2012-00130548-CU-FR
Preston Smith vs. Blonie Field LLC
Nature of Proceeding:
Filed By:
Motion for an Order Permitting Discovery of Financial Net Worth
McGee, Daniel D.

Plaintiffs’ motion pursuant to Civil Code §3295(c) for order permitting discovery of
defendants’ financial “net worth” information condition is DENIED.

This action arises out of two separate but related real estate transactions by which
defendants allegedly duped plaintiffs into not only selling their home for a price below
its market value but also buying another property which had defects that were
concealed/ not properly repaired. Plaintiffs’ complaint asserts causes of action for
breach of contract, breach of fiduciary duty, negligent misrepresentation, intentional
misrepresentation/concealment and negligence in connection with these real estate
transactions.Defendants’ objection to the Laurin Declaration in support of plaintiff’s motion on the
ground that it lacks foundation for Laurin’s opinion regarding “the biology and
chronology of dry rot or wood deterioration” is overruled.

Plaintiffs’ objections to the Deterding Declaration are overruled except for objection
No. 2, which is sustained due to the lack of foundation.

Pursuant to Code of Civil Procedure §3295(c) plaintiffs now seek an order permitting
discovery of each named defendant’s financial “net worth” information, contending that
if any case deserves punitive damages, this one does. More specifically, plaintiffs
maintain that defendants’ “affirmative misrepresentations and concealments…are
legion” and “myriad breaches of fiduciary duties grotesque.” (Mov. Memo. P&A, p.1:4-
6.) Plaintiffs also assert that they should be able to conduct financial discovery
because it is essential to determine the amount of profits derived by defendants who
have admitted to “profit sharing scheme.” (Id., at p.1:7-11.) The motion adds that
defendants have been non-compliant in discovery and have clearly withheld
documents. Finally, in light of the current trial date of 6/23/2014, plaintiffs claim they
can wait no longer to complete this discovery.

In opposition, defendants insist this motion must be denied because plaintiffs have
failed to make the requisite showing of a “substantial probability” of being awarded
punitive damages especially in light of the authority holding that they must
demonstrate they are not only “very likely” to prevail on their causes of action but also
“very likely” to prove punitive damages by the applicable clear and convincing
standard. The opposition claims this heavy burden is essential to protect defendants
from being unfairly pressured into settling non-meritorious suits. Defendants argue
that plaintiffs have failed to present evidence sufficient to establish each prima facie
element of their fraud causes of action by a preponderance of the evidence, much less
by clear and convincing evidence, including that any particular defendant made a
particular misrepresentation of fact, that particular defendant’s knowledge of falsity,
that particular defendant’s intent to induce reliance and plaintiffs’ own justifiable
reliance on a specific misrepresentation of fact by a particular defendant. (Oppos.,
p.7:3-p.8:10.) The opposition adds that several defendants have not yet been
deposed, making it nearly impossible for plaintiffs to satisfy the Code of Civil
Procedure §3295(c) “substantial probability”/”very likely” standard. Finally, defendants
contend that punitive damages cannot be awarded on the fiduciary duty claims
because plaintiffs failed to establish an actual fraudulent intent.

At the outset, the Court notes that the parties agree on the standard applicable to this
motion: Before permitting discovery of an opponent’s financial condition, there must
be a finding that there is a “substantial probability” the moving party will prevail on its
claim for punitive damages. (Code Civ. Proc. §3295(c).) According to Jabro v.
Superior Court (2002) 95 Cal.App.4th 754, the words “substantial probability” means
“very likely” or “a strong likelihood” of prevailing on the punitive damages claim,
confirmed by the legislature’s decision not to use the terms “reasonable probability” or
simply “probability” which would indicate a lesser standard of merely “more likely than
not.” Given that Civil Code §3294 itself requires “clear and convincing” evidence of
malice, fraud or oppression, it is apparent the burden on the moving parties in the
present case is quite substantial. As such, even where a plaintiff asserting a fraud
claim presents evidence sufficient to satisfy the “preponderance of the evidence”
standard and therefore to prevail on the fraud claim, this showing would not be sufficient to satisfy the requirements of §3295(c) unless the evidence of malice, fraud
or oppression also approached significantly higher “clear and convincing” standard
found in §3294(a) for the award of punitive damages. Without evidence sufficient to at
least approach this higher standard, it would be impossible to conclude that a plaintiff
was “very likely” to prevail on a punitive damages claim and in such cases, a motion to
conduct financial discovery must be denied.

In the present case, plaintiffs insist they have established an undeniable case of fraud
against defendants but this Court does not find the outcome of the underlying fraud
claims to be beyond dispute. The evidence submitted by plaintiffs may well be, in the
absence of contrary evidence, sufficient to enable a jury to find fraud by a
preponderance of the evidence but this Court is not persuaded that plaintiffs’ evidence,
when weighed against that proffered by defendants, is necessarily sufficient to
essentially compel a victory for plaintiffs on the underlying fraud claim. In sum, while
plaintiffs might prevail on their fraud claim, this outcome is far from certain and based
on the totality of the evidence now before the Court, there is also a significant
possibility that plaintiffs might not prevail.

But even assuming arguendo that plaintiffs can establish the underlying fraud cause of
action against defendants, this Court does not find the former have presented
evidence which shows they are “very likely” to obtain a punitive damages award.
Although plaintiffs’ evidence may well suffice to establish fraud by a preponderance of
the evidence, it is readily apparent that their evidence does not even approach the
“clear and convincing” standard applicable to punitive damages. Finding no evidence
which at least approaches the higher burden of proof required for malice, fraud or
oppression, plaintiffs have failed to make the requisite showing that they are “very
likely” to recover punitive damages in this case and as a result, this motion must be
denied.

To the extent plaintiffs through this motion seek to conduct discovery on the amount of
profits wrongfully obtained by defendants, the Court finds plaintiffs have already
obtained the relevant information since their reply brief states that defendants bought
the subject property at a foreclosure sale and then re-sold it six months later to
plaintiffs, netting a gross profit of $100,000. (Reply, p.2:8-10.) It remains unclear what
additional discovery is either appropriate or necessary for the allegedly wrongful
profits, particularly since this case arises out of two separate documented real estate
transactions. The fact that defendants may have “shared” the profits on these (or any
other) transactions would not appear to be relevant, much less “directly relevant,” to
plaintiffs’ fraud/fiduciary duty claims, nor would the fact that one of the defendants may
have routed $13,000 of the profits to an LLC he controls.

Finally, defendants’ alleged non-compliance with discovery requests, even if true, is
not pertinent to the issues presented by this motion. Plaintiffs’ remedy for any alleged
non-compliance is found in the statutes governing the underlying discovery requests.
In the event plaintiffs do ultimately prove at trial their entitlement to punitive damages,
they may subpoena relevant documents and witnesses pursuant to Civil Code §3295
(c).

This minute order is effective immediately. No formal order or other notice is required.
(Code Civ. Proc. §1019.5; CRC Rule 3.1312.)