Filed 8/27/26 Lofts on L Street v. Clippinger CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
LOFTS ON L STREET LLC,
Plaintiff and Respondent, G064746
v. (Super. Ct. No. 30-2020-
01143930)
ROBERT CLIPPINGER et al., OPINION
Defendants and Appellants.
Appeal from a judgment of the Superior Court of Orange County, Nathan R. Scott, Judge. Affirmed.
Alston & Bird, Jeffrey A. Rosenfeld and Jesse Steinbach for Defendants and Appellants.
Rutan & Tucker, Gerard M. Mooney, Bradley A. Chapin and Samantha Papuchis for Plaintiff and Respondent.
* * *
In 2012, Robert Clippinger through his company Clippinger Investment Properties, Inc. (CIP) solicited millions of dollars from real estate investors in order to purchase and develop a mixed condominium and commercial site. The investors received either Class A or B memberships in the Lofts on L Street LLC (Lofts). Clippinger was the Manager.
In 2015, some of the Lofts members discovered that Clippinger had engaged in self-dealing using Lofts’s finances. Clippinger obligated Lofts to pay back $1.4 million in undisclosed “Bridge Loans,” which Clippinger had converted to his own benefit. Clippinger also made intercompany transfers out of Lofts accounts into his own accounts.
In an attempt to restrict Clippinger’s self-dealing, the members amended the Lofts operating agreement. One of the provisions established an “Authorized Representative” who was to monitor Lofts’s financials, keep track of the monies Clippinger was obligated to repay to Lofts, and approve any future expenditures or liabilities in excess of $5,000.00.
In 2017, Clippinger withheld distributions to a Class B member, VWC Lofts, LLC (VWC), which then sued Clippinger, Lofts, and the Authorized Representative. Lofts’s sales proceeds were frozen pending resolution of the lawsuit. Clippinger later entered into a settlement agreement with VWC without the Authorized Representative’s knowledge or approval. Clippinger personally paid nothing to VWC, and the settlement amount ($1.465 million) was paid by Lofts using the frozen funds.
In 2020, Lofts’s members formally removed Clippinger as the Manager, and Lofts (as the LLC) sued Clippinger for breach of contract, breach of fiduciary duty, and related claims. Clippinger countersued for breach of contract, an accounting, and declaratory relief.
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Following a bench trial, the court awarded Lofts just over $2 million in compensatory damages. The court awarded Clippinger nothing on his cross-complaint. In its statement of decision, the court found Clippinger lacked credibility, and his expert accountant’s opinion was unreliable. The court awarded Lofts $6 million in punitive damages after finding that Clippinger acted “with oppression, fraud, and malice.”
Clippinger claims the trial court erred because: A) the statement of decision is inadequate; B) the punitive damage award is erroneous because there is no evidence of his financial condition; and C) the conclusions in the statement of decision are not supported by substantial evidence.
We affirm the judgment.
I.
FACTS AND PROCEDURAL BACKGROUND1 In 2012, Clippinger formed Lofts on L Street LLC (Lofts), which purchased a distressed mixed condominium and commercial property in Sacramento (the Property). The plan was to develop and sell individual condominiums and commercial space for a profit to benefit Lofts’s members. Clippinger secured bank loans to purchase the Property, as well as money from investors.
The investors in Lofts received either “Class A” or “Class B”
memberships. Class B members were to receive a 17 percent preferred return on their contributions, meaning that they would be paid before any other members were paid (compounded daily). The Class A members were to
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We interpret the facts in the light most favorable to the prevailing party at trial (Lofts); therefore, we credit the testimony and evidence that best supports the trial court’s statement of decision.
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receive their distributions after outstanding loans were paid off, and after the Class B members had been paid off in principal and interest.
According to Lofts’s operating agreement, Class A members were to receive 80 percent of the profits, Class B members were to receive four percent of the profits, and Clippinger as Manager was to receive 16 percent of the profits. The members received documentation of their investment through a Subscription Agreement.
In 2012, Clippinger determined he needed additional monies beyond the initial bank loans and the members’ investments to purchase the Property. Clippinger caused Lofts to borrow those additional monies from various lenders at 10 percent interest (the Bridge Loans), including (among others) $375,000 from Paula Boyer (through her trust) and $600,000 from the Kazarian Family Trust. The promissory notes signed by Clippinger obligated Lofts to repay the entirety of the Bridge Loans (about $1.4 million).
In 2015, certain Class A members learned of a potential lawsuit against Lofts by Boyer and Kazarian as a result of Lofts’s failure to repay their 2012 promissory notes, which were now overdue and accumulating interest. Clippinger’s actions were costing Class B members to lose anticipated profits because the Bridge Loans were continuing to accumulate interest, and it appeared Clippinger was obligating Lofts to repay his own personal debts.
Lofts members began investigating Clippinger’s management of Lofts’s financials. The members hired a Certified Public Accountant, Bridget Sanders, to do an evaluation of Lofts’s finances. Sanders discovered that Clippinger had purported to “reclassify” the Bridge Loans on Lofts’s books and to record them as “personal loans,” but Lofts was still obligated to repay
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the Bridge Loans. Clippinger then treated the Bridge Loan proceeds as his own “capital contribution” to Lofts in return for which Clippinger purportedly caused Lofts to grant to himself $1.4 million of Class B membership interests, although there was no record of Clippinger having a Subscription Agreement.
Sanders discovered that Clippinger had also caused numerous “Intercompany” transfers from Lofts’s accounts to his own business accounts, none of which had any discernible legitimate business purpose. Several Lofts members hired a law firm to pursue litigation against Clippinger. However, those parties entered into a settlement agreement.
Amended Operating Agreement On October 15, 2015, Clippinger and the Lofts members executed an Amended Operating Agreement (AOA), which was designed to impose restrictions on Clippinger’s management and to provide for the repayment of monies he owed to Lofts. The AOA provided for the appointment of an Authorized Representative (Mary Aronson), whose “role and responsibility . . . is to provide oversight detailed herein in order to ensure compliance with the Operating Agreement, as amended, so that that interests of the Members and the Company are protected from any potential self-dealing by the Manager.” The AOA provided that any successor to Aronson would need to be “approved by Members holding a Majority Interest.”
The AOA required the Manager (Clippinger) to obtain written consent from the Authorized Representative (Aronson) before: entering into or committing to any agreement, contract, commitment, or obligation on behalf of Lofts involving future payments in excess of $5,000 in the aggregate; incurring any expense, indebtedness, or liability in excess of
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$5,000; making any distributions to Lofts’s members; and paying any monies to the Manager beyond the annual management fees. Clippinger was also required to provide the Authorized Representative with access to all of Lofts’s accounts, company files, financial records, documents and other property.
The AOA identified “Bridge Loans” orchestrated by Clippinger, but that “were not paid as of their maturity date and fell into default for lack of timely payment.” Clippinger was obligated to indemnify Lofts against any claims, liabilities, etc. “related to or arising out of (1) the Bridge Loans . . . or (2) funds paid to Clippinger or his Affiliates (other than authorized management fees), whether accounted for under the ‘intercompany’ loan account or otherwise . . . .” Clippinger was personally obligated to pay Lofts for the Bridge Loan Claims, and the Intercompany Claims, and they were to “survive any resignation, removal, or any other circumstances whereby Clippinger ceases (for whatever reason) to continue as Manager. No distributions of any kind, including Distributable Cash, shall be made to Clippinger unless and until all Bridge Loan Claims and Intercompany Claims are satisfied and discharged as required pursuant to this section.”
Events After the AOA Following the AOA’s execution, accountant Sanders worked with the Authorized Representative, to further review and monitor Lofts’s financials. Sanders kept a running tally of Clippinger’s debts to Lofts, which included the repayment of the Bridge Loans Claims, as well as the Intercompany Claims, which were unverified transfers of Lofts’s funds to Clippinger-related entities and accounts for which there was no apparent legitimate business purpose.
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Ordinarily, after all of Lofts’s bank loans had been fully paid off, and when one of the condominium units was sold, that would trigger a distribution to the investors. Sanders would prepare the distribution, and the checks were signed by the Authorized Representative (Aronson). However, in March 2016, Clippinger notified Aronson and Sanders via e-mail that he had decided (purportedly on the advice of an attorney) to withhold the signed distribution checks for one of the Class B investors, VWC Lofts LLC (VWC). Clippinger stated he was a partner in VWC, and he had received no distributions from that entity. Aronson responded: “As I read this email it is very concerning to me, I don’t feel you can hold any investors money.” Nonetheless, Clippinger withheld payment to VWC.
In June 2017, VWC filed a lawsuit against Clippinger, Lofts, and Aronson for breach of fiduciary duty, breach of the operating agreement and related claims (the VWC Action). VWC alleged the defendants had breached their duties to make distributions, and VWC was owed hundreds of thousands of dollars.
In November 2017, VWC obtained a preliminary injunction restraining the defendants (Clippinger, Lofts, and Aronson) from distributing any profits/proceeds from the sale of any real property to Lofts’s members, including the last remaining unsold portion of the Project (the Broderick Property). The injunction further required that if Lofts sold any properties it must deposit the sale proceeds into an interest-bearing escrow account during the pendency of the VWC Action.
In December 2017, Lofts sold the Broderick Property, and in compliance with the preliminary injunction, deposited the sale proceeds into an escrow account (the Escrowed Funds).
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On January 21, 2020, Aronson resigned her position as Authorized Representative after she settled her portion of the VWC Action.
On February 12, 2020, the Lofts members elected Jon Menig as the new Authorized Representative.
On February 21, 2020, Clippinger executed a confidential settlement of the VWC Action (the VWC Settlement Agreement) that required Lofts to use the Escrowed Funds to pay VWC $1.375 million on behalf of both Lofts and Clippinger. Clippinger signed the VWC Settlement Agreement without notifying or seeking approval of the new Authorized Representative (Menig), and without notice to Lofts’s members.
On March 20, 2020, after the Lofts members found out about the VWC Settlement Agreement, the members voted to remove Clippinger as the Manager. The Lofts members replaced Clippinger with Maureen Reddington, who tried to get control of the Lofts’s accounts, but Clippinger disputed that he had been properly replaced.
Court Proceedings In May 2020, Lofts (as the LLC) filed a complaint against Clippinger alleging causes of action for contractual indemnification, breach of fiduciary duty, breach of operating agreement, equitable or implied indemnification, and declaratory relief.
In September 2022, Clippinger obtained leave to file an amended cross-complaint alleging causes of action for breach of contract, an order for an accounting, and declaratory relief.
In September 2023, a bench trial began. Lofts’s witnesses were Menig (the new Authorized Representative), Reddington (the new Manager),
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Clippinger (as an adverse witness), and Sanders (Lofts’s accountant). Clippinger called himself as a witness, and an expert accountant.
In December 2023, the trial court issued its ruling. The court ordered Clippinger to pay Lofts $2,055,075.76 in compensatory damages and prejudgment interest. The court found Clippinger was not credible, and his expert’s opinion was unreliable. The court awarded Clippinger nothing on his cross-complaint.
In March 2024, the trial court issued a statement of decision (the proceedings and the statement of decision will be covered more thoroughly in the discussion section of this opinion).
In July 2024, the trial court awarded Lofts $6 million in punitive damages (the bifurcated trial proceedings and the court’s ruling will be covered more thoroughly in the discussion section of this opinion).
II.
DISCUSSION
Clippinger claims the trial court erred because: (A) the statement of decision is inadequate; B) the punitive damage award is erroneous because there is no evidence of his financial condition; and C) the conclusions in the statement of decision are not supported by substantial evidence.
A. Statement of Decision Clippinger claims that the trial court’s statement of decision is inadequate. We disagree and find the court fulfilled its statutory duties.
The degree of specificity required in a trial court’s statement of decision depends on the nature of the case. (Altavion, Inc. v. Konica Minolta
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Systems Laboratory, Inc. (2014) 226 Cal.App.4th 26, 52.)
Generally, a court’s discretionary decisions are reviewed for an abuse of discretion. (See, e.g., Sanjiv Goel, M.D., Inc. v. Regal Medical Group, Inc. (2017) 11 Cal.App.5th 1054, 1060.) “‘Under an abuse of discretion standard of review, the “trial court’s findings of fact are reviewed for substantial evidence, its conclusions of law are reviewed de novo, and its application of the law to the facts is reversible only if arbitrary and capricious.’”” (Friends of South Fork Gualala v. Department of Forestry & Fire Protection (2024) 106 Cal.App.5th 1180, 1195.)
In this part of the discussion, we shall: 1) review relevant legal principles; 2) summarize the trial court proceedings; and 3) analyze the legal principles as applied to the facts in this case.
1. Legal Principles Generally, in “superior courts, upon the trial of a question of fact by the court, written findings of fact and conclusions of law shall not be required.” (Code Civ. Proc., § 632, subd. (a).) However, a trial “court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party appearing at the trial.” (Ibid.)
“Upon the timely request of one of the parties in a nonjury trial, a trial court is required to render a statement of decision addressing the factual and legal bases for its decision as to each of the principal controverted issues of the case.” (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1124.) “The trial court need not discuss each question listed in a party’s request; all that is required is an explanation of the factual and legal basis
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for the court’s decision regarding the principal controverted issues at trial as are listed in the request.” (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.)
A trial court’s statement of decision “need do no more than state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision. [Citations.] ‘[A] trial court rendering a statement of decision . . . is required to state only ultimate rather than evidentiary facts because findings of ultimate facts necessarily include findings on all intermediate evidentiary facts necessary to sustain them. [Citation.]’ [Citations.] In other words, a trial court rendering a statement of decision is required only to set out ultimate findings rather than evidentiary ones.” (Muzquiz v. City of Emeryville, supra, 79 Cal.App.4th at pp. 1124–1125.)
Findings that are signed by the trial court and fairly disclose the court’s determination of material issues of fact are sufficient; it is not necessary for a court to couch its findings in any greater detail or to state findings in terms requested by defendants. (Security Pacific National Bank v. Chess (1976) 58 Cal.App.3d 555, 568.) “General findings in the words of the pleadings are a sufficient compliance with the requirement of making findings of facts.” (Thomasset v. Thomasset (1953) 122 Cal.App.2d 116, 129, disapproved on another ground in See v. See (1966) 64 Cal.2d. 773, 785–786.)
“On appeal, a judgment of the trial court is presumed to be correct.” (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956.) If an appealed judgment is supported by the trial court’s findings, any failure to make additional findings in the statement of decision on “immaterial” issues – issues that would not affect the ultimate outcome –
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constitutes harmless error. (Vukovich v. Radulovich (1991) 235 Cal.App.3d 281, 295; F.P. v. Monier (2017) 3 Cal.5th 1099, 1114 [“a trial court’s failure to make a finding on an issue that ‘could make no possible difference in the result’ . . . ‘is not error, or at least, . . . not a prejudicial error’”].)
2. Trial Court Proceedings On December 18, 2023, following the eight-day bench trial, the court issued a three-page written ruling favoring all of Lofts’s claims and rejecting all of Clippinger’s counterclaims.
On December 28, 2023, Clippinger filed a request for a statement of decision addressing 36 purported controverted issues.
On January 8, 2024, Lofts filed a response to Clippinger’s request for a statement of decision. Lofts argued that Clippinger’s “written request for a statement of decision is fraught with numerous improper requests that the Court address issues that are far beyond what is necessary or appropriate in a statement of decision.”
On January 11, 2024, there was a hearing to set a future trial date on the bifurcated issue of punitive damages. The trial court noted that it had received Clippinger’s written request for a statement of decision, and the court said that its written ruling was intended as a proposed statement of decision. Based on Clippinger’s request, the court identified additional controverted issues that needed to be addressed. The court ordered Lofts to draft a proposed statement of decision.
The trial court said as to “other controverted issues on which [Clippinger] seeks a further statement of decision, I think the answer is either express or implied in the ruling I’ve already given, or it probably falls
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just a little too far toward resolving evidentiary disputes rather than resolving the principal controverted issues. So that’s what I’m thinking.” The court heard from the parties, and Clippinger had no objection to the court’s plan going forward.
On February 2, 2024, the trial court filed a six-page proposed statement of decision.
On February 20, 2024, Clippinger filed objections to the proposed statement of decision. Clippinger again repeated his request of the court to address 36 purported controverted issues.
On March 1, 2024, the trial court filed a final statement of decision that mirrored the earlier proposed statement of decision.
At the beginning of the statement of decision, the trial court ruled: “Judgment shall be entered in an amount of $2,055,075.76 plus interest to be paid by defendants to plaintiff. [¶] The court further finds for cross-defendant Lofts . . . and against cross-complainant Robert Clippinger on the cross-complaint, who shall recover nothing on the cross-complaint.”
After an introduction, which served as an overview of the facts and the procedural posture of the case, the trial court addressed the allegations in Lofts’s complaint, in part, as follows:
“The court finds plaintiff met its burden on each cause of action of its complaint. As these claims largely overlap, the court summarize[s] its ultimate findings.
“First, the court finds defendants unilaterally ‘converted’
unauthorized bridge loans they took out in the Lofts’s name to personal loans, then purported to ‘contribute’ the loan proceeds to the Lofts in exchange for unauthorized B Share interests. Second, the court finds
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defendants made a series of unjustified and unauthorized ‘intercompany transfers.’ Third, the court finds defendants made an unjustified and unauthorized decision to withhold distributions to a Lofts member, leading to the VWC litigation, the freezing of Lofts’s funds into a court-ordered escrow account, and defendants’ unauthorized settlement of the lawsuit with Lofts’s funds. As explained below, the compensatory damages awarded to Lofts is based on the unauthorized disbursement of Lofts funds in connection with the VWC litigation and the other various debts Mr. Clippinger owed to Lofts calculated by [Lofts’s accountant] Ms. Sanders. However, the court finds all of Mr. Clippinger’s improper actions identified above were done with oppression, fraud, and malice, [citations], and that Mr. Clippinger specifically engaged in these acts intentionally with the knowledge that the foregoing conduct was in violation of the law and Lofts’s operating agreement. [Citations.] The court finds that Mr. Clippinger knowingly engaged in repeated acts of deceit, concealment, and fraud to perpetuate a years-long scheme to engage in self-interested financial transactions to the detriment of Lofts and its members. The court’s finding of oppression, fraud and malice is particularly strong in this case because of the evidence that Mr. Clippinger continued to repeatedly engage in such deceit after the parties amended the operating agreement specifically to curb his history of unauthorized, self- interested financial transactions using Lofts funds.” (Footnotes omitted.)
The trial court then addressed the allegations in Clippinger’s cross-complaint:
“The court finds cross-complainant failed to meet his burden of proof on each cause of action of his cross-complaint. Again summarizing, the court finds Mr. Clippinger’s testimony concerning loans to Lofts, capital
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contributions, off-book contributions, and the like was not credible. Even if Mr. Clippinger had made some sort of financial contribution to Lofts, it would have been unauthorized and in violation of the governing documents. The court finds that any irregularities in the Lofts accounting (especially prior to October 15, 2015) is a result of defendants’ wrongdoing and breach of the LLC’s operating agreement as defendants (and not plaintiff) had sole control of the financials at all relevant times. Mr. Clippinger failed to show any basis for an accounting or declaratory relief and, even if he had, his unclean hands warrant against his recovering any equitable relief.
“The court finds the defense expert’s opinion to be unreliable.
While her opinion is admissible under Sanchez, it was based on Mr. Clippinger’s refreshed recollection, and the court finds that recollection to be unreliable and an insufficient factual basis for the opinion.”
3. Application and Analysis As far as Lofts’s complaint, the causes of action were for contractual indemnification, breach of fiduciary duty, breach of operating agreement, and equitable indemnity.2 In its statement of decision, the trial court identified three fundamental breaches committed by Clippinger: 1) the unauthorized Bridge Loans; 2) the unauthorized intercompany transfers to his own accounts; and 3) the unauthorized decision to withhold distributions to VWC, which ultimately led to the unauthorized settlement of the VWC lawsuit with the Lofts funds. In short, we find that the court’s statement of decision is adequate for purposes of appellate review because it makes clear
2
The declaratory relief claim was dismissed without prejudice prior to trial.
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“the factual and legal basis for its decision as to each of the principal controverted issues at trial.” (Code Civ. Proc., § 632, subd. (a); see also (Thomasset v. Thomasset, supra, 122 Cal.App.2d at p. 129 [“General findings in the words of the pleadings are . . . sufficient]”.)
Clippinger claims, in part, that the statement of decision is inadequate because it “contains no findings as to what provisions of the Operating Agreement Clippinger supposedly breached.” But Clippinger does not dispute that the operating agreement and its amendments prevented Clippinger from making unauthorized loans, unauthorized intercompany transfers for his own benefit, and an unauthorized payment of $1.375 million to settle a lawsuit using Lofts funds. Therefore, any failure by the trial court to identify the particular provisions of the AOA that Clippinger breached is immaterial and not arguably prejudicial. (F.P. v. Monier, supra, 3 Cal.5th at p. 1114 [“a trial court’s failure to make a finding on an issue that ‘could make no possible difference in the result’ . . . ‘is not error, or at least, . . . not a prejudicial error’”].)
As far as Clippinger’s cross-complaint, the causes of action were for breach of contract, accounting, and declaratory relief. In its statement of decision, the trial court found that Clippinger’s testimony was not credible, and his expert’s testimony was not reliable. These were the only witnesses Clippinger presented at trial; therefore, we find that court’s statement of decision is adequate because a statement “need do no more than state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision.” (Muzquiz v. City of Emeryville, supra, 79 Cal.App.4th at pp. 1124–1125.)
Clippinger claims: “The [statement of decision] is particularly
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inadequate with respect to Clippinger’s accounting claim.” But the statement of decision explains that “Clippinger failed to show any basis for an accounting or declaratory relief and, even if he had, his unclean hands warrant against his recovering any equitable relief.” Clippinger does not dispute that as a matter of law the doctrine of unclean hands prohibits declaratory relief. (See Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 56 [“‘The [unclean hands] doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim’”].) Therefore, we find the statement of decision as to Clippinger’s accounting claim to be adequate.
In sum, it appears that Cippinger’s purported challenges to the trial court’s statement of decision are more properly interpreted as objections to the substance of the trial court’s factual findings, rather than to the adequacy of the written statement of decision. The substance of the trial court’s factual findings are, of course, evaluated under the highly deferential substantial evidence standard of review: a trial court’s “findings must be sustained if they are supported by substantial evidence, even though the evidence could also have justified contrary findings.” (Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal.App.4th 547, 557, 560 [“we emphatically reject any suggestion that the standard of review is affected by supposed deficiencies in the statement of decision”].)
As to Clippinger’s specific challenges to the trial court’s factual findings in the statement of decision, we find substantial evidence in the record to support those findings as we shall explain later in this opinion.
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B. Punitive Damages Clippinger claims the trial court’s punitive damages award “was erroneous because there was no evidence of Clippinger’s financial condition.” (Capitalization & underlining omitted.) We disagree. Clippinger has forfeited this claim on appeal because he disobeyed the court’s discovery order by providing incomplete information about his financial condition.
When reviewing a punitive damages award, the “substantial evidence standard of review applies, in which all presumptions favor the trial court’s findings[,] and we view the record in the light most favorable to the judgment.” (Kelly v. Haag (2006) 145 Cal.App.4th 910, 916.)
In this part of the discussion, we shall: 1) review relevant legal principles; 2) summarize the trial court proceedings; and 3) analyze the legal issues as applied to the facts in this case.
1. Legal Principles “In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (Civ. Code, § 3294, subd. (a).)
“The court shall, on application of any defendant, preclude the admission of evidence of that defendant’s profits or financial condition until after the trier of fact returns a verdict for plaintiff awarding actual damages and finds that a defendant is guilty of malice, oppression, or fraud in accordance with Section 3294.” (Civ. Code, § 3295, subd. (d).)
“An act such as breach of fiduciary duty may be both a breach of
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contract and a tort.” (Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1178.) “The purpose of punitive damages is . . . to punish wrongdoing and deter future misconduct by either the defendant or other potential wrongdoers.” (Stevens v. Owens-Corning Fiberglas Corp. (1996) 49 Cal.App.4th 1645, 1658.) The “criteria for making that determination [are]: (1) the reprehensibility of the defendant’s misdeeds; (2) the [relationship to the] amount of compensatory damages, though there is no fixed ratio for determining whether punitive damages are reasonable in relation to actual damages; and (3) the defendant’s financial condition.” (Ibid.)
Generally, it is the plaintiff’s duty to show evidence of the defendant’s financial condition. (Soto v. BorgWarner Morse TEC, Inc. (2015) 239 Cal.App.4th 165, 194.) However, the “defendant is in the best position to know his or her financial condition, and cannot avoid a punitive damage award by failing to cooperate with discovery orders.” (Fernandes v. Singh (2017) 16 Cal.App.5th 932, 942.)
“A number of cases have held that noncompliance with a court order to disclose financial condition precludes a defendant from challenging the sufficiency of the evidence of a punitive damages award on appeal.” (Fernandes v. Singh, supra, 16 Cal.App.5th at p. 942; see Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308, 1337–1338 [“A defendant who fails to comply with a court order to produce records of his or her financial condition may be estopped from challenging a punitive damage award based on lack of evidence of financial condition to support the award”]; Caira v. Offner (2005) 126 Cal.App.4th 12, 40–41 [“assuming there is any insufficiency in the record as to [defendant’s] financial condition, such insufficiency would be attributable solely to [defendant’s] failure to comply with a court order”];
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StreetScenes v. ITC Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 243–244 [“it may not be a defendant’s burden to prove its net worth, but if it is ordered to produce that evidence it is under an obligation to do so”].)
2. Trial Court Proceedings In June 2023, prior to the bench trial, Lofts served Clippinger with a subpoena duces tecum (SDT) for the production of documents to show Clippinger’s “financial condition and net worth for the purposes of the finder of fact assessing punitive damages.”
The SDT sought: “Documents sufficient to show Robert Clippinger’s financial condition and net worth, as required by Civil Code section 3295, which may include, without limitation: any personal balance sheet or statement of net worth; financial statement or schedule showing the value of Robert Clippinger’s ownership interests in Clippinger Investment Properties, Inc. or any other company; year-end statements for the years ending 2017 through 2022, and most recent monthly statements, for all bank accounts and brokerage/investment accounts in which Robert Clippinger maintains assets; most current statements for any pension plan(s), 401k account(s), or IRA account(s) in which Robert Clippinger has an ownership interest; federal tax returns for 2017 through 2022, and appraisals for any real property owned in whole or part by Robert Clippinger.”
On January 11, 2024, after issuing its ruling on the merits, the trial court held a trial setting conference to schedule a punitive damages phase. Lofts told the court it had served Clippinger with the STD, but Lofts had not received any financial records. The trial ordered: “[Clippinger] shall produce financial documents pursuant to [Lofts’s] subpoena no later than
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Monday, [February 26, 2024].”
On June 18, 2024, the trial court presided over the punitive damages phase of the trial. Lofts called as witnesses Menig and Clippinger. Menig testified he had been involved in two other property investments in which Clippinger was the Manager. In those investments, Menig said that Clippinger had manipulated the books and stolen company funds. Clippinger called no witnesses.
Clippinger’s testimony largely focused on whether he had adequately responded to the trial court’s order as to his financial information.
Clippinger testified he was the president and sole shareholder of Clippinger Investment Properties (CIP). Clippinger testified CIP’s primary business purpose was to find investment properties for third parties, buy the property, and then manage the property by selling it, or indefinitely managing it. Clippinger estimated that CIP had managed about 70 or 80 properties over the course of about 35 years, and was still in business and actively looking for new investors. Clippinger said CIP typically invests its own money alongside other investors.
Clippinger testified that he had never before had a financial evaluation done on CIP as a business, but he admitted that a profit-and-loss statement and a tax return would be the kind of documents needed to do so. When asked why he had not produce such documents in response to the SDT, Clippinger responded, “I put down the detail of everything I own.” Clippinger admitted that CIP keeps a profit-and-loss statement, but when asked why he did not provide that document he said, “There -- I don’t -- look, I don’t believe there’s really any -- much -- much value there.” When asked why he had not produced any documents showing any other investments, Clippinger said, “I
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don’t have any other investments.”
Clippinger testified that he had produced some bank records in relation to certain entities, but during his testimony he claimed that he did not have an ownership interest in those entities. When asked why he had provided bank records for entities that he had no ownership interest in, Clippinger responded, “You asked for bank records, so I sent them to you.”
Clippinger was confronted with a three-year-old financial statement in which he claimed to have over $28 million in assets, and had an income over $32,000 a month. The statement showed that Clippinger owned real property and several vehicles including a Ford truck, a Mustang, a Bentley, two Porsches, and a Lincoln Navigator. Clippinger claimed he was now in bankruptcy and foreclosure. When asked why he had not produced any bankruptcy records in response to the SDT, Clippinger said, “I gave you the information as far as the value on the -- you know, the statement. If you want the bankruptcy records, I’m happy to send this to you, certainly.” Clippinger claimed that he only currently owned the Porsche and the Bentley, and that he had lost over $28 million dollars in three years.
On July 11, 2024, the trial court issued a ruling as to punitive damages. The court’s ruling addressed: 1) Clippinger’s reprehensibility; 2) the relationship between actual damages and punitive damages; and 3) Clippinger’s financial condition.
“(1) Reprehensibility. The court finds defendants’ conduct to be significantly reprehensible. Defendants took advantage of investors who were vulnerable to abuse because they had no control over the Lofts’s operation. Defendants engaged in a years-long pattern and practice of intentionally using the investors’ funds as their own and then covering it up. Worse,
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defendants continued to do so after the investors tried to rein in the abuses. [Citation.] Plaintiff also offered evidence of defendants’ misconduct managing other investments and properties, which is admissible and relevant. [Citation.] [¶] It is true defendants’ conduct caused only economic harm and posed no health or safety issues. But the economic harm was substantial, exceeding $2 million. . . .
“(2) Reasonable Relationship. California courts ‘have adopted a broad range of permissible ratios – from as low as one to one to as high as 16 to 1 – depending on the specific facts of each case.’ [Citation.] ‘Where intentional acts of fraud are involved, ratios of at least 3 to 1 appear to be called for,’ which is consistent with the typical triple-damage remedy for fraud. [Citations.]”
“(3) Financial Condition. Defendants correctly note that the record lacks evidence of defendants’ current assets and liabilities. [Citation.] The absence is fairly attributed to defendants.
“‘A defendant is in the best position to know his or her financial condition, and cannot avoid a punitive damage award by failing to cooperate with discovery orders.’ [Citation.] ‘[I]t may not be a defendant’s burden to prove its net worth, but if it is ordered to produce that evidence it is under an obligation to do so.’ [Citation.] For this purpose, ‘a subpoena is equivalent to a court order.’ [Citation.]
“Here, plaintiff subpoenaed ‘[d]ocuments sufficient to show Robert Clippinger’s financial condition and net worth . . . .’ [Citation.] And the ‘Court ordered Clippinger to produce documents responsive to the Subpoena.’ [Citation.] Clippinger cannot rely upon his own incomplete disclosure to avoid paying punitive damages. Nor does the court find
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Clippinger’s testimony of his dire finances to be credible.
“Given the high level of defendants’ responsibility, the significant compensatory damages already awarded to plaintiff, and defendants’ indeterminate financial condition, a punitive damages award of approximately 3 times the compensatory damages is reasonable and appropriate.”
3. Application and Analysis A defendant’s failure to obey a court order to produce records of his financial condition forfeits an appellate challenge to a punitive damage award. (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 609 (Davidov).) In Davidov, after the trial court awarded compensatory damages, plaintiff requested and the court ordered defendant to produce records regarding its net worth, prior to the punitive damages phase of trial. (Id. at p. 603.) Defendant did not comply, and plaintiff argued the trial court could nevertheless award punitive damages. The trial court agreed and awarded plaintiff approximately four times the compensatory damages award. (Id. at p. 604.) On appeal, defendant argued the trial court erred because the plaintiff did not produce any evidence of his financial condition. (Id. at p. 605.) The appellate court disagreed and affirmed the judgment. (Id at p. 610.)
The Davidov court held that “defendant was ordered to produce his financial records so that the trial court could make an evaluation of whether any particular punitive damage award would have the required deterrent effect without being overly burdensome. This order was never rescinded, nor has defendant argued on appeal that it was improper. Therefore, by failing to bring in any records which would reflect his financial
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condition, despite being ordered to do so, and by failing to challenge that ruling on appeal, defendant has waived any right to complain of the lack of such evidence.” (Davidov, supra, 78 Cal.App.4th at pp. 608–609.)
Here, similar to the defendant in the Davidov, Clippinger argues the “award of punitive damages was erroneous because no evidence–let alone clear and convincing evidence–of [his] financial condition was admitted at trial.” But similar to the court’s holding in Davidov, we find that Clippinger failed to obey the trial court’s order to produce sufficient records of his financial condition (e.g., a profit and loss statement). Thus, Clippinger has forfeited this appellate challenge on appeal. (See Davidov, supra, 78 Cal.App.4th at p. 600 [“As defendant failed to obey a court order requiring him to produce records of his financial condition, he is estopped to object to the absence of such evidence”].)
Clippinger also argues the “punitive damages award is independently erroneous because it lacks any indication that the trial court applied the heightened standard of proof–clear and convincing evidence.” But Clippinger did not object on these grounds in the trial court. Thus, under the doctrine of implied findings, we presume the court applied the correct legal standard. (See Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 [only if a party makes timely and sufficient objections to the proposed statement of decision will the presumption of implied findings not apply].)
In sum, we reject defendant’s claim that the trial court’s award of punitive damages—a little less than three times the award of compensatory damages—was somehow erroneous. (See Bardis v. Oates (2004) 119 Cal.App.4th 1, 24 [California courts typically impose treble damages for
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fraudulent and bad faith conduct].) 3
C. Substantial Evidence Clippinger characterizes several of the trial court’s factual rulings as legally “erroneous,” but he is fundamentally claiming that the trial court’s conclusions are not supported by substantial evidence. We disagree and shall succinctly address each claim.
When an appellant contends the evidence is insufficient to support a judgment, we apply the substantial evidence standard of review. “Where findings of fact are challenged on a civil appeal, we are bound by the ‘elementary, but often overlooked principle of law, that . . . the power of an 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 in accordance with the standard of review so long adhered to by this court.” (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660.)
An appellate court also presumes in favor of the judgment or order all reasonable inferences. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1632–1633.)
If there is substantial evidence to support a finding, an appellate
3
Clippinger also argues that the trial court’s computation of compensatory damages was in error, but he did not raise this claim in a new trial motion; therefore, this claim has similarly been forfeited for purposes of appeal. (Greenwich S.F., LLC v. Wong (2010) 190 Cal.App.4th 739, 759 [“‘A claim of excessive or inadequate damages cannot be raised on appeal unless appellant first urged the error in a timely motion for new trial’”].)
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court must uphold that finding even if it would have made a different finding had it presided over the trial. (Rupf v. Yan (2000) 85 Cal.App.4th 411, 429– 430, fn. 5.) An appellate court does not reweigh the evidence or evaluate the credibility of witnesses, but rather defers to the trier of fact. (Lenk v. Total– Western, Inc. (2001) 89 Cal.App.4th 959, 968.) “The substantial evidence [standard of review] applies to both express and implied findings of fact made by the superior court in its statement of decision rendered after a nonjury trial.” (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.)
1. The trial court’s finding of fraud, malice, and oppression is supported by substantial evidence.
Clippinger surreptitiously used Lofts funds for his own personal benefit over a period of years. This is supported by Lofts’s documentary evidence, as well as the testimonial evidence Lofts presented at trial: Menig (the current Authorized Representative); Reddington (the current Manager); Clippinger (as an adverse witness); and Sanders (the Lofts’s accountant). Indeed, Clippinger essentially admitted his fraudulent conduct when he signed the AOA, which made clear that the agreement was the Lofts’s members’ attempt to stop Clippinger from his continued “self-dealing.”
Clippinger argues: “Lofts failed to establish any reprehensible conduct rising to the level of ‘extreme indifference’ to Lofts’ rights, fraudulent behavior, or a blatant violation of law or policy.” We disagree.
The trial court specified in its statement of decision: “The court’s finding of oppression, fraud and malice is particularly strong in this case because of the evidence that Mr. Clippinger continued to repeatedly engage
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in such deceit after the parties amended the operating agreement specifically to curb his history of unauthorized, self-interested financial transactions using Lofts funds.”
In a substantial evidence review, we do not reweigh the evidence.
(See Lenk v. Total–Western, Inc., supra, 89 Cal.App.4th at p. 968.) We find substantial evidence to support the court’s ruling, so we must affirm. (See Rupf v. Yan, supra, 85 Cal.App.4th at pp. 429–430, fn. 5.)
2. The trial court’s finding that Clippinger was liable for the repayment of the Bridge Loans is supported by substantial evidence.
In 2015, some of the Lofts members became aware of the “Bridge Loan” debts, and they further became aware that Clippinger had failed to pay at least two of them off. These Bridge Loan lenders were on the verge of suing Lofts to recover on their 2012 promissory notes that were supposed to be short term loans. The members also learned Clippinger had “converted” the loans (on Lofts’s books) to reclassify them as personal loans made to Clippinger in exchange for a B Share interest in the name of Clippinger’s family trust. The evidence showed that this self-dealing was done without notifying the Lofts members and without documenting Clippinger’s purported “capital contributions” with a subscription agreement as had been done with all the other investments by Lofts members.
On appeal, Clippinger argues that the AOA “was intended to resolve Lofts’s dispute with him regarding the Bridge Loans by requiring Mr. Clippinger to pay Lofts for the payments made on behalf of the Bridge Loans.” But Clippinger cites no such provision in the AOA, and under its terms, Clippinger was personally obligated to pay Lofts in connection with
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the Bridge Loan claims, and they were to “survive any resignation, removal, or any other circumstance whereby Clippinger ceases (for whatever reason) to continue as Manager.”
Further, in support of this argument, Clippinger cites his own trial testimony, which the trial court found not to be credible. Again, it is the trial court’s role to evaluate the credibility of witnesses, and we are not going to second guess those determinations. (See Lenk v. Total–Western, Inc., supra, 89 Cal.App.4th at p. 968.)
3. The trial court’s finding that Clippinger was liable for the unauthorized Intercompany Claims is supported by substantial evidence.
Following the execution of AOA, the Authorized Representative (Aronson), worked with Lofts’s accountant Sanders to determine the extent of Clippinger’s misuse of Lofts’s funds. Sanders kept a running tally of Clippinger’s debts to Lofts, including unverified transfers of Lofts’s money to Clippinger-related entities and to his other accounts for which there was no apparent legitimate business purpose. According to Sanders, Clippinger did not contemporaneously challenge these intercompany calculations. Moreover, as part of the AOA, Clippinger explicitly agreed to repay Lofts “all sums necessary (1) to satisfy and discharge the Intercompany Claims and (2) to return funds paid to Clippinger or his Affiliates pursuant to the intercompany loan account or otherwise.”
Clippinger argues that it is “undisputed” that the intercompany transfers were not wrongful. But that argument is belied by the record, and is based on selective quotations from the record. As to the intercompany transfers, Lofts’s accountant Sanders testified “there was some amount of
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money that was deemed to be not business expense related, and therefore, it was reflected as an intercompany, and that was added to what I’m calling the tally.” Sanders also testified that “it’s not uncommon to have this intercompany going between entities.” Those last 10 words are the portion of Sanders’ testimony that Clippinger directly quoted in his opening brief. But Sanders more completely testified that “it’s not uncommon to have this intercompany going between entities, but a lot of, you know, most of the time it’s paid back quite quickly.” In short, Sanders never testified that Clippinger’s intercompany transfers that were not business related— transfers that were presumably used for his own benefit—were not wrongful.
Once again, under the substantial evidence standard of review, we interpret “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 in accordance with the standard of review so long adhered to by this court.” (Jessup Farms v. Baldwin, supra, 33 Cal.3d at p. 660.)
4. The trial court’s finding that Clippinger was responsible for the damages caused by the VWC lawsuit is supported by substantial evidence.
The evidence established that Clippinger entered into a settlement with VWC Lofts, and authorized the distribution of $1.465 million of Lofts’s funds (that were in escrow), without the prior, express, written approval of the Authorized Representative as required under the terms of the AOA. Clippinger was asked, “So the entirety of the settlement was to be paid with Lofts’ funds; correct?” And Clippinger responded, “Correct.” Clippinger was also asked, “So just to be clear, you never received express written consent from any authorized representative to use the money in escrow to
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settle the VWC Lofts litigation, did you?” And Clippinger responded, “No.”
Clippinger claims he is entitled to indemnity by Lofts for the VWC litigation under the Corporations Code. We disagree.
“A limited liability company shall reimburse for any payment made and indemnify for any debt, obligation, or other liability incurred by a member of a member-managed limited liability company or the manager of a manager-managed limited liability company in the course of the member’s or manager’s activities on behalf of the limited liability company, if, in making the payment or incurring the debt, obligation, or other liability, the member or manager complied with the duties stated in Section 17704.09.” (Corp. Code, § 17704.08, subd. (a), italics added.)
Corporations Code section 17704.09 specifies that managers and members owe a fiduciary duty to their limited liability companies. As already discussed, there is substantial evidence in the record to support the trial court’s factual finding that Clippinger breached his fiduciary duties, so the indemnity provision of the Corporations Code does not apply to him.
Clippinger also claims he is entitled to indemnity for the VWC litigation under the Lofts operating agreement. We disagree.
Section 9.1 of the operating agreement provides that Lofts shall indemnify the Manager “to the fullest extent permitted by applicable law in effect on the date hereof.” But as we have already discussed, Clippinger was not entitled to indemnification under the “applicable law” by virtue of his breaches of his fiduciary duty. (See Corp. Code, § 17704.08, subd. (a).) Thus, Clippinger is not entitled to indemnification under the plain terms of the Lofts operating agreement.
To reiterate and conclude, there is substantial evidence to
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support the trial court’s findings that Lofts proved each of its causes of action.
III.
DISPOSITION
The trial court’s judgment in favor of plaintiff Lofts on L Street LLC is affirmed. Costs on appeal are to be paid by defendants Robert Clippinger and Clippinger Investment Properties, Inc.
MOORE, ACTING P. J.
WE CONCUR:
DELANEY, J.
GOODING, J.