Unpublished Disposition, 860 F.2d 1088 (9th Cir. 1980)

No. 87-2050.

United States Court of Appeals, Ninth Circuit.

Before BOOCHEVER and KOZINSKI,^*  Circuit Judges, and ALBERT LEE STEPHENS, Jr.,^**  District Judge.

MEMORANDUM^*** 

Margaret Garner appeals the district court's order dismissing her claims against defendants Western Title Insurance Company (Western), Hunter Bungay and Margaret Templer-Carter.¹  The trial court set forth the material facts most favorable for the plaintiff in its findings of fact, conclusions of law, memorandum of opinion and order. We consider whether Garner offered sufficient evidence to maintain her allegations of fraud, misrepresentation, RICO violation and civil conspiracy. We review the involuntary dismissal as we would a judgment in defendant's favor following a full trial: findings of fact are reviewed for clear error, questions of law are reviewed de novo. See Stone v. Millstein, 804 F.2d 1434, 1437 (9th Cir. 1986). We review the grant of summary judgment de novo. See Levin v. Knight, 780 F.2d 786, 787 (9th Cir. 1986).

Facts

On August 31, 1979, Garner contracted with HDB Associates, a partnership formed by Templer-Carter and Bungay, to purchase a time-share interest in a condominium unit for $28,500. The contract gave Garner exclusive right to occupy the condominium for one month each year during the term of what was purported to be a 99-year sublease with Bungay. HDB Associates estimated in their promotional literature that maintenance fees for the time-share, exclusive of property taxes, would not exceed $300 per month. Western acted as escrow agent.

On October 1979, the California Department of Real Estate (DRE) ordered Bungay and Templer-Carter to desist and refrain from selling time-share interests. The DRE asserted that the time-share interests constituted a subdivision and that Bungay violated the subdivision laws of California by failing to obtain a public report from the DRE before marketing the interests. The DRE informed Bungay that no public report would be issued--and hence no time-shares could be marketed--until HDB revised its monthly maintenance estimates to reflect operational costs and property taxes. The DRE further required that Bungay contact all time-share owners who purchased prior to the issuance of the public report and offer them an opportunity to rescind the contract. On May 31, 1980, Templer-Carter informed Garner of the DRE's assertion of jurisdiction and offered her an opportunity to rescind the contract. Garner rejected Templer-Carter's offer, choosing instead to affirm the contract and sue for fraud, misrepresentation, RICO violations and conspiracy to defraud.

Discussion² 

A. Garner claims that Templer-Carter and Bungay fraudulently misrepresented the maintenance and operational costs of the time-share in their sales brochure. The actual costs, she contends, are reflected in the monthly budget in the DRE's public report. Although the DRE monthly budget is substantially higher than the maintenance costs estimated by Bungay, it includes, in addition to the maintenance fees listed in the brochure, operational expenses (such as contingency, reserve, legal and accounting fees) and property taxes, neither of which were included in the brochure's estimate.³ 

Garner contends that the additional monthly budget items required by the DRE diminished the value of the time-share. But she may only recover to the extent that these increased costs materially affected the value of the property she purchased. See Garrett v. Perry, 53 Cal. 2d 178, 184, 346 P.2d 758, 762 (1959); Walters v. Marler, 83 Cal. App. 3d 1, 24, 147 Cal. Rptr. 655, 669-70 (1978). She offers nothing to prove the extent to which, if any, the value of the property was diminished due to the additional costs. While a defrauded party to a real estate transaction can "recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received," Cal.Civ.Code Sec. 3343(a) (West Supp.1988), Garner has repeatedly come forward with little more than conclusory, unsubstantiated allegations of damages. See, e.g., Plaintiff's Trial Memorandum at 14-15 (alleging, without any offer of proof, damages totalling $144,877, consisting of: lost profits, the difference between purchase price and alleged zero market value, and the difference between actual and represented maintenance and operational expenses); Plaintiff's Supplemental Trial Memorandum re Measure of Damages (same). This showing of proof of damages is plainly insufficient.

Garner also asserts that the increased costs are consequential damages and may be recovered under sections 3343(a) (1)-(2). See Stout v. Turney, 22 Cal. 3d 718, 727, 586 P.2d 1228, 1233, 150 Cal. Rptr. 637, 642 (1978). Consequential damages are "reasonable expenditures rendered fruitless because of the deceit." 6 B. Witkin, Summary of California Law Sec. 1443 at 918 (9th ed. 1988). See, e.g., Gray v. Don Miller & Assocs., 35 Cal. 3d 498, 504, 674 P.2d 253, 256, 198 Cal. Rptr. 551, 554 (1984) (amounts spent in anticipation of completing the purchase and for time spent planning the business are consequential damages); Hardy v. Carmichael, 207 Cal. App. 2d 218, 228, 24 Cal. Rptr. 475, 481 (1962) (amounts paid for escrow fees, moving to and from property, building permits, telephone connections, fences and yard cleaning are consequential damages). Because increased future maintenance and operational costs are an element of the value of the property, they are not recoverable as consequential damages.

Garner also claims "benefit of the bargain" damages. While such damages are available where the plaintiff stands in a fiduciary relationship to the defendant, see Pepitone v. Russo, 64 Cal. App. 3d 685, 688-89, 134 Cal. Rptr. 709, 710-11 (1976), Bungay and Templer-Carter did not act as Garner's agents and therefore owed her no fiduciary duty. See Walters v. Marler, 83 Cal. App. 3d at 25-26, 147 Cal. Rptr. at 670 (vendors and their real estate agents are not in fiduciary relationship with purchaser). Any damages incurred must therefore be measured by the "out-of-pocket" rule of section 3343. See, e.g., Garrett v. Perry, 53 Cal. 2d at 184, 346 P.2d at 762; Pepitone, 64 Cal. App. 3d at 688-89, 134 Cal. Rptr. at 711. The district court properly dismissed these claims.

B. Garner next contends that Templer-Carter and Bungay misrepresented the duration of the sublease by 9 years. Once again, however, she offers no proof of the actual value of the time-share or of the extent to which the alleged shortened sublease diminished its value. There can be no claim for damages without such a showing.

Garner also claims that she lost rents in the amount of $12,600 due to the shortened sublease and that this amount is recoverable as lost profits. Cal.Civ.Code Sec. 3343(a) (4) (West Supp.1988). Section 3343(a) (4) allows recovery only if "the defrauded party acquired the property for the purpose of using or reselling it for a profit." Id. at Sec. 3343(a) (4) (i). A party has no reasonable expectation of profits "when property is purchased for residential uses." Stout v. Turney, 22 Cal. 3d 718 at 728 n. 12, 586 P.2d at 1234 n. 12, 150 Cal. Rptr. at 643 n. 12. Garner has offered no proof that she purchased the time-share for anything other than residential purposes. The district court properly dismissed her claim.

C. Garner next alleges that Templer-Carter and Bungay represented the entire purchase price to be tax deductible. Moreover, she alleges that HDB's brochure represented that every owner was entitled to participate in the Resort Condominium International (RCI) worldwide exchange program, which RCI canceled after Garner purchased the time-share. Although Garner suggests that Bungay and Templer-Carter knew of RCI's pending cancellation and did not inform her, she offers nothing to substantiate these allegations; nor does she, despite numerous opportunities given her, offer any proof of resultant damages. Without proof that these alleged fraudulent activities diminished the value of the time-share, Garner is entitled to no relief.

D. Garner seeks treble damages under the Racketeer-Influenced Corrupt Organization Act (RICO). 18 U.S.C. § 1961 et seq. (1982). A violation of RICO requires conduct of an enterprise through a pattern of racketeering activity. Sedima v. SPRL Imrex Co., 473 U.S. 479, 496 (1985). Racketeering is defined as conduct constituting one of a number of specified criminal offenses, including mail fraud. 18 U.S.C. § 1961(1). Although Garner suggests that plaintiff designed a scheme to defraud and used the mails to execute the scheme, United States v. Outpost Development Co., 552 F.2d 868, 871 (9th Cir.), cert. denied, 434 U.S. 965 (1977), she offers no proof that defendants engaged in a course of conduct intended to deceive her or others. Id. at 870. The district court properly dismissed this claim.

E. Garner contends that Western breached its fiduciary duty as escrow agent by failing to inform her of Bungay's and Templer-Carter's noncompliance with California subdivision law. Had she known this, Garner asserts, she would have discovered that Bungay and Templer-Carter underestimated the maintenance fees, and therefore would not have signed the contract. We reject Garner's claim for failure of proof of damages as discussed in part A of this disposition. The grant of summary judgment was proper.

F. Finally, Garner contends that Western, Bungay and Templer-Carter conspired to defraud her. The district court correctly concluded that this claim added nothing to the potential liability of Bungay and Templer-Carter.

The civil conspiracy charge against Western is not supported by sufficient proof. "Mere knowledge, acquiescence, or approval of an act, without cooperation or agreement to cooperate is not sufficient to establish liability." Michael R. v. Jeffrey B., 158 Cal. App. 3d 1059, 1069, 205 Cal. Rptr. 312, 320 (1984). Moreover, Garner presented no evidence to establish cooperation or an agreement to cooperate between Western, Templer-Carter and Bungay. The district court properly dismissed this claim as well.

AFFIRMED.