Filed 7/31/14 Getsen Acquisitions v. Zapf CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
GETSEN ACQUISITIONS, LLC, D062874
Cross-Complainant and Respondent,
v. (Super. Ct. No. 37-2011-00050599-CU-OR-NC) ERIC ZAPF,
Cross-Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Diego County, Robert P.
Dahlquist, Judge. Affirmed.
Eric Zapf, in pro. per., for Cross-defendant and Appellant.
Andersen, Hilbert & Parker, David Michael Parker and Joseph A. LeVota, for
Cross-complainant and Respondent Getsen Acquisitions, LLC. I.
INTRODUCTION
Cross-defendant Eric Zapf appeals from a judgment entered against him and in
favor of cross-complainant Getsen Acquisitions, LLC (Getsen) on Getsen's claim for
professional negligence. Zapf was the real estate agent for the sellers of a residential
property that Getsen purchased.
After Getsen purchased the property, it discovered that the property remained
encumbered by a deed of trust in favor of a mortgage lender because the property owner's
loan had not been paid off. It was ultimately determined that someone had signed and
recorded fraudulent documents that made it appear that the seller's loan had been satisfied
and that the trust deed in favor of the lender had been reconveyed to a third party, such
that it appeared that the only lien on the property was for an amount substantially less
than the amount truly owed by the sellers.
In litigation that involved a number of parties and multiple complaints and cross-
complaints, Getsen cross-complained against the sellers, Zapf, and another man who had
been involved in assisting the sellers with the fraudulent documents. Getsen alleged that
Zapf had participated in the fraud, but also asserted a claim for professional negligence
against Zapf for his role in the transaction.
2 After conducting a bench trial, the court found the sellers and the other individual
liable for fraud, and found Zapf liable for negligence. The court concluded that the
defendants, including Zapf, were jointly and severally liable to Getsen for damages in the
amount of $1,027,266.80.
On appeal, Zapf challenges the sufficiency of the evidence to support the trial
court's determination that he was negligent. He further challenges the sufficiency of the
evidence to support the trial court's damages award. Specifically, he contends that
Getsen did not suffer $875,000 in damages as a result of its settlement of the claims
between it and the mortgage lender, which permitted Getsen to quiet title to the property,
on the ground that Getsen's title insurer, not Getsen, had paid that money to the mortgage
lender. He also contends that the trial court should not have awarded Getsen $87,266.87
in "additional expenses" because those damages were "speculative." Finally, Zapf
contends that there was not sufficient evidence to support the $65,000 in legal expenses
that the trial court awarded.
The trial court's findings and damages award are supported by substantial
evidence. We therefore affirm the judgment as to Zapf.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
As the trial court aptly summarized, "This case involve[d] real estate fraud. All
parties agree that a fraud was perpetuated, but they all claim not to have actively
3 participated in it, or to have had knowledge about it until after it was completed.
Everyone claims to be an innocent victim of the fraud. However, the evidence does not
support the claim that all parties to this case were innocent victims of the fraud. In fact,
the evidence establishes that some of the parties knowingly and intentionally perpetrated
the fraud."
George and Peggy Haber owned a residence in Encinitas, California. In 2006, the
Habers executed a note in an amount just over $1.6 million and a deed of trust in favor of
their lender to secure repayment of the note. At some point, Aurora Loan Servicing, Inc.
(Aurora) assumed the servicing rights to the Habers' loan. By 2009, the Habers were
having difficulty making payments on their mortgage. Aurora initiated nonjudicial
foreclosure proceedings in July 2009. At the time the foreclosure proceedings were
initiated, the Habers owed more on the mortgage than their home was worth.1
Two notices of trustees' sales were recorded, on October 26, 2009, and April 16,
2010, respectively. The Habers obtained extensions of these dates while they attempted
to sell the Property pursuant to a short sale. The Habers initially were working with
Steve Morris, a RE/MAX realtor, to try to sell the property. Morris had arranged for a
1 It appears that the balance remaining on the loan was approximately $1.8 million as of the date foreclosure proceedings commenced.
4 short sale, having obtained approval of the sale from Aurora, and the Habers were under
contract with a buyer.2
While the proposed short sale was pending, the Habers met Zapf and Greg
Strange. Zapf and Strange pitched a plan to the Habers that purportedly would allow
them to avoid foreclosure or a short sale. The plan involved challenging the validity of
their debt to their current mortgage holder. Strange and others "referred to the process of
sending documents to challenge secured debts as 'the administrative process.' " The trial
court found that, "[t]his phrase—'the administrative process'—as used in this case, is a
pseudonym for 'the fraud process,' because the process consisted of not only sending
letters to challenge the legitimacy of secured debts but it also included the recordation of
false documents in the chain of title." Strange advised the Habers that this
" 'administrative process' " would allow the Habers to avoid foreclosure and to "walk
away with money from their property."
Morris learned of the Habers' plans to terminate the proposed short sale that he had
arranged and to use something called the " 'administrative process' " to avoid foreclosure
and/or a short sale. Morris advised the Habers both orally and in writing that the
proposed plan appeared to be "a 'scam' and a 'fraud.' " Nevertheless, the Habers decided
to move forward with the " 'administrative process.' "
2 The buyer in the short-sale deal had apparently agreed to purchase the property for $1.35 million. 5 According to the trial court's findings, Zapf "told the Habers, in essence, that the
entire banking/real estate industry was crooked, and that the financial system was
arranged so that banks could make their money and 'screw the homeowner.' " The
Habers authorized Zapf to act as their representative to deal with Aurora regarding their
loan. Zapf contacted Aurora a number of times concerning the loan, and was able to
negotiate on the Habers' behalf a " 'Foreclosure Alternative Agreement' "—i.e., a
forbearance agreement—with Aurora. The forbearance agreement contemplated a series
of " 'stipulated payments' " to be made by the Habers over a period of six months, in
order to avoid foreclosure. The first payment of $12,283.38 was due on October 4, 2010.
The Habers did not have the financial resources to make any of the required
payments. The trial court found that the Habers never intended to make all of the
payments as required by the forbearance agreement. The Habers made an initial payment
using cash that, according to Mrs. Haber's trial testimony, "was mysteriously delivered to
the Habers' home by a courier." However, at her deposition, Mrs. Haber indicated that
the cash had been given to the Habers by Strange, who was accompanied by Zapf at the
time. The trial court believed Mrs. Haber's deposition testimony, finding her deposition
testimony to be more credible than her trial testimony.
Zapf accompanied Mrs. Haber to a bank where she wired the money to Aurora.
After receiving these funds, Aurora suspended the foreclosure of the Habers' home. Zapf
confirmed with Aurora and the foreclosure trustee that the foreclosure was on hold, and
upon receiving confirmation, informed Strange of this fact. The Habers then sent "a
6 series of letters" to Aurora in which they contested the validity of the Aurora loan. The
Habers purported to " 'cancel' " the underlying deed of trust.3 Legal counsel for Aurora
responded to the Habers' letters. In one letter sent to the Habers, Aurora confirmed that
the Habers owed Aurora $1,908,731.64. In another letter, Aurora later stated, " 'Aurora
rejects any attempt by you to reassign the duty(s) and benefit(s) of Trustee and
Beneficiary as set forth in the original Deed of Trust.' " That letter also informed the
Habers that any attempt they might make to reassign the rights and duties under the deed
of trust would be " 'fraudulent' and 'unauthorized.' "
Despite these communications from Aurora, the Habers signed a "phony deed of
trust, reflecting a purported $810,000 loan from 'Real Holdings.' " The Habers knew that
they did not have a loan from "Real Holdings"4 for $810,000, but the phony deed of trust
was recorded. Someone also recorded a "phony reconveyance" of the Aurora loan. That
document was signed by " 'Daniel Mikac.' "5 The reconveyance states that the Aurora
loan had been fully paid and/or satisfied. This was untrue.
A few weeks after the fraudulent deed of trust and reconveyance were recorded,
Getsen offered to buy the Habers' property for $1,010,000. The Habers accepted the
3 The letters appeared to be similar in substance to letters that Strange had sent to his own lender a year earlier. 4 "Real Holdings" is a fictitious entity.
5 As the trial court noted, no one at trial presented credible evidence as to the whereabouts of "Daniel Mikac," or even whether such a person exists. 7 offer. Zapf, acting as the Habers' real estate agent, prepared a standard form purchase
agreement that reflected the offer and acceptance.
Neither the Habers nor Zapf made any disclosures to Getsen about the Aurora
loan. Although Zapf "knew (1) about the Habers' outstanding, unpaid obligation to
Aurora; (2) that the Getsen purchase price was less than the [balance remaining on the]
Aurora loan; (3) that Aurora had recently agreed to forbear from completing a pending
foreclosure sale; and (4) that Aurora's forbearance had been induced by a payment made
by the Habers using cash provided by Strange," Zapf failed to disclose any of these facts
to Getsen.
In connection with the escrow that was opened for the Getsen purchase of the
property, the Habers presented a "Seller Information Sheet" that reflected that the only
loan on the property was the "phony $810,000 purported loan from 'Real Holdings.' " A
" 'payoff statement' " was sent from "Real Holdings" to the escrow company, with
instructions to have the payoff wired to a bank account owned and controlled by Strange.
At trial, Strange referred to the account as " 'my account.' "
The escrow documents showed that upon the close of escrow, approximately
$143,000 would be disbursed to the Habers, and approximately $810,000 would be
disbursed to "Real Holdings." Nothing would be paid to Aurora. The Habers signed all
of these documents. Zapf knew that the Habers would receive $143,000 from the sale of
the property, and that Aurora would receive nothing.
8 Escrow closed. After the payment of title and escrow fees, $814,119.33 was
distributed to Strange's bank account, $143,082.32 was distributed to the Habers, and
$47,125 was distributed to Zapf's real estate company.
Shortly after escrow closed, Getsen learned that Aurora was attempting to
foreclose on the property.
B. Procedural background
Upon learning that Aurora was trying to foreclose on the subject property, Getsen
filed a lawsuit against Aurora, asserting that Aurora had no interest in the property and no
right to foreclose. Getsen obtained a restraining order preventing a foreclosure sale. At
some point, Getsen and Aurora learned of the "phony" documents in the chain of title.
Aurora and Getsen filed separate cross-complaints against the Habers, Strange, and Zapf,
among other parties. Aurora filed its initial cross-complaint for fraud, conspiracy, and
cancellation of void instruments against the Habers, Strange, Mikac, and Real Holdings
in March 2011.6 Getsen filed its cross-complaint for fraud, negligent misrepresentation,
breach of contract, unjust enrichment, negligence and slander of title against the Habers,
Zapf, Bug Realty, Strange, Mikac and Real Holdings in May 2011.
Getsen and Aurora settled their claims against each other. Getsen agreed to pay
$875,00 to Aurora, through its title insurer, Stewart Title, in exchange for Aurora
6 Aurora amended its cross-complaint to name Zapf as a cross-defendant in June 2011. 9 granting a genuine reconveyance of its deed of trust, which would enable Getsen to sell
the property to a third party. Title to the property was cleared at the end of August 2011.
Shortly before trial was scheduled to begin in early 2012, the Habers and Strange
filed for bankruptcy protection. The claims against them were stayed, and the trial was
continued. Getsen and Aurora were able to obtain orders from the bankruptcy court
lifting the stay of the claims against the Habers and Strange. The trial court held a bench
trial on Getsen's and Aurora's claims against the Habers, Strange, and Zapf in June 2012.
At the conclusion of the presentation of evidence, the trial court took the matter
under submission. On July 30, 2012, the trial court issued a 22-page statement of
decision. In that statement of decision, the court determined that Getsen prevailed on its
claims for fraud and negligent misrepresentation against the Habers and Strange. The
court further concluded that Getsen prevailed on its claim for unjust enrichment against
the Habers, Strange, and Zapf. Finally, the court concluded that Getsen prevailed on its
claim of negligence against Zapf.7 The court awarded damages of $1,027,266.80 in
favor of Getsen and against Zapf, holding Zapf jointly and severally liable with the
Habers and Strange for the total amount. The $1,027,266.80 included $875,000 in
compensatory damages "paid by Getsen to Aurora to clear title to the property,"
$87,266.87 "in 'additional expenses' incurred by Getsen in carrying the property while
7 The trial court also determined that Aurora had proven its claim for fraud against the Habers and Strange. 10 title was being cleared," and $65,000 "in legal expenses incurred by Getsen to clear title
to the property, awarded under the 'tort of another' doctrine."
The trial court entered judgment on August 27, 2012. Zapf filed a timely notice of
appeal.
III.
DISCUSSION
Zapf challenges four of the trial court's findings on the ground that the evidence is
insufficient to support them. First, Zapf argues that there is insufficient evidence to
support the court's finding that he was negligent. Zapf also takes issue with the amount
of damages that the court awarded, arguing that there is insufficient evidence to support
an award against Zapf for (1) the $875,000 that was paid to Aurora to clear title to the
property; (2) the $87,266.87 in "additional expenses" incurred by Getsen in carrying the
property while attempting to clear title; and (3) $65,000 in legal expenses incurred by
Getsen to clear title to the property.
A. Legal standard pertaining to claims of insufficiency of the evidence
"Where findings of fact are challenged on appeal, we are bound by the
'elementary, but often overlooked principle of law, that . . . the power of the appellate
court begins and ends with a determination as to whether there is any substantial
evidence, contradicted or uncontradicted,' to support the findings below. [Citation.] We
must therefore view the evidence in the light most favorable to the prevailing party,
giving it the benefit of every reasonable inference and resolving all conflicts in its favor."
11 (Garbell v. Conejo Hardwoods, Inc. (2011) 193 Cal.App.4th 1563, 1569.) The
substantial evidence standard of review applies to findings with respect to the elements of
a claim for negligence. (Ibid.)
B. Analysis
1. Professional negligence
Zapf contends that the evidence at trial "established that Appellant Zapf did not
breach any duty owed to the buyer of the Property, Getsen." According to Zapf, "it is
undisputed Appellant Zapf met his duty of disclosure since Getsen's managing member,
Mr. Duden, testified that he knew prior to the close of escrow that the Property was
encumbered in the approximate amount of $1.6 million and Appellant Zapf informed him
that escrow could not close unless clear title could be delivered." Zapf contends that the
trial court "ignored this true evidence" and improperly found him to have been negligent.
We disagree with Zapf's representations regarding the evidence in the record, and
conclude that there is substantial evidence to support the trial court's determination that
Zapf may be held liable for professional negligence with respect to his role in this
transaction.
"The elements of a claim for professional negligence incorporate a specific
standard of care into the elements of a negligence claim." (Burgess v. Superior Court
(1992) 2 Cal.4th 1064, 1077.) " 'The elements of a cause of action in tort for professional
negligence are: (1) the duty of the professional to use such skill, prudence and diligence
as other members of his profession commonly possess and exercise; (2) a breach of that
12 duty; (3) a proximate causal connection between the negligent conduct and the resulting
injury; and (4) actual loss or damage resulting from the professional's negligence.
[Citations.]' " (Ibid.)
The trial court relied on Holmes v. Summer (2010) 188 Cal.App.4th 1510
(Holmes) to conclude that Zapf acted negligently in his dealings with Getsen. In Holmes,
the appellate court determined that a seller's real estate agent or broker is under the same
duty of disclosure as a seller to disclose known facts that materially affect the value or
desirability of a property, and that the failure of an agent or broker to disclose such facts
constitutes negligence. (Id. at pp. 1518-1519.) The facts that must be disclosed, if
known, include "impediment[s] to the ability of the seller to convey title free and clear of
monetary liens and encumbrances." (Id. at p. 1520.)
The Holmes court explained:
"[T]he rule we articulate in this case is simply that when a real estate agent or broker is aware that the amount of existing monetary liens and encumbrances exceeds the sales price of a residential property, so as to require either the cooperation of the lender in a short sale or the ability of the seller to put a substantial amount of cash into the escrow in order to obtain the release of the monetary liens and encumbrances affecting title, the agent or broker has a duty to disclose this state of affairs to the buyer, so that the buyer can inquire further and evaluate whether to risk entering into a transaction with a substantial risk of failure." (Holmes, supra, 188 Cal.App.4th at pp. 1522-1523.)
The reason for this rule is as follows: "While a buyer may be harmed by acquiring
title to a property with undisclosed defects, such as hazardous waste or soil subsidence
problems, a buyer may also be harmed by entering into an escrow to purchase property
13 when it is highly likely that, unbeknownst to the buyer, the escrow will never close. We
must bear in mind that the main purposes of the rule expressed in Lingsch v. Savage
[(1963)] 213 Cal.App.2d 729, 'are to protect the buyer from the unethical broker and
seller and to insure that the buyer is provided sufficient accurate information to make an
informed decision whether to purchase.' [Citation.]" (Holmes, supra, 188 Cal.App.4th at
p. 1519, italics added.) To impose a duty on real estate agents and brokers to disclose
information that would alert a potential buyer that the sale is at high risk of failure
"would be to further the purpose of protecting buyers from harm and providing them with
sufficient information to enable them to wisely choose whether to enter into the
transaction." (Id. at p. 1520.)
Applying the rule in Holmes to this case, the trial court found the following:
"Here, Zapf knew, from his own dealings with the Habers and Aurora, that the Habers were delinquent on their existing mortgage, that Aurora had initiated foreclosure proceedings, that Aurora had agreed to forbear from concluding the foreclosure in exchange for receiving certain payments from the Habers, and that the agreed- upon payments had not yet been made in full by the Habers. Zapf also knew that the Habers were upside down on their Aurora mortgage—that the property was worth less than the amount owed by the Habers.
"Zapf prepared the purchase agreement whereby Getsen would acquire the Habers' property for an amount less than the debt owing to Aurora. Yet, Zapf failed to disclose to Getsen any of the facts mentioned above—namely, that the proposed purchase price was less than the amount owed by the Habers on their existing mortgage . . . , that Aurora had initiated foreclosure proceedings, that Aurora had agreed to forbear from concluding the foreclosure in exchange for receiving certain payments from the Habers, that the agreed-upon payments had not yet been made by the Habers, and
14 that Strange had provided the cash used by the Habers to induce Aurora to forbear from foreclosing." (Italics added.)
Based on these findings, the court ultimately concluded "that Zapf failed to fulfill
his duty to disclose to Getsen material information that was known to Zapf at the time
that the fraud was being perpetrated. Had Zapf disclosed the information, the fraud
would almost certainly have been detected before it was consummated." There is
substantial evidence to support the court's findings and its conclusion regarding Zapf's
liability. The evidence clearly demonstrates that Zapf was aware of virtually all of the
facts identified in Holmes, but did not disclose them. In addition, Zapf was aware that
the Habers had not used their own money to make the limited number of forbearance
payments that were made, and that Strange was somehow involved in making those
payments. Further, Zapf testified that although he knew that the amount owed on the
Aurora loan was more than $1.6 million and that purchase price was ultimately only
$1,010,000, he "didn't pay much attention to the—what was owed." Zapf also
acknowledged that he knew that the Habers did not have sufficient income to make their
normal mortgage payments on the property. Beyond this, Zapf became aware that the
Habers were to receive a significant sum of money from the proceeds of the sales
transaction, and that a relative of the Habers was to receive a significant sum of money as
well; Zapf admitted that he found some of the "details" of the transaction "odd." Despite
knowing these facts, Zapf marketed the property for an amount that was far less than
what the Habers owed Aurora, prepared a purchase agreement for an amount that was far
15 less than the amount of the existing liens, and played his role as the sellers' real estate
agent in ensuring that the transaction would go forward, without disclosing any of this
relevant information to Getsen. There is abundant evidence to support the trial court's
finding that Zapf was aware of facts that materially affected the desirability of the
property, yet failed to disclose these facts to Getsen.
Zapf suggests that he should not be held liable for his failure to disclose these facts
because Getsen, through Duden, "knew that there was a substantial risk that the Habers
could not transfer title free and clear of monetary liens and encumbrances." Zapf bases
this assertion on Duden's testimony that he knew that Aurora had a deed of trust recorded
on the property for $1.6 million, apparently based on a "third-party report" that Duden
had received that included information about the Aurora deed of trust. However, as Zapf
acknowledges, in deciding to proceed with the transaction, Duden testified that he relied
on the title company's issuance of a title policy on the property, which did not show
Aurora's deed of trust as outstanding. Regardless what other "reports" Duden may have
had access to, Zapf, as the seller's real estate agent, owed Getsen, as the buyer, "the
affirmative duties of care, honesty, good faith, fair dealing and disclosure, as reflected in
Civil Code section 2079.16, as well as such other nonfiduciary duties as are otherwise
imposed by law." (Holmes, supra, 188 Cal. App.4th at p. 1528.) If Zapf had acted in
accordance with these duties and disclosed to Getsen the information that he had about
the Aurora loan, as well as his knowledge that the Habers did not have the financial
wherewithal to make the required forbearance payments, and that Strange had provided
16 the Habers with the funds for those payments, Getsen would undoubtedly have
approached the transaction with a different perspective. As the trial court concluded,
Getsen could have discovered the fraud at the time it was being perpetrated, rather than
going through with the transaction and discovering the fraud only much later. Quite
simply, Getsen would have had reason to question what was going on at an earlier stage
in the process, and would have known what the real risks of moving forward with the
transaction were. There is thus substantial evidence to support the trial court's finding
Zapf liable on Getsen's claim for professional negligence.
2. Compensatory damages of $875,000
Zapf contends that Getsen did not suffer damages in the amount of $875,000
because Stewart Title paid the $875,000 to Aurora, on Getsen's behalf, to settle the claims
between Aurora and Getsen and ultimately quiet title. Zapf contends that since there is
no evidence that Getsen, itself, paid the $875,000, there is insufficient evidence to uphold
the trial court's award of this amount to Getsen. We disagree that Zapf may avoid
liability for the $875,000 that the trial court determined he owed Getsen under this
theory.
Getsen apparently transferred its interest in the litigation to Stewart Title upon
Stewart Title's payment to Aurora in satisfaction of Getsen's claim under the title
insurance policy that Getsen purchased from Stewart Title. However, by operation of
contract and under statutory law, Getsen may continue this action to its completion in its
own name.
17 Generally, a defendant has a statutory right to have an action prosecuted against
him in the name of the real party in interest. (Code Civ. Proc., § 367; Giselman v. Starr
(1895) 106 Cal. 651, 657.) "The real party in interest is 'the person possessing the right
sued upon by reason of the substantive law.' [Citation.]" (Ventura County Ry. Co. v.
Hadley Auto Transport (1995) 38 Cal.App.4th 878, 880.) However, in a situation in
which a party transfers its interest in a pending action or proceeding, Code of Civil
Procedure section 367 does not apply. Rather, in such a circumstance, " '[t]he action or
proceeding may be continued in the name of the original party . . . .' (Code Civ. Proc.,
§ 368.5.)"8 (Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112, 121 (Casey),
overruled on other grounds in Jimenez v. Superior Court (2002) 29 Cal.4th 473, 478,
481.)9 "[T]he law allows the assignees . . . to pursue the action in the name of the
assignor . . . for their own protection and benefit." (Casey, supra, at p. 121, fn. 6.)
8 Code of Civil Procedure section 368.5 provides: "An action or proceeding does not abate by the transfer of an interest in the action or proceeding or by any other transfer of an interest. The action or proceeding may be continued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted in the action or proceeding."
9 "In the event of a transfer of interest in a pending action, the attorney for the nominal party/assignor does not automatically cease to be the attorney of record. (See, e.g., Davis v. Rudolph (1947) 80 Cal.App.2d 397, 401; Tuffree v. Stearns Ranchos Co. (1899) 124 Cal. 306; Crescent Canal Co. v. Montgomery (1899) 124 Cal. 134.)" (Casey, supra, 74 Cal.App.4th at p. 121.) "[T]he attorney of record [generally] has the exclusive right to appear in court for his client and to control the court proceedings, so that neither the party himself [citations], nor another attorney [citations], can be recognized by the 18 Getsen is the real party in interest to the rights that it originally sued upon in its
cross-complaint against these parties since Getsen is the party that suffered the injury
from the Habers' and Strange's fraud, and Zapf's negligence. However, by operation of
law and pursuant to the terms of the title insurance policy, when Stewart Title paid
$875,000 to settle Getsen's claim, which occurred while this litigation was pending,
Stewart Title took over Getsen's interest in the action. The title insurance policy obtained
by Getsen from Stewart Title provides, in relevant portion:
"When we settle your claim, we have all the rights you have against any person or property related to this claim. You must transfer these rights to us when we ask, and you must not do anything to affect these rights. You must let us use your name in enforcing these rights."
Upon the payment of the $875,000 to Aurora to settle the claims between Aurora
and Getsen, Stewart Title "ha[d] all of the rights [Getsen] ha[d] against" the third parties.
In essence, Stewart Title was the subrogee to Getsen's rights against Zapf and the other
cross-defendants. " 'Subrogation is defined as the substitution of another person in place
of the creditor or claimant to whose rights he or she succeeds in relation to the debt or
claim. By undertaking to indemnify or pay the principal debtor's obligation to the
creditor or claimant, the "subrogee" is equitably subrogated to the claimant (or
"subrogor"), and succeeds the subrogor's rights against the obligor. [Citation.] In the
case of insurance, subrogation takes the form of an insurer's right to be put in the position
court in the conduct or disposition of the case." (Wells Fargo & San Francisco (1944) 25 Cal.2d 37, 42-43.) 19 of the insured in order to pursue recovery from third parties legally responsible to the
insured for a loss which the insurer has both insured and paid. [Citations.]' [Citation.]"
(Gulf Ins. Co. v. TIG Ins. Co. (2001) 86 Cal.App.4th 422, 430-431.)
Stewart Title became subrogated to Getsen's negligence claim against Zapf, the
Habers, and Strange, both equitably and pursuant to the terms of the title insurance
policy, after Stewart Title paid the $875,000 sum to settle Aurora's claims against Getsen.
However, under Code of Civil Procedure section 368.5, Getsen remained a proper
plaintiff to prosecute the claims that transferred to Stewart Title. Further, this presented
no prejudice to the third party defendants. Getsen's and Stewart Title's rights as to Zapf,
the Habers, and Strange were identical because Stewart Title's interest was derivative of
Getsen's interest in the litigation: " 'The right of subrogation is purely derivative. An
insurer entitled to subrogation is in the same position as an assignee of the insured's
claim, and succeeds only to the rights of the insured. The subrogated insurer is said to
" 'stand in the shoes' " of its insured, because it has no greater rights than the insured and
is subject to the same defenses assertable against the insured.' [Citation.]" (Gulf Ins. Co.
v. TIG Ins. Co., supra, 86 Cal.App.4th at p. 431.) In addition, the same defenses that
Zapf raised to Getsen's claims could have been asserted against Stewart Title in a direct
subrogation action. For all purposes, any claim that Stewart Title possessed and the
negligence claim that Getsen brought against Zapf were the same. Further, the judgment
in this case would prevent any future subrogation action by Stewart Title against Zapf on
Getsen's underlying negligence claim, since, under California law, double recovery is
20 barred for the same wrong. "Only one complete satisfaction is permissible, and if partial
satisfaction is received from one, the liability of others will be correspondingly reduced."
(6 Witkin, Summary of California Law (10th ed.) Torts, § 1550, p. 1023.)
Stewart Title was aware of the lawsuit, and specifically, of Getsen's claims against
the cross-defendants, including Zapf. The cross-complaints against the Habers, Strange
and Zapf had been filed by the time Stewart Title paid the $875,000 to Aurora on behalf
of Getsen. The settlement between Aurora and Getsen, and the resultant clearing of title
did not occur until the end of August 2011, whereas Aurora's and Getsen's cross-
complaints against the third-party defendants were filed in the spring of 2011. In
addition, John Duden, the principal member of Getsen, testified that Getsen consented to
allowing Stewart Title to use Getsen's name in enforcing its rights, and Stewart Title is
the entity that hired attorneys to represent Getsen at trial.
There is thus substantial evidence to support the trial court's award of $875,000 in
damages to Getsen as a result of Zapf's negligence.
To the extent that Zapf suggests that "Stewart Title did not pay Aurora
$875,000.00 for the benefit of Getsen," but "[i]nstead, . . . paid Aurora $875,000.00 to
settle its own negligence and wrongdoing in this case," the procedural history
demonstrates otherwise. Getsen and Aurora were in litigation with each other. Stewart
Title was not a party to the action. Only after Stewart Title paid the $875,000 to Aurora
did Getsen and Aurora dismiss their claims against each other. Clearly, Stewart Title's
21 payment was made to Aurora on Getsen's behalf, so that Getsen could receive clear title
to the property and could move forward with selling the property to a third party.
Zapf contends that Stewart Title is not entitled to rely on subrogation because it,
"not Appellant Zapf—is responsible for any loss suffered by Getsen." He contends that
Stewart Title mishandled the preliminary title report that it created with respect to the
Haber property. Zapf cites to his own testimony that a Stewart Title employee made a
comment to him during a telephone call to the effect that Stewart Title had made a
mistake and "should not have insured the Property,"10 to suggest that Stewart Title is the
party that is responsible for Getsen's loss. However, the trial court specifically found that
Zapf was negligent in his duties to Getsen, and that Zapf's negligence was a proximate
cause of the injuries that Getsen suffered as a result of purchasing a property that
remained subject to a foreclosure action by Aurora. At no point in the litigation was
there evidence presented that placed fault on Stewart Title, and the trial court made no
finding that Stewart Title was responsible for Getsen's damages.11
3. $87,266.87 in additional expenses incurred by Getsen
10 Zapf's contention was directly contradicted by that employee's testimony at trial. The trial court specifically found the employee's trial testimony to be credible.
11 The trial court's findings in this case indicate that the fraud that was perpetrated by the Habers and Strange was perpetrated on Getsen, Aurora, and Stewart Title, as well. As the parties stated in their Joint Trial Readiness Conference Report, "the Reconveyance appeared valid on its face," and for this reason, "Getsen had no reason to know of the Aurora [deed of trust]." It is unclear how Stewart Title would have, or reasonably should have, been aware that these documents were fraudulent at the time it searched the public record, given that the fraudulent reconveyance "appeared valid on its face." 22 Zapf contends that the trial court should not have awarded Getsen $87,266.87 in
"additional expenses" because those claimed damages were "speculative." He asserts that
"[t]he only possible damage Getsen suffered with respect to any 'negligence' is the loss of
approximately $10,000.00 on the ultimate sale price of the Property . . . and maintenance
costs during the time in which Getsen worked to clear title on the Property." Zapf further
contends that "these damages are speculative and therefore cannot support the damage
award."
In awarding the $87,266.87 in " 'additional expenses' claimed by Getsen," the trial
court specifically referred to "Trial exhibit [No.] 146." The court stated that it was
"declin[ing] to award any of the so-called 'expected revenue decrease from loss of
investors' because the Court believes that those claimed damages are speculative." The
trial court also declined to award "a portion of the 'other carry costs and additional
rehab[ilitation] required to prepare house for sale' because the Court believes those costs
were not incurred as a result of any action or inaction on the part of any cross-defendant,
but instead are normal rehabilitation costs that would have been incurred regardless of
any action or inaction on the part of any cross-defendant."
Trial exhibit No. 146 was offered by Getsen and received in evidence by the trial
court without objection. The "additional expenses" identified in trial exhibit No. 146
include $10,000 for the "Difference in gross sale proceeds"; $11,192.92 for eight months
of prorated property tax payments; $37,333.33 for carrying additional debt of $400,000 at
a 14 percent interest rate for eight months; and $36,907.12 for "All other carry costs and
23 additional rehab required to prepare house for sale." Duden testified that until Getsen
was able to clear title and sell the property, Getsen had to carry certain costs, including
utility expenses, taxes, maintenance on the property, and hazard insurance. In addition,
Getsen continued to carry debt that it had used "for leverage purposes," and this debt was
"quite expensive."
The trial court based its award of "additional costs" on Duden's testimony and the
documentary evidence that was offered by Getsen and admitted without objection. These
damages were not speculative, but rather, were in fact suffered by Getsen and were
established by the evidence that Getsen presented. The trial court reduced the amount
awarded to Getsen for "additional rehab required to prepare house for sale" on the ground
that such amounts were not attributable to the conduct of the cross-defendants, but rather,
would have been required regardless of the conduct of any of the cross-defendants. The
court also rejected, as speculative, an additional amount claimed by Getsen in trial exhibit
No. 146, i.e., $90,000 in "Expected revenue decrease from loss of investors." The trial
court thus eliminated from Getsen's claimed additional damages those damages that were
truly speculative. The remainder of the "additional damages" that Getsen claimed were
not speculative, and there is substantial evidence to support the trial court's award of such
damages.
4. $65,000 in legal expenses incurred by Getsen
In awarding legal expenses to Getsen, the trial court stated, "The $65,000 in legal
expenses reflects the Court's determination of the reasonable amount of legal expenses
24 actually incurred by Getsen to clear title." Although generally damages in a tort action
do not include compensation for attorney fees or other litigation costs, Zapf
acknowledges that there is an exception to this rule when a party, through the tort of
another, has been required to act to protect his or her interests by bringing or defending
an action. In such an instance, that party is entitled to recover attorney fees and other
expenditures incurred in litigating that action. (See, e.g., Gray v. Don Miller &
Associates, Inc. (1984) 35 Cal.3d 498, 505.) However, Zapf argues that "Getsen did not
present any evidence of its alleged attorney's fees incurred to clear title to the Property."
He asserts that no "testimony was offered and no documentary evidence was introduced
to support this claimed damage." We conclude that there was sufficient documentary
evidence to support the trial court's conclusion that Getsen was entitled to claim $65,000
in attorney fees and costs for litigating with Aurora in an attempt to clear title.
The trial court relied on trial exhibit No. 120, which consists of Getsen's counsel's
invoices. The court received this exhibit in evidence. The court awarded Getsen its
attorney fees based on these invoices for work performed during the time period that
Getsen was attempting to protect its interest in the property by clearing title to the
property—i.e., from the start of litigation to the point at which title to the property
cleared. The invoices contained in trial exhibit No. 120 constitute substantial evidence to
support the portion of the trial court's award of damages based on the attorney fees that
Getsen incurred in protecting its interest in the property against Aurora's claims.
25 IV.
DISPOSITION
The judgment is affirmed. Getsen is entitled to costs on appeal.
AARON, J.
WE CONCUR:
HUFFMAN, Acting P. J.
IRION, J.