Filed 7/25/14 First American Title v. Lyons CA5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
FIFTH APPELLATE DISTRICT
FIRST AMERICAN TITLE,
F066661
Plaintiff, Cross-complainant and Respondent,
(Super. Ct. No. 07CECG04150)
v.
GREGORY LYONS et al., OPINION
Defendant, Cross-defendant and Appellant.
APPEAL from a judgment of the Superior Court of Fresno County. Jeffrey Y.
Hamilton, Jr., Judge.
Orrin Leigh Grover for Defendant, Cross-defendant and Appellant.
Law Offices of Michael J. Lampe and Michael P. Smith for Plaintiff, Cross-
complainant and Respondent.
-ooOoo-
INTRODUCTION
A jury found Gregory Steven Lyons intentionally concealed an important fact (i.e.,
the existence of a judgment lien) from First American Title Insurance Company (First
American) when it issued a title insurance policy and, as a result, First American was
damaged in an amount equal to two-thirds of that lien.
Lyons contends the trial court erred by allowing First American to substitute him
into the lawsuit for a Doe defendant, ruling that amendment related back to the filing of
the original complaint, and striking his statute of limitations defense. Lyons also
challenges the judgment on the grounds that (1) the award of two-thirds of the lien
amount indicates the jury disregarded the instructions and reached a compromise verdict;
(2) First American’s proof of damages was legally insufficient; (3) First American had
actual knowledge of the judgment lien and, thus, is estopped from claiming it was
defrauded; and (4) Insurance Code sections 332 and 336, which address required
disclosures and waivers of the right to information, bar First American’s claim against
him.
We reject each claim of error. First, the trial court properly allowed the Doe
amendment to relate back to the filing of the original complaint. Second, Lyons is
deemed to have waived his compromise verdict issue by not presenting it to the trial court
before the jurors were discharged—that is, when it still could have been corrected. Third,
the testimony of the claims attorney who handled Lyons’s claim against the title
insurance policy constitutes substantial evidence supporting the finding that First
American paid off the judgment lien and, as a result, suffered damages. Fourth, on the
record presented, we cannot find as a matter of law that First American actually knew the
judgment lien still was attached to the property when it issued the title insurance policy in
2005. Fifth, Insurance Code sections 332 and 336 do not protect policyholders who, like
Lyons, affirmatively misrepresent material facts in a written disclosure statement given to
the insurance company.
We therefore affirm the judgment.
2.
FACTS
Real Property and Title Policy
This litigation concerns a title insurance policy for real property described as Lot
200 of Tract No. 4230, Hacienda Gardens, Phase 2, in the City of Mendota (Lot 200).
Lot 200 is approximately 14.2 acres.
The title insurance policy was provided by Financial Title Company in June 2002
in connection with the sale of Lot 200 by Arnold Stewart to Lyons (Policy No. 492040).
Policy No. 492040 identified Financial Title Company as the agent for First American.
The policy was signed by First American as the insurer, named Lyons as the insured,
provided $750,000 in coverage, and was dated June 27, 2002. This litigation arose
because the policy’s exceptions failed to include one of the liens recorded against Lot
200.
The Judgment Lien
The lien in question is defined by three documents: (1) an August 16, 1994,
judgment of foreclosure obtained by the City of Mendota against four individuals with
the surname of Williams; (2) an August 30, 1995, tri-party agreement entered into by
Stewart (successor in interest to the Williamses), the City of Mendota, and State Street
Bank and Trust Company of California that modified the judgment; and (3) a stipulation
and order to amend judgment of foreclosure filed by the court on January 3, 1996, and
subsequently recorded (collectively, the Judgment Lien. The stipulation and order
defined the amount of the Judgment Lien as $591,000.
Chain of Title to Lot 200
It appears that Stewart acquired an ownership interest in Lot 200 in 1994 or early
1995. During 1999, Lyons represented Stewart in a court action in Alameda County
Superior Court captioned Wendell Arnold, et al. v. Somerset Homes, et al., case No. H-
185221-3 (Somerset Homes). During a December 1999 ordered examination of Stewart
in Somerset Homes, the documents constituting the Judgment Lien were discussed.
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Because Lyons was acting as Stewart’s attorney during the examination, Lyons learned
about the existence of the Judgment Lien at that time.
In June 2002, Lyons acquired Lot 200 from Stewart. In connection with that sale
and the issuance of Policy No. 492040, both Stewart and Lyons approved a preliminary
title report issued by Financial Title Company. The report made no reference to the
Judgment Lien. Stewart and Lyons also signed escrow instructions that included the
following disclosure:
“The undersigned Buyer(s)/Seller’s hereby certify(ies) that all liens,
judgments, taxes, and other obligations have been disclosed to Financial
Title Company, and that there are NO additional items that exist against
me/us.”
The escrow instructions also provided that Lyons and Stewart agreed “to hold
harmless and indemnify Financial Title Company and it’s [sic] underwriter against all
loss, damage, attorney’s fees and other costs and charges which Financial Title Company
or it’s [sic] underwriter may sustain in consequences of having issued such policy or
policies of Title Insurance, and not having taken exception to an item which should have
been disclosed but for whatever reason, was not.”
Based on the assurances given in the escrow instructions, First American
underwrote Policy No. 492040.
In August 2004, Lyons and a third party entered a transaction in which the third
party acquired a one-year option to purchase Lot 200. In connection with this
transaction, Lyons obtained a preliminary title report from Fidelity National Title
Company for Lot 200. This preliminary title report listed the Judgment Lien as item No.
18. Lyons did not make a claim against First American and Policy No. 492040 at that
time.
The next year, when the third party exercised the option to purchase, Lyons
(through his attorney) sent a letter to First American making a claim under Policy No.
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492040 based on that policy’s failure to schedule an exception for the Judgment Lien.
The September 14, 2005, letter to First American stated:
“There is a pending escrow for my client to sell the subject property
that was scheduled to close shortly before this wrinkle developed. My
client will suffer substantial financial loss if he is unable to deliver title
clear of the City of Mendota judgment. We need to assure that this lien is
cleared before October 5, 2005 in order for the escrow to close on time.”
As a result of the claim, First American provided title insurance to the new owner
of Lot 200. About two years after receiving Lyons’s claim (i.e., September 2007), First
American issued a check in the amount of $591,000 made payable to US Bank National
Association. The purpose of the check was to clear the Judgment Lien. Natalie
Teramoto, a claims attorney for First American who handled the claim involving the
Judgment Lien, testified that it was her decision to pay the lien.
PROCEEDINGS
On December 12, 2007, First American filed a complaint against Stewart for fraud
and negligent misrepresentation in connection with Policy No. 492040, the policy issued
when Stewart sold real property in 2002. First American alleged that Stewart knew the
Judgment Lien existed and was not listed in the preliminary title report issued by
Financial Title Company in June 2002, yet Stewart failed to disclose the lien. The
allegations in First American’s complaint against the Doe defendants are set forth in part
I.E.1, post.
In February 2008, Stewart filed a cross-complaint against Lyons for
indemnification and breach of fiduciary duty. Stewart filed a first amended cross-
complaint in June 2008. Stewart alleged that (1) Lyons was a disbarred attorney who
resigned on March 31, 2006, with charges pending; (2) Lyons represented Stewart in a
variety of real estate and business transactions from 1995 until at least the middle of
2004; (3) Stewart relied upon Lyons’s advice; and (4) Lyons failed to either clear the
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Judgment Lien against Lot 200 or convey the property subject to the lien, which caused
Stewart to be sued by First American.
In October 2008, Lyons completed the First American-Stewart-Lyons “litigation
circle” by filing a cross-complaint against First American for breach of contract—
specifically, Policy No. 492040—and declaratory relief.
In November 2009, an attorney working for First American located a transcript of
the December 1999 ordered examination of Stewart in Somerset Homes and found where
the Judgment Lien was discussed. Because Lyons acted as Stewart’s attorney at that
examination, First American concluded that Lyons had known about the Judgment Lien
when he signed the escrow instructions in 2002. Accordingly, in December 2009, First
American filed a cross-complaint against Lyons for fraud, negligent misrepresentation
and express indemnity. As damages, First American’s cross-complaint alleged that it had
paid the $591,000 Judgment Lien.
The following month, January 2010, First American filed an amendment to its
original complaint that substituted Lyons for defendant Doe 1.
In August 2010, First American filed a first amended complaint and cross-
complaint against Lyons. Lyons responded to First American’s action by filing an anti-
SLAPP motion under Code of Civil Procedure1 section 425.16. The trial court denied
that motion and this court issued a nonpublished decision affirming the trial court’s order.
(First American Title Insurance v. Gregory Lyons (Apr. 17, 2012, F062445) [nonpub.
opn.].)
After the appeal, the matter went to trial in October 2012. The jury was instructed
on (1) fraud by intentional concealment, (2) negligent misrepresentation, and (3)
indemnification. The verdict form contained questions for each of these theories and a
1 All further statutory references are to the Code of Civil Procedure unless noted
otherwise.
6.
final question about First American’s total damages. Only the indemnification claim
required an assignment of the responsibility for First American’s harm among Lyons,
Stewart and Financial Title Company. Specifically, the jury verdict’s fourth question
asked the jury to assign that responsibility by using percentages.
On October 30, 2012, the jury returned a verdict. The first question in the verdict
form asked: “Did [Lyons] intentionally conceal an important fact which caused [First
American] to issue a title insurance policy?” The jury answered “Yes” and, pursuant to
the directions given, skipped to the fifth question, which asked about First American’s
total damages.2 Despite the testimony that First American paid $591,000 to clear the
Judgment Lien, the jury found First American’s total damages were $394,000.
In November 2012, Lyons filed a motion for new trial or for judgment
notwithstanding the verdict (JNOV). In support of these motions, counsel for Lyons
submitted a declaration that stated:
“In the posttrial discussions between counsel and the [j]ury, members of the
jury stated that they debated whether to award 50% of the claimed damages
or 2/3. The jurors did not state how they arrived at the 2/3 award.”
The trial court denied Lyons’s posttrial motions and Lyons filed a timely notice of
appeal.
DISCUSSION
I. DOE DEFENDANTS AND RELATION BACK
A. Contentions of the Parties
Lyons contends that the trial court erred in ruling that First American’s Doe
amendment was proper and striking his statute of limitations defense. Lyons supports
this contention with three arguments. First, the Doe amendment was improper because
2 The jury did not address the second through fourth questions about negligent
misrepresentation, indemnification, and the assignment of percentages of responsibility
among Lyons, Stewart and Financial Title.
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First American elected to file a cross-complaint against him before it filed the Doe
amendment and First American is bound by its initial choice of pleading. Second, First
American’s Doe amendment does not relate back to the December 2007 filing of First
American’s original complaint against Stewart because First American was not ignorant
of Lyons’s name or capacity when the original complaint was filed. Third, relation back
is improper because the Doe claims plead in the original complaint did not encompass the
claims or capacity in which Lyons eventually was sued by First American.
First American contends there is no legal authority supporting the proposition that
a plaintiff is barred from filing a Doe amendment after filing a cross-complaint against
the party who also is the subject of the Doe amendment. First American also contends
that, although it knew who Lyons was, it was ignorant of the facts completing the
elements of its misrepresentation causes of action against him until it discovered in 2009
that Lyons had known about the Judgment Lien as far back as 1999, well before he
signed escrow instructions in 2002 stating all known liens had been disclosed. As to
Lyons’s third grounds—the inadequacy of the charging allegations against the Doe
defendants—First American’s respondent’s brief does not address this point.
B. Rules of Law
1. Section 474
The use of Doe defendants in a pleading is authorized by section 474, which
provides in pertinent part: “When the plaintiff is ignorant of the name of a defendant, he
must state that fact in the complaint, … and such defendant may be designated in any
pleading or proceeding by any name, and when his true name is discovered, the pleading
or proceeding must be amended accordingly .…”
The purpose of section 474 is to enable a plaintiff to avoid the bar of the statute of
limitations when he is ignorant of the identity of the defendant. (Olden v. Hatchell
(1984) 154 Cal.App.3d 1032, 1037.) To implement this purpose, courts have given the
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statutory text an expansive, nonliteral interpretation. (Marasco v. Wadsworth (1978) 21
Cal.3d 82, 88.)
“The phrase ‘ignorant of the name of a defendant’ is broadly interpreted to
mean not only ignorant of the defendant’s identity, but also ignorant of the
facts giving rise to a cause of action against that defendant. ‘[E]ven though
the plaintiff knows of the existence of the defendant sued by a fictitious
name, and even though the plaintiff knows the defendant’s actual identity
(that is, his name) the plaintiff is “ignorant” within the meaning of the
statute if [plaintiff] lacks knowledge of that person’s connection with the
case or with [plaintiff’s] injuries. [Citations.] The fact that the plaintiff had
the means to obtain knowledge is irrelevant. [Citation.]’ [Citation.]”
(Fuller v. Tucker (2000) 84 Cal.App.4th 1163, 1170.)
In other words, a “‘“plaintiff is ignorant of the name of a defendant”’” for
purposes of section 474 when the plaintiff lacks actual knowledge of the defendant’s
identity or the defendant’s culpability (i.e., the facts giving rise to a cause of action
against the defendant). (Marasco v. Wadsworth, supra, 21 Cal.3d at p. 88.)
2. Relation Back
When an amendment identifies a Doe defendant and asserts a cause of action
against that defendant not included in the original complaint, the amendment relates back
to the filing of the original complaint and avoids the statute of limitations if the following
conditions are satisfied. First, the original complaint must have stated a valid cause of
action against the now-identified Doe defendant. (Rylaarsdam & Edmon, Cal. Practice
Guide: Civil Procedure Before Trial (The Rutter Group 2014) ¶ 6:740, pp. 6-181 to 6-182
(Civil Procedure Before Trial).) Second, pursuant to the nonliteral interpretation given
section 474, the plaintiff must have been genuinely ignorant of the defendant’s identity or
culpability.3 (Civil Procedure Before Trial, supra, at pp. 6-181 to 6-182.) Third, the
3 The inquiry into genuine ignorance is based on what facts the plaintiff knew at the
time the original complaint was filed. (General Motors Corp. v. Superior Court (1996)
48 Cal.App.4th 580, 588.) Furthermore, genuine ignorance (i.e., a lack of actual
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original and amended complaint must seek a recovery based on the same general set of
facts. (Ibid.; see Smeltzley v. Nicholson Mfg. Co. (1977) 18 Cal.3d 932, 934 [“same
general set of facts” requirement met where “amended complaint seeks recovery for same
accident and injuries as the original complaint”].)
In addition, trial courts have the discretion to deny a motion for leave to substitute
a named person for a Doe defendant where (1) the plaintiff has unreasonably delayed
seeking leave to amend after learning of the defendant’s identity and culpability and (2)
the delay resulted in actual prejudice to the defendant. (See Smeltzley v. Nicholson Mfg.
Co., supra, 18 Cal.3d at p. 939; Hogan, California’s Unique Doe Defendant Practice: A
Fiction Stranger Than Truth (1977) 30 Stan. L.Rev. 51, 87.)
3. Standard of Review
On appeal following a section 474 ruling: “‘We review the trial court’s findings
of fact to determine whether they are supported by substantial evidence. [Citation.] To
the extent the trial court drew conclusions of law based upon its findings of fact, we
review those conclusions of law de novo.’” (Balon v. Drost (1993) 20 Cal.App.4th 483,
487.)
C. Doe Amendment After First American’s Cross-Complaint Against Lyons
Lyons’s first ground for challenging the Doe amendment is First American’s
decision to file a cross-complaint against him in December 2009, before it filed the Doe
amendment in January 2010. Lyons bases this challenge on the following statement by
the court in Scherer v. Mark (1976) 64 Cal.App.3d 834: “The amended complaint was
altogether a new complaint as to defendant Dr. Mark, by plaintiff’s own choice of
pleading.” (Id. at p. 842.)
knowledge) exists even where the ignorance is the result of the plaintiff’s negligence.
(Woo v. Superior Court (1999) 75 Cal.App.4th 169, 177.)
10.
We conclude that the foregoing statement does not lead to the conclusion that the
filing of a cross-complaint against a new defendant prohibits a subsequent Doe
amendment that identifies the new defendant as a former fictitiously named defendant. In
Scherer v. Mark, supra, 64 Cal.App.3d 834, no “effort was made to name or designate
Dr. Mark as a previously named defendant either as a fictitious Doe or by his true name”
and the first amended complaint did not name him as one of the new Doe defendants.
(Id. at pp. 841-842.)
Here, First American’s Doe amendment substituted Lyons for the first Doe
defendant. Thus, this case is easily distinguished from Scherer v. Mark, supra, 64
Cal.App.3d 834, “where no effort [was] made to identify the newly named defendant as
one of those named as Doe in the original complaint.” (Id. at p. 843.) First American’s
Doe amendment made that effort.
Because Lyons has provided no authority (and we have located none) for the
proposition that an earlier filed cross-complaint bars a plaintiff from filing a Doe
amendment and having that amendment relate back to the filing of the original complaint,
we reject this challenge to First American’s Doe amendment. For example, Lyons has
not demonstrated that the doctrine of judicial estoppel bars First American from filing the
Doe amendment. (See generally, MW Erectors, Inc. v. Niederhauser Ornamental &
Metal Works Co., Inc. (2005) 36 Cal.4th 412, 422 [five elements of judicial estoppel].)
D. First American’s Ignorance
Lyons’s second ground for challenging the Doe amendment is that First American
was not ignorant of Lyons’s name or capacity when the original complaint was filed. The
primary flaw with Lyons’s presentation of this ground is that Lyons has not
acknowledged that courts have construed section 474’s phrase “ignorant of the name of a
defendant” in a nonliteral manner to include not only ignorance of the defendant’s
identity, but also ignorance of the facts giving rise to a cause of action against that
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defendant. (Fuller v. Tucker, supra, 84 Cal.App.4th at p. 1170.) As a result, Lyons has
not addressed when First American learned the facts giving rise to the misrepresentation
claims against Lyons. In contrast, First American has argued that, although it was aware
of the identity of Lyons when it filed the original complaint, it lacked knowledge of facts
showing he had committed a wrong against it until November 2009, when attorney Clay
Schroeder discovered the transcript of a 1999 examination of Stewart in the National
Archives in San Bruno, California that showed Lyons knew about the Judgment Lien as
early as 1999. First American contends the discovery of the transcript marks when it
learned that the disclosure statement Lyons signed in 2002 did not accurately reflect
Lyons’s knowledge about the Judgment Lien. (See Church v. Jamison (2006) 143
Cal.App.4th 1568, 1582 [cause of action does not accrue until it is complete in all of its
elements].)
Lyons argues that First American’s assertion that it did not discover the final
element of its claim against him until November 2009 should not be accepted by this
court because (1) First American’s standard practice for investigating a claim was to
absolutely check the insured’s certifications right away and (2) Stewart’s February 2008
cross-complaint against Lyons alleges the specific conduct that First American asserts it
did not discover until November 2009.
Lyons’s argument about First American’s standard practice seems to be an
argument that First American should have discovered the alleged intentional
misrepresentation earlier, rather than an argument that First American actually knew
about Lyons’s state of mind before discovering the transcript of the debtor’s examination.
As noted earlier, genuine ignorance for purposes of section 474 exists even when the lack
of knowledge is the result of the plaintiff’s negligence. (Woo v. Superior Court, supra,
75 Cal.App.4th at p. 177.) Therefore, the reference to First American’s standard
investigatory practices does not establish that the trial court committed factual error when
12.
it impliedly found that First American did not learn of Lyons’s culpability until
November 2009, about two months before filing the Doe amendment.
As to the effect of Stewart’s cross-complaint against Lyons, we conclude that
pleading did not provide First American with actual knowledge that Lyons knew about
the Judgment Lien when he and Stewart signed the escrow instructions in 2002. The
paragraph of Stewart’s cross-complaint quoted in Lyons’s reply brief states:
“Despite having voluntarily accepted the trust and confidence of [Stewart]
with regard to [Lot 200] and in violation of this relationship of trust and
confidence, LYONS abused the trust and confidence of [Stewart] during
and after termination of the attorney-client relationship by transferring [Lot
200] without disclosing all of the liens against the property which LYONS
took subject to when he acquired title from [Stewart].”
These allegations about Lyons’s failure to disclose all liens when Lyons
subsequently transferred Lot 200 in 2005 did not inform First American that Lyons
actually knew about the Judgment Lien in 2002 when Lyons signed the escrow
instructions. Therefore, Lyons has not demonstrated the trial court erred by impliedly
finding that, in November 2009, First American first learned that Lyons had known about
the existence of the Judgment Lien when he purchased title insurance in 2002.
In summary, Lyons has failed to show that First American was not “ignorant” (for
purposes of section 474) of his culpability when it filed the original complaint or,
alternatively, for an unreasonably long period of time before it filed the Doe amendment.
E. Doe Claims in Original Complaint
1. Allegations in Original Complaint
Lyons’s third ground for challenging the Doe amendment is that relation back was
improper because the Doe claims pleaded in the original complaint did not encompass the
claims or capacity in which Lyons eventually was sued by First American.
The allegations describing the Doe defendants and their actions are set forth in the
second and third paragraphs of the First American’s original complaint:
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“2. First American does not know the true names and capacities of
the defendants named herein as Does 1 through 100, inclusive, and
therefore sue these defendants by such fictitious names. First American
will amend this complaint to allege their true names and capacities when
ascertained. First American is informed and believes and thereon alleges
that each of the fictitiously named defendants is legally responsible in some
manner for the occurrences herein alleged, and that First American’s losses
as alleged herein were proximately caused by such wrongful acts.
“3. At all times herein mentioned, each of the defendants was the
agent, employee, or partner of each of the remaining defendants, and in
doing the things alleged herein, was acting within the purpose, scope and
course of such relationship.”
Throughout the remainder of the original complaint, First American’s allegations
refer to “Stewart,” rather than adopting the convention of referring to “defendants.” Case
law establishes that the use of the plural “defendants” encompasses both the named
defendant and the fictitiously named defendants. (Austin v. Massachusetts Bonding &
Ins. Co. (1961) 56 Cal.2d 596, 600 [first complaint’s allegations about “defendants”
necessarily included those designated by fictitious names]; Civil Procedure Before Trial,
supra, ¶ 6:741, p. 6-182.)
2. Interpretation of Original Allegations
The second paragraph refers to “the occurrences herein alleged” and the third
paragraph uses the phrase “in doing the things alleged herein.” Elsewhere, the original
complaint alleges that (1) Stewart affirmatively represented that there were no other liens
or encumbrances other than the items set forth in a preliminary title report, which did not
include the Judgment Lien; (2) Stewart made this representation knowing it was false and
with the intent to deceive First American; and (3) Stewart’s intentional misrepresentation
caused First American to be damaged in the amount of the Judgment Lien—namely,
$591,000. Accordingly, the “occurrences” and the “things” mentioned in the second and
third paragraphs of the original complaint are Stewart’s intentional misrepresentation
about the Judgment Lien and the resulting damages to First American. Therefore, the
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allegation that “each of the defendants was the agent, employee, or partner of each of the
remaining defendants” encompasses the theory that Stewart made the misrepresentation
as the agent, employee or partner of each Doe defendant. As a result, the original
complaint states a valid cause of action against the Doe defendants on the grounds that
Stewart’s misrepresentation is attributable to the Doe defendant as Stewart’s agent or
partner.
3. Application of “Same General Set of Facts” Test
The modern rule of relation back provides that the amended complaint will be
deemed filed as of the date of the original complaint so long as recovery is sought in both
pleadings on the same general set of facts. (Smeltzley v. Nicholson Mfg. Co., supra, 18
Cal.3d at p. 936; see 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 1235, pp. 672-
675 [modern view of amendments and relation back].) One aspect of applying the same-
general-set-of-facts test concerns whether the recovery sought is for the same injuries as
the original complaint.
In this case, we conclude that the intentional concealment claim upon which the
jury based Lyons’s liability to First American concerns the same general set of facts as
those alleged in the original complaint against Stewart. First, the injury was the same—
specifically, the $591,000 spent to pay off the Judgment Lien. Second, the fact allegedly
concealed was the same—namely, the existence of the Judgment Lien against Lot 200.
Third, the means or instrumentality through which the nondisclosure was made was the
same. Both Stewart and Lyons approved the same preliminary title report that failed to
include the Judgment Lien and signed the same escrow instructions. (See Quiroz v.
Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1278 [same instrumentality].)
Accordingly, the trial court correctly determined that the claims presented against
Lyons sought recovery on the same general set of facts alleged in the original complaint
and, as a result, allowed the claim against Lyons to relate back to the original complaint.
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II. COMPROMISE VERDICT
A. Contentions of the Parties
Lyons contends the jury disregarded the instructions and reached a compromise
verdict because the jurors found fraud and, contrary to their instructions, apportioned
damages. Lyons bases this contention about apportionment on (1) the fact the jury
awarded $394,000 in damages, which is exactly two-thirds of the $591,000 that First
American claimed it paid to satisfy the Lien and (2) the absence of any evidence that First
American paid an amount other that $591,000 to satisfy the Lien.
First American responds with the following arguments. First, Lyons is not entitled
to a new trial because the purported error of apportioning damages was favorable to
Lyons. Second, Lyons waived any defect in the verdict by failing to bring the defect to
the trial court’s attention before the jury was discharged. Third, Lyons has not
established that the reduced damages awarded were the result of a compromise on
liability. Fourth, the verdict is properly regarded as a general verdict and is supported by
substantial evidence on every single cause of action.
Lyons’s reply brief asserts that the verdict in this case is squarely within the
“chance verdict” cases that require reversal of the verdict and a retrial of all issues, not
just damages. Lyons’s reply brief does not address First American’s argument that he
waived the compromise verdict claim by not presenting it to the trial court before the jury
was discharged.
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B. Waiver of Compromise Verdict Claim4
1. General Rule and Its Exceptions
Generally, when a claimed error is based on a defect in the verdict, counsel should
request its correction or clarification before the jury is discharged, and “failing this,
counsel may lose the right to object.” (7 Witkin, Cal. Procedure (5th ed. 2008) Trial,
§ 376, pp. 438-439 [and cases cited therein]; Jensen v. BMW of North America, Inc.
(1995) 35 Cal.App.4th 112, 131 [waiver found based on failure to object to allegedly
defective special verdict form prior to dismissal of jury].) This general rule regarding
waiver has been explained by our Supreme Court:
“Frequently, failure to object to the form of a verdict before the jury is
discharged has been held to be a waiver of any defect. [Citations.]
However, waiver is not automatic, and there are many exceptions.
[Citations.] [¶] Waiver is not found where the record indicates that the
failure to object was not the result of a desire to reap a ‘technical
advantage’ or engage in a ‘litigious strategy.’ [Citations.]” (Woodcock v.
Fontana Scaffolding & Equip. Co. (1968) 69 Cal.2d 452, 456, fn. 2
(Woodcock).)
The general rule requiring an objection is related to section 619, which provides:
“When the verdict is announced, if it is informal or insufficient, in not covering the issue
submitted, it may be corrected by the jury under the advice of the court, or the jury may
be again sent out.” (§ 619.) This provision allows for the correction of defective jury
verdicts. For example, in Redo y Cia v. First National Bank (1926) 200 Cal. 161, the jury
awarded an amount greater than the instructions allowed and the trial court instructed the
4 “Although the loss of the right to challenge a ruling on appeal because of the
failure to object in the trial court is often referred to as a ‘waiver,’ the correct legal term
for the loss of a right based on failure to timely assert it is ‘forfeiture,’ because a person
who fails to preserve a claim forfeits that claim. In contrast, a waiver is the ‘“intentional
relinquishment or abandonment of a known right.”’ [Citations.]” (In re S.B. (2004) 32
Cal.4th 1287, 1293, fn. 2.) Thus, the failure of a party to object before the jury was
dismissed raises the issue of forfeiture rather than waiver. Nevertheless, because the
parties and the cited cases use the term “waiver” in this context, we use it also.
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jury to retire again and bring in a verdict in conformity with the instructions. (Id. at p.
166.) The Supreme Court affirmed the trial court’s decision, thereby establishing that the
procedure set forth in section 619 can be used to correct an award of damages in an
excessive amount. (Id. at p. 169.)
In addition, the Supreme Court has interpreted section 619 to grant a trial court the
authority to send the jury back for further deliberation where the challenged verdict was
the result of a jury compromise. (See Crowe v. Sacks (1955) 44 Cal.2d 590, 597-598
[trial court found compromise verdict after jury (1) failed to compensate plaintiffs for
special damages indicated by evidence and (2) awarded only trifling sum for general
damages; trial court had jurisdiction to send jury back for further deliberation and to
instruct that its determination of issues should not be based upon compromise].)
Therefore, section 619 provides a way to correct the jury’s erroneous verdict,
whether that error was the result of a compromise or a misapplication of the law to the
evidence when determining the amount of the damages. It follows that the failure to raise
an objection and request the trial court to direct the jury to correct its verdict can result in
a waiver of the claim of error.
To summarize, we conclude that a compromise verdict claim must be brought to
the attention of the trial court before the jury is discharged. If not, the claim of error will
be deemed waived, unless the appellant demonstrates that an exception to the rule applies
to his or her situation.
2. No Exception Applies in This Case
The reporter’s transcript shows that Lyons’s counsel did not object to the verdict
on any grounds after the jury returned its verdict and was polled. As a result, the jury
was discharged by the court without any mention that an award of only two-thirds of the
amount paid by First American to satisfy the lien was (or might be) a compromise
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verdict. Therefore, the general rule regarding waiver will govern this case unless an
exception applies to the circumstances of this case.
Our inquiry into whether an exception applies is hindered by the fact that Lyons’s
appellate briefing has not acknowledged the existence of the waiver rule or discussed any
of its exceptions. Nevertheless, we will independently consider whether “the record
indicates that the failure to object was not the result of a desire to reap a ‘technical
advantage’ or engage in a ‘litigious strategy.’ [Citations.]” (Woodcock, supra, 69 Cal.2d
at p. 456, fn. 2.) In other words, Lyons’s silence will serve as a basis for implying a
waiver if Lyons obtained an advantage in the litigation by failing to object.
Our analysis of the tactical implications of the failure to object begins with an
attempt to identify the jury’s specific misstep. The amount of total damages found by the
jury did not comport with the evidence presented. In particular, there was no legal theory
and evidentiary basis for the finding that First American suffered only $394,000 in
damages. The only testimony presented was that First American paid $591,000 to clear
the Judgment Lien. In contrast, none of the evidence presented justifies an inference that
(1) Teramoto exaggerated about the amount First American paid to clear the Judgment
Lien or (2) First American’s outlay was partially reimbursed or defrayed from another
source.
Precisely why the jury failed to award the full amount of damages incurred cannot
be determined from the record before us. It is possible that the members of the jury
reached a compromise on the question of liability to agreeing to award only two-thirds of
the damages incurred. It is possible that the jury misunderstood the damages instructions
and believed they were to reduce the damages to account for the fault of Stewart and
Financial Title Company. Alternatively, it is possible that the jury understood the
instructions regarding damages, but chose to disregard them.
Uncertainty over the type of error made by the jury is significant because that
uncertainty represented a risk for Lyons. Specifically, Lyons could not predict what
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verdict the jury would have reached if it had been sent back for further deliberations with
instructions to render a verdict in accordance with the law and the evidence presented.
Some of the possible outcomes were unfavorable to Lyons. For example, the jurors
might have (1) unanimously found that Lyons was liable for intentional concealment and
(2) corrected its finding as to total damages by awarding the full amount that First
American paid to satisfy the Lien—a correction that would have increased Lyons’s
liability by $197,000.
The possibility of such an outcome indicates that Lyons’s failure to raise the
compromise verdict claim, before the jury was discharged, resulted in a technical or
strategic advantage to him. The risk of a correction that increased Lyons’s liability was
far from hypothetical, since the jurors specifically found against Lyons on the fraud cause
of action—a cause of action that did not allow for the apportionment of damages. When
polled, the jury unanimously confirmed this finding. Thus, it appears that Lyons might
have chosen not to object to avoid the risk of having a larger verdict entered against him.
Therefore, Lyons’s failure to raise the possibility that the verdict was the result of
a compromise by jurors on the questions of liability and damages constitutes a waiver of
that claim of error.
III. PROOF OF DAMAGES
A. Contentions of the Parties
Lyons contends the verdict cannot stand because First American failed to prove
that it paid the $591,000 to the person who bought Lot 200 from Lyons in 2005. In
particular, Lyons argues that the evidence of payment was never admitted into evidence.
Lyons contends the proper method for establishing payment is set forth in Evidence Code
section 670, which involves the introduction of a copy of the check together with the
original bank statement. Lyons cites Miller v. Ostly (1973) 34 Cal.App.3d 190 for the
proposition that the offer of substitute evidence is viewed with disfavor.
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First American contends that (1) the oral testimony of Teramoto was sufficient to
prove that payment had been made; (2) Evidence Code section 670 does not describe the
exclusive method for proving the payment, even when that payment was made by check;
and (3) there was no evidence disputing the fact that First American had paid the
$591,000 to clear the Judgment Lien. First American asserts that the check was excluded
from evidence because Teramoto “was not able to explain the reason why the check was
made out to U.S. Bank National Association instead of directly to the City of Mendota,”
which was the entity that held the Judgment Lien.
Lyons’s reply brief does not respond to the points raised by First American.
B. Evidence of Payment
During the trial, First American presented the testimony of Natalie Teramoto, a
claims attorney employed by First American whose duties were to investigate, evaluate
and respond to title claims. The direct examination of Teramoto included the following:
“Q Did you make any decisions as to how to decide to handle to
the claim?
“A Yes.
“Q What did you decide to do?
“A We first tried to see if we could work with the City of
Mendota to record the subdivision map on behalf of the insured, Lotus
Developments, when they submitted a claim. When they refused, we ended
up agreeing to pay the lien.
“Q And did First American pay off the judgment lien?
“A Yes.
“Q Okay. And how much did First American pay?
“A It was $591,000.
“Q Okay. And whose decision was it to make that payment?
“A It was mine.”
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Teramoto subsequently testified that the payment was made in 2007.
First American supports Teramoto’s testimony by referring to a recital in the
March 22, 2010, settlement agreement and mutual release of all claims that it entered into
with Stewart. The settlement agreement was identified at trial and admitted, without
objection, into evidence as Exhibit 113. The settlement agreement included 24 numbered
paragraphs of recitals. The 19th recital5 in the settlement agreement stated that First
American had paid the $591,000 lien pursuant to the title insurance policy issued by First
American to Lyons’s successor-in-interest.6
C. Sufficiency of the Evidence
We conclude that the testimony of Teramoto constitutes substantial evidence that
First American paid $591,000 to clear the Lien attached to Lot 200.
First, the testimony of a single witness, even a party to the lawsuit, constitutes
substantial evidence. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614.) Thus,
Teramoto’s testimony is not deficient due to lack of corroboration.
Second, Lyons has cited, and we have located, no authority for the proposition that
the method for proving payment by means of check set forth in Evidence Code section
670 constitutes the only method for proving that a payment by check was made. (See
generally, 31 Cal.Jur.3d (2010) Evidence § 140, p. 202 [rebuttal presumption that a check
has been paid].) Furthermore, it is obvious from the statutory text that the method set
forth in Evidence Code section 670 is not the exclusive or mandatory means for proving
5 Evidence Code section 622 provides that “facts recited in a written instrument are
conclusively presumed to be true as between the parties thereto.” This conclusive
presumption does not apply to recitals in the settlement agreement because Lyons was
not a party to the agreement.
6 First American provided title insurance to Lyons’s successor-in-interest and
accepted responsibility for the Judgment Lien as a result of Lyons’s September 2005
claim on Policy No. 492040.
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payment because it concerns the use of a copy of the check and an original bank
statement. Interpreting the section as being exclusive or mandatory would preclude the
use of the original check as a means of proving payment, a result that would not advance
any rational legislative purpose.
Because the testimony of Teramoto constitutes substantial evidence regarding the
existence and amount of damages, we conclude that Lyons is not entitled to the entry of
judgment in his favor based on his claim that First American failed to prove damages.
IV. ACTUAL KNOWLEDGE OF THE LIEN
A. Contentions of the Parties
Lyons contends that he is entitled, as a matter of law, to the entry of judgment in
his favor because First American’s evidence established that Financial Title Company
had actual knowledge of the Lien in 1999 when it prepared a lot book report for Attorney
Robert M. Frost. In addition, Lyons contends that Insurance Code sections 332 and 336
set the parameters of responsibility for disclosure between the parties to an insurance
contract. Lyons interprets Insurance Code section 332 to mean he was not required to
disclose the Judgment Lien. Alternatively, if disclosure was required, Lyons argues First
American waived that disclosure by operation of Insurance Code section 336.
First American contends that (1) Lyons misconstrued Insurance Code section 332
in reaching the conclusion that he had no duty to disclose the Judgment Lien, (2) the
waiver provision in Insurance Code section 336 does not apply to the facts of this case,
and (3) the knowledge of the Judgment Lien obtained by Financial Title Company in
1999 when it prepared a lot book report for Attorney Frost would not necessarily carry
over to a separate transaction completed years later in a different office with different
employees and agents.
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B. Insurance Code Section 332
1. Background
Insurance Code sections 330 through 339 address the concealment of facts during
negotiations that occur before the execution of a contract of insurance. Some of these
provisions address concealment’s counterpart—the disclosure or communication of
information. The first disclosure provision sets forth an affirmative duty to communicate
information when certain conditions exist. (Ins. Code, § 332.) The second provision
approaches the question of disclosure from the opposite perspective. It lists matters that a
party to a contract of insurance need not communicate to the other, provided the other
does not ask about it. (Ins. Code, § 333.)
2. Statutory Text
Lyons’s argument refers to Insurance Code section 332, the disclosure provision
that creates an affirmative duty to disclose. The text of that section provides:
“Each party to a contract of insurance shall communicate to the other, in
good faith, all facts within his knowledge which are or which he believes to
be material to the contract and as to which he makes no warranty, and
which the other has not the means of ascertaining.” (Ins. Code, § 332.)
Lyons contends that this section, along with the waiver provisions in Insurance
Code section 336, “set the parameters of responsibility for disclosure between parties to
an insurance contract” and the “requirement to disclose is limited to facts ‘which the
other has not the means of ascertaining.’ [(Ins. Code, § 332.)]”
3. Interpretation and Application
The primary flaw in Lyons’s argument is that the scope of his responsibility to
disclose information was not established solely by Insurance Code sections 332 and 336.
Other provisions of the Insurance Code address a party’s obligation to disclose
information. For example, the disclosure obligation defined in Insurance Code section
332 does not override or lessen a party’s responsibility to disclose information accurately
when that party makes a representation or a warranty about a fact relevant to the contract
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of insurance. The topic of representations is addressed in Insurance Code sections 350
through 361, and warranties are addressed in Insurance Code sections 440 through 449.
Our conclusion that Insurance Code section 332 was not intended override or
lessen the disclosure responsibilities that accompany warranties is based on the text of
Insurance Code section 332. It states that a party shall communicate certain material
facts “as to which he makes no warranty.” This clause indicates that Insurance Code
section 332 was not intended to address the disclosure of facts that are the subject of a
party’s warranty. Therefore, one must look beyond Insurance Code section 332 for the
rules of law that define the disclosure obligations of a party providing a warranty.7
The foregoing interpretation regarding the scope of the disclosure obligation
defined by Insurance Code section 332 is important to the facts of this case because
Lyons made a warranty when he signed escrow instructions that falsely certified all liens
and judgments had been disclosed to Financial Title Company. (See Ins. Code, §§ 442 [a
particular form of words is not necessary to create a warranty], 443 [incorporation of
express warranties into policy].)8 This false certification was the basis for the jury’s
finding that Lyons intentionally concealed an important fact that caused First American
to issue a title insurance policy. Under our interpretation, Insurance Code section 332
does not excuse or justify Lyons’s false certification concealing the existence of the
Judgment Lien.
7 This interpretation is reinforced by the text in Insurance Code section 333, which
states that a party to a contract of insurance is not bound to communicate information,
“except in answer to the inquiries of the other.” This exclusion is consistent with our
view that the Insurance Code does not allow a party to a contract of insurance to provide
false information about a material fact to the other party, whether responding to questions
asked by the other party or signing a document containing representations or warranties.
8 Lyons has not argued that his certification in the escrow instructions do not
constitute a “warranty” for purposes of Insurance Code section 332.
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If this court were to apply Insurance Code section 332 in the manner suggested by
Lyons, policyholders would be allowed to make inaccurate disclosures by omitting
information, so long as the insurance company had other means of ascertaining that
information. Lyons has provided no legislative history, case law or secondary authority
that indicates the Legislature intended Insurance Code section 332 to protect the
concealment of information relating to a matter specifically addressed in the negotiations
between the parties. Furthermore, we can find no policy or other justification for
applying Insurance Code section 332 in the manner advocated by Lyons.
Therefore, we conclude that Insurance Code section 332 does not insulate Lyons
from liability in this case.
C. Insurance Code Section 336
Insurance Code section 336 provides that a party to a contract of insurance may
relinquish the right to information in certain circumstances:
“The right to information of material facts may be waived, either (a) by the
terms of insurance or (b) by neglect to make inquiries as to such facts,
where they are distinctly implied in other facts of which information is
communicated.”
Lyons asserts the second type of waiver occurred in this case—that is, First
American waived its right to information about the Judgment Lien by its neglect to make
inquiries as to material facts that were distinctly implied in other facts that had been
communicated.
In response, First American argues that Insurance Code section 336 does not apply
because no waiver was set forth in the terms of the insurance policy and the facts do not
show a neglect to make inquiry into facts “distinctly implied in other facts of which
information was communicated.” (Ins. Code, § 336.) First American also contends it
and other insurers have the right to rely on the insured’s answers to questions in the
insurance application without verifying accuracy of those answers.
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Our application of the statutory language to the facts of this case begins with an
examination of the “information” that was “communicated.” Both Lyons and Stewart
expressly informed Financial Title Company in 2002 that there were no other liens or
judgments that had not been disclosed. This information about the nonexistence of other
liens, when communicated to Financial Title Company by Lyons and Stewart, did not
“distinctly impl[y]” the opposite—namely, that other liens exist. Because the existence
of the Judgment Lien was not distinctly implied in the information communicated, Lyons
has not demonstrated that, by operation of Insurance Code section 336, First American
waived the right to information about the Judgment Lien.
D. Lot Book Report and Actual Knowledge
Lyons contends that Financial Title Company had actual knowledge of the
Judgment Lien and this fact is demonstrated by the lot book report Financial Title
Company prepared and provided to Attorney Frost in 1999. Lyons further asserts that
this actual knowledge compels this court to find, as a matter of law, First American did
not reasonably rely on the defective disclosure made by Lyons.
First, under California law, imputing the knowledge of an agent to an insurance
company principal is not automatic. (Civil Service Employees Ins. Co. v. Blake (1966)
245 Cal.App.2d 196, 199.) The agent must have had some reason or obligation to pass
that information along to the insurance company. (Ibid.) Here, Lyons has not addressed,
much less established, that the individuals who worked at Financial Title Company and
were familiar with the contents of the lot book report had a reason or obligation to
provide that information about the Judgment Lien to First American. Similarly, the
appellate record does not show that the jury was asked to decide whether anyone working
at Financial Title Company had a reason or obligation to communicate the information to
First American. Because the factual prerequisites for imputing knowledge to an
27.
insurance company do not exist, the information about the Judgment Lien in the lot book
report cannot be imputed to First American.
Second, even if we imputed the knowledge to First American and started with the
proposition that, in 1999, First American knew that Lot 200 was subject to the Judgment
Lien, Lyon’s argument still would fail. As a matter of straightforward logic, the fact that
First American knew the Judgment Lien existed in 1999 does not lead inexorably to the
conclusion that, three years later, First American knew the Judgment Lien still was
attached to Lot 200. Because a lien against real property can be satisfied, released or
invalidated, First American also would have needed to know that none of these things
happened during the intervening period. (See e.g., §§ 697.370 [judgment credit may
release a judgment lien], 697.400 [recording a satisfaction of judgment extinguishes the
judgment lien].) Without this additional information, First American would not have
known that the Judgment Lien still was in effect and, therefore, it could have reasonably
relied on Lyons’s certification. Because the record does not show that First American
actually knew the Judgment Lien had not been satisfied, released or invalidated, we
cannot find as a matter of law that First American unreasonably relied on Lyons’s
certification.
Therefore, we reject Lyons’s argument that First American knew the Judgment
Lien still impaired the title to Lot 200 in 2002 when Lyons concealed its existence.
DISPOSITION
The judgment is affirmed. Respondent shall recover its costs on appeal.
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_____________________
Franson, J.
WE CONCUR:
_____________________
Cornell, Acting P.J.
_____________________
Detjen, J.
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