Sonoma County Super. Ct. No. SCV-239528
The opinion of the court was delivered by: Rivera, J.
CERTIFIED FOR PUBLICATION
Joseph A. and Helen I. Bonfigli appeal from an amended judgment upon a special verdict in favor of respondent developers Alan F. Strachan and Michael D. Smith. The Bonfiglis contend that the trial court erred: (1) in its pretrial ruling on the validity of a special durable power of attorney executed by the parties; (2) in directing a verdict against them on their cause of action for financial elder abuse; and (3) in certain evidentiary matters. We reverse.
In 1972, the Bonfiglis purchased approximately six acres of property located at 3945 Sebastopol Road in Santa Rosa. The property was made up of two parcels. The back parcel was about 4.72 acres, and the Bonfiglis lived in a house located on that parcel. The other parcel fronted on Sebastopol Road.
In the early 1990's, respondents began planning a large residential and commercial development project called Courtside Village. Strachan was responsible for dealing with the landowners whose properties were necessary to the development. Smith dealt with the actual construction of the project. Strachan first approached the Bonfiglis in 1990. In 1991, the Bonfiglis entered into an option agreement with the Countryside Racquets Club Development Ltd. (CRCDL) providing CRCDL with the option to purchase their Sebastopol Road property. The option terms included a $1,220,000 purchase price for the property and monthly payments of $1,000 as consideration to the Bonfiglis for removing the property from the market. The option terminated in 1996 without being exercised.
In 1996, Strachan, on behalf of Courtside Village, L.P. (CVLP) negotiated with the Bonfiglis to purchase the property. CVLP purchased the back parcel for $600,000. CVLP initially promised to pay an additional $150,000 to the Bonfiglis when the first parcel was purchased, but this agreement was not reduced to writing. Instead, CVLP secured a new option in November 1996 to purchase the front parcel for $750,000, with the option expiring on July 1, 2001, and requiring that CVLP make monthly payments of $2,000 to the Bonfiglis in consideration for the option.*fn1 At the same time, the Bonfiglis executed a special durable power of attorney (POA) "coupled with an interest" in favor of CVLP, with respect to both parcels of the property. The POA granted to CVLP the right to rent, encumber, grant easements, execute subdivision maps, and "do all other things necessary or appropriate to carry out the development of the [Bonfiglis'] Property in accordance with attorney in fact's current or future development plans for the Property."
CVLP made the option payments until sometime in 1999. In May 2000, CVLP assigned the option to Courtside Village, LLC (CVLLC). Strachan and Smith were the comanagers of CVLLC. Also, in May 2000, the Bonfiglis executed a new special durable power of attorney--with essentially the same provisions--appointing CVLLC as its attorney-in-fact for the period April 1, 2000, to September 30, 2003, concerning the property (the 2000 POA). A month later, on June 22, 2000, CVLLC assigned the option to Courtside Construction Company, LLC (CCCLLC) at no cost to CCCLLC. The parties stipulated that CCCLLC did not obtain a power of attorney from the Bonfiglis in connection with the option. The option expired on July 1, 2001, without being exercised. Respondents needed the Bonfiglis' parcel in order to develop the overall project, and specifically, the "Village Square" portion of the development.
In May 2001, respondents filed a lot line adjustment application with the City of Santa Rosa on behalf of "Courtside Construction Company" and the Bonfiglis. Strachan signed the application for CCCLLC and Smith signed as attorney-in-fact for the Bonfiglis. The reason given for the lot line adjustment was to "[r]econfigure lot line as desired by property owners." The requested adjustment decreased the size of the Bonfiglis' front parcel by approximately 60 percent, from 1.23 acres to .52 acres and increased the size of CCCLLC's parcel from .37 acres to 1.08 acres. The lot line adjustment was completed in the Fall of 2002, after the option on the Bonfiglis' front parcel had expired. At the time, none of the respondents' entities had any proprietary interest in the Bonfiglis' front parcel.
Respondents sought the lot line adjustment in order to conform the lots to the tentative map that had been approved by the City of Santa Rosa, and to create a buildable parcel. CVLLC, through its managers Strachan and Smith and acting as the Bonfiglis' attorney-in-fact, effected the transfer of .71 acres from the Bonfiglis to CCCLLC in October 2002. Respondents did not pay the Bonfiglis for the transfer nor did they ever purchase the front parcel. Respondents consistently took the position that the lot line adjustment increased the value of the Bonfiglis' parcel, although Smith admitted that the Bonfiglis never received the full $750,000 respondents had agreed to pay them.
In October 2002, CCCLLC executed a $22.6 million loan agreement with Comerica Bank. The Bonfiglis' parcel, among others, was used as collateral for the loan, with respondents signing as attorneys-in-fact for the Bonfiglis on behalf of CVLLC. The subordination agreement executed in connection with the loan referred to the Bonfiglis as optionor and to CCCLLC as optionee, even though the option had expired. According to Mrs. Bonfigli, the Bonfiglis did not know about the loan or the lot line adjustment until 2003, after CVLLC filed for bankruptcy. Strachan stated that he met with the Bonfiglis about the lot line adjustment after it took place in 2002.
Michael Ryan, respondents' expert in real estate development, testified that once the tentative map for the development was approved in 1995, the Bonfiglis' property was worth $10 million. He valued the front parcel at a little bit more than $2.5 million.*fn2 Ryan also testified that when an option is transferred, generally a new power of attorney is executed on behalf on the new optionee.
In January 2003, CVLLC filed for bankruptcy. The Bonfiglis eventually sold the .52 acre front parcel to Menlo Oaks, one of the entities that owned and managed CCCLLC, for $550,000. At the time, CCCLLC was in the process of restructuring the October 2002 loan on the property that respondents had executed as attorneys-in-fact for the Bonfiglis. The Bonfiglis were told there was no choice but to cooperate in restructuring the loan because it was in default and the restructuring would allow them the time needed to resolve the issues with the property. The fact that the property was encumbered affected the purchase price the Bonfiglis were able to negotiate.
The Bonfiglis filed this action in October 2006 for fraud, concealment, false promises, breach of fiduciary duty, trespass, and financial elder abuse. Prior to trial, the Bonfiglis moved for a preliminary determination of the effect of the powers of attorney and option agreements. They sought a ruling that the special durable power of attorney dated May 5, 2000, did not grant any authority for a lot line adjustment on their property. They also asked the court to rule that the power of attorney terminated when CVLLC assigned the option to CCCLLC and the parties did not execute a power of attorney in favor of CCCLLC, i.e., that the 2000 POA expired when it was no longer coupled with an interest. The court ruled that the special durable power of attorney was coupled with an interest, that interest being the option agreement to purchase the front parcel. The court also concluded that upon assignment of the option, the power of attorney was no longer coupled with an interest but was converted to a "general power of attorney" with CVLLC owing fiduciary duties to the Bonfiglis.
Before the case went to the jury, the court granted respondents' motion for a directed verdict on the financial elder abuse cause of action, finding that there was no evidence of the gravamen of the claim. The remaining claims went to the jury. The jury found against the Bonfiglis.
The court instructed the jury not only that the power of attorney did not prohibit lot line adjustments but also that a valid power of attorney was in effect when the lot line adjustment was made. The court instructed as follows: "An attorney-in-fact under a power of attorney has no authority to take any action beyond those directly authorized by the grantor of the power of attorney or actions necessary and proper to carry out what was directly authorized by the grantor. [¶] The Court has ruled in this case that the powers of attorney did not prohibit lot line adjustments. [¶] A power of attorney conferring authority to sell, exchange, transfer or convey real property does not authorize a conveyance without consideration. [¶] In pre-trial motions before the Court, the Court determined that the power of attorney was the [sic] power coupled with an interest and there were no fiduciary duties owed to the plaintiff until the option was assigned from CV-LLC to CCC on June 16, 2000. [¶] After the option was assigned to CCC, the power of attorney remained in effect under its own terms through September 30, 2003. (Italics added.) However, because the power of attorney was no longer a power coupled with an interest, CV-LLC then had a fiduciary duty to plaintiffs in accordance with Probate Code Section 4230(c) which states, "If an attorney-in-fact has expressly agreed in writing to act for the principal, the attorney-in-fact has a duty to act pursuant to the terms of the agreement. The agreement to act on behalf of a principal is enforceable against the attorney-in-fact as a fiduciary." The Bonfiglis contend that the trial court erred in its ruling on the effect of the power of attorney and in its instructions to the jury on the issue. We agree.
1. What Is a Power Coupled with an Interest?
"California decisional law has consistently followed the definition of [a power coupled with an interest] set out by Chief Justice Marshall in Hunt v. Rousmanier (1823) 21 U.S. (8 Wheat.) 174, 203: ' "A power coupled with an interest," is a power which accompanies, or is connected with, an interest. The power and the interest are united in the same person.' [Citation omitted.]" (Pacific Landmark Hotel, Ltd. v. Marriott Hotels, Inc. (1993) 19 Cal.App.4th 615, 624 [Pacific Landmark Hotel].) Such a power is irrevocable if there is a " 'coexisting interest in the subject of the agency.' " (Ibid., quoting Capital Nat. Bk. of Sacramento v. Stoll (1934) 220 Cal. 260, 264.) " 'The agency must be created for the benefit of the agent in order to protect some title or right in the subject of the agency or secure some performance to him. [Citation.]' " (Id. at p. 625.)
Because the purpose of a power coupled with an interest is to protect the agent's interest in the subject and its value, this kind of power of attorney is not an "agency" as that term is commonly understood. Rather, the creator of the power relinquishes irrevocably any authority to direct the attorney-in-fact who is permitted, under such an arrangement, to act solely in his own interests. As is explained in the Restatement Third of Agency, section 3.12, comment b, page 247, a "power given as security does not create a relationship of agency . . . because it is neither given for, nor exercised for, the benefit of the person who creates it. The holder is not subject to the creator's control and the holder does not owe fiduciary duties to the creator."*fn3
2. What Is the Interest to Which the POA Was Coupled?
The parties do not dispute that the 2000 POA was coupled with an interest. They do, however, disagree as to the ...