Although Thompson could have taken further action to correct the information on file with the New Mexico Secretary of State, he failed to do so. Accordingly, Thompson knowingly left the public with the uncontradicted impression that Rivas possessed the authority to bind Costa Casa even after the dispute with Rivas arose.
Although Thompson was aware that, in light of the dispute between him and Rivas, he should take steps to put the public on notice of the dispute involving Rivas's continued authority to act on behalf of Costa Casa with respect to the Quail Run Property, Thompson failed to do so. Thompson had a business associate record deeds of trust, notices of wire transfers and lis pendens for other properties owned by Costa Casa, but there is no evidence that any such attempts were made with respect to the Quail Run Property prior to Rivas obtaining the loan and deed of trust.
Moreover, the evidence established that Val-Chris relied on the corporate documents created by Thompson, or at Thompson's direction, to conclude that Rivas had the authority to bind Costa Casa to the loan and the deed of trust. As we have described, Boulter and the title officer reviewed numerous corporate documents, including the articles of incorporation, the by-laws, and the information on file with the New Mexico Secretary of State to conclude that Rivas had authority to bind Costa Casa. Also, as the title officer testified, he consulted a database that would have revealed any lis pendens or other evidence of title disputes on the Quail Run Property had Thompson followed through on his intent to record such documents, but because Thompson had not recorded any such documents, the title officer found none.
Based on all of these facts, substantial evidence supports finding that Rivas acted with ostensible authority. Specifically, the evidence establishes that Thompson, as the person who purported to control Costa Casa, "intentionally, or by want of ordinary care, cause[d] a third person to believe another to be his agent" (Civ. Code, § 2300) in that he (1) installed Rivas as Costa Casa's sole officer and director; (2) created documents that reflected that status; and (3) failed to take steps to put the public on notice, after the dispute with Rivas arose, that he no longer considered Rivas to have the authority to bind Costa Casa.
Daedalus contends that a finding of ostensible authority is not supported here because Val-Chris, as the underwriter of the loan, did not act with reasonable care in relying on the documents showing Rivas to be the sole officer and director of Costa Casa. Specifically, Daedalus points out that for ostensible agency to exist, " 'the third person in relying on the agent's apparent authority must not be guilty of negligence' " and the third person's belief in the agent's authority must be "reasonable." (Associated Creditors' Agency v. Davis (1975) 13 Cal.3d 374, 399.) Daedalus contends that it was negligent and unreasonable for Val-Chris to fail to perform "a credit check on the corporation" which would have revealed that "Rivas was no longer authorized to borrow any money." As we will explain, the argument lacks merit.
Although Daedalus makes the bald assertion that "[i]t is undisputed that a simple credit check on the borrower would have shown that Rivas did not have authority to act for the corporation and that there were existing lawsuits in Nevada on that issue[,]" the settled statement contains no evidence to support that claim. Thus, there is no reason to conclude that a corporate credit check would have raised any red flags about Rivas's authority to act on behalf of Costa Casa. Moreover, the only evidence reflected in the settled statement concerning Val-Chris's decision to forego a corporate credit check supports a finding that Val-Chris acted reasonably and in accordance with acceptable industry standards. Specifically, Boulter testified that Val-Chris does not typically obtain corporate credit reports as part of its due diligence in reviewing a corporate loan application, and he is unaware of any private money lender who requires such information for a commercial loan to a business to be secured by property owned by the business. Further, the title officer who issued the title insurance policy to Val-Chris testified that he never pulls a corporate credit rating and he is unaware of any title officer or title company that takes such measures. There was no expert testimony presented at trial that would have contradicted the testimony of the title officer and Boulter, in which they claimed to have followed the standard practice in the industry by foregoing a credit check on Costa Casa. Accordingly, we reject Daedalus's contention that Val-Chris acted negligently and unreasonably in concluding that Rivas had the authority to bind Costa Casa without first running a corporate credit check.
Similarly, Daedalus argues that Val-Chris was negligent because it failed to "look at the title of the various Nevada properties that were listed as collateral for the loan by Rivas. If it had done so, it would have discovered the litigation [between Rivas and Thompson] by one of the many trust deeds that were recorded." This argument fails because it reflects a fundamental factual misunderstanding regarding the collateral for the loan at issue here. The record contains no evidence that Rivas listed "various Nevada properties . . . as collateral for the loan." Instead, the loan documents reflect that the $114,000 loan made by Val-Chris to Costa Casa was based on a deed of trust against the Quail Run Property alone, not any other real property owned by Costa Casa. As no other real property served as collateral for the loan, there is no reasonable basis to expect Val-Chris to investigate the title of the other properties that Costa Casa owned.
In sum, substantial evidence supports a finding that Rivas had ostensible authority to bind Costa Casa to the loan secured by the deed of trust on the Quail Run Property.
DISPOSITION
The judgment is affirmed.


IRION, J.

WE CONCUR:




HUFFMAN, Acting P. J.




DATO, J.