Thiel v. Mka Real Estate Qualified Fund I, LLC

• Decision Date: 03 October 2016
• Docket Number: A144984,A144099
• Court: California Court of Appeals Court of Appeals
• Parties: PENELOPE GAE THIEL, as Successor in Interest to NORMAN M. THIEL, Plaintiff and Respondent, v. MKA REAL ESTATE QUALIFIED FUND I, LLC et al., Defendants and Appellants.

PENELOPE GAE THIEL, as Successor in Interest to NORMAN M. THIEL, Plaintiff and Respondent, v. MKA REAL ESTATE QUALIFIED FUND I, LLC et al., Defendants and Appellants.

A144099

A144984

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FOUR

October 3, 2016

ORDER MODIFYING OPINION AND DENYING REHEARING[NO CHANGE IN JUDGMENT]

THE COURT:

It is ordered that the opinion filed herein on October 3, 2016, be modified as follows:

The following sentence is deleted from the DISPOSITION on page 48: "The penalty imposed under Civil Code section 3345 in the amount of $570,000 is hereby stricken."

The text deleted from page 48 is replaced with the following sentence: "The penalty imposed under Civil Code section 3345 is hereby stricken."

This modification does not effect a change in the judgment.

Appellants' petition for rehearing is denied.

DATED:__________

/s/_________

RUVOLO, P. J.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Marin County Super. Ct. No. 10-04972)

I.INTRODUCTION

In 2007, Norman Thiel followed a recommendation from his financial advisor Jeffrey Guidi to invest a substantial part of his retirement savings in a private placement securities offering by MKA Real Estate Qualified Fund I, LLC (Qualified Fund). In 2010, Norman filed this action seeking redress for the loss of his investment, alleging causes of action for fraud, breach of fiduciary duty, negligence and financial elder abuse against Guidi, Qualified Fund and others. After Norman passed away in 2013, his wife Gae was substituted as the plaintiff in this case in her capacity as Norman's successor in interest.¹

At a 2014 bench trial, the only remaining defendants were Qualified Fund and its manager MKA Capital Group Advisors, LLC (Advisors). The trial court found in favor of Gae on all of Norman's causes of action, concluding that Qualified Fund and Advisors (collectively, "MKA")² were jointly and severally liable for Norman's damages, either directly or because Guidi was their agent. The court awarded damages totaling $500,000, and statutory attorney fees in the amount of $1,247,709.10. The court also imposed a civil penalty under Civil Code section 3345 in the amount of $570,000, plus compounded prejudgment interest.

In this consolidated appeal from the judgment and postjudgment attorney fee order, MKA contends the entire judgment must be reversed because (1) MKA did not have any independent duty of care with respect to Norman's investment decision; and (2) Guidi was not MKA's agent as a matter of law. Alternatively, MKA challenges various components of the judgment and damages award. We find that the civil penalty the trial court imposed in order to deter and punish MKA was not authorized by Civil Code section 3345 and must be stricken. In all other respects, we affirm the judgment.

II.STATEMENT OF FACTS

A. The Complaint

The operative pleading is a November 2013 third amended complaint (the complaint), which was filed by Gae after Norman passed away in June of that year. Gae sought damages and rescission for breach of fiduciary duty, fraud, negligence, and financial elder abuse against Guidi; Guidi's partner and business associates; andQualified Fund and Advisors. Gae alleged that Guidi was also affiliated with e-Planning Securities, Inc. (ePlanning), a broker-dealer that was not a named defendant because it had invoked the protection of the bankruptcy court.

In a prefatory paragraph, Gae alleged that each defendant was "acting as an agent, servant, employee, and/or co-conspirator" of the other defendants when doing or omitting to do the acts alleged. Gae further alleged that when defendants caused the Thiels to lose half their limited savings, they were all aware that Norman and Gae were over the age of 65, were retired and living on a fixed income, and were not sophisticated investors.

Common factual allegations in the complaint told the following story: In 2002, Norman attended an investment seminar put on by Guidi which was marketed to retirees. On Guidi's recommendation, Norman withdrew "his entire retirement savings of $400,000" from a low risk investment in order to make an investment in two high risk projects. Guidi falsely represented the nature of the risk to Norman and failed to disclose material facts including that the projects were part of a "Ponzi scheme." Despite Guidi's alleged misconduct, by 2007 Norman "was able to recover his capital and a reasonable return for its use." However Guidi then persuaded Norman to invest $200,000 of that money in MKA, a company that provided financing for construction projects. MKA held itself out as accepting investments "only from 'Accredited Investors,' " but it took no steps to ensure that its investors were accredited, did not "properly vet the individuals and entities through which it accepted subscriptions," and used agents like Guidi who were "purveyors of interests in Ponzi schemes."

Gae alleged that Guidi arranged for Norman to invest in MKA knowing that Norman was not an accredited investor, that the risk was inappropriate for his age, that he "was in failing health, that he was a recent survivor of cancer, and that he was in a particularly vulnerable mental state and lacked the strength to oppose a persistent effort to urge him to make a high risk investment completely inappropriate for an investor in his position." Furthermore, Guidi "took extreme and illegal measures" to secure Norman's consent to make the MKA investment, which included making false statements about the nature and quality of the MKA investment, and falsely representing that MKA would payNorman "12% per annum regularly." For a few months, the investment performed as Guidi had promised, but in late 2007 MKA "suddenly" stopped making monthly distributions. Then MKA deducted the already paid distributions from Norman's capital investment. Only then did MKA provide Norman with documentation exposing the high risk and unsafe nature of his investment. Thereafter, Norman's demands for a return of his investment were wrongfully denied by MKA.

B. Trial Evidence

In August 2014, a court trial was held before the Honorable Mark Talamantes. By that time, the only remaining defendants in the action were the two MKA defendants. On the first day of trial, Guidi's former trial counsel joined the team of attorneys representing MKA. Over the course of five court days, the court heard evidence which substantially established the facts summarized below.

1. The 2002 Investments

In 2002, Norman was 64, his net worth was $500,000, and his investments were primarily in mutual funds. Some time that year, Norman met Guidi at an investment seminar where Guidi was a presenter. After Norman attended Guidi's seminar, his conservative investing practices changed.

At Guidi's recommendation, Norman made a $400,000 investment which represented 80 percent of his liquid assets (the 2002 investment) in two projects sponsored by the Asset Real Estate Investment Company (AREI). Guidi told Norman that one of the projects, an assisted living facility, had an expected rate of return of 9 percent, and the other, a real estate development in Utah, had an expected rate of return of either 12 or 13 percent. Gae testified at trial that she had been uncomfortable about the 2002 investment, but Norman "trusted Jeff [Guidi] completely[,] . . . he just thought the world of him."³

Guidi testified at trial that he was a registered representative of ePlanning when he introduced the two AREI projects to Norman and, as such, ePlanning was his supervisor and the sponsor of investments he shared with clients like Norman. The two AREI projects Guidi showed to Norman were the only "offerings" ePlanning had at that time that "expected to return in the area of 12 percent per annum." After Guidi helped Norman make his 2002 investment, Norman became Guidi's client, and the two met regularly to discuss Norman's "goals," and "what was going on . . . in general."

2. Norman's Failing Health

In 2002, Norman suffered from cerebral vascular disease which required that he undergo a carotid endarterectomy, a procedure during which a stent is inserted into the carotid artery in order to remove a blockage. The first time the procedure was attempted, Norman "flatlined" and had to be resuscitated, but on a subsequent occasion the stent was successfully inserted. In 2004, Norman had the procedure again in his other carotid artery.

In 2006, Norman and Gae sold their home but could not afford to buy another one in Marin County. When the couple contemplated a move to a retirement trailer park, their daughter Laura suggested they move into her home. Laura had been living in an in-law unit and renting out her house to supplement her own income. In October, the Thiels purchased an interest in Laura's home and moved there. By that time, Norman was suffering from Chronic Obstructive Pulmonary Disease (COPD) and had to use an oxygen tank every day. He used a portable tank which he took with him when he left the house.

By the spring of 2007, there were marked changes in Norman's mood and health. He became short-tempered and frustrated when trying to balance his checkbook so Laura took over that task from him. He slowed down generally and stopped doing handyman repairs around the house. He had arthritis in his neck and back, started using a cane, and became hunched over. He became sedentary, slept a lot and had a chronic bad cough which would almost make him stop breathing. In April of that year, Norman was diagnosed with prostate cancer which was treated with hormone suppression therapy andsix weeks of radiation. He was in a lot of pain and very tired. Around that same time, Norman received a final...