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Richard H. Mckenzie, Jr., et al., As Trustees, Etc v. Eleven Group Incorporated et al

April 14, 2011


Super. Ct. No. 73283

The opinion of the court was delivered by: Hoch , J.

McKenzie v. Eleven Group, Inc. CA3


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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

The Richard H. McKenzie Personal Residence Trust Agreement I and the June S. McKenzie Personal Residence Trust Agreement I (collectively, Trusts) purchased 158.23 acres of unimproved land in Nevada City (the Property) to harvest the timber on the Property and subdivide the Property for resale.*fn1 Defendants Scott and Carol Leonhard (collectively, Agents), who represented the Trusts in the transaction, worked for defendant Eleven Group Incorporated, a real estate broker. Plaintiffs, as trustees of the Trusts, sued the defendants, alleging that the Agents made various false representations to induce the McKenzies to purchase the Property.

Following a bench trial, the trial court found the defendants liable to the Trustees for intentional fraud, negligent misrepresentation, and breach of fiduciary duty. The trial court awarded the Trustees $1,184.77 in damages. The Trustees filed the instant appeal to challenge the trial court's failure to award them (1) the difference between the purchase price and the actual value of the property received and (2) lost profits.

We agree with the trial court that the evidence was insufficient to establish the Trustees' claim for out-of-pocket and lost profit damages. Accordingly, we affirm the judgment.


The Property

This lawsuit involves a 158.23-acre parcel of unimproved land located on Casci Road, between Highway 20 and Scotts Flat Lake, in Nevada City, California. Casci Road is a dirt road connecting the Property to Highway 20, 1.6 miles to the northeast. Casci Road is paved approximately .80 miles from the Property's western boundary, connecting the Property with Scotts Flat Road to the southwest. Casci Road is maintained by the residents along that road.

The Property was listed for sale on the Multiple Listing Service in March 2004, with a listed sale price of $850,000. At the time of listing, the Property had an approved timber harvest plan and an estimated net timber value of $350,000.

The McKenzie Family

Richard and June owned flower shops and a contracting business before they retired. They had two adult sons, Richard H. McKenzie, Jr. (Rick) and James B. McKenzie, and one adult daughter, Kevil Pelton.*fn2

Rick owned restaurants and worked in the restaurant and catering industry for 40 years. In 2004, Rick managed Cooper's Bar in Nevada City. Although he obtained a real estate salesperson's license during college, Rick never used his license. James made custom furniture for a living and had experience remodeling houses. There is no evidence that Kevil was involved with the purchase of the Property.

June and Rick claimed that they were unsophisticated in real estate matters. June, Rick, and James asserted that the McKenzies relied entirely on the Agents' real estate expertise during the subject transaction.


Mimi Hyde Simmons, a broker with more than 24 years experience in real estate sales, owned defendant Eleven Group Incorporated doing business as Cornerstone Realty Group since 1995. Cornerstone held a corporate real estate broker's license issued by the California Department of Real Estate. Long before the transaction giving rise to this litigation, Cornerstone represented Richard and June in the sale of another property. Simmons's parents were long-time acquaintances of Richard and June.

At the time of the transaction at issue in this lawsuit, Cornerstone was the responsible broker for the Agents. Carol was the manager of Cornerstone's Broad Street office, and her husband Scott worked as a real estate salesperson for Cornerstone.

When the Trusts purchased the Property, Carol had been a licensed real estate salesperson for six years. Carol was a certified residential specialist and a member of the Masters Club, signifying her high real estate sales volume.

Scott worked as a licensed forester since 1984. He obtained his real estate salesperson's license in December 2003. Although Scott had been a licensed real estate salesperson for less than one year when he represented the Trusts in their purchase of the Property, Scott had been a partner in entities that had subdivided land and sold lots for residential use. Scott was a long-time acquaintance of Rick and Kevil.

Andreas Theisen's Contract to Purchase the Property

On August 10, 2004, Andreas Theisen, a builder represented by the Agents, made an offer to purchase the Property for $750,000. Theisen intended to subdivide the Property and harvest the timber on the Property for a profit.

Theisen and the sellers entered into a purchase contract in mid-August 2004. On October 11, 2004, Theisen gave the sellers notice that he wished to cancel his purchase contract. Theisen did not want to proceed with his escrow because he determined that the costs of subdividing the Property, including the cost to improve Casci Road, would exceed the value of the resulting lots.

From October 11, 2004, to October 14, 2004, Carol worked with the sellers' agent to get the sellers to agree to cancel Theisen's contract and to return Theisen's deposit. The sellers agreed to cancel Theisen's contract and to release his deposit on October 18, 2004, four days after Richard and June submitted their offer to purchase the Property.

The McKenzie Family's Introduction to the Property

Sometime in 2004, Scott told Rick about the Property, describing it as a "beautiful piece of property" with "quite a bit of timber on it." Scott told Rick that the Property was under contract at the time. According to Dee Vee Brown, a mutual friend who was present during the conversation, Scott represented that the Property could be subdivided. Rick told Scott his parents would be interested in investing in similar properties.

A few months later, Scott told Rick the Property was available. According to Rick and Brown, Rick asked Scott on that occasion whether the Property could be subdivided and Scott answered affirmatively. Rick then told his parents about the Property. Scott showed the Property twice to various members of the McKenzie family before Richard and June made their purchase offer.

The McKenzies' Intended Use for the Property

The McKenzies did not intend to live on the Property. They intended to subdivide the Property and sell the resulting lots for a profit. They intended to sell the timber on the Property to pay for the subdivision costs. Scott understood that the McKenzies were interested in buying the Property to make a profit from logging and selling the subdivided lots.

June testified that she and Richard anticipated making over $1 million in profits from the Property. Rick claimed that he and his father projected profits of $800,000 to $1.2 million ...

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