Almanor Lakeside Villas Owners Ass’n v. Carson – $100,000 in Attorney’s Fees Awarded to Homeowners Association that Recovered $6,600 in Fines

Let me be up front – this author does not particularly care for homeowners’ associations.  In my opinion, they have too much power, which is often wielded with a heavy hand.

Now comes the decision in Almanor Lakeside Villas Owners Ass’n v. Carson (April 19, 2016) __ Cal.Rptr.3d __, which only reinforces this view.  Here is a synopsis of the facts:

The homeowners’ association sought to impose fines under CC&Rs against defendants.  “Almanor sought to impose fines and related fees [ ] for alleged rule violations related to the Carsons’ leasing of their properties as short-term vacation rentals.”

Defendants paid some of the fines, but disputed others.  More specifically, “The Carsons disputed both the fines and Almanor’s authority to enforce those rules, which the Carsons viewed as unlawful and unfair use restrictions on their commercially zoned properties.”

At trial, the homeowners’ association sought $54,000 in damages.  Defendants disputed this amount.  “The trial court determined that it would be unreasonable to strictly enforce the absolute use restrictions against the Carsons …

“Of the fines imposed in 2010, 2011, and 2012, the court concluded only the fines pertaining to the non-use of Almanor’s boat decals were reasonable.  Those fines amounted to $6,620, including late charges and interest.”

That’s right – the trial court awarded $6,620 solely for “non-use” of the Association’s “boat decals.”

Then, to pile on, the trial court awarded $98,535 in attorneys fees and $3,267 in costs, for a total award of attorneys fees and costs in the amount of $101,803.

Fresno lawyer homeowners association

On appeal, the court held that such determination was “reasonable.”  The court of appeal held that the homeowners’ association was the “prevailing party” within the meaning of the Davis-Sterling Act, and expressly held that the award of attorneys fees were “reasonable” within the meaning of Civil Code section 5975.

If you are practicing attorney, this case makes it difficult to advise a homeowner ever to contest any charge by the homeowners’ association, the matter what the merits.

In Almanor Lakeside Villas Owners Ass’n v. Carson, the homeowners’ association sought $54,000 at trial, and was awarded $6,600.  The appellate court established the following principle – if any amount is awarded to the homeowners’ association, then the association is the “prevailing party” and is entitled to recover its attorney’s fees “as a matter of right.”

To this end, the court of appeal ruled that, “after resolving the threshold issue of the prevailing party, the trial court had no discretion to deny attorneys fees.”

Almanor Lakeside Villas Owners Ass’n v. Carson represents a growing dichotomy in California.  This state is home to some fabulously wealthy people, in a few geographic areas.  Here we see the court applying a distorted economic viewpoint (Who on earth thought it was worth spending more than $100,000 in attorneys fees to seek $50,000 in court?) to achieve a shocking result.  “Reasonableness,” like beauty, is in the eye of the beholder.

Almanor Lakeside Villas Owners Ass’n v. Carson (April 19, 2016) __ Cal.Rptr.3d ___

Salazar v. Matejcek – Treble Damages for Removal of Trees Under California Law

Civil Code section 3346 authorizes an award of treble damages for “wrongful injuries to timber, trees, or underwood upon the land of another, or removal thereof.”  The defendant in the recent case of Salazar v. Matejcek (Mar. 10, 2016) 245 Cal.App.4th 63 learned that this statute can support very substantial damages.

The dispute concerned “a 10-acre piece of rural property near Covelo, California. The property was completely undeveloped except for a small cabin.”  The defendant was not able to obtain an adequate source of water.  According to the court, he “destroy[ed] an estimated 225 trees to build the road and clear the surrounding area to house his water storage devices.”

Argued the defendant “the trial court failed to consider that the area to be restored was approximately two-thirds of one acre out of the 10-acre parcel.”

Stated the court, “Under the circumstances of this case, we find a holistic approach to be reasonable.  Plaintiffs had never sought to develop any portion of their parcel.”

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And what of the damages?  “At trial, Mr. Salazar testified he is saddened by the damage done to his property and he remains nervous about visiting it … Mr. Salazar testified that if he did receive an award of damages, he would use the money to restore the trees defendant had removed.”

Comment – Time will tell.  I’ll bet the money goes right into plaintiff’s pocket.

“Mrs. Salazar testified that the dispute with defendant has affected her physically and mentally.  She has felt powerless and belittled. She has anxiety and her sleep has been affected.  She does not enjoy going to the property anymore and feels as though the land was violated.”

How to calculate damages?  “Such damages are generally determined as the difference between the value of the property before and after the injury.  But diminution in market value is not an absolute limitation; several other theories are available to fix appropriate compensation for the plaintiff’s loss …

“One such alternative measure of damages is the cost of restoring the property to its condition prior to the injury, and a plaintiff may recover these costs even if they exceed diminution in value if there is a ‘personal reason’ for restoration.”

“At trial an arborist named John Phillips testified for plaintiffs.  He prepared a tree replacement plan designed to remedy the effects of defendant’s encroachment.  He estimated that 225 trees will need to be planted to restore the property … Phillips estimated the total tree remediation cost would be $67,500.

“The court accordingly trebled the $67,500 award of compensatory damages for tree removal pursuant to Civil Code section 3346 and Code of Civil Procedure section 733, resulting in an award of $202,500 … The total judgment awarded, including costs, is $262,987.”

Ouch.  The damages to this parcel of undeveloped property, out in the middle of nowhere, greatly exceed the total value of the property.  Seems like a windfall to me.

One more point of pleading.  A generic defense interposing the statute of limitations does not set forth a valid defense.  Explained the court, “defendant filed a general denial that includes a broadly worded affirmative defense asserting all of plaintiffs’ claims ‘are barred by all applicable statutes of limitation contained in Code of Civil Procedure sections 312 to 366.3.’”

Explained the court, defendant “failed to articulate any specific statute of limitations argument in his denial or in his pretrial statement … There are two ways to properly plead a statute of limitations: (1) allege facts showing that the action is barred, and indicating that the lateness of the action is being urged as a defense and (2) plead the specific section and subdivision.”

“Here [the defendant] did neither … Raising the defense in the trial brief is [in]sufficient.  The failure to properly plead the statute of limitations waives the defense.”

Comment: Sounds like piling on.

Salazar v. Matejcek (Mar. 10, 2016) 245 Cal.App.4th 63

Ferguson v. Yaspan – Statute of Limitations Not Applicable to Defense Based on Rescission

In a lawsuit based on a contract, one party can seek relief based on the theory of rescission.  Rescission can be considered an equitable judicial remedy.  Under California Civil Code section 1689, rescission supports “extinction” of the obligation.

Rescission can be pled as a basis for affirmative relief, or it can asserted as defense to a claim based on contract.  Which is what happened in Ferguson v. Yaspan (2015) 233 Cal.App.4th 676 – the defendant asserted rescission as a defense to a contract lawsuit.

The dispute in Ferguson v. Yaspan arose between an attorney (defendant) and his former client (plaintiff).  In 1995, the plaintiff sold defendant an interest in a London flat owned by plaintiff.  Later, the Fergusons sought to set aside the written agreement.

rescission

Here’s the interesting part of the decision.  The court opined on rescission as a defense, holding that such a defense was not subject to the statute of limitations.  Explained the court

“The invalidity of a contract may be asserted either as a basis for affirmative relief or as a defense.  When a litigant seeks affirmative relief, her claim may be barred if filed outside the statute of limitations period.

“However, where invalidity is raised solely as a defense, there is no limitations period because statutes of limitations are designed to ‘act as a bar to actions or proceedings’ –  not to individual claims or defenses.”

Thus, a defense based on a claim of rescission is not subject to being struck as pled outside the statute of limitations.

Majd v. Bank of America – Violation of Dual Tracking Statute Supports Claim for Wrongful Foreclosure

California law now prohibits the practice of “dual tracking,” whereby a lender simultaneously pursues a default while also engaging in loan modification negotiations with the borrower.  The question concerns the remedy available when there is a violation of the dual tracking law.

The court in Kazem Majd v. Bank of America, N.A. (Jan. 14, 2016) 243 Cal.App.4th 1293 held that a lender’s violation of the loan modification requirements established by the federal government in the HAMP program, and/or violation of the dual tracking prohibition, could give rise to a claim for wrongful foreclosure against the lender.

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The court also made important findings about the HAMP program.  Rejecting “a statement found in an unpublished federal district court decision, which decision in turn repeated a statement found in other unpublished district court decisions,” the court explained that, under “the relevant United States Department of the Treasury guidelines[,] where a borrower satisfies the relevant criteria, ‘the servicer MUST offer the modification.’”

Even more, the court held that the “tender requirement” does not apply when a plaintiff states a claim for wrongful foreclosure based on violation of the dual tracking statute.

Explained the court, “the whole point of Civil Code section 2923.5 is to create a new, even if limited, right to be contacted about the possibility of alternatives to full payment of arrearages … The purpose of the modification rules is to avoid a foreclosure despite the borrower being incapable of complying with the terms of the original loan.  It would be contradictory to require the borrower to tender the amount due on the original loan in such circumstances.”

But can such violation also support a claim to set aside the foreclosure sale?  Only in limited circumstances.  The case holds that the additional remedy of setting aside the foreclosure sale would only lie against the purchaser if the purchaser was not a “bona fide purchaser for value.”

In Majd v. Bank of America, the purchaser of the foreclosure sale was the secured lender.  But when the purchaser is a third-party, who had no reason to know that the lender had engaged in wrongful dual tracking, the remedy of setting aside the foreclosure sale would not be available.

Overall, Majd v. Bank of America offers important protections to homeowners whose rights have been violated by the lender’s unlawful “dual tracking.”

Saterbak v. JPMorgan Chase Bank – New Opinion Disagrees with 2013 Decision in Glaski v. Bank of America

A 2013 decision from the Fifth District Court of Appeal (based in Fresno) has bedeviled the lending community.  In Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, the court held that the borrower could state a “cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale (i.e.,  Bank of America in its capacity as trustee for the WaMu Securitized Trust) was not the holder of the [ ] deed of trust.”

This drives lenders bonkers because the lending community wants to cut off challenges to post-funding assignments of the loan.  The new decision in Saterbak v. JPMorgan Chase Bank, NA (Mar. 16, 2016) __ Cal.App.4th ___ casts aspersions on the Glaski decision.

Before reviewing the new case, let’s start with the 2013 case.  The plaintiff in Glaski argued that his loan was untimely transferred to the WaMu Securitized Trust, specifically that the “note and loan were not transferred to the WaMu Securitized Trust prior to its closing date … the transfer to the trust attempted by the assignment of deed of trust recorded on June 15, 2009, occurred long after the trust was closed; and the attempted assignment was ineffective.”  218 Cal.App.4th 1079, 1094.

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Glaski held that “a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment.”  218 Cal.App.4th 1079, 1095.  Glaski found that “a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.”

Glaski further held that, in its review of New York law (the WaMu Securitized Trust was controlled by New York law), the complaint sufficiently alleged a claim for wrongful foreclosure, based on allegations that the assignment occurred after the closing date for the trust.

Now to the new case.  In  Saterbak v. JPMorgan Chase Bank, NA (Mar. 16, 2016), the plaintiff sought pre-foreclosure relief from the court.  Contrast this to Glaski, which involved claims for post-foreclosure relief.  Specifically, “Saterbak filed suit in January 2014.  She alleged the [deed of trust] was transferred to the 2007-AR7 trust four years after the closing date for the security, rendering the assignment invalid … She also sought declaratory relief that the same defects rendered the assignment void.”

The Fourth District Court of Appeal (based in San Diego) held that such claims were not cognizable, holding “Saterbak lacks standing to pursue these theories.  The crux of Saterbak’s argument is that she may bring a preemptive action to determine whether the 2007-AR7 trust may initiate a nonjudicial foreclosure.  She argues, ‘If the alleged ‘Lender’ is not the true ‘Lender,’ it ‘has no right to order a foreclosure sale.’

“However, California courts do not allow such preemptive suits because they would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature.”

Now to the conflict with GlaskiSaterbak held that, on the issue of “whether, under New York law, an untimely assignment to a securitized trust made after the trust’s closing date is void or merely voidable … We conclude such an assignment is merely voidable.”

Saterbak added in a footnote, “the New York case upon which Glaski relied has been overturned … We decline to follow Glaski and conclude the alleged defects here merely render the assignment voidable.”

This author believes that Glaski was correctly reasoned.  But now we have a conflict in the case law.  For cases in the Central Valley, courts will have to wrestle with how to apply Glaski.

Orcilla v. Big Sur, Inc. – Unconscionability in Loan Modification Supports Claim for Wrongful Foreclosure

The recent decision in Orcilla v. Big Sur, Inc. (Feb. 11, 2016) __ Cal. App.4th __ continues the litigation fallout from the second depression (referred to in other parts of the country as the Great Recession).  In Orcilla v. Big Sur, the lender completed a nonjudicial foreclosure on the plaintiff’s residence.  The borrower sued to set aside the sale.  As discussed below, the court of appeal allowed the case to go forward based on a novel theory – unconscionability.

According to the court, “The Orcillas’ first claim is a cause of action to set aside the trustee’s sale.  The elements of an equitable cause of action to set aside a foreclosure sale are: (1) the trustee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a deed of trust; (2) the party attacking the sale was prejudiced or harmed; and (3) in cases where the trustor challenges the sale, the trustor tendered the amount of the secured indebtedness or was excused from tendering.”

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Here are the basic facts regarding the loan.  “On May 9, 2006, Teodora obtained a $525,000 real property loan from Quick Loan.  She alone executed an adjustable rate note …  The Note further provided that Teodora’s initial monthly payments would be in the amount of $4,220.49. (In 2005 and 2006, Teodora’s monthly income was less than $3,000 and Virgilio [her husband] did not work.)”

The court framed plaintiff’s argument as follows: “The Orcillas allege the loan from Quick Loan was unconscionable because the loan payments exceeded their income; they have limited education and English proficiency; they did not understand the details of the transaction; and the loan documents were on standard, pre-printed forms in English.

“They allege the 2008 loan modification agreement also was unconscionable because the loan payments exceeded their income; they have limited education and English proficiency; and the loan documents were on standard, pre-printed forms in English.”

In a critical finding, the court stated “The Orcillas maintain that the disparity between the monthly loan payments and their income indicates that the loan and loan modification were overly harsh and one-sided.  We agree that the allegation that the monthly loan payments exceeded the couple’s income by more than $1,000 is sufficient to allege substantive unconscionability.”

Having started on the bridge to unconscionability, the court further held that plaintiffs were not required to plead tender of the past due amount to the lender.  “The Orcillas … allege the debt is invalid because the original loan and loan modification were unconscionable.  As discussed above, the allegations in the second amended complaint are sufficient to allege those agreements were unconscionable and thus unenforceable.”  Based thereon, court allowed the lawsuit to proceed.

This seems to be a peculiar decision.  Case law has long held that there is no fiduciary relationship between the lender and the borrower.  Rather, the relationship is considered to be an arms-length transaction.

By allowing a claim of unconscionability to creep in, the court suggests that the underlying loan and/or the modification could be demonstrated to be unconscionable.

The court cannot be suggesting that the borrowers do not owe the lender for their loan.  How does the court intend to rewrite the loan to render it “conscionable”?  The decision does not say, which provides little guidance to the trial judge.

Orcilla v. Big Sur, Inc. (Feb. 11, 2016) __ Cal. App.4th __

Karl Llewellyn and the Theory of Rules

Karl Llewellyn was one of the leading lights of American jurisprudence from the 1930s through the 1950s.  Not only was he the dean of Columbia Law School, he participated in the drafting of Article 2 of the Uniform Commercial Code, and was active in efforts to promote its enactment in the different states.

Add this: Llewellyn was a clear thinker and a gifted writer, and a lawyer through to his core.  At his death, he left an unpublished manuscript, The Theory Of Rules.  Here are some excerpts, as true today as the day they were written:

Karl_Llewellyn

“Any lawyer dealing with any problem is looking for a rule of law to cover it, and any lawyer recognizes as a rule (allegedly or actually positive) a formula setting forth in general terms a type of fact-situation and laying down a legal consequence therefor.”

Right – That’s what we do.  We look for rules to cover a fact pattern.

“The concept fits not only the speech-usage but the working practices of the profession … Side by side with this functional attribute sits another: rules of law are rules with the function of accomplishing control by language communication.”

Right again – Rules achieve their results by the use of language.

“Unless the language of a purported rule of law is clear enough to mean roughly similar things to different officials about what to do with [roughly similar] states of fact, that purported rule fails … to the extent to which its meaning varies.”

And now a word about what law schools teach to aspiring lawyers:

“That I wrote such an observation implies … that I am judging the bad [rules] by the good ones, seeing their defects against the pattern of what we can do.

“And that our best ones are not the general run is simple to demonstrate.  First, if they
were, it would verge on the criminal to give so large a portion of our law curricula over to study of how to deal with not-so-clear rules.”

And now, Llewellyn shows his skills: “There is a touch of weaseling in this proposed division, in that recognition is itself a concept of fact; but the weasel is one capable of muzzling, with care.”

Karl N. Llewellyn, The Theory of Rules, edited and with an introduction by Frederick Schauer (Univ. of Chicago Press 2011)

In re Perl – 9th Circuit Changes Rules Relating to Bankruptcy Stay and California Eviction Law

The law of evictions – titled as “unlawful detainer” in California – is a technical area. The law has statutory roots as far back as the Forcible Entry Act of 1381, which prohibited the use of self-help to retake possession of real property.

That remains an important concept in an action based on the unlawful detainer statutes.  The principal objective in an action for unlawful detainer is a judicial determination whether the plaintiff or defendant is entitled, at that time, to possession of the property.  Unlawful detainer does not focus on ownership, and case law holds that the issue of plaintiff’s title to the property cannot be litigated in an unlawful detainer proceeding.

So, the objective is up to obtain a judgment for unlawful detainer, coupled with issuance of a writ of possession.  By law, the writ of possession is delivered to the sheriff, who has the responsibility to serve and enforce the writ of possession, ultimately using the sheriff’s office to restore possession to the plaintiff.

Remember – no self-help.  The court issues a judgment for possession, together with a writ of possession.  The sheriff enforces the writ of possession and restores possession to the plaintiff.

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Now mix in issues arising under bankruptcy law.  In In re Perl, __ F.3d __ (Jan. 8, 2016), the plaintiff in an unlawful detainer action obtained judgment and the court issued a writ of possession.  The writ was delivered to the sheriff.  Then, before the sheriff effected service, the tenant filed for bankruptcy.  Does the Sheriff’s actions in enforcing the writ of possession violate the automatic stay created under bankruptcy law?

“The question in this case is whether Perl had any remaining legal or equitable possessory interest in the property after … the state court fully adjudicated in the unlawful detainer proceedings.”  According to the 9th Circuit, the answer is No.

More specifically, “We conclude that under California law, entry of judgment and a writ of possession following unlawful detainer proceedings extinguishes all other legal and equitable possessory interests in the real property at issue.”

In so doing, the court overruled the decisions in In re Di Giorgio, 200 B.R. 664 (Bankr. C.D. Cal. 1996) and In re Butler, 271 B.R. 867 (Bankr. C.D. Cal. 2002).

It gets more interesting when the court reviewed the statutory scheme.  The court found that “Pursuant to Code of Civil Procedure § 415.46, no occupant of the premises retains any possessory interest of any kind following service of the writ of possession.”

Comment – Look up CCP § 415.46 for yourself.  It deals with the prejudgment claim to possession that can be asserted by third parties in possession of the property.  The court’s analysis is not supported by statute.

Thus, the court concluded that “The unlawful detainer judgment and writ of possession entered pursuant to California Code Civil Procedure § 415.46 bestowed legal title and all rights of possession upon Eden Place.  Thus, at the time of the filing of the bankruptcy petition, Perl had been completely divested of all legal and equitable possessory rights that would otherwise be protected by the automatic stay.  Consequently, the Sheriff’s lockout did not violate the automatic stay because no legal or equitable interests in the property remained to become part of the bankruptcy estate.”

Comment – I can’t agree.  Possession could be restored only by the sheriff acting pursuant to the writ of possession issued by the court.  As possession was restored by enforcement of a court order, I believe the act of restoring possession necessarily impacted the bankruptcy stay.

The ABCs of Future Public Payments Law – Prof. Mark Burge

Strange how an idea that was once old can become new again.  Roscoe Pound, Dean of the Harvard Law School, was a prolific legal writer in the 1920s and 1930s.  From my perspective, his best work concerned the development of the American legal system from 1850 through 1900, as America reached the end of its Western expansion.

Writing in 1938, Dean Pound discussed why legislation was not effective to address rapidly-changing areas of the law.  Here is Dean Pound’s analysis:

“It would seem that while legislation has proved an effective agency of ridding the law of particular institutions and precepts which have come down from the past and have not been adapted or were not adaptable to the needs of the time, it has not been able, in our legal system, except in rare instances, to do much of the constructive work of change in eras of growth.  So far as everyday relations and conflicts of interests are concerned, it has not been able to anticipate new demands nor to move fast enough when they made themselves felt through litigation.”  Roscoe Pound, The Formative Era of American Law (Little, Brown and Company 1938), pp. 44-45.

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At the same time, I was reading a new law review article by Professor Mark Burge, discussing the future of the law of payment systems.  Once upon a time, the law of payment systems dealt principally with bank drafts, checks, and bills of exchange.  These days, the law of payment systems also encompasses credit cards, debit cards, ETF’s, Apple Pay, and Bitcoin.

As is apparent, payment systems is a rapidly developing area of the law.  In his article, Prof. Burge discusses why efforts at codification via the Uniform Commercial Code have failed, in large part because opponents of consumer protection provisions have “spiked the cannon” (my words, not his).  Note Professor Burge’s analysis of legislative action in this area:

“Public law should presumptively not be the governing device for payments, although the presumption is a rebuttable one … Experience provides three interrelated reasons to err on the side of private governance.

“First, private law is more capable of adapting to technological change in a meaningful timeframe … Public legislative or regulatory process is not nimble enough to keep up with the times. That fact is not a design flaw in deliberative democracy; it is an intentional feature where the intention dates at least as far back as the United States Constitution …

“Second, after bright-line public law protections of system users are in place, the remaining incentives will be for system operators to conduct themselves in a manner that produces the most social benefit.

“Finally, the parties operating a payment system are in the best position to determine allocation of risks unaccounted for by limited public law, and also to handle a limited collection of risks that public law should impose.”

Although separated by 80 years, Prof. Burge’s analysis is not far off the mark from Dean Pound.  Reminding us that everything old is new again.

Mark Edwin Burge, Apple Pay, Bitcoin, and Consumers: the ABCs of Future Public Payments Law, forthcoming in 67 Hastings L.J. (2016)

ChinaCast Education Corporation – Fraud of Officer Imputed to Corporation

Here is a recent decision that is not a surprise under a traditional agent-principal analysis.  Even so, it has to sting, because the corporation loses twice – first, when it was defrauded by the former president, and second when the corporation was sued by shareholders for the diminished value of their securities.

The fact pattern is straightforward.  “ChinaCast founder and CEO Ron Chan embezzled millions from his corporation and misled investors through omissions and false statements – textbook securities fraud.”  These were not small losses: “From June 2011 through April 2012, Chan ‘transferred’ $120 million of corporate assets to outside accounts that were controlled by him and his allies.”

There’s your background.  The corporation, recognized by law as a separate “person,” lost millions of dollars through embezzlement by the former CEO.  At the same time, the former CEO made false representations on behalf of the corporation, which false representations caused damage to investors in the corporation.

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Explained the court, “Throughout 2011, Chan signed SEC filings on behalf of ChinaCast and never disclosed the $120 million in transfers and other fraudulent activities afoot.”  (Of course Chan made false representations – otherwise, he would of been admitting his wrongdoing.)

The corporation brought forth a common-law defense: “The adverse interest doctrine may prevent a court from imputing knowledge of wrongdoing to an employer when the employee has abandoned the employer’s interests, such as by stealing from it or defrauding it.”

“The sole question on appeal is a purely legal one and an issue of first impression in this circuit:  Can Chan’s fraud be imputed to ChinaCast, his corporate employer, even though Chan’s looting of the corporate coffers was adverse to ChinaCast’s interests?”

The Ninth Circuit held that the corporation could be sued by investors based on the false representations, even though the corporation suffered its own separate injuries.  Explained the court, “we conclude that Chan’s fraudulent misrepresentations – and, more specifically, his scienter or intent to defraud – can be imputed to ChinaCast.

“Significantly, imputation is proper because Chan acted with apparent authority on behalf of the corporation, which placed him in a position of trust and confidence and controlled the level of oversight of his handling of the business.”

That’s certainly a difficult result.  Everyone suffered from the wrongful acts of Chan.  In an earlier time, the law probably would have allowed the losses to rest where it found them.  In our increasingly urban society, the law reaches out to protect injured persons, even when the defendant has already “paid once” for the injury.

In re ChinaCast Education Corporation Securities Litigation, __ F.3d __ (9th Cir. Oct. 23, 2015)