Ross v. Fox
| Decision Date | 25 August 2021 |
| Docket Number | B298873 |
| Parties | JERRY ROSS et al., Plaintiffs and Appellants, v. ALAN FOX et al., Defendants and Appellants. |
| Court | California Court of Appeals |
NOT TO BE PUBLISHED
Order Filed Date 9/16/21
APPEALS from an order and judgment of the Superior Court of Los Angeles County No. BC576879 Michelle Williams Court Judge. Affirmed in part; reversed in part with directions.
Leonard, Dicker & Schreiber, Richard C. Leonard and Steven A. Schuman for Plaintiffs and Appellants.
Munger, Tolles & Olson, Mark R. Yohalem and Maggie H. Thompson for Defendants and Appellants.
The above-entitled opinion filed on August 25, 2021 is modified as follows:
On page 34, after the first paragraph, add the following paragraph:
The Fox defendants contend on appeal that “no reasonable jury could reject the financial elder abuse claim on the ground that Ross was not an elder.” But the Fox defendants' attorney emphasized in his closing argument that Jerry had not proved the elements of elder abuse as set forth in the jury instructions, starting with the requirement that Jerry be at least 65 at the time of the fraud. The attorney argued, The Fox defendants could have argued only that Jerry failed to prove his fraud claim, and thus the elder abuse claim failed as well. But their attorney elected to highlight that Jerry was not 65 prior to 2007 (or more correctly prior to 2006), which the jury could have understood to mean the fact the first two investments were made prior to when Jerry turned 65 caused the elder abuse claim to fail.
On page 34, in the first sentence of the third paragraph, add the word “therefore” between the words “could” and “reasonably” so the sentence reads:
The jury could therefore reasonably (but erroneously) have concluded the fraudulent conduct occurred before Jerry turned 65, even though the fraud continued after Jerry turned 65 because the Fox defendants continued to take Jerry's investment money until 2012.
Appellants' petition for rehearing is denied.
There is no change in the appellate judgment.
Jerry Ross and his children Eric Ross and Jenny Zipkin (collectively, the Rosses) appeal from an order granting the motion for a new trial filed by Alan C. Fox and ACF Property Management, Inc. (collectively, the Fox defendants) and denying Jerry's motion for judgment notwithstanding the verdict on his claim for financial elder abuse.[1] The Rosses, who invested more than $4.7 million in 13 commercial real estate investment companies syndicated by the Fox defendants over a 14-year period, filed this action for breach of fiduciary duty, fraud, securities fraud, and financial elder abuse (of Jerry), alleging the Fox defendants made misrepresentations in the investment offering materials to conceal their taking of millions of dollars of profits, fees, and commissions. The jury returned a verdict for the Rosses on fraud, securities fraud, and breach of fiduciary duty and for the Fox defendants on financial elder abuse. The jury awarded more than $12.3 million to the Rosses, including $8 million in punitive damages. The trial court also awarded over $800, 000 for rescission. On appeal, the Rosses contend the trial court erred in granting the Fox defendants' new trial motion based on an inconsistent verdict ( the Fox defendants liable for fraud and related claims, but not financial elder abuse), instead of entering judgment in Jerry's favor for financial elder abuse.
The Fox defendants filed a protective cross-appeal from the judgment, in which they contend the trial court abused its discretion in allowing a key witness the Rosses concealed during discovery to testify and in allowing improper expert testimony. The Fox defendants also argue instructional error and the trial court's approval of erroneous verdict forms proposed by the Rosses. Further, they challenge the consequential and punitive damages awards and the trial court's award of prejudgment interest.
We reverse the trial court's order granting a new trial and affirm the court's order denying the Rosses' motion for judgment notwithstanding the verdict. We also reverse the punitive damages award against ACF. We otherwise affirm. We remand to the trial court with instructions to enter judgment in favor of the Rosses, but to strike the punitive damages award against ACF.
Jerry is a retired television writer who began investing in real estate, including three small apartment buildings, in the late 1990s. Jerry was born in August 1941. Jerry's son Eric also invested in apartment buildings and helped manage his father's properties. Jerry's daughter Zipkin is a pediatrician.
Fox trained as a lawyer and is the principal and founder of ACF which he incorporated in 1968. The Fox defendants are primarily engaged in syndicating commercial real estate, particularly suburban shopping centers. As part of their syndication business, the Fox defendants identify investment opportunities, conduct due diligence and negotiate terms for the acquisition and debt financing of a shopping center, and then set up a limited liability company (LLC) or series of LLC's to take title to each shopping center that is acquired. The Fox defendants sell shares in the LLC's to accredited investors[2] before, during, or after the property acquisition. ACF serves as the managing member of each LLC and usually acts as the manager of the underlying property. Investors in ACF's syndications receive ordinary distributions from shopping center operations through the LLC and larger special distributions when a shopping center is sold or refinanced. Syndication allows investors to benefit from the income, appreciation, and tax advantages of owning a large commercial property that would be unavailable to them if they invested individually.
Jerry and Fox first met in approximately July 2004, when Jerry was considering selling three apartment buildings in which he had about $4 million in equity and investing the proceeds with ACF in shopping centers. Jerry sent an email to Fox explaining as to the $4 million, Fox suggested a few different shopping centers that ACF was in various stages of syndicating. After further discussions and an in-person meeting, Jerry purchased for Eric and Zipkin a $150, 000 interest in the LLC that acquired the Provinces shopping center in Chandler, Arizona. Eric and Zipkin were not materially involved in the transaction; rather, Jerry communicated directly with Fox and provided the investment money. On May 19, 2005 Jerry made his first personal investment with ACF when he purchased a $900, 000 interest in the LLC that acquired the Highlands Ranch shopping center in Denver, Colorado. Jerry was 63 at the time.
Between 2004 and 2012 the Rosses cumulatively invested approximately $4.7 million in 13 ACF syndications.[3] Provinces and Highlands Ranch were the only syndications in which the Rosses invested before Jerry turned 65 in August 2006. Jerry received all documents from the Fox defendants related to Eric's and Zipkin's investments and directed Eric's and Zipkin's investment decisions. Zipkin testified she did “not really” read the investment documents she signed and instead relied on her father's advice. Eric read the documents and discussed the investments with Jerry, but ultimately Eric “pretty much” accepted Jerry's decisions.
Before the Rosses invested in each syndication, the Fox defendants provided them two documents related to the offering: a single-page executive summary and a single-page table of financial projections (the offering documents).
The executive summary for each offering included entries for: “Location, ” “Price, ” “Property Description, ” “Area Description, ” “Demographics, ” “Year Built, ” “Projected Annual Net Operating Income, ” “Cash Required, ” “Projected Return, ” and “Minimum Investment.” The financial projections included the monthly gross income and expenses of the shopping center projected over a five-year period and the projected return on the investment. The projections were based on assumptions as to the “Net Investment, ” which was the sum of the “Purchase Price, ” “Loan and Closing Costs, ” and “Operating Reserves, ” less “Loans Payable.” For all of the Rosses' investments, the “Price” listed on the executive summary was identical to the “Purchase Price” in the financial projections, and the “Cash Required” in the executive summary was identical to the “Net Investment” in the financial projections.
As of June 30, 2018 the Rosses had received nearly $3.7 million in distributions from their cumulative investment of $4.7 million over the prior 14 years. They still held interests in six syndications that generated an additional $207, 000 between July 1, 2018 and March 13, 2019.
The Rosses filed this action on March 26, 2015. The operative first amended complaint asserted causes of action against the Fox defendants for breach of fiduciary duty, fraud securities fraud, financial elder abuse as to Jerry (elder abuse), and an accounting.[4] The complaint alleged the Fox defendants made...
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