Joseph A. and Helen I. Bonfigli appeal from an amended judgment upon a special verdict in favor of respondent developers Alan F. Strachan and Michael D. Smith. The Bonfiglis contend that the trial court erred (1) in its pretrial ruling on the validity of a special durable power of attorney executed by the parties; (2) in directing a verdict against them on their cause of action for financial elder abuse; and (3) in certain evidentiary matters. We reverse.
I. FACTUAL BACKGROUND
In 1972, the Bonfiglis purchased approximately six acres of property located at 3945 Sebastopol Road in Santa Rosa. The property was made up of two parcels. The back parcel was about 4.72 acres, and the Bonfiglis lived in a house located on that parcel. The other parcel fronted on Sebastopol Road.
In the early 1990's, respondents began planning a large residential and commercial development project called Courtside Village. Strachan was responsible for dealing with the landowners whose properties were necessary to the development. Smith dealt with the actual construction of the project. Strachan first approached the Bonfiglis in 1990. In 1991, the Bonfiglis entered into an option agreement with the Countryside Racquets Club Development Ltd. (CRCDL) providing CRCDL with the option to purchase their Sebastopol Road property. The option terms included a $1.22 million purchase price for the property and monthly payments of $1,000 as consideration to the Bonfiglis for removing the property from the market. The option terminated in 1996 without being exercised.
In 1996, Strachan, on behalf of Courtside Village, L.P. (CVLP), negotiated with the Bonfiglis to purchase the property. CVLP purchased the back parcel for $600,000. CVLP initially promised to pay an additional $150,000 to the
CVLP made the option payments until sometime in 1999. In May 2000, CVLP assigned the option to CVLLC. Strachan and Smith were the comanagers of CVLLC. Also, in May 2000, the Bonfiglis executed a new special durable power of attorney—with essentially the same provisions—appointing CVLLC as its attorney in fact for the period April 1, 2000, to September 30, 2003, concerning the property (the 2000 POA). A month later, on June 22, 2000, CVLLC assigned the option to Courtside Construction Company, LLC (CCCLLC), at no cost to CCCLLC. The parties stipulated that CCCLLC did not obtain a power of attorney from the Bonfiglis in connection with the option. The option expired on July 1, 2001, without being exercised. Respondents needed the Bonfiglis' parcel in order to develop the overall project, and specifically, the "Village Square" portion of the development.
In May 2001, respondents filed a lot line adjustment application with the City of Santa Rosa on behalf of "Courtside Construction Company" and the Bonfiglis. Strachan signed the application for CCCLLC and Smith signed as attorney in fact for the Bonfiglis. The reason given for the lot line adjustment was to "[r]econfigure lot line as desired by property owners." The requested adjustment decreased the size of the Bonfiglis' front parcel by approximately 60 percent, from 1.23 acres to .52 acres and increased the size of CCCLLC's parcel from .37 acres to 1.08 acres. The lot line adjustment was completed in the fall of 2002, after the option on the Bonfiglis' front parcel had expired. At the time, none of the respondents' entities had any proprietary interest in the Bonfiglis' front parcel.
Respondents sought the lot line adjustment in order to conform the lots to the tentative map that had been approved by the City of Santa Rosa, and to
In October 2002, CCCLLC executed a $22.6 million loan agreement with Comerica Bank. The Bonfiglis' parcel, among others, was used as collateral for the loan, with respondents signing as attorneys in fact for the Bonfiglis on behalf of CVLLC. The subordination agreement executed in connection with the loan referred to the Bonfiglis as optionor and to CCCLLC as optionee, even though the option had expired. According to Mrs. Bonfigli, the Bonfiglis did not know about the loan or the lot line adjustment until 2003, after CVLLC filed for bankruptcy. Strachan stated that he met with the Bonfiglis about the lot line adjustment after it took place in 2002.
Michael Ryan, respondents' expert in real estate development, testified that once the tentative map for the development was approved in 1995, the Bonfiglis' property was worth $10 million. He valued the front parcel at a little bit more than $2.5 million.
In January 2003, CVLLC filed for bankruptcy. The Bonfiglis eventually sold the .52-acre front parcel to Menlo Oaks, one of the entities that owned and managed CCCLLC, for $550,000. At the time, CCCLLC was in the process of restructuring the October 2002 loan on the property that respondents had executed as attorneys in fact for the Bonfiglis. The Bonfiglis were told there was no choice but to cooperate in restructuring the loan because it was in default and the restructuring would allow them the time needed to resolve the issues with the property. The fact that the property was encumbered affected the purchase price the Bonfiglis were able to negotiate.
The Bonfiglis filed this action in October 2006 for fraud, concealment, false promises, breach of fiduciary duty, trespass, and financial elder abuse. Prior to trial, the Bonfiglis moved for a preliminary determination of the
Before the case went to the jury, the court granted respondents' motion for a directed verdict on the financial elder abuse cause of action, finding that there was no evidence of the gravamen of the claim. The remaining claims went to the jury. The jury found against the Bonfiglis.
A. Instructional Error
The court instructed the jury not only that the power of attorney did not prohibit lot line adjustments but also that a valid power of attorney was in effect when the lot line adjustment was made. The court instructed as follows: "An attorney-in-fact under a power of attorney has no authority to take any action beyond those directly authorized by the grantor of the power of attorney or actions necessary and proper to carry out what was directly authorized by the grantor. [¶] The Court has ruled in this case that the powers of attorney did not prohibit lot line adjustments. [¶] A power of attorney conferring authority to sell, exchange, transfer or convey real property does not authorize a conveyance without consideration. [¶] In pre-trial motions before the Court, the Court determined that the power of attorney was the [sic] power coupled with an interest and there were no fiduciary duties owed to the plaintiff until the option was assigned from CV-LLC to CCC on June 16, 2000. [¶] After the option was assigned to CCC, the power of attorney remained in effect under its own terms through September 30, 2003. However, because the power of attorney was no longer a power coupled with an interest, CV-LLC then had a fiduciary duty to plaintiffs in accordance with Probate Code Section 4230(c) which states, `If an attorney-in-fact has expressly agreed in writing to act for the principal, the attorney-in-fact has a duty to act pursuant to the terms of the agreement. The agreement to act on
1. What Is a Power Coupled with an Interest
Because the purpose of a power coupled with an interest is to protect the agent's interest in the subject and its value, this kind of power of attorney is not an "agency" as that term is commonly understood. Rather, the creator of the power relinquishes irrevocably any authority to direct the attorney in fact who is permitted, under such an arrangement, to act solely in his own interests. As is explained in the Restatement Third of Agency, section 3.12, comment b, page 247, a "power given as security does not create a relationship of agency . . . because it is neither given for, nor exercised for, the benefit of the person who creates it. The holder is not subject to the creator's control and the holder does not owe fiduciary duties to the creator."
2. What Is the Interest to Which the POA Was Coupled
The parties do not dispute that the 2000 POA was coupled with an interest. They do, however, disagree as to the "interest" to which it was coupled.
We agree with the trial court's conclusion that the interest with which the 2000 POA was coupled was the option held by CVLLC to purchase the Bonfiglis' parcel. By its terms the "subject of the agency" was not the entire development; rather the POA gave to respondents "the right to carry out [development activities] concerning the real property [owned by the Bonfiglis]." (Italics added.) Indeed the power of attorney could not grant to respondents any interest in—or power over—the Courtside Village development because the Bonfiglis had no such interest or power to give. As respondents correctly state, the powers granted to them under the POA "relate to the property itself" and gave to respondents the "power to use the land to develop the project." (Italics added.) The interest being protected is the right to purchase the property at a specified price; and the value of that interest was secured by respondents' ability to control the property for development purposes.
This analysis is borne out in Lane Mortgage. There, as part of a financing transaction to construct an office building, Lane Company was granted a 20-year rent-free lease on the entire second floor of a building and, at the same time, was given a 20-year management contract for the new building. (Lane Mortgage, supra, 93 Cal.App. at pp. 417-419.) The question before the court was whether the "power" (the management agreement) was irrevocable as one coupled with an "interest" (the 20-year lease). The court concluded that it was, reasoning that the value of Lane Company's leasehold interest could only be secured by its power to control the management of the building. The exclusive agency thus gave to Lane Company the ability to protect its leasehold against devaluation in the event "the building [would be] used for any purpose calculated to injure the premises, or by reason of any unlawful use, or through the building becoming in a state of dilapidation or unsafety." (Id. at pp. 426-427.) "The powers granted the Lane Company in their total amount to no more than placing in the hands of the company directly the means of preserving its said interest." (Id. at pp. 428-429.)
Similarly, here, respondents as developers understood that the development could not occur without the Bonfiglis' property and so they acquired an
3. What Is the Legal Effect of Decoupling the Power from the Interest
It is undisputed that CVLLC assigned the option to CCCLLC in June 2000, and that the parties did not execute a new POA in favor of CCCLLC. The trial court concluded that this decoupling of CVLLC's interest from its 2000 POA did not terminate the POA, but transformed the irrevocable power-coupled-with-an-interest, held for the benefit of the holder, to a revocable general power of attorney, held for the benefit of the creator and subject to fiduciary duties. The court so instructed the jury. The Bonfiglis contend this was error; they argue that a power coupled with an interest is terminated by operation of law once the holder's interest in the property is extinguished.
We can find no California authority directly on point. We turn, therefore, to the Restatement Third of Agency, supra, section 3.13, page 258, which sets forth the following principle, as relevant here: "A power given as security or an irrevocable proxy is terminated by an event that [¶] (a) discharges the obligation secured by the power or terminates the interest secured or supported by the proxy . . . ." The commentary to this section explains under what circumstances a power given as security will terminate: "[A] power given as security or an irrevocable proxy is by definition tied to or supported by an interest or obligation that differentiates the power or proxy from a relationship of agency. Duration of the power or proxy is thus coterminous with such interest or obligation, with the consequence that terminating the interest or obligation terminates the power or proxy as well. . . . If the
We agree with the Restatement's analysis. Given the unusual nature of a power coupled with an interest—in that it is not a true agency because the power is not controlled by the principal nor is it required to be exercised in the interest of the principal—we conclude that the power is not merely revocable upon extinction of the interest, but is itself extinguished at the time the interest in the subject matter terminates.
The trial court's conclusion that the powers authorized by the 2000 POA continued until its date of termination, but in a different form, i.e., as a general power of attorney to be exercised for the benefit of the principal, has some pragmatic appeal. It is not, however, supported by any authority. Further, we think a rule that automatically transforms a special durable power coupled with an interest—which is exercised in the holder's interest—into a general power that is exercised in the creator's interest with all attendant fiduciary obligations, is unworkable. Such a transformation fundamentally alters the nature of the power and the relationship of the parties, not to mention the terms of the agreement and applicable law. The result would be fraught with uncertainties. As only one example, a POA coupled with an interest commonly authorizes the holder to deal with the creator's property for the holder's own profit (as did the Bonfiglis' POA). But the law governing general powers of attorney requires the holder to act "solely in the interest of the principal." (Prob. Code, § 4232, subd. (a).) Suppose the holder—now agent—takes an action that generates a dispute; which law governs? The creator—now principal—will rely upon Probate Code section
4. Application of Law to This Case
The following sequence of events is not disputed: CVLLC assigned the option to CCCLLC on June 22, 2000. CCCLLC, the new holder of the option never obtained a power of attorney from the Bonfiglis. In May 2001, CVLLC applied for a lot line adjustment using the 2000 POA. In July 2001, the option expired without being exercised. In October 2002, CCCLLC effectuated the lot line adjustment and encumbered the Bonfiglis' property with a new loan, using the 2000 POA.
As the duration of the power of attorney is coterminous with the ownership interest in the property, when CVLLC assigned the option to CCCLLC without CCCLLC obtaining a new power of attorney, neither entity had any authority to utilize the 2000 POA to make a lot line adjustment in 2002. (Rest.3d Agency, supra, § 3.13, com. b, p. 259.) In sum, the 2000 POA was extinguished upon the assignment of the option to CCCLLC in June 2000.
The case went to the jury based on the trial court's rulings that a valid power of attorney was in existence when the lot line adjustment was made. The 2000 POA, however, was invalid, as were respondents' signatures on the documents they signed in connection with the lot line adjustment.
Respondents argue that the Bonfiglis invited the error because following the court's determination on the effect of the power of attorney and the
Here, the court's ruling on the effect of the assignment and the expiration of the option on the 2000 POA required the Bonfiglis to adapt their theory of the case to fit with the court's ruling that a valid power of attorney continued in effect despite the expiration of the option. There was no invited error.
We also conclude the court's instructional error was prejudicial. "Instructional error in a civil case is prejudicial `where it seems probable' that the error `prejudicially affected the verdict.' [Citations.]" (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580 [34 Cal.Rptr.2d 607, 882 P.2d 298].) Here, the jury was told, in essence, that the 2000 POA was valid and authorized the lot line adjustment. The instructional error was pivotal and foreclosed the Bonfiglis' theory that respondents lacked the authority to transfer their property to CCCLLC. They were left with the virtually insurmountable task of arguing that respondents breached their fiduciary duty under the 2000 POA in effecting the lot line adjustment even though the court instructed the jury that the 2000 POA authorized lot line adjustments and that the 2000 POA was valid. Under the circumstances, we cannot conclude the instructional error was harmless. In light of the record as a whole, the result upon retrial may be the same. It is nevertheless reasonably probable that the Bonfiglis would have achieved a more favorable result had the jury been properly instructed.
B. Directed Verdict on Financial Elder Abuse Claim
The Bonfiglis argue that the trial court erred in directing a verdict against them on the financial elder abuse cause of action.
"A directed verdict may be granted only when, disregarding conflicting evidence, giving the evidence of the party against whom the motion is directed all the value to which it is legally entitled, and indulging every legitimate inference from such evidence in favor of that party, the court nonetheless determines there is no evidence of sufficient substantiality to support the claim or defense of the party opposing the motion, or a verdict in favor of that party. [Citations.]" (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 629-630 [85 Cal.Rptr.2d 386].) On appeal, we decide de novo whether sufficient evidence was presented to withstand a directed verdict. (Magic Kitchen LLC v. Good Things Internat., Ltd. (2007) 153 Cal.App.4th 1144, 1154 [63 Cal.Rptr.3d 713].)
The Elder Abuse and Dependent Adult Civil Protection Act (Welf. & Inst. Code, § 15600 et seq.) was enacted to provide for the "private, civil enforcement of laws against elder abuse and neglect" (Delaney v. Baker (1999) 20 Cal.4th 23, 33 [82 Cal.Rptr.2d 610, 971 P.2d 986]). The statutory provisions are not limited to mentally incompetent or physically impaired elders, or persons of limited financial means. (Welf. & Inst. Code, §§ 15600, 15610.27, 15610.30.) Under the statute, it is not necessary that the taker maintain an intent to defraud if it can be shown that the person took the property for a wrongful use and "knew or should have known that [his] conduct is likely to be harmful to the elder . . . ." (Id., § 15610.30, subd. (b).)
The trial court granted respondents' motion for a directed verdict, finding that "[t]he gravamen of that offense is not something that the Court sees any
If the court's ruling on the validity of the 2000 POA had been correct, we would not disturb the court's ruling on the directed verdict. We have concluded, however, that the respondents effected the lot line adjustment and encumbered the Bonfiglis' property without a valid power of attorney. Further, the parties do not dispute that the Bonfiglis, who were over 65 at the time of the lot line adjustment, were elders within the meaning of the statute.
Respondents argue that the court properly entered a directed verdict because the Bonfiglis cannot demonstrate a fraudulent taking of the front parcel inasmuch as the jury found that respondents did not commit fraud. The jury, however, was erroneously instructed; hence, we cannot conclude that it would not have found fraud on the evidence before it or that the jury would have found that the property was taken for a "wrongful use" within the meaning of the statute had there been no instructional error.
To the extent respondents continue to assert that the financial elder abuse claim requires a finding that the Bonfiglis suffered mental suffering, they are mistaken. The statute does not require a finding of mental suffering. Rather, the statute requires a finding that the defendant took the property for "a wrongful use or with intent to defraud, or both." (Welf. & Inst. Code, § 15610.30, subd. (a)(1).) While cases may be brought under the elder abuse statute alleging mental suffering (see id., § 15610.07), the Bonfiglis did not do so, nor did they allege emotional distress or seek damages for pain and suffering. Consequently, they were not required to offer evidence of mental suffering to support their claim of financial elder abuse. Because we conclude that the court's pretrial ruling on the power of attorney issue resulted in
C. Evidentiary Issue
The Bonfiglis also contend that the trial court erroneously limited their cross-examination of respondents when respondents claimed they signed documents only after they were reviewed by counsel. We need not decide the question. While the issue may arise on retrial, the court's ruling on the validity of the power of attorney impacted its evidentiary rulings on respondents' assertion of the attorney-client privilege. Hence, it is impossible to determine whether any privileged communications will be placed at issue in the case upon retrial. (See 2,022 Ranch v. Superior Court (2003) 113 Cal.App.4th 1377, 1395 [7 Cal.Rptr.3d 197] [attorney-client privilege may be waived by placing contents of the privileged communications at issue in the case], disapproved on other grounds in Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 739 [101 Cal.Rptr.3d 758, 219 P.3d 736].)
D. Respondents' Alternative Grounds for Affirmance
Respondents contend that the judgment should be affirmed regardless of the asserted errors because the jury found they had no fraudulent intent in securing the lot line adjustment. We have already concluded that the pretrial ruling on the power of attorney issue and the erroneous jury instructions permeated the entire trial. The question of respondents' intent must be examined in the proper legal context.
The judgment is reversed and the matter is remanded for further proceedings consistent with this opinion. The Bonfiglis shall recover their costs on appeal.
Ruvolo, P. J., and Reardon, J., concurred.