Farmers & Merchants Trust Co. v. Vanetik
| Decision Date | 27 February 2019 |
| Docket Number | c/w G054218,c/w G053978,G053688,c/w G053689 |
| Court | California Court of Appeals Court of Appeals |
| Parties | FARMERS & MERCHANTS TRUST COMPANY, etc., Plaintiff and Appellant, v. YURI VANETIK et al., Defendants and Appellants. |
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California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINIONAppeals from judgments and postjudgment orders of the Superior Court of Orange County, Ronald L. Bauer, Judge. Appeal Nos. G053688 and G053689 affirmed in part and reversed in part. Appeal No. G053978 affirmed. Cross-appeal in appeal No. G053978 dismissed as moot. Appeal No. G054218 affirmed. Motion to augment appellate record. Denied.
Klapach & Klapach and Joseph S. Klapach for Defendant and Appellant Yuri Vanetik.
Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup; Hamilton Law Offices and John Michael Hamilton for Defendant and Appellant Anatoly Vanetik.
Law Office of Jim P. Mahacek and Jim P. Mahacek for Plaintiff and Appellant Farmers and Merchants Trust Company.
White & Reed and Michael R. White for Defendants and Appellants Richard Weed, Weed & Co., L.C., and Weed & Co. LLP.
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Yuri Vanetik and his father, Anatoly (Tony) Vanetik, were involved with a number of interrelated companies in the business of oil exploration in Russia. (To avoid confusion, we will refer to Yuri and Tony by their first names; we intend no disrespect.) Yuri approached his friend, Elliot Broidy, about investing in one of those companies, Terra Resources (Terra). Broidy agreed to invest $750,000, with the written agreement his investment would go only to efforts to start production on the oil wells.
Farmers & Merchants Trust Company (F&M Trust) was the trustee and administrator of the simplified employee pension plan (SEP) for Broidy's individual retirement account (IRA). F&M Trust acquired stock in Terra. Broidy later learned that his investment had not been used in connection with the oil wells. Rather, the money had been used to pay off Yuri's and Tony's preexisting debts.
Broidy and Tony orally agreed that Tony would pay back the $750,000; Tony failed to do so. F&M Trust then sued Yuri and Tony for breach of written and oral contracts, and for fraud. F&M Trust also sued Richard Weed (the attorney for Yuri, Tony, and the oil exploration companies) for fraud. (Weed and his law firm, at different times known as Weed & Company, L.C., and Weed & Company LLP, will be referred to collectively in this opinion as the Weed defendants.) The jury found in favor of F&M Trust on all causes of action, and awarded compensatory and punitive damages against Yuri, Tony, and the Weed defendants. Judgment was entered against Yuri and Tony; the trial court granted judgment notwithstanding the verdict (JNOV) in favor of the Weed defendants.
On appeal, we conclude that substantial evidence supported the jury's verdict against Yuri and Tony on the claims for breach of written contract, breach of oral contract, and fraud. The jury's special verdict findings on the contract and fraud claims neither resulted in inconsistent verdicts, nor required F&M Trust to make an election of remedies. However, F&M Trust failed to offer substantial evidence supporting the punitive damages awards against Tony and Yuri. We reverse those punitive damage awards, but otherwise affirm the judgment in favor of F&M Trust and against the Vanetiks.
We further conclude the trial court properly granted JNOV in favor of the Weed defendants on the fraud causes of action. There was no evidence that the Weed defendants had an independent duty to F&M Trust, or that their actions went beyond the ordinary performance of professional duties as the Vanetiks' legal counsel. We therefore affirm the judgment in favor of the Weed defendants and against F&M Trust.
We further affirm the postjudgment orders awarding attorney fees to F&M Trust as the prevailing party on its judgment against Yuri and Tony, and awarding attorney fees to the Weed defendants as the prevailing parties on their judgment against F&M Trust.
Elbrus Energy Group, Ltd. (Elbrus) was formed by Tony, Alex Sulla, Jed Dolkart, and Dean Miller in 2009 to acquire and develop oil concessions in Kalmykia, Russia. (A concession is a right to remove oil with the government receiving some of the income.) Yuri helped capitalize the company by providing $750,000 in startup funds. Terra was established to own the equity of Elbrus and facilitate the raising of capital and the addition of new shareholders.
Broidy was a friend of Yuri's. In late 2010, Yuri informed Broidy of Terra's oil exploration business in Russia. Broidy decided to invest $750,000 in Terra.
Broidy performed due diligence before making his investment, hiring an international oil and gas consulting company called Pace Global to investigate Terra's oil concessions. Pace Global advised that it was "comfortable" with the deal and "felt there was oil there and time would tell whether we could extract." Pace Global also advised Broidy that it did not see any "fatal flaws" and thought there could be significant reserves of oil in the concessions. Pace Global described the investment as an extremely high-risk investment: "While that may lead to higher returns, it is critical to understand that these fields are much higher risk and could be technically challenging."
Broidy wanted his investment to go strictly into uncapping the wells and making them productive. The securities purchase agreement specified: "SELLER covenants to use funds from Initial Purchase in furtherance of efforts to start production on the 85,000 acre Concession in Kalmykia owned by NK Alliance LLP." Broidy was willing to accept the risk that the wells might not produce any oil. Yuri told Broidy that his $750,000 investment would uncap some of the wells, although Yuri knew that the true cost of uncapping a single well could be in excess of $1.5 million. The Vanetiks told Broidy that Terra was financially stable. Broidy would not have invested in Terra if he had known about the amount of debt it was carrying. The Vanetiks did not tell Broidy they had personal financial claims against Terra.
Broidy acquired his Terra stock from KLEL Funds (KLEL), a subsidiary of Terra. Broidy was told the Vanetiks controlled KLEL, and the transaction was being run through KLEL as an accommodation to the Vanetiks. The stock was sold to F&M Trust as the trustee and administrator of Broidy's SEP IRA, rather than directly to Broidy. Broidy's attorney, David Camel, prepared the purchase documents with Weed, who was acting as counsel for Terra and KLEL.
On March 11, 2011, Broidy and KLEL executed a securities purchase agreement. Neither Tony nor Yuri nor any of the Weed defendants were signatories of the securities purchase agreement.
Concurrently with the securities purchase agreement, Broidy and KLEL executed an escrow agreement with Weed & Company LLP to facilitate the stock transfer. Neither Tony nor Yuri was a signatory to the escrow agreement.
Broidy's investment was used by Terra to repay loans, reimburse expenses, and pay operating expenses; none of Broidy's investment was used directly to develop the oil concessions.
Yuri advised Broidy that things were going well, wells were being uncapped, and Terra had contracted with Baker Hughes, the oil development company that would supervise the project and manage the capital. Baker Hughes, however, had not been paid.
Terra's brokerage firm in Germany, Euroline Bankers, owed a custodian fee to Baader Bank, Terra's custodial bank. Baader Bank liquidated a large quantity of Terra's stock to satisfy the debt, seriously depressing the value of Terra's stock. Terra was later delisted from the Frankfurt Stock Exchange. Both Yuri and Miller sold their Terra stock.
In 2013, Broidy advised Yuri and Tony he was unhappy with his Terra investment. According to Broidy, Tony said "he was going to give me my money back." Tony also told Broidy: Yuri told Broidy:
In June 2013, Camel and Weed exchanged a series of e-mails regarding a proposed settlement. Camel forwarded a proposed stock purchase agreement to Weed. The accompanying e-mail read, in relevant part:
On June 17, Camel wrote to Weed:
On July 25, 2013, Broidy e-mailed Tony: ...
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