(Super. Ct. No. ECU03970) APPEAL from a judgment of the Superior Court of Imperial County, Jeffrey B. Jones, Judge.
The opinion of the court was delivered by: McINTYRE, Acting P. J.
CERTIFIED FOR PUBLICATION
Private lenders sued a private mortgage broker for negligence and breach of fiduciary duty after it was discovered that a loan they had financed had been obtained through fraud and forgery. In this case, the trial court excluded evidence of title insurance procured by the private mortgage broker as part of the lending transaction to protect the lenders from fraud and forgery as barred by the collateral source rule and refused to instruct the jury on superseding cause. We conclude the trial court prejudicially abused its discretion in excluding this evidence because it was relevant to liability. We also conclude the trial court properly declined to instruct the jury on superseding cause. The judgment is reversed and matter is remanded for a new trial.
FACTUAL AND PROCEDURAL BACKGROUND
Federal Home Loans Corporation (FHLC) is a private mortgage broker that did equity lending, meaning that the loans originated through it were primarily based upon the value of the property, with loan to value ratios much lower than a traditional banking institution. Canizalez Associates, Inc. (Canizalez) and Valley Family Practice Medical Associates, Inc. (VFPM, together the Property Owners) each own a one-half interest in real property on which an office building is located in El Centro, California (the Property). Marcella Barker is a notary public and the former office manager for Canizalez.
In June 2006, Barker contacted FHLC and requested a loan on behalf of the Property Owners in the amount of $165,000.00 (Loan 1). Johanna Rivera, a loan officer at FHLC, went to meet with Dr. Jorge Robles, the authorized representative of VFPM and Alejandro Calderon, the authorized representative of Canizalez, for execution of the loan documents. After Barker represented that one of the owners was not available, Rivera accepted a proposal made by Barker that Barker would get the loan documents signed, including the notarized signatures of Dr. Robles and Calderon. Rivera found there was nothing out of the ordinary in dealing solely through Barker in connection with originating the loan and gathering the documents needed. Thereafter, the promissory note for $165,000 and the accompanying deed of trust to secure the note were apparently duly signed by Dr. Robles and Calderon with each signature personally notarized by Barker. Barker, however, obtained Loan 1 by forging these signatures. Following the close of escrow, the monthly interest-only payments on Loan 1 were timely made.
About six months later, Barker requested a larger replacement loan from FHLC in the amount of $480,000.00 secured by the Property (Loan 2). FHLC brokered Loan 2 through individual lenders, Bryan and Khema Chanda (the Chandas), as an investment. Barker again forged the necessary signatures to acquire Loan 2.
When the Property Owners learned of the fraud, they sued FHLC, the Chandas and other parties to cancel the fraudulently obtained trust deeds. The Chandas then filed a cross-complaint against the Property Owners and others for, among other things, equitable subrogation. The Chandas amended their cross-complaint and sued FHLC alleging causes of action for negligence and breach of fiduciary duty.
Ultimately, all parties settled except for the Chandas' causes of action against FHLC. The Chandas' claims against FHLC proceeded to trial and a jury found that FHLC had breached fiduciary duties owed to the Chandas and that FHLC had acted with malice, fraud or oppression. The jury awarded the Chandas $590,469.51 in compensatory damages and later awarded them $62,500 in punitive damages. FHLC timely appealed.
I. Collateral Source Rule
Before trial, the Chandas moved in limine to exclude (1) all evidence relating to any title insurance policy, (2) any compensation provided to the Chandas under any insurance policy, and (3) any claims or claim information exchanged between the Chandas and the title insurer. The Chandas argued that any such evidence was irrelevant to any issue to be tried and inadmissible under the collateral source rule. FHLC opposed the motion, arguing that the collateral source rule did not apply. Assuming the collateral source rule did apply, FHLC argued that evidence of title insurance it obtained on behalf of the Chandas was relevant to defend against the Chandas' breach of fiduciary duty allegations. After hearing argument from counsel, the trial court concluded that the collateral source rule applied. It granted the motion to preclude the jury from hearing about any payments the Chandas may have received under the title ...