Here’s a brief procedural history on what happened: On August 15, 2003, Edward Alcoser, Stiliani Antonakis, Sue Jacky, and Suzannee Kronisch, on behalf of themselves and class representatives filed a complaint against Thomas, alleging that he had engaged in various practices “designed to deprive tenants of their security deposits… and to deter tenants from claiming the deposits and asserting their rights.” The class consisted of approximately 200 people defined as “former tenants who moved out od rental units owned by Thomas in Alameda county… and who did not receive a refund of all or any part of their security deposit.”
On September 3, 2008, the trial court denied a motion for summary judgment filed by Thomas. On November 4, 2008, the jury returned verdicts in Plaintiff’s favor and fixed class damages at $183, 018.87 and found that Thomas had acted in bad faith with respect to the statutory claim, as well as with malice, oppression or fraud in defrauding the class. On November 5, 2008, the jury awarded $5,490,566.10 in punitive damages against Thomas.
On January 13, 2009, Thomas filed a motion for a new trial, and it was granted in part. The trial court entered its order on the motion for new trial, reducing compensatory damages to $130, 819.31 and reducing prejudgment interest from $220,248.50 to $63, 679 and reduced the punitive damages award to $1 million. It required the plaintiffs to elect between the punitive damages and statutory damages.
On June 30, 2009, the trial court granted in part plaintiff’s motion for attorney fees and costs. The court awarded Plaintiffs a total of $1,664,777.48 in attorney fees and costs. Three consolidated appeals followed.
Thomas owned around 150 residential units in Alameda County. The units are managed by ELM, his property management company. Thomas generally required his tenants in Alameda County to pay a security deposit equal to 1.25 multiplied by one month’s rent. He also had a practice of conducting a move in inspection of the rental units at the beginning of each tenancy. The inspection included the filling out of a form in which a tenant could list any deficiencies with the unit. After a tenant moved out, Thomas’s practice was to write a letter detailing any deductions he intended to take from the security deposit. He also took photographs of a vacated unit if he had any claim of tenant caused damage.
Thomas also used a computer program called YARDI that is designed for property management businesses. The YARDI files contain a record of all the money Thomas spends on his properties by unit. However, the reports do not distinguish the amount spent on tenant-caused damage only, though they could have been designed to do so. In fact, there was even an expert witness who went by the name of Robert Miller who testified that Thomas’ policies regarding many of the charges applied to the security deposits were not within the standards of the industry. A comparison of the costs estimated in letters sent to 157 tenants, as against actual amounts spent as shown by the YARDI reports, revealed that while $502,461.37 was claimed as damages, only $215,057.72 was actually spent on repairing the affected units. Further, the amount attributable to tenant caused damages was unknown as the YARDI reports do not segregate tenant-caused expenditures from expenditures for routine maintenance.
The element of reliance:
For a claim of fraud to be successful, the plaintiff must be able to show that he relied on statements made by the Defendant. (Alliance Mortgage. Co v. Rothwell, (1995) 10 Cal. 4th 1226, 1239.) “Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff’s conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction. (Id.)
The problem here was that this particular case was a class action suit, so Thomas’s main argument was that the finding of reliance was not supported by substantial evidence. To back up his claim, he used the fact that not every single tenant in the class action was brought in to testify that they had read the lease provision regarding the security deposit, and thus had relied on his statements. However, the court was quick to shoot down his argument. The court cited to Code of Civil Procedure § 382 that authorized class actions “when the question is one of a common or general interest of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.” Thus, the court said that it would defeat the purpose of class action, in which certain plaintiffs are chosen to represent a class, if every single member of the class were individually required to appear in court to prove every element of the class action claims.
The court also drew on custom to show that there was substantial evidence that all tenants had, in fact, relied on the defendant’s statements. It was arguable that that the tenants in the same building owned by the Defendant shared details of their individual lease including recovery of deposits. Additionally, the fact that members of this class engaged in conduct designed to recover deposits, such as cleaning and improving the unit, demonstrated their motive to obtain a refund of deposit fees, creating a presumption of reliance by the class. And finally, the fact the court held that the tenants were also made aware of the security deposit provision when they paid their security deposits as a condition of their tenancies. Thus, there was substantial circumstantial evidence of reliance in this case.
The second issue that Thomas brought up was that the jury instructions that were given out regarding the damages section was faulty. The instruction that was handed to the jury at trial was as such: “To determine the amount of damages, you must: Determine the amount of the security deposits that the class gave to Thomas… and subtract the amount of deposits that the named plaintiffs and the class did receive in return. The resulting amount is the class’ damages.” Thomas argued that this instruction was incomplete as it improperly included the entire deposit as part of the compensatory damages, with no allowance for valid deductions. However, the court, once more, disagreed with Thomas.
To support its decision, the court cited Grandberry v. Islay Investments, (1995) 9 Cal. 4th 738. In that case, the court held that when a landlord violated §1950.5 (which deals with the withholding of security deposits), “the right to retain all or part of the security deposit… has not been perfected and he must return the entire deposit to the tenant.” (Id at 745) Thus, the jury instruction that was given at trial was not erroneous.
The court also held that even if the jury instruction could be said to be flawed, it would have deemed to have been waived. This is because when the trial gives an instruction “which is an incorrect statement of law, the party harmed by that instruction need not have objected to the instruction or proposed a correct instruction of his own in order to preserve the right to complain of the erroneous instruction on appeal.” (Suman v BMW Of North America Inc., (1994) 23 Cal. App. 4th 1, 9.) However, “when a trial court gives a jury instruction which is correct as far as it goes but which is too general or too incomplete for the state of the evidence, a failure to request an additional or a qualifying instruction will waive a party’s right to later complain on appeal about the instruction which was given.” (Id.)
Thomas also appealed the punitive damages award as he thought that it was too excessive. In response to this, the court used a multi factor test to review the issue of damages “de novo.” The factors were: (1) the degree of reprehensibility of the defendant’s misconduct, (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
What really became the last nail in Thomas’s coffin was the fact that, at trial, Thomas acknowledged that many of his tenants were financially vulnerable. So this made his actions particularly reprehensible, at least to the judges who heard this case. Further, his conduct was regular and ongoing, repeated multiple times over a substantial period of time. This demonstrated a pattern of unlawful conduct towards his many tenants. Additionally, the judges also found that Thomas systematically committed intentional fraud in a way that was calculated to deter former tenants from pursuing their legal remedies, supporting a finding of intentional malice, trickery or deceit.
Ration of Punitive Damages to Actual Harm:
The court found that the ratio between the two was not of “breathtaking proportions.” The ratio here was 8 to 1, and that ratio was upheld by Simon v San Paolo U.S Holding Co. Inc., (2005) 35 Cal. 4th 1159.) Thus, the court had no problem approving this ratio.
Comparable Civil Penalties:
In determining the reasonableness of a punitive damages award, courts also “compare the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct.” (Suman v BMW Of North America Inc., (1994) 23 Cal. App. 4th 1.) However, the court said that it would serve no purpose to limit a punitive damages award to an arbitrary ratio of no more than the actual damage. Thus, the court declined Thomas’ argument that the punitive damages award was too excessive.
So, what are the takeaways from this case? When it comes to the landlord, it pays to be diligent with your accounting and to itemize every single repair that was caused by your tenant. Furthermore, you can only deduct expenses that were related to tenant caused damage and not just general upkeep. Additionally, shady tactics like trying to discourage your tenants from pursuing any legal action against you will only come back to haunt you in the form of punitive damages!
As for tenants? If you think your claim is too small to have anything actually come of it, don’t be shy to talk to other tenants in your building to see if they’ve suffered from the same unlawful practice. You just might be able to get a class action suit going!