Chfa v. hanover/california Management

56 Cal. Rptr. 3d 92, 148 Cal. App. 4th 682
CourtCalifornia Court of Appeal
DecidedMarch 15, 2007
DocketG034968
StatusPublished

This text of 56 Cal. Rptr. 3d 92 (Chfa v. hanover/california Management) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Chfa v. hanover/california Management, 56 Cal. Rptr. 3d 92, 148 Cal. App. 4th 682 (Cal. Ct. App. 2007).

Opinion

56 Cal.Rptr.3d 92 (2007)
148 Cal.App.4th 682

CALIFORNIA HOUSING FINANCE AGENCY, Plaintiff and Appellant,
v.
HANOVER/CALIFORNIA MANAGEMENT AND ACCOUNTING CENTER, INC., et al., Defendants and Appellants.

No. G034968.

Court of Appeal of California, Fourth District, Division Three.

March 15, 2007.

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

O'Melveny & Meyers, Paul B. Salvaty, Richard W. Buckner, Kristina M. Hersey, Los Angeles; and Thomas C. Hughes, San Diego, for Plaintiff and Appellants.

Certified for Partial Publication.[*]

OPINION

ARONSON, J.

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.

*94 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 CHFA's 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 CHFA's 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, CHFA's attorney, did not owe CHFA fiduciary duties is patently meritless, and the trial court correctly instructed the jury that McWhirk was CHFA's 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 nol 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. CHFA's 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.) CHFA's 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 CHFA's director of insurance from 1986 through 2001, reporting directly to CHFA's highest officer, the executive director. McWhirk served as CHFA's general counsel from 1984 until 1990. From 1991 though 2000, McWhirk became CHFA's outside counsel under a series of written agreements.

During the first half of Schienle's 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 *95 officer during the time he also served as CHFA's 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 HC's sole owner, promising Formisano $100,000 if he would participate in the scheme. Formisano never owned any interest in HC, but held the company's 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 HC's "operating costs." Schienle drafted the HC contract, which was the only agreement he drafted during his CHFA tenure. The agreement failed to describe HC's services, continued in perpetuity with no termination date, included no audit provisions, and failed to define the amount of HC's 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 HC's business grew, defendants hired Misita's nephew and McWhirk's 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 CHFA's 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.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Schaefer v. Berinstein
295 P.2d 113 (California Court of Appeal, 1956)
Thomson v. Call
699 P.2d 316 (California Supreme Court, 1985)
Terry v. Bender
300 P.2d 119 (California Court of Appeal, 1956)
S. G. Borello & Sons, Inc. v. Department of Industrial Relations
769 P.2d 399 (California Supreme Court, 1989)
Coy v. County of Los Angeles
235 Cal. App. 3d 1077 (California Court of Appeal, 1991)
Sturm, Ruger & Co. v. Superior Court
164 Cal. App. 3d 579 (California Court of Appeal, 1985)
Waller v. TJD, INC.
12 Cal. App. 4th 830 (California Court of Appeal, 1993)
Campagna v. City of Sanger
42 Cal. App. 4th 533 (California Court of Appeal, 1996)
GACKSTETTER v. Frawley
38 Cal. Rptr. 3d 333 (California Court of Appeal, 2006)
People v. Gnass
125 Cal. Rptr. 2d 225 (California Court of Appeal, 2002)
People v. Honig
48 Cal. App. 4th 289 (California Court of Appeal, 1996)
People v. Ault
95 P.3d 523 (California Supreme Court, 2004)
Pacific Finance Corp. v. City of Lynwood
300 P. 50 (California Court of Appeal, 1931)
Boswell v. Laird
8 Cal. 469 (California Supreme Court, 1857)
Stigall v. City of Taft
375 P.2d 289 (California Supreme Court, 1962)
People v. Ault
33 Cal. 4th 1250 (California Supreme Court, 2004)

Cite This Page — Counsel Stack

Bluebook (online)
56 Cal. Rptr. 3d 92, 148 Cal. App. 4th 682, Counsel Stack Legal Research, https://law.counselstack.com/opinion/chfa-v-hanovercalifornia-management-calctapp-2007.