California Verdicts

Plaintiff(s):

Edward Cardoza (Male, 69 Years), 

Cathleen Cardoza (Female, 66 Years), 

Edward J. and Cathleen L. Cardoza Living Trust

Plaintiff Attorney(s):

Joseph A. Piasta II;
O’Brien Watters & Davis, LLP;
Santa Rosa,
CA,
for
Edward Cardoza, Cathleen Cardoza, Edward J. and Cathleen L. Cardoza Living Trust

Plaintiff Expert(s):

Mac Cranford;

Commercial Real Estate Practices;
San Rafael,
CA called by
Joseph A. Piasta II ■ Brad MacLane;
MAI;
Appraisal;
Benicia,
CA called by
Joseph A. Piasta II ■ James Perez;
CPA;
Accounting;
Petaluma,
CA called by
Joseph A. Piasta II ■ Patrice Truman;

Jury & Trial Consulting;
Berkeley,
CA called by
Joseph A. Piasta II ■ William Twitchell;
CPA;
Accounting (Forensic);
Santa Rosa,
CA called by
Joseph A. Piasta II

Defendant(s):

Hally Swan, 

Reflex, LLC, 

David H. Reed, 

Sheryl G. Reed, 

Kevin Gonsalves, 

Robert Schepergerdes, 

Pisenti & Brinker LLP, 

Leading Edge Properties, Inc.

Defense Attorney(s):

Roger G. Honey;
Law Offices of Roger G. Honey;
Valencia,
CA,
for
Kevin Gonsalves, Leading Edge Properties, Inc. ■ Ethan A. Glaubiger;
Law Office of Ethan A. Glaubiger (relinquished during punitive damages phase);
Santa Rosa,
CA,
for
Reflex, LLC, David H. Reed ■ None reported;

for
Pisenti & Brinker LLP ■ Clark H. Summers Jr.;
Attorney at Law;
Warner Springs,
CA,
for
Sheryl G. Reed ■ Hally Swan;
In Pro Per;
for
Hally Swan ■ Robert Schepergerdes;
In Pro Per;
for
Robert Schepergerdes

Defendant Expert(s):

Todd Johnson;
Appraisal;
Monte Sereno,
CA called by
Roger G. Honey ■ Harold Justman;
Law (Real Estate);
Palo Alto,
CA called by
Roger G. Honey

In 2005, plaintiffs Edward and Cathleen Cardoza, a married couple, sold their one-quarter interest of roughly 1,700 acres of improved ranch land, near Lakeville Highway in Petaluma, to the county’s Open Space District, as part of the creation of the Tolay Ranch Park. The Cardozas were the second generation of an immigrant Petaluma ranching family, who had farmed the grain-and-sheep ranch since buying it in the middle of World War II. The expanded Cardoza family sold the ranch for $18 million, and Edward and Cathleen Cardoza would ultimately net approximately $3.3 million as their share of the proceeds. In September 2005, Edward and Cathleen Cardoza sought to invest their share of the sale to defer the payment of capital gains taxes. With the advice of their accountant, lawyer and realtors, the Cardozas claimed they were seeking a passive investment for their coming retirement issues. The Cardozas ultimately entered into a purchase contract for $4.7 million with David Reed and his then wife, Sheryl Reed, for commercial property on Corby Avenue in Santa Rosa with an escrow closing date of Feb. 17, 2006. (The Reeds were in the middle of divorce proceedings filed in March 2005.) The main tenant at the Corby property was RPM Optoelectronics, which was primarily owned as community property by the Reeds. At the time of the Cardozas’ offer to purchase the property, RPM held possession pursuant to a 10-year lease (executed in November 2004) with two five-year options. According to the RPM lease and the lease of the second tenant, the property was grossing approximately $30,000 per month in rent. However, the Cardozas claimed that in July 2005, without notice, RPM moved out of the building, leaving only Ubright Inc. — a subsidiary of a major Taiwanese corporation, Shinkong, which rented the bottom floor of one of two buildings making up the Corby property — with its two-year extended lease and $8,000 per month rent in place. In August 2007, Mr. Reed signed papers placing RPM, but not himself, in bankruptcy. In May 2008, Mr. Reed sold another entity, Reflex, LLC, to ORAFOL GmbH and its new American subsidiary, Microlux Inc., for $5 million. (Microlux Inc. is a Delaware corporation with its principal place of business in Santa Rosa. Microlux operated out of the same building near the Sonoma County Airport that Reflex operated out of for three years, after Reed pulled RPM and Reflex out of the Corby property.) Edward and Cathleen Cardoza sued Mr. Reed; Reflex, LLC; Ms. Reed; and the Reeds’ real estate agents, Kevin Gonsalves and Leading Edge Properties Inc. The Cardozas alleged that the defendants’ actions constituted intentional fraud, concealment, negligent misrepresentation, intentional interference with a contract, conspiracy, breach of contract, breach of a duty to disclose, and broker’s negligence. Mr. Reed, Gonsalves and Leading Edge subsequently filed cross-complaints against the Cardozas’ buying agents, Robert Schepergerdes and Hally Swan, and the accounting firm the Cardozas used, Pisenti & Brinker LLP. Gonsalves also sued Sheryl Reed for indemnity. Before Pisenti & Brinker was served, the Cardozas brought the firm in as a direct defendant and ultimately settled with the company. The Cardozas claimed that Mr. Reed misled them and reneged on the subject commercial property deal. Plaintiffs’ counsel contended that Mr. Reed and his realtor agent, Kevin Gonsalves of Leading Edge Properties, conspired to inflate the value of the building sold to the Cardozas by raising rents before the close of the sale. Counsel argued that the contract included an agreement in which Mr. Reed and other tenants would fulfill the terms of a 10-year lease, which would provide $30,000 a month in proceeds for the Cardozas. The plaintiffs’ experts expressed opinions that the very act of Reed moving RPM out of the Corby property, which had been specially designed for the technology business, dropped the value of the building from its appraised $4.7 million (with the appraisers assuming that the representations were true regarding the about $30,000 per month in expected income flow for at least eight-plus years) to $2 million. Plaintiffs’ counsel pointed out that the $2 million appraised value was less than the $2.5 million "recourse" loan the Cardozas had to take out to purchase the Corby property. Counsel contended that the Cardozas’ retained local commercial real estate brokers could not find another tenant or obtain any offers on the property for six years and that the 2009 market crash intervened to make matters worse. The Cardozas claimed that with no tenants, they were forced to sell the property at a bank-approved short sale for $1.2 million in December 2012. Gonsalves and Leading Edge claimed they did nothing wrong. They also denied having knowledge of any rumors about RPM moving, and claimed, through their expert, that even if they did hear the alleged rumors, they had a duty not to speak to the Cardozas about their clients. Ms. Reed contended that she was a stay-at-home mother and that Mr. Reed solely controlled and operated RPM. Mr. Reed did not dispute Ms. Reed’s claim and affirmed in his testimony that Ms. Reed had no part in RPM, in that he solely operated all of the company’s business affairs. However, Mr. Reed, who appeared in pro per after relinquishing legal counsel at the start of closing statements during the punitive damages trial phase, denied all of the Cardozas’ allegations. He argued that several lawsuits, which arose after the close of escrow, and Ms. Reed’s refusal to release money from a trust account maintained by the divorce attorneys, left RPM with no ability to meet its obligations. In response, counsel for the Cardozas argued that RPM experienced its best year in 2004, with Shinkong injecting $3 million into its business operations, and that Mr. Reed was on his way to Germany to cement a deal that would pay him about $7 million over the next six years. Counsel further argued that Mr. Reed freed himself of $3.2 million in debt through his deal with the Cardozas.

The Cardozas sought recovery of roughly $5 million in compensatory damages based upon the $2.7 million reduction in value of the Corby Property (when they claimed the leases were determined to be phony), as well as based upon $2.3 million in loss of rent. They also sought recovery of prejudgment interest and punitive damages. The defendants claimed that the Cardozas suffered zero damages.

On June 4, 2014, the jury awarded the Cardozas $5 million in compensatory damages for the Cardozas’ loss of rent and consequential damages against Mr. Reed, Reflex LLC, Gonsalves and Leading Edge. The Cardozas also received an additional $1.5 million in prejudgment interest. The jury found Mr. Reed and Reflex LLC responsible for intentional fraud, concealment, intentional interference with contract, and other counts. It also found that Mr. Reed and Reflex LLC were guilty of oppression, fraud and/or malice under Civil Code § 3294 and that punitive damages were appropriate, thus requiring a second "bifurcated" trial to assess punitive damages. As to Gonsalves and Leading Edge, the jury found that they were not liable for intentional fraud, concealment, negligent misrepresentation, and conspiracy, nor were they were appropriate candidates for the imposition of punitive damages. However, the jury did find Gonsalves and Leading Edge liable for breach of broker’s duty of disclosure and broker’s negligence. Judge Nancy Shaffer took under submission whether the negligence claims against Gonsalves and Leading Edge were time barred. A ruling was scheduled to be decided around Aug. 29, 2014. On Aug. 1, 2014, the Cardozas were awarded $12.2 million in punitive damages — $6.1 million each against Mr. Reed and Reflex LLC — for a total recovery of $18.7 million.

Judge:

Nancy Shaffer

Demand:

$750,000 ($1 million policy limits, reduced by amounts spent on defense costs) to Gonsalves and Leading Edge

Offer:

$300,000 from Mr. Reed; $200,000 from Gonsalves and Leading Edge

Trial Length:

4
 months

Trial Deliberations:

2.5
 days

Jury Vote:

12-0 on all counts against Mr. Reed and Reflex LLC

Jury Composition:

5 male/ 7 female

Post Trial:

A motion for judgment notwithstanding the verdict or for new trial was filed by Mr. Reed and Reflex LLC after judgment was entered against them on Aug. 1, 2014. On Sept. 22, 2014, Judge Shaffer ruled in favor of Gonsalves and Leading Edge, finding that the claims against them were time-barred. As a result, counsel for the Cardozas moved for JNOV or a new trial, and to recall the jury.

This report is based on information that was provided by plaintiffs’ and defense counsel.