Filed 5/12/20 Xin v. Li 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

XUANQIU XIN et al.,

Plaintiffs, Cross-defendants and Respondents,

v.

FANG LI et al.,

Defendants, Cross-complainants and Appellants.

G057020

(Super. Ct. No. 30-2014-00716410)

O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, Frederick P. Horn, Judge. (Retired judge of the Orange Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed.

Hochfelsen & Kani and Steven I. Hochfelsen for Defendants and Appellants.

Urtnowski & Associates, J. Brian Urtnowski and Lisamarie McDermott for Plaintiffs and Respondents. 

INTRODUCTION

Respondent Xuanqiu Xin (“Rachel”) and several associated business entities sued appellants Fang Li (“Linda”), Yu-Ching Tu (“Andy”), and Xing Wei (“Helen”), among others, over two gas station sale transactions, one in California and the other in Washington State. The individuals adopted Western names, as indicated above, which were used during trial and throughout the subsequent statement of decision. We have continued the practice here.

In essence, Rachel alleged that Linda, Andy (Linda’s husband), and Helen defrauded her, first, in the purchase of a gas station in Arcadia and, second, in the purchase of a group of eight ARCO stations in Washington. In addition, Andy, a California attorney, committed malpractice, mainly through undisclosed and unwaived conflicts of interest. A cross-complaint against Rachel alleged that she was laundering money from China and violating California labor laws and federal immigration laws.

Rachel’s complaint and appellants’ cross-complaint were tried to the court over 24 days. The trial court found in Rachel’s favor on all counts of both the complaint and the cross-complaint. In the statement of decision, the trial court was extremely severe on the subject of appellants’ credibility, bluntly accusing them of lying on the stand and of trying to deceive the court as they had deceived Rachel.

Appellants have identified six issues they claim warrant the reversal of the judgment against them. But, in addition to error, we must find prejudice to reverse a judgment, that is, the probability of a different outcome. The trial court’s conclusions about appellants’ veracity make their task in this court a difficult one. Once the trial court perceived it was being lied to, it is highly unlikely the outcome would have been different, unless we found significant error.

We do not think appellants have met their burden to show error or, if the court erred, prejudice. Accordingly we affirm the judgment.

FACTS

Rachel, a citizen of China, was a twenty-four-year-old graduate of the University of Iowa with a business degree when she met Helen in early 2013. Helen, an older woman, told Rachel she had considerable business experience and could assist Rachel in finding profitable investments. Helen and Rachel became social friends, and Helen introduced Rachel to Linda, whom Helen represented had experience with buying and managing gas stations, in August 2013.

The Arcadia Gas Station (SoCal Evergy)

The first two California gas station purchases Helen and Linda presented to Rachel fell through. The third one, a Union 76 station in Arcadia, went forward. A California corporation incorporated by Rachel and her husband as SoCal Evergy, Inc., was the buyer of the Arcadia station for an ostensible sale price of $1.9 million. Helen told Rachel, however, that Rachel had to transfer an additional $350,000 outside of escrow in order to complete the transaction. Helen and Andy assured Rachel that making such an outside transfer was a normal way of doing business in the United States. At Helen’s direction, SoCal Evergy transferred the money in two payments to Hong Kong Panaview, a company owned by Helen and/or her brother. Helen told Rachel these outside-of-escrow funds would be transferred to the seller as part of the purchase of the Arcadia station. In fact, Helen kept them.

Linda also profited from the sale of the Arcadia station. She obtained a $10,000 “finder’s fee,” without Rachel’s knowledge, even though she was not entitled to such a fee. She and Andy also induced Rachel to sign over SoCal Evergy’s shares to Linda, on the grounds that she had to negotiate with the oil company and the landlord because Rachel did not speak English well and was not a U.S. citizen.

The Washington (ARCO) Gas Stations (Pro Star and Star Petroleum)

The Washington gas station purchases morphed into a complicated transaction involving two purchase agreements, several additional agreements, and multiple corporate parties. The details of the transactions are not relevant to the issues on appeal. We recite the pertinent facts below.

While the purchase of the Arcadia station was proceeding, Helen, Linda, and Andy persuaded Rachel to invest in eight ARCO gas stations located in various cities in Washington State; only two stations were operational at the time. The buyer was Pro Star, LLC, a California limited liability company formed in July 2013 in anticipation of buying one of the California gas stations. The members of Pro Star were Antron Petroleum, LLC, a California limited liability company belonging to Rachel (Cal. Antron); V Star, Inc., a California corporation belonging to Helen; and, subsequently, ATLI Enterprises, LLC, a California limited liability company belonging to Linda and Andy. Cal. Antron owned the majority interest in Pro Star.

In September 2013, Pro Star entered into a purchase agreement with West Coast Petroleum Services, LLC, to buy eight ARCO gas stations. Rachel and Helen signed the agreement for Pro Star. The purchase agreement represented that all eight stations would be open by December 2013. The initial deposit for this purchase agreement was $2.2 million, the release of which was subject to certain conditions. Rachel’s was the laboring oar: her share of the deposit was $1.815 million. She wired these funds to Pro Star from the Sun Forest account.

On September 27, 2013, Rachel approved the release of the $2.2 million deposit from escrow to the seller. Appellants represented to Rachel that this release was without risk. At the time, Rachel was unaware the seller had side agreements with Linda and Helen to pay each of their companies $350,000. Rachel was also unaware of a “finder’s fee agreement” to pay Linda another $350,000.

None of the closed gas stations having opened by December 2013, Helen, Linda, and Andy told Rachel that the deal had to be changed to speed things along. They needed a Washington company to buy the Washington ARCO stations and to become a franchisee. Accordingly, Linda formed Star Petroleum, LLC, a Washington limited liability company. The members of Star Petroleum were Antron Petroleum, Inc., a Washington corporation belonging to Rachel (Wash. Antron), and Helen’s and Linda’s companies, V Star and ATLI. The parties’ interests in Star Petroleum were the same as their interests in Pro Star.

Helen told Rachel that, along with the new buyer (Star Petroleum) and the new agreement, she had to deposit another $300,000 with the seller. This time the seller was Harbor Olympic Land Entities, the landlord of six of the gas stations. The other two gas stations would be transferred to Pro Star per the original deal with West Coast Petroleum. Rachel wired the deposit of $300,000 from Sun Forest to the seller’s attorney. She later put a total of $1.6 million into three accounts at East West Bank, on appellants’ representation that ARCO needed to see money in bank accounts “for show, just for ARCO to take one look. As soon as that was done, the money would be returned to [Rachel] immediately.” At the time of trial, the money was still in the bank. Linda offered to wire it back to Rachel if Rachel signed a release for Linda and Andy.

Rachel and her husband eventually became uneasy about the quality of the legal advice they were receiving from Andy, and, in January 2014, they engaged a Washington attorney to review the documents relating to the gas station sale. The attorney pointed out problems with the lease agreements, and he could not reach the landlord/seller’s attorney to discuss them. Rachel’s new attorney also discovered that the stations were about to be foreclosed upon. Then, in February, Rachel learned of $1.5 million paid to Linda by the original seller, which Linda initially denied receiving. Ultimately, Rachel realized she had been duped, and she sued Helen, Linda, Andy and their companies in April 2014.

The Cross-complaint

Responding to Rachel’s complaint, Helen, Linda, Andy, and their companies cross-complained against Rachel and her companies. The third amended cross-complaint was the operative pleading at the time of trial.

The main thrust of the cross-complaints was that Rachel had ulterior motives for investing in the gas stations, motives that she had hidden from appellants. They alleged she was laundering money from China, was setting up a system to evade federal immigration laws, and was trying to avoid taxes on her investment income, including income from the gas stations. They also alleged she had deliberately sabotaged the sale of the Washington ARCO stations so she could buy them more cheaply. The cross-complaints included causes of action for fraud, breach of contract, breach of fiduciary duty, interference, and rescission, all based on the same set of allegations. Linda also alleged that she was an employee of SoCal Evergy who had not been paid according to California labor laws.

 

Summary Adjudication and Trial

Rachel moved for summary adjudication on certain causes of action in the third amended cross-complaint. The court granted summary adjudication in June 2016 on causes of action for breach of fiduciary duty, interference with prospective economic advantage, unfair business practices, and three Labor Code violations. The remaining causes of action went to trial.

The case was tried to the court over 24 days in March, April, and May 2018. On July 26, 2018, the court issued a 59-page statement of decision. It found in Rachel’s favor on all her causes of action and in her favor on all remaining causes of action of the third amended cross-complaint.

Judgment was entered against appellants and their two companies for $3.6 million in damages and $1.5 million in prejudgment interest. The court found that Helen was the alter ego of V Star and Linda was the alter ego of ATLI. The court assessed $300,000 in punitive damages against Helen and V Star; $200,000 against Linda and ATLI; and $100,000 against Andy. The court also ordered rescission of the Pro Star and Star Petroleum operating agreements.

DISCUSSION

Before we discuss the specific issues appellants have identified, we address one issue that pervaded the entire trial and the subsequent judgment: credibility. The trial court found that Rachel’s testimony was “very credible.” By contrast, both orally and in the statement of decision, the court was scathing in its denunciation of appellants. Their testimony was “riddled with lies about the acquisition and distribution of the various monies received from” Rachel. Linda’s testimony was “replete with . . . fabrications and lies under oath.” Her video deposition testimony was “absurd.” Her testimony overall was “one of the saddest uses of the witness stand the Court has observed in twenty-seven years on the bench.” Helen’s testimony was “deceitful” and “riddled with lies.” Andy’s testimony “lacked candor, was misleading, and was riddled with lies.” His effort to distance himself from Linda’s and Helen’s conduct “was not credible and was absurd.”

Obviously these conclusions had far-reaching effects on the outcome of the trial, and we, of course, are bound by the trial court’s assessment. (See Estate of Young (2008) 160 Cal.App.4th 62, 76.) It informs our review of the issues specified on appeal and the arguments advanced to support appellants’ positions.

I. Discovery Regarding Money Laundering

Appellants based their four cross-complaints on an oft-repeated theme: Rachel was laundering money from China, and she was seeking to evade federal immigration laws for people from China. Their third amended cross-complaint accused Rachel and at least one of her companies, Wash. Antron, of breaching their fiduciary duties to Helen’s V Star and Linda’s ATLI by using Pro Star to launder money and evade immigration laws.

In April 2016, Rachel moved for summary adjudication of several causes of action of the third amended cross-complaint, one of which – the first cause of action – was for breach of fiduciary duty against Rachel and Wash. Antron. Appellants opposed the motion with the same arguments regarding money laundering and illegal immigration they had proffered since the filing of the original cross-complaint. They enlisted a money-laundering expert to opine that Rachel was importing money into the United States in violation of Chinese law.

On June 8, 2016, the trial court issued its order on the motion for summary adjudication. The trial court granted Rachel’s motion on breach of fiduciary duty on two grounds. First, Rachel as an individual was not a member of the limited liability companies, Pro Star and Star Petroleum, of which Helen’s and Linda’s companies were minority members. As an individual, she owed no fiduciary duty to Helen’s and Linda’s companies. Also, appellants presented no evidence that Rachel’s company, Wash. Antron, had breached its fiduciary duty to Helen’s and Linda’s companies. The court specifically found that appellants had failed to present evidence that Wash. Antron was laundering money or that any money laundering prohibited by any United States state or federal law was occurring. The first cause of action for breach of Rachel’s and Wash. Antron’s fiduciary duty to V Star and ATLI was therefore out of the case as of early June 2016.

During the latter part of the trial, on May 3, 2018, Rachel moved for judgment pursuant to Code of Civil Procedure section 631.8 on the second cause of action of the third amended cross-complaint: rescission of the agreements forming Pro Star and Star Petroleum, the two buyers of the Washington gas stations. One basis for appellants’ rescission claim was, once again, money laundering and immigration violations. This cause of action was stated against Rachel and against Cal. Antron.

To support the motion, Rachel pointed out that, first, defendants had named the wrong company for Star Petroleum, and, second, they had presented no evidence at trial of money laundering or immigration violations. In opposition, defendants argued that Rachel had not put any of her own money into the Washington transactions; the money came from Sun Forest. Defendants did not explain how the source of Rachel’s funds was relevant to a judgment in her favor on the rescission cause of action in the third amended cross-complaint.

The court granted the motion for judgment on the rescission cause of action, stating, “All right. It’s granted. And the court finds that Sun Forest and Rachel are one and the same. [¶] . . . Which is pretty much true of everybody. We will make the findings at the appropriate time. It is these companies that are formed and unformed and change names almost overnight and almost weekly at the whim of the participant, for that matter. [¶] So in this particular case, it finds that Rachel is one and the same person [sic].”

Defense counsel immediately protested, “Your Honor, the only issue is, as to the motion for summary adjudication, it had let Rachel out of the claim on the grounds that Antron was a member and not Rachel, and therefore Rachel had no fiduciary duty.” The court pointed out that it was referring to Sun Forest, not Antron.

In their closing trial brief, appellants told the court that “[t]he Court also found, in the Motion for Summary Adjudication (1/2716)[ ] that Rachel was not personally liable for breach of fiduciary duty against Star Petroleum or Pro

Star because her entities, and not she personally, were members of the companies. For that reason, [Appellants] were not permitted to raise those claims at trial.” After discussing the alter-ego issue with the court, appellants asked to reopen evidence as to Rachel “to present evidence of breach of fiduciary duty by [Rachel], by and through her companies, by using Pro Star LLC and Star Petroleum, LLC to launder funds illegally obtained from China and to shelter funds obtained without paying income tax thereon.” The court granted this request on May 10. Rachel testified on May 15. Evidence then closed again, after she finished testifying.

In both the statement of decision and the judgment, the court found that Helen and Linda were alter egos of their respective companies. At one point, the statement of decision stated that Rachel was the alter ego of Wash. Antron, Cal. Antron, and Sun Forest. Later, however, in ruling on the 20th “cause of action” for alter ego, the court found that “the entity defendants [i.e., V Star and ATLI] are the mere alter egos of their individual owners, the individual owners using the corporate entities as an extension of their individual selves by among other things failing to adequately capitalize their companies and by using the entity bank accounts as individual accounts, commingling assets and using the entities [as] instrumentalities for instituting a fraud against plaintiffs.” All of the evidence cited to support this finding dealt with the defendants’ activities. The court made no comparable findings about inadequate capitalization, instrumentalities of fraud, or failing to observe corporate formalities about Rachel and her companies.

Appellants now argue the trial court committed reversible error by not allowing them to conduct additional discovery regarding money laundering because the alter-ego ruling during trial regarding Sun Forest and Rachel reversed its 2016 summary adjudication ruling. Appellants characterize the summary adjudication ruling as finding that Rachel was not the alter ego of Antron, and, “although Appellants had produced evidence indicating that [Rachel] and Sun Forest were engaged in money laundering, such money laundering could not be a breach of duty to [Helen’s and Linda’s companies].” Appellants assert that the 2016 summary adjudication ruling “removed the issue of money laundering from Respondents’ [sic: appellants’] case,” preventing them from conducting further discovery related to money laundering and from bringing their expert on the subject to testify at trial.

Then, after the parties rested, according to appellants, the court held that Rachel and all her companies were alter egos. Appellants assert that the court “acknowledged” this holding to be a “reversal of its ruling on the motion for summary adjudication in which it held that [Rachel] was not an alter ego of Antron.” Appellants attributed the court’s reopening of evidence to allow Rachel to be examined on the sources of her funds to the court’s recognition of this “reversal.” “However,” they complain, “the trial court ordered, over Appellants’ objection, that Appellants had to present any such evidence the next court day.” This order, they maintain, precluded them from conducting essential discovery relating to money laundering and from getting their expert in from Atlanta to testify. They claim they raised this objection with the court, but it was summarily rejected. They asked to have evidence reopened again, but this request too was denied. Appellants conclude, “The order at trial allowing presentation of evidence on the topic [i.e., money laundering] without allowing sufficient time to gather, prepare and present the evidence, rather than remediating the trial court’s acknowledged error in its ruling on the motion for summary adjudication, compounded it and requires a new trial.”

Just about every point in this argument is wrong, although it has moments when it is merely cynically misleading. First, alter ego was not an issue in the 2016 motion for summary adjudication, and the trial court made no ruling whatsoever on alter ego at that time. The court decided only that Rachel as an individual was not a member of the limited liability companies to which Helen’s and Linda’s companies also belonged and therefore had no fiduciary duty as an individual to Helen’s and Linda’s companies as minority members. The court was not asked to rule on and did not rule on whether one of the Antrons was Rachel’s alter ego.

Second, the trial court unequivocally ruled in 2016 that appellants had presented no evidence in their opposition to the motion (a) that Rachel’s company Wash. Antron was laundering money and (b) that any money laundering had taken place. Appellants had not established a triable issue of fact that the conduct upon which they based their breach of duty cause of action had occurred, and the court granted summary adjudication accordingly.

Moreover, Sun Forest, the entity from which Rachel obtained the money for the investments, was not involved in Rachel’s request for summary adjudication on the first cause of action. It was not a named cross-defendant in the first cause of action. The court made no ruling about Sun Forest’s relationship to Rachel as part of the summary adjudication motion.

The court granted summary adjudication on the first cause of action of the third amended cross-complaint, breach of fiduciary duty. The second cause of action for rescission, however, went to trial, and that cause of action – like the first – was based in part on money laundering. So appellants’ argument that the summary adjudication ruling “removed the issue of money laundering from the case” is flatly wrong. The issue was still very much in the case. In fact, the court denied without prejudice Rachel’s in limine motion to preclude evidence regarding money laundering: “I’m not going to issue a ruling on something like that that says no, it’s not admissible. Who knows what that means.” “We can deal with it at time of trial if it involves a motion or an offer of proof or some briefing.” The summary adjudication ruling was not responsible for appellants’ failure to offer evidence regarding money laundering during the main portion of the trial.

It is also disingenuous – a word we seldom use – to claim appellants produced evidence as part of their opposition to the motion that Rachel and Sun Forest were engaged in money laundering. On the contrary, the trial court held that appellants had “submit[ted] evidence of money transfers from [Rachel] to Sun Forest to support claims of money laundering allegations but [appellants] do not present authority or evidence which establish[es] that the alleged money transfers amount to illegal money laundering by [Wash.] Antron pursuant to any law of the United States. Neither the declaration of [appellants’] attorney . . . nor [appellants’] expert . . . provide[s] any evidence to support a legal conclusion that the money transfers set forth are illegal or that [Wash. Antron] can be held responsible for them.”

Contrary to appellants’ assertion, the trial court did not “acknowledge” at trial that it had reversed its own summary adjudication ruling. The court clearly did not remember the ruling, which it had issued nearly two years earlier. And appellants evidently made no effort to put a copy of the ruling before the court in May 2018. Nevertheless, bending over backwards to be fair to appellants, the court allowed them to reopen the evidence to examine Rachel on money laundering. No “acknowledgement of reversal” was involved.

As for the crux of appellants’ argument – they were denied time to do discovery and to get their expert into town – misdirection leads here into misrepresentation. It is true that Rachel’s additional testimony took place on the next court day after the court granted permission to reopen evidence. But the next court day was five calendar days later. Moreover, before the court set that date, there is no evidence whatsoever in the record that appellants asked for additional discovery or a postponement to get their expert on board before they reopened evidence to examine Rachel. The objection to which appellants refer in their brief occurred after Rachel had been reexamined, and after appellants’ counsel said he had no more questions, and after he said he had no more witnesses, and during his closing argument. (See footnote 15.) As the court pointed out in response, “You made your record. I don’t recall any instances where that would have been appropriate in the first place regarding tax returns or any request to come to the court to pursue any of those avenues [of discovery]. I don’t recall any instance where there was a request to reconsider because [of] any of the arguments you are making to the court now. And at any rate, at the trial you had the opportunity to do anything you want, present any other evidence. There was no request made of the court.” Appellants’ new trial motion, which they cite as containing their request to reopen evidence again, did not include such a request.

Since money laundering was at issue from the very beginning, appellants had plenty of time to do all the pretrial discovery they could think of. And they had done discovery. Appellants subpoenaed Wells Fargo Bank to obtain Rachel’s bank records. They specifically argued they needed these records as proof of her money laundering. The court denied her motion to quash the subpoena in February 2016. At the same time, the court granted Sun Forest’s motion to quash a similar subpoena to Wells Fargo. The court reasoned appellants had not shown a connection between Sun Forest and any of the causes of action in the complaint or the second amended cross-complaint. Upon Linda’s motion for reconsideration, the court reversed its order granting Sun Forest’s motion to quash and ordered the bank’s documents turned over to appellants’ counsel in March 2016. The ruling on the summary adjudication motion was issued in June 2016. Appellants used Sun Forest’s bank statement for March through May 2013 to examine Rachel during her additional testimony on May 15, 2018. Appellants have not pointed to any pretrial discovery that was denied to them.

It is one thing to make a spur-of-the-moment argument to the trial court based on the misremembered details of an order issued nearly two years in the past. It is quite another thing to make the same argument with the record at hand for consultation. If counsel did not remember the precise details of the ruling on the summary adjudication motion, they should have reviewed the order before closing argument. And they certainly should have reviewed the record before making representations to us in an opening brief. There is no excuse for misrepresenting what happened before and during the trial and when it happened.

II. Hong Kong Panaview

Rachel testified she had wired a total of $350,000 to a Chinese company called Hong Kong Panaview as the outside-of-escrow payment on the purchase of the Arcadia gas station. She produced evidence that Helen owned Hong Kong Panaview.

Helen testified the Hong Kong Panaview to which Rachel’s money had been wired was not the company she owned. Helen’s brother owned that company. Helen and her husband formed Hong Kong Panaview, Chinese name Jingshi, in 2003 and closed it in 2005. Helen’s brother formed Hong Kong Panaview, Chinese name Weishi, in 2013. Helen denied having any interest in her brother’s company.

During Helen’s testimony, defense counsel introduced exhibit 1711, an application to close her Hong Kong Panaview company in November 2004. Exhibit 1711 was admitted into evidence. Defense counsel then sought to introduce exhibit 1712, the contents of which were not disclosed at trial. Opposing counsel objected that the document was being produced during trial “and not during break or in the morning.” Counsel further objected that it was not an impeachment document, presumably meaning that it could not be first seen as it was sprung on a witness and opposing counsel during testimony. The court sustained the objection “at this point.” So far as appellants have informed us, the subject of admitting exhibit 1712 did not arise again during trial.

Appellants now argue that “the court refused to allow . . . Exhibit 1712, in evidence . . . and ultimately ruled that the $350,000 transfer to the new Hong Kong Panaview was a transfer to Appellants. . . . [¶] Thus, the trial court refused to allow evidence that the company to which the $350,000 was transferred was not a company in which any Appellant had an interest, refused to allow Appellants to introduce the evidence rebutting the claim, and then ruled that it constituted a transfer to Appellants.” This ruling, along with the admission of records of Helen’s Hong Kong Panaview, was, in appellants’ opinion, erroneous and prejudicial.

Appellants’ argument disregards several important facts. First, Helen testified at trial about the closing of her company and the opening of her brother’s company with the same English name but a different Chinese name. She also testified she had no interest in the latter company. So the contention the court refused to allow evidence about the ownership of the two companies is false. Next, it is not true that the court ruled the $350,000 transfer was a “transfer to appellants.” The statement of decision reads, “Relying on these representations, Rachel did make two payments to Helen and/or her brother’s company, Hong Kong Panaview, of $306,189.60 and $45,991.60 on 8/16/13 and 10/21/13, respectively.” (Italics added.) Helen’s brother was not a party to the lawsuit and is not an appellant. Finally, appellants fail to address the reason exhibit 1712 was not admitted into evidence “at this point”: it had not been disclosed to opposing counsel before it was placed before the witness. This was obviously a temporary objection, easily cured. But counsel made no attempt at trial to refute or cure the objection, evidently conceding the objection was valid. Appellants cannot now complain about this.

As for prejudice, the court had ample evidence to conclude that, whatever may have been Helen’s legal relationship to Hong Kong Panaview 2013, the $350,000 outside-of-escrow payment went to that company at her direction. Rachel testified about text messages she received from and sent to Helen regarding wiring the funds to the Hong Kong account. Helen also acknowledged the transfers, although she denied knowing what they were for. So the admission of exhibit 1712 would not have changed the outcome of the trial.

The trial court recognized that Helen’s brother may have owned Hong Kong Panaview in 2013, when the money was wired. But ultimately it did not matter who owned the company. The important point was that Helen convinced Rachel to wire $350,000 to the company by misrepresenting to her that this was a normal way of doing business in the United States. Helen thus defrauded Rachel of $350,000. Even if the beneficiary of the fraud was Helen’s brother or his company, the perpetrator was Helen. She and her coconspirators are liable for the injury to Rachel – the loss of $350,000 – regardless of whether Helen or her brother eventually wound up with the money. (See Fort v. Board of Medical Quality Assurance (1982) 136 Cal.App.3d 12, 19-20.)

III. Statement of Decision

Appellants complain the trial court committed reversible error by ruling their objections to the proposed statement of decision untimely and refusing to consider them.

The proposed statement of decision was filed on June 13, 2018, and was served electronically and by mail on that date. Appellants filed their objections on July 2, 2018. The trial court ruled appellants had not timely filed objections to the proposed statement of decision.

California Rule of Court, rule 3.1590(g) requires objections to a statement of decision to be served and filed within 15 days after the proposed statement of decision has been served. Code of Civil Procedure section 1010.6, subdivision (a)(4)(B), extends the time period by two court days when a document is served electronically. Fifteen days after June 13 was June 28. Because June 30 and July 1 were both weekend days, two court days after June 28 was July 2.

Even if the court was mistaken about the timeliness of appellants’ objections to the statement of decision, appellants’ argument fails for two reasons. First, the objections themselves were improper, and, second, appellants have not identified any prejudice stemming from the court’s failure to consider their objections. (See In re Marriage of Steiner & Hosseini (2004) 117 Cal.App.4th 519, 524-525; see also F.P. v. Monier (2017) 3 Cal.5th 1099, 1108 (Monier).

Appellants made the following objections to the proposed statement of decision:

1. No substantial evidence supported the court’s award of damages.

2. No admissible evidence supported the award of punitive damages.

3. The citations to evidence in section IV of the proposed statement of decision consisted of evidentiary facts, not ultimate facts.

4. Appellants objected to all of section IV “based on the same authority.”

5. No prejudgment interest was awarded at trial, and there is no statutory authorization for prejudgment interest.

6. No attorney fees were litigated or awarded at trial.

As the above list demonstrates, appellants have misunderstood the purpose of filing objections to a proposed statement of decision. It is not to reargue the merits. It is to point out to the trial court where the statement is ambiguous or where a principal controverted issue has been omitted. (Code Civ. Proc., § 634; Heaps v. Heaps (2004) 124 Cal.App.4th 286, 292-293.) In other words, it is to alert the trial court to a discrepancy between what the court ruled or what was at issue during trial and what the statement of decision says or does not say. Appellants’ objections simply argue that the court was wrong or consist of criticisms so vague as to be meaningless. (See Id. at p. 292.)

Appellants’ failure to file proper objections leads directly to the second issue: prejudice. Even if the trial court had considered appellants’ objections, it would not have altered the statement of decision or the judgment. Appellants pointed out nothing in the proposed statement that was ambiguous, and they did not identify any omitted issue. In fact, they repeatedly acknowledged that the points to which they were objecting accurately reflected the trial court’s findings.

Appellants’ sole authority for reversal is Miramar Hotel Corp. v. Frank B. Hall & Co. (1985) 163 Cal.App.3d 1126, the holding of which – failure to issue a statement of decision is reversible error per se (id. at p. 1129) – Monier has expressly repudiated. (Monier, supra, 3 Cal.5th at p. 1108.) The Miramar Hotel holding does not address the consequences of a failure to consider objections, but rather the failure to issue any statement of decision at all.

Appellants have pointed to no cognizable prejudice stemming from the trial court’s not considering their improper objections.

 

IV. Impeachment Evidence

During her cross-examination, appellants’ counsel engaged in the following exchange with Rachel:

“Q. When I asked you in your deposition, you testified that the only documents you believed Andy drafted were the transfer of control agreement and the management service agreement that we have seen in this case, correct?

“A. Correct.

“Q. Okay. And in fact, didn’t Linda tell you that she pulled those two documents down off the internet?

“A. No.”

At this point, defense counsel asked the trial court to take judicial notice of the complaint, asserting that allegations in a complaint were judicial admissions. The court denied the request.

Appellants contend the trial court committed reversible error by not taking judicial notice of the complaint and allowing them to use it to impeach Rachel. They argue if they had been able to get this evidence in, the court would have formed a different opinion about Rachel’s credibility relative to Andy’s.

From the above exchange cited in appellants’ brief, it seems counsel planned to point to an allegation Linda told Rachel she had obtained the two agreements from the internet. That is not, however, the argument appellants are making here. To us, they argue that the impeachment evidence was an allegation in the complaint that Andy had drafted more documents than just the transfer of control agreement and the management services agreement. This subject came up immediately after the above exchange. The court asked defense counsel to explain the relevance of the question regarding the number of documents Andy allegedly drafted; defense counsel was unable to do so.

We review a trial court’s decisions on admission of evidence for abuse of discretion and prejudice. “A judgment will only be reversed if the error at the trial court level resulted in a miscarriage of justice to the extent that a different result would have been probable without the error. [Citations.]” (Malibu Mountains Recreation, Inc. v. County of Los Angeles (1998) 67 Cal.App.4th 359, 372.)

There is authority to the effect that a complaint, even if unverified, may be used for impeachment purposes. “It is presumed that even an unverified pleading is filed with the consent of the client and should be regarded as an admission.” (Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1412.) From the argument made at trial, the basis for appellants’ claim of error seems to be that the allegation of the complaint was a judicial admission and therefore counsel should have been able to refer to it and show how Rachel had testified differently at her deposition.

“Judicial admissions may be made in a pleading, by stipulation during trial, or by response to request for admission. [Citations.] Facts established by pleadings as judicial admissions ‘“are conclusive concessions of the truth of those matters, are effectively removed as issues from the litigation, and may not be contradicted, by the party whose pleadings are used against him or her.” [Citations.] ‘“[A] pleader cannot blow hot and cold as to the facts positively stated.”’ [Citations.]” (Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 746.)

But even if the court erred in its refusal to take judicial notice of Rachel’s complaint, appellants still must establish prejudice. Let us suppose that the court had taken judicial notice of the allegation in the complaint that Andy had drafted more documents than just the two referred to in Rachel’s deposition testimony and had agreed that it was a judicial admission. This would be a conclusive concession of the truth regarding Andy’s involvement in the fraudulent scheme, and Rachel could not contradict it later.

But Rachel did not testify differently at trial. She attributed several documents to Andy’s manufacture. So the only inconsistency was between the allegation of the complaint and her deposition testimony. A deposition is not a source of judicial admissions. (Whitmire v. Ingersoll-Rand Co. (2010) 184 Cal.App.4th 1078, 1089.) If the court had taken judicial notice of the complaint it would have had evidence (1) that Rachel alleged Andy prepared several of the relevant documents and (2) that Rachel testified to the same effect at trial.

Appellants make a similar argument regarding a discrepancy between Rachel’s testimony at trial about Linda and an allegation of the complaint. Rachel testified at trial that she knew about a certain agreement associated with the ARCO gas stations to which Linda was a party, whereas her complaint alleged that this agreement was entered into without her knowledge and consent. Appellants argue that had this evidence been admitted, the court’s opinion of Rachel’s testimony regarding Linda would have been reversed.

Appellants’ counsel cross-examined Rachel on this subject, noting that she said in her deposition that the agreement had surprised her, but at trial she said she knew about it at the time. This is the same impeachment evidence the complaint would have afforded. Apparently it did not cause the trial court to alter its opinion about Rachel’s veracity.

The fundamental question for prejudice is whether the difference between the specified allegation in the complaint and Rachel’s deposition testimony would have so compromised her credibility that the court would have decided to believe Andy rather than her. Likewise, in light of what the court had to say about Linda’s testimony, would a discrepancy between an allegation of the complaint and Rachel’s trial testimony have changed the court’s opinion of Linda’s truthfulness, especially given that appellants made this exact point during cross-examination? It is abundantly clear that the allegations about how many documents Andy drafted or about Rachel’s knowledge of the extra agreement would have carried little or no weight. The court stated that it did not regard the complaint as reflecting Rachel’s knowledge or understanding of the facts of the case.

The court recognized that Rachel’s testimony was not 100 percent accurate. In light of the wholesale falsehoods and evasions offered by appellants, however, the court handed the credibility prize to her. It is highly unlikely that picking out nits between the allegations of the complaint, filed in early 2014, and Rachel’s testimony either at deposition or on the stand in early 2018 would have reversed the court’s conclusions about who was telling the truth.

V. Evidence of Punitive Damages

Appellants’ complaint regarding the punitive damages awards against them is that the trial court did not have sufficient evidence upon which to base the award. When an appellant claims error based on insufficient evidence, we review the evidence in the light most favorable to the judgment. (See Fortman v. Hemco (1989) 211 Cal.App.3d 241, 259; see also Hilliard v. A. H. Robins Co. (1983) 148 Cal.App.3d 374, 414, fn. 28.)

“‘An award of punitive damages hinges on three factors: the reprehensibility of the defendant’s conduct; the reasonableness of the relationship between the award and the plaintiff’s harm; and, in view of the defendant’s financial condition, the amount necessary to punish him or her and discourage future wrongful conduct.’ [Citation.] ‘The California Supreme Court has declined to prescribe any particular standard for assessing a defendant’s ability to pay punitive damages [citation], but it has held that actual evidence of the defendant’s financial condition is essential.’ [Citation.]” (Morgan v. Davidson (2018) 29 Cal.App.5th 540, 551 (Morgan).)

The short response to appellants’ complaint of error is that if a party withholds documents relating to his or her financial condition, that party waives the right to object to insufficient evidence of financial condition. “‘[I]t is the plaintiff’s burden to establish the defendant’s financial condition.’ [Citation.] However, if a plaintiff is unable to provide the court with evidence due to the defendant’s failure to comply with discovery obligations, then punitive damages may be awarded without the requisite evidence. [Citations.]” (Morgan, supra, 29 Cal.App.5th at p. 551.)

That is what happened here. Appellants were served with trial subpoenas to produce financial records in February 2018. On the first day of trial, March 19, the court expressly ordered Helen, Andy, and Linda to have the documents relating to the state of their finances available and ready to produce. On May 7, as the trial was winding up, the court set a date for the punitive damages phase, if there was one, and stated, “And the [financial] documents ought to be ready. The documents ought to be ready, the discovery issues that we had before the trial started should be ready and available. And as I indicated previously on the tentative, there is a good chance you’ll get there [i.e., to punitive damages].” Despite this, as the punitive damages phase began on May 22, documents were not forthcoming.

The court was quite taken aback when, after it delivered its decision orally on May 16 and prepared to move to testimony about punitive damages, it learned that appellants had not produced their financial documents and did not intend to produce them until the day of testimony. At the conclusion of appellants’ testimony on May 24, the court remarked that it was required to draw an adverse inference from the failure to produce financial records. In the statement of decision, the court cited appellants’ continuing lack of credibility during their testimony and the failure to produce court-ordered documents as bearing on the amount of punitive damages.

We think the court in Green v. Laibco, LLC (2011) 192 Cal.App.4th 441 admirably summed up this situation: “[W]e cannot leave this subject without comment on what may be described colloquially as defendant’s chutzpah in insisting that plaintiff failed to meet her burden to prove defendant’s financial condition. The notion that the jury did not have necessary information about defendant’s net worth because plaintiff did not move defendant’s financial statements into evidence – statements which defendant’s own CEO could not read – is the height of absurdity. The jury did not have information about defendant’s net worth because defendant’s CEO engaged in stonewalling, pure and simple, from beginning to end. . . .” (Id. at pp. 453-454; see also Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 609 [“In this case, defendant’s records were the only source of information regarding his financial condition available to plaintiff. By his disobedience of a proper court order, defendant improperly deprived plaintiff of the opportunity to meet his burden of proof on the issue. Defendant may not now be heard to complain about the absence of such evidence.”].)

By stonewalling the court and the plaintiffs with regard to many of the documents they were ordered to produce, appellants have forfeited any argument they might have had about the sufficiency of the evidence of their financial condition. Even so, their meager production gave the court glimpses of appellants’ affluent lifestyles. There was some evidence of significant real estate holdings and bank accounts. Linda bought a $12,000 purse – from Helen – and a $12,000 watch. Appellants drove expensive cars. In light of their refusal to produce complete financial records, the court was entirely within the bounds of the law when it determined they were probably hiding more assets than they were acknowledging, especially given their access to banks in China.

VI. Judicial Misconduct

Appellants assert the trial judge committed prejudicial misconduct by prejudging the case before closing arguments. They point to the poor opinion he had of their credibility, expressed after the parties rested and before closing argument, as evidencing hostility and prejudgment. According to appellants, the court was supposed to wait until after closing argument to draw its conclusions.

A judge bases his or her decision on the evidence, not on the arguments of counsel. (Villacorta v. Cemex Cement, Inc. (2013) 221 Cal.App.4th 1425, 1433; Fuller v. Tucker (2000) 84 Cal.App.4th 1163, 1173.) When the judge in this case gave his tentative opinion regarding the parties’ credibility, or lack thereof, the parties had rested. The evidence was in. Moreover, all counsel asked the judge to give a tentative opinion so they could shape closing arguments. We are dismayed to find this argument of bias so cavalierly made – but not surprised, given the rest of appellants’ approach to the case.

The authorities appellants cite do not compel a different outcome. McVey v. McVey (1955) 132 Cal.App.2d 120 was a divorce case in which the wife had asked for separate maintenance instead of divorce. Before the trial started, the judge stated that he did not approve of separate maintenance. At the conclusion of the wife’s case-in-chief, the judge in chambers pressured her to agree to divorce instead of separate maintenance, stating that he might award her no alimony and less than 50 percent of community property if she did not change her request for relief. (Id. at pp. 122-123.) The reviewing court had no trouble concluding that the wife had not received a fair trial. In Rosenfield v. Vosper (1941) 45 Cal.App.2d 365, a suit for unpaid legal fees, the judge decided before the plaintiff had finished testifying what the damages should be. (Id. at pp. 371-372.) In this case, by contrast, all of the evidence had been submitted to the court, and the only opinion it expressed dealt with the parties’ credibility, not with any individual cause of action.

We do not doubt the judge looked very stern as he gave his tentative opinion. For weeks he had listened to lies, evasions, and absurdities from appellants and watched them being impeached. It is highly unlikely that closing argument could have pulled their credibility out of the fire they had started. And his mien could not have been improved by the knowledge appellants’ counsel needed this information to have any hope of structuring an argument that would win the day for his clients despite their misconduct on the stand.

The court need not have accommodated counsel’s request; it could have remained silent and allowed counsel to waste time arguing appellants’ bona fides in the face of the overwhelming evidence to the contrary. The tentative ruling was a gift and was recognized as such at the time. As appellants’ counsel stated, “Always prefer a tentative. That way we only address what the court finds relevant.” Only on appeal has it turned into evidence of judicial misconduct. Singularly unconvincing evidence.

 

DISPOSITION

The judgment is affirmed. Respondents are to recover their costs on appeal.

BEDSWORTH, ACTING P. J.

WE CONCUR:

THOMPSON, J.

GOETHALS, J.