CALIFORNIA HOUSING FINANCE AGENCY v. HANOVER/CALIFORNIA MANAGEMENT AND ACCOUNTING CENTER, INC.,

Filed 3/15/07

CERTIFIED FOR PARTIAL PUBLICATION^*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment and orders of the Superior Court of Orange County, Robert H. Gallivan, Judge. Affirmed.

Bergman & Dacey, Gregory M. Bergman, Robert M. Mason III and Matthew R. Hicks for Defendants and Appellants.

OMelveny & Meyers, Paul B. Salvaty, Richard W. Buckner, Kristina M. Hersey; and Thomas C. Hughes for Plaintiff and Appellants.

California Housing Finance Agency (CHFA) sued John G. Schienle, Robert L. McWhirk,^[1]and Hanover/California Management and Accounting Center, Inc. (HC), for various torts including fraud, negligent misrepresentation and breach of fiduciary duty. CHFA also accused Schienle and McWhirk of having a financial interest in a government contract they made while in their official capacity as CHFA employees, a violation of Government Code section 1090 (all statutory references are to the Government Code, unless otherwise noted). A jury found for CHFA, awarding it compensatory and punitive damages against each defendant. The trial court awarded CHFA prejudgment interest and attorney fees.

Defendants contend the trial court should have granted their summary judgment motion because all of plaintiffs claims were time-barred. Defendants also complain the trial court improperly instructed the jury (a) on the discovery rule for statutes of limitations, (b) on liability under section 1090, and (c) that McWhirk owed CHFA fiduciary duties as a matter of law. Defendants further contend CHFAs attorney fee motion should have been denied because it was untimely, based on a void contract, and sought fees for noncompensable work. Finally, defendants argue CHFAs motion for prejudgment interest should have been denied because it was untimely and sought a double recovery.

We reject each of defendants contentions. In the published portion of the opinion, we conclude any potential error in denying defendants summary judgment motion was harmless because all factual disputes were fully and fairly litigated at trial. We also conclude the trial court did not err in instructing the jury liability may attach under section 1090 for a person designated an independent contractor. In the unpublished portion of the opinion, we conclude the trial court correctly instructed the jury on the limitations defense, and defendants failure to offer clarifying instructions for any perceived instructional ambiguity forecloses further consideration of the issue. The trial court properly rejected defendants contention that civil liability under section 1090 requires the jury to find defendants acted knowingly. Defendants argument that McWhirk, CHFAs attorney, did not owe CHFA fiduciary duties is patently meritless, and the trial court correctly instructed the jury that McWhirk was CHFAs fiduciary. CHFA timely filed its attorney fee motion, and sought only compensable fees based on its contract. Finally, we conclude CHFA timely requested prejudgment interest, and the award did not constitute a double recovery. Accordingly, we affirm.

I

Factual and Procedural Background

CHFA is a component unit of the State of California, created under the Zenovich-Montrose-Chicon Housing and Home Finance Act, codified as Health and Safety Code section 50000 et seq. CHFAs mission is to provide affordable housing in the state. (See Health & Saf. Code, 50003.) To accomplish this, CHFA acts as direct lender, loan purchaser, and mortgage insurer of both its own loans and those of other lenders. (See Health & Saf. Code, 50000, 51611.) CHFAs mortgage insurance programs are conducted with funds held in the California Housing Loan Insurance Fund (Insurance Fund) under Health and Safety Code section 51611.

Schienle served as CHFAs director of insurance from 1986 through 2001, reporting directly to CHFAs highest officer, the executive director. McWhirk served as CHFAs general counsel from 1984 until 1990. From 1991 though 2000, McWhirk became CHFAs outside counsel under a series of written agreements.

During the first half of Schienles tenure, the Insurance Fund collected mortgage insurance premiums exclusively on an annual basis. In 1994 or 1995, Schienle took steps to have the Insurance Fund offer mortgage insurance programs in which the lenders and loan servicers could pay premiums monthly. In late 1995 and early 1996, Schienle and McWhirk created HC to provide CHFA insurance premium processing services. McWhirk incorporated HC, acted as its legal counsel, and served as president and chief executive officer during the time he also served as CHFAs outside counsel. McWhirk operated HC from his residence, and arranged for his domestic partner, Michael Misita who had no mortgage insurance or accounting experience to manage its day-to-day activities. To hide their interest in HC, Schienle and McWhirk brought in Roger Formisano to pose as HCs sole owner, promising Formisano $100,000 if he would participate in the scheme. Formisano never owned any interest in HC, but held the companys stock for McWhirk and Misita with directions to relinquish the stock to them when McWhirk no longer represented CHFA.

In early 1996, Schienle and McWhirk influenced CHFA to enter into a contract with HC (HC contract), whereby HC would collect monthly premiums from lenders and loan servicers and forward the premiums to CHFA, after deducting HCs operating costs. Schienle drafted the HC contract, which was the only agreement he drafted during his CHFA tenure. The agreement failed to describe HCs services, continued in perpetuity with no termination date, included no audit provisions, and failed to define the amount of HCs compensation. Neither Schienle nor McWhirk ever disclosed their interest in HC to anyone at CHFA.

Under the HC contract, the amount deducted from the premiums for operating costs increased dramatically after four years into the policy period, and after year five, HC could keep all of the premiums it collected. In other words, after five years into any particular policy HC would cease remitting to CHFA any part of the premiums it collected, even though CHFA would continue to provide mortgage insurance. In 1996, the first year of operation, HC collected approximately $59,000 in premiums, kept $35,000, and forwarded $24,000 to CHFA. During the last two and one-half years of operation, from 2000 through the first six months of 2002, HC skimmed approximately $6 million from the premiums it received.

As the volume of HCs business grew, defendants hired Misitas nephew and McWhirks sister to assist in processing the insurance premiums. In 1999, HC paid Formisano the $100,000 initially promised. At the end of 2000, McWhirk ceased acting as CHFAs outside counsel. In early 2001, Formisano surrendered his stock to HC without receiving further consideration, and HC reissued stock to McWhirk and Misita, making them the sole owners of the company. During the scheme, HC paid McWhirk substantial legal fees, leased space in his residence, and paid numerous personal expenses, including the lease on a new Mercedes automobile. HC funds were also used to fund two other companies, Stars and Stripes (California) and Stars and Stripes (Nevada), also owned by McWhirk and Misita. Schienle served as an officer and director in both Stars and Stripes companies, and received substantial financial benefits from them and through HC.

Schienle retired from CHFA in December 2001. Shortly thereafter, Schienles replacement discovered the HC contract in a stack of papers Schienle had left behind. Concerned about the agreement, CHFA launched an investigation into the contract and HC. After hiring the accounting firm of PriceWaterhouseCoopers, CHFA discovered Schienle and McWhirks involvement in the matter, and terminated the HC contract. On June 14, 2002, CHFA filed suit against Schienle, McWhirk, and HC. CHFAs third amended complaint sought damages for fraud; negligent misrepresentation; breach of fiduciary duty; violation of section 1090; legal malpractice; negligence; and breach of contract. The complaint also sought a declaration that the HC contract was void; restitution and injunctive relief based on Business and Professions Code section 17200 et seq; and an accounting. HC filed a cross-complaint against CHFA for breach of the HC contract.

Defendants moved for summary judgment, arguing that CHFAs action was barred under the applicable statutes of limitations. The court denied the motion, finding a triable issue of fact on whether defendants fraudulently concealed the facts upon which the causes of action were based, and on whether CHFA should have known about defendants wrongdoing more than three years before it filed the action. McWhirk also filed a separate summary adjudication motion asserting he owed no duty to CHFA because he acted as an independent contractor for the Insurance Fund. The court denied the motion, finding a triable issue of fact on whether McWhirk was CHFAs fiduciary.

Following a seven-week trial, the jury returned its verdict finding (a) each defendant liable for fraud and negligent misrepresentation; (b) Schienle and McWhirk liable for breach of fiduciary duty and violation of section 1090; and (c) McWhirk liable for legal malpractice and breach of contract. The jury awarded CHFA compensatory damages of $6,744,602 and $375,000 in punitive damages against each defendant, and awarded prejudgment interest from the date the action was filed. The jury found in CHFAs favor on HCs cross-complaint. Following the jury verdict, the trial court determined that defendants violated Business and Professions Code section 17200 et seq., and ordered restitution in the amount of $6,744,602. Following the verdict, the trial court awarded prejudgment interest of $1,149,903.72 on CHFAs tort claims against all defendants, and an additional $492,817.15 against McWhirk based on CHFAs contract claims.

II

Discussion

A. Defendants May Not Challenge the Denial of Their Summary Judgment Motion Because the Parties Litigated the Same Issues at Trial

Defendants contend the trial court erred when it denied their summary judgment motion, which sought dismissal of CHFAs claims based on statutes of limitations. CHFA contends that orders denying summary judgment based on triable issues of fact are not reviewable as a matter of law after a full trial covering the same issues. We agree with CHFA.

In Waller v. TDJ, Inc. (1993) 12 Cal.App.4th 830 (Waller), the trial court denied the defendants summary judgment motion. A jury later decided the same issues at trial in the plaintiffs favor. The Court of Appeal declined to review the summary judgment denial, reasoning that the defendants suffered no prejudice because they received a jury trial on the merits. (Id. at p. 836.) Waller explained: When the trial court commits error in ruling on matters relating to pleadings, procedures, or other preliminary matters, reversal can generally be predicated thereon only if the appellant can show resulting prejudice, and the probability of a more favorable outcome, at trial. [California Constitution] Article VI, section 13, admonishes us that error may lead to reversal only if we are persuaded upon an examination of the entire cause that there has been a miscarriage of justice. In other words, we are not to look to the particular ruling complained of in isolation, but rather must consider the full record in deciding whether a judgment should be set aside. Since we are enjoined to presume that the trial itself was fair and that the verdict in plaintiffs favor was supported by the evidence, we cannot find that an erroneous pretrial ruling based on declarations and exhibits renders the ultimate result unjust. (Id. at p. 833.)

Defendants rely on the recent case of Gackstetter v. Frawley (2006) 135 Cal.App.4th 1257 (Gackstetter), which distinguished Waller. In Gackstetter, the defendants unsuccessfully raised a defense of good faith settlement under Code of Civil Procedure section 877.6 in their summary judgment motion. On appeal, defendants argued the trial court erred in denying its summary judgment motion. Gackstetter accepted Wallers conclusion that a reviewing court will not consider whether a trial court erred in denying a summary judgment motion based on triable issues of fact following a full trial of those same issues. (Gackstetter, at p. 1268.) The court explained: A decision based on less evidence (i.e., the evidence presented on the summary judgment motion) should not prevail over a decision based on more evidence (i.e., the evidence presented at trial). (Id. at p. 1269, citing Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (2004) 8:168.10, p. 8-114.) Gackstetter nonetheless reviewed the trial courts denial of summary judgment because the good faith issue was not based on disputed facts which were resolved at a subsequent trial. The court recognized the good faith settlement issue could have been raised in a number of different ways, and defendants had not forfeited review merely because they chose summary judgment as the procedural device to assert their good faith settlement defense. (Gackstetter, at p. 1269.)

Defendants also cite Sturm, Ruger & Co. v. Superior Court (1985) 164 Cal.App.3d 579 and Coy v. County of Los Angeles (1991) 235 Cal.App.3d 1077 (Coy) to support the notion that a reviewing court could consider whether the trial court erred in denying summary judgment despite a full trial on the same issues. Sturm does not support defendants argument. There, the trial court simply recognized that a partys failure to timely seek writ review of an order denying summary judgment did not prevent that party from raising the same issues at trial, or from appealing the resulting judgment. (Sturm, at p. 582.) Nothing in Sturm suggested the moving party could obtain reversal based on the trial courts erroneous summary judgment denial where the same issue was adversely decided against the moving party following a fair trial.

Coy, supra, 235 Cal.App.3d 1077 reversed a judgment following a jury trial based on the trial courts erroneous summary judgment denial. But there, the court expressly noted the plaintiff had not contested the defendants ability to challenge the pretrial summary judgment ruling on appeal after trial. (Id. at p. 1082, fn. 2.) Because the issue was never addressed, Coy offers no support for defendants argument. (See People v. Ault (2004) 33 Cal.4th 1250, 1268, fn. 10 [It is axiomatic that cases are not authority for propositions not considered].)

Here, the trial court denied defendants summary judgment motion because it found triable issues of fact whether defendants fraudulently concealed facts upon which the causes of action were based, and whether CHFA should have known about defendants wrongdoing more than three years before it filed the action. These factual issues were fully litigated at trial and determined adversely to defendants. For that reason, no miscarriage of justice occurred when the trial court denied defendants summary judgment motion.

B. The Trial Court Did Not Err in Instructing the Jury That McWhirk Owed Fiduciary Duties to CHFA

The trial court instructed the jury that each defendant owed CHFA fiduciary duties. The courts instruction affected the statute of limitations discovery rule, rendered McWhirk potentially liable for breach of fiduciary duty, and prevented McWhirk from asserting CHFAs negligence as a defense to its fraudulent concealment claim. McWhirk contends the trial court erred in removing these issues from the jurys consideration because they constituted disputed factual issues only a jury could resolve. Specifically, he argues he should have been allowed to present evidence to the jury that he was outside counsel to the Insurance Fund only, and did not represent CHFA itself. He also claims the evidence would demonstrate he acted as an independent contractor, rather than a fiduciary.

An issue of fact cannot be taken from a jury by the trial court and treated as an issue of law unless only one conclusion is legally deducible and any other conclusion cannot command the support of the substantial evidence that will survive appellate review. (Pan Asia Venture Capital Corp. v. Hearst Corp. (1999) 74 Cal.App.4th 424, 433.) McWhirk cites the annual legal services contracts to support his argument that he represented the Insurance Fund, not CHFA. A review of these contracts, however, conclusively refutes McWhirks contentions. During the time the alleged fraudulent activity occurred commencing in 1994 McWhirks annual legal services contracts were with the California Housing Finance Agency, a political subdivision of the State of California, doing business as the California Housing Loan Insurance Fund . . . .

As we have observed previously, [u]se of a fictitious business name does not create a separate legal entity. . . . The designation [DBA] means doing business as but is merely descriptive of the person or corporation who does business under some other name. Doing business under another name does not create an entity distinct from the person operating the business. [Citation.] The business name is a fiction, and so too is any implication that the business is a legal entity separate from its owner. (Pinkertons, Inc. v. Superior Court (1996) 49 Cal.App.4th 1342, 1348, original italics.)

Thus, McWhirks client in each legal services contract from 1994 forward was CHFA itself, and the contracts reference to the Insurance Fund as CHFAs dba was of no legal moment. Where there is no ambiguity, the court has the responsibility to interpret the legal effect of a contract. (See Culligan v. State Compensation Ins. Fund (2000) 81 Cal.App.4th 429, 434 [The interpretation of a written instrument . . . is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect].) Because the legal services contracts unambiguously required McWhirk to provide legal services to CHFA, the trial court did not err by instructing the jury McWhirk owed CHFA fiduciary duties.

McWhirks argument that his putative status as an independent contractor negated any role as a fiduciary is patently frivolous. An attorney is a fiduciary of the very highest character. [Citation.] By the very nature of the relationship, an attorney owes the client a duty to act with the highest good faith. (Howard v. Babcock (1993) 6 Cal.4th 409, 431.) Whether an attorney serves as an employee of the client, as general counsel, or works as an independent contractor, i.e., outside counsel, the attorney owes the client fiduciary duties as a matter of law.

C. The Trial Court Did Not Err in Giving the Statute of Limitations Special Instruction No. 7

1. The Challenged Instruction Accurately States the General Discovery Rule for Statutes of Limitations

Defendants challenge the trial courts use of Special Instruction No. 7 concerning their statute of limitations defense. Defendants argue that their special instructions, which matched the limitations period to each cause of action, should have been used in place of Special Instruction No. 7, which directed the jury to apply a three-year limitations period to all causes of action. Defendants objected to Instruction No. 7 during trial, but only in general terms, and failed to raise the specific matters they now assert on appeal. CHFA contends defendants therefore waived their present objections.

As a general rule, [a] party may . . . challenge on appeal an erroneous instruction without objecting at trial. (Lund v. San JoaquinValley Railroad (2003) 31 Cal.4th 1, 7.) Thus, a party may contend on appeal for the first time that an instruction inaccurately states the law or conveys irrelevant prejudicial information. (Ibid.) On the other hand, [w]here . . . the court gives an instruction correct in law, but the party complains that it is too general, lacks clarity, or is incomplete, he must request the additional or qualifying instruction in order to have the error reviewed. (Conservatorship of Gregory (2000) 80 Cal.App.4th 514, 520-521 (Gregory).) Accordingly, the question whether defendants waived their right to object to Special Instruction No. 7 turns on the nature of the objections being raised.

Defendants specifically challenge the following language in the instruction: When a defendant is guilty of having fraudulently concealed the facts on which a cause of action depends, the statute of limitations is tolled until after the plaintiff discovers or ought to have discovered these facts. [] If you find that plaintiff discovered facts constituting the fraud after June 14, 1999, then you shall find that this action was commenced within the statute of limitations and the statute of limitations defense does not apply. We conclude the challenged portion of the instruction accurately states the law. As the court in Hernandez v. Garcetti (1998) 68 Cal.App.4th 675, 680-681 observed: When a defendant fraudulently conceals the facts on which a cause of action depends, the statute of limitations is tolled until the plaintiff discovers or ought to have discovered those facts. The challenged instruction accurately reflects this principle.

Defendants argue the instruction also should have provided that CHFA had a duty to investigate when it received facts that would arouse suspicion in a reasonably prudent person, and that it should be charged with the knowledge a reasonably diligent investigation would uncover. Defendants rely on Sanchez v. South Hoover Hospital (1976) 18 Cal.3d 93 (Sanchez), for the general principle that when the plaintiff has notice or information of circumstances to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to his investigation . . . the statute commences to run. (Id. at p. 101.) But a different analysis applies where a fiduciary relationship continues. Sanchez explains, that during the continuance of [a] professional relationship, which is fiduciary in nature, the degree of diligence required of a [plaintiff] in ferreting out and learning of the negligent causes of his condition is diminished. (Id. at p. 102.) Although Sanchez was a medical malpractice case, the court noted this principle applies to other fiduciary relationships. (Ibid.) In Brown v. Bleiberg (1982) 32 Cal.3d 426,the court explained that diminished duty of diligence applies because the plaintiff is entitled to a presumption of reliance on the fiduciary. Consequently, the tolling effect of nondisclosure or concealment will . . . continue absent unusual circumstances which should put the patient on notice thereof. (Id. at p. 438, fn. 9.)

Snapp & Associates Ins. Services, Inc. v. Robertson (2002) 96 Cal.App.4th 884 aptly summarized the fraudulent concealment principle: The doctrine of fraudulent concealment, which is judicially created [citations], limits the typical statute of limitations. [T]he defendants fraud in concealing a cause of action against him tolls the applicable statute of limitations . . . . [Citations.] In articulating the doctrine, the courts have had as their purpose to disarm a defendant who, by his own deception, has caused a claim to become stale and a plaintiff dilatory. [Citations.] (Id. at p. 890.) Snapp cautioned, however, that no matter what lengths a defendant goes to in concealing a claim, a plaintiff still has a duty to investigate under certain circumstances. (Id. at pp. 890-891.) Thus, the court concluded that the statute of limitations will commence when the plaintiff obtains a suspicion of wrongdoing, coupled with a knowledge of the harm and its cause . . . . (Ibid.)

The foregoing authorities are consistent with Special Instruction No. 7s admonition that the statute of limitations is tolled until after the plaintiff discovers or ought to have discovered facts underlying CHFAs claims. Rather than contradicting the challenged instruction, the authorities merely provide further definition and refinement of the phrase ought to have discovered. Thus, defendants true complaint with the courts instruction is not that it is an incorrect statement of the law, but that it is too general, lacks clarity, [and] is incomplete . . . . (See Gregory, supra, 80 Cal.App.4th at pp. 520-521.) Because it is defendants obligation to cure any ambiguity in an otherwise accurate instruction and defendants objection to Special Instruction No. 7 failed to address the issue now raised, the point has been waived.

2. Substantial Evidence Supported the Trial Courts Instruction on the Last Overt Act

Defendants also challenge Special Instruction No. 7 because it articulated the last overt act doctrine, as follows: If you find that the parties engaged in a civil conspiracy you must determine when the parties engaged in the last overt act in furtherance of the conspiracy has been completed. If you find that the last overt act occurred after June 14, 1999, then you shall find that this action was commenced within the statute of limitations and the statute of limitations defense does not apply. Defendants contend the evidence at trial demonstrated as a matter of law that their last overt act in furtherance of the conspiracy was the creation of the HC contract in 1996. We disagree.

Defendants principally rely on People v. Zamora (1976) 18 Cal.3d 538, 560 (Zamora), which involved a scheme to burn a building and collect the insurance proceeds. There, the defendants appealed their convictions for conspiracy to commit arson, conspiracy to burn insured property with intent to defraud the insurer, and conspiracy to commit grand theft, contending the claims were time-barred because the last overt act of the conspiracies occurred over three years before their indictment.

Agreeing with the defendants, the Supreme Court in Zamorarecognized that an overt act is an outward act done in pursuance of the crime and in manifestation of an intent or design, looking toward the accomplishment of the crime. (Zamora, supra, 18 Cal.3d at p. 549, fn. 8.) Because an overt act is directed toward commission of the crime, the court explained that acts committed by conspirators subsequent to the completion of the crime which is the primary object of a conspiracy cannot be deemed to be overt acts in furtherance of that conspiracy. Consequently, upon successful attainment of the substantive offense which is the primary object of the conspiracy, the period of the statute of limitations for the conspiracy begins to run at the same time as for the substantive offense itself. (Id. at p. 560.) The Supreme Court acknowledged the crimes of conspiracy to commit arson and conspiracy to burn insured property were completed when the building was burned, and that any acts of concealment after that did not lengthen the statutory period. Similarly, the court concluded the conspiracy to commit grand theft was not completed until the defendants received the last insurance payment. (Id. at p. 560.)

Zamoradoes not aid defendants. True, the HC contract which facilitated the scheme was executed in 1996. But the primary object of the conspiracy was not the formation of the contract, but to skim mortgage insurance premiums due CHFA. Accordingly, the conspiracy was not completed until defendants received the last insurance premium. Substantial evidence demonstrated the defendants received insurance premiums under the scheme from mid-1996 until the first half of 2002. Because the complaint was filed in June 2002, the trial court correctly instructed the jury on the last overt act principle.

D. The Trial Court Properly Instructed the Jury on Section 1090

1. The Trial Court Did Not Err in Instructing the Jury that Section 1090 May Apply to Independent Contractors

Section 1090 provides, in relevant part: Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity. The trial court instructed the jury that [t]he officer or employee language of Section 1090 must be interpreted broadly. The fact that someone is designated an independent contractor is not determinative; the statute applies to independent contractors who perform a public function. Defendants contend the trial court erred in giving this instruction because section 1090 applies only to a public agencys officers or employees, and therefore could not apply to McWhirk, an independent contractor. We disagree.

The common law distinction between an employee and independent contractor developed as the courts attempted to establish the parameters for imposing tort liability on the master for the acts of the servant. The Supreme Court in Boswell v. Laird (Cal. 1857) 8 Cal. 469, 489 explained: The responsibility is placed where the power exists. Having power to control, the superior or master is bound to exercise it to the prevention of injuries to third parties, or he will be held liable.

The common law, however, does not always govern a reference to employment in a particular statute. (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 351.) Rather, employment must be construed with particular reference to the history and fundamental purposes of the statute. (Ibid)

In contrast to the common law, section 1090 is not concerned with holding a public entity liable for harm to third parties based on its agents acts. Rather, it places responsibility for acts of self-dealing on the public servant where he or she exercises sufficient control over the public entity, i.e., where the agent is in a position to contract in his or her official capacity. Thus, the common-law employee/independent contractor analysis is not helpful in construing the term employee in section 1090.

Section 1090, like all conflict of interest statutes, cannot be given a narrow and technical interpretation that would limit [its] scope and defeat the legislative purpose. (People v. Honig (1996)48 Cal.App.4th 289, 314 (Honig).) Thus, in Honig, the court construed the financially interested element in section 1090 to include not only financial benefits the official personally received, but also those accruing to a nonprofit organization employing the officials spouse. Similarly, in Stigall v. City of Taft (1962) 58 Cal.2d 565, 569, the California Supreme Court interpreted section 1090s imposition of liability for any contract made by financially interested officials to cover preliminary matters, such as negotiations, discussions, reasoning, [and] planning. (Ibid; see also Thomson v. Call (1985) 38 Cal.3d 633, 644-645 (Thomson) [successive, related agreements considered a single contract under section 1090].) The court explained that applying the general rule that a contract is not made until the parties mutually agree would frustrate section 1090s purposes. Accordingly, in construing section 1090 in any particular situation, [w]e must disregard the technical relationship of the parties and look behind the veil which enshrouds their activities in order to discern the vital facts. [Citation.] . . . (Honig, at p. 315.)

TO BE CONTINUED AS PART II..

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^* Pursuant to California Rules of Court, rule 8.1110, this opinion is certified for publication with the exception of parts II.B, II.C, II.D.2, II.D.3, II.E, II.F, and II.G.

^[1] McWhirk was sued both as an individual and as Robert L. McWhirk, a professional corporation.