California

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

COURT OF APPEAL OF CALIFORNIA, FOURTH APPELLATE DISTRICT,
DIVISION TWO

December 22, 2004, Filed

NOTICE: [*1] NOT TO BE PUBLISHED IN OFFICIAL REPORTS. CALIFORNIA RULES OF COURT, RULE 977(a), PROHIBIT COURTS AND PARTIES FROM CITING OR RELYING ON OPINIONS NOT CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED, EXCEPT AS SPECIFIED BY RULE 977(B). THIS OPINION HAS NOT BEEN CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED FOR THE PURPOSES OF RULE 977.

PRIOR HISTORY: APPEAL from the Superior Court of Riverside County, No. RCSC 299342. Joan Ettinger, Temporary Judge. Pursuant to Cal. Const., art. VI, § 21.

DISPOSITION: Affirmed in part, modified in part, reversed in part.

COUNSEL: Lobb & Cliff and Robert J. Mitchell; Lascher & Lascher and Wendy Cole Lascher for Defendants and Appellants.

Boyd & Chang and John Roberts Boyd for Plaintiff and Appellant.

JUDGES: HOLLENHORST Acting P. J.; RICHLI J., KING J. Concurred.

OPINIONBY: HOLLENHORST

OPINION: Both parties appeal n1 from judgment awarding plaintiff $ 524,826.46 in compensatory damages and $ 400,000 in punitive damages against defendants Ronald E. Schmer (Schmer) and Sun West Mercantile, Inc. (Mercantile). n2 Defendants contend that the judgment should be reversed because there was no basis for awarding tort damages, the contract judgment was excessive, there was no basis for awarding [*2] punitive damages, and even if punitive damages were allowed, the amount of the award was excessive. Defendants also contend that there was no basis for imposing liability on Mercantile as an alter ego of Schmer. Plaintiff contends that the trial court erred in remitting the compensatory and punitive damages awards, and plaintiff seeks to have the damages reinstated in the amounts awarded by the jury totaling $ 1.5 million.

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n1 The matter has previously been before us on plaintiff Jan Levinski's appeal in Nos. E026302/E027174 from the trial court's grant of summary judgment in favor of defendants. In our opinion in that case, filed February 13, 2001, we concluded that triable issues of material fact existed as to when the applicable statutes of limitations began to run. However, we affirmed summary adjudication of Levinski's cause of action for embezzlement, holding that no private cause of action for embezzlement exists. We also affirmed summary adjudication of the claim for punitive damages in the cause of action for an accounting. In all other respects, we reversed the summary judgment.

n2 The complaint also alleged claims against Schmer's wife, Diana Schmer, and against various other entities through which Schmer and/or his wife had conducted business. The trial court granted nonsuit in favor of all defendants except Schmer and Mercantile.

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We conclude that the trial court erred in awarding plaintiff's out-of-pocket interest expense rather than interest at the legal rate, and we therefore order the judgment modified with respect to compensatory damages. We also conclude that the record does not support an award of punitive damages, and we therefore reverse the judgment with respect to the award of punitive damages. Finally, we affirm the trial court's alter ego finding.

FACTS AND PROCEDURAL BACKGROUND

Levinski and Schmer, who were long time friends, formed a joint venture in the 1980's to buy food products and resell them to school districts and California state agencies and to broker cheese and candy to retail outlets. They worked out of their respective homes, and they shared the profits from sales equally after deducting direct expenses. Levinski formed a company called Davies and Company (Davies) through which he did business.

As one part of their joint venture, Schmer and Levinski bought cheese which they resold to school districts and state agencies. Before July 1992, Levinski handled the billing for that business. He gave Schmer, Inc., checks written on the Davies account totaling $ 135,000 between February [*4] 1991 and April 1992 for Schmer's "share of the profits that we had generated on the schools and the state bids." Schmer testified that their profits were from 8 to 10 percent of the price of the cheese they sold.

In another part of their joint venture, Schmer and Levinski acted as brokers or manufacturers' representatives for Gallo Cheese and Quality Candy. In those broker sales of Gallo Cheese and Quality Candy, they were not required to maintain any inventory, but would receive monthly commissions based on their sales.

In 1992, the parties formed a new corporation, Specialty Sales Projects, Inc., doing business as Myra Sales, Inc., (Myra Sales) with the intended purpose of selling food products to the federal government, and Levinski began the process of obtaining certification to do so. In the articles of incorporation, Levinski was listed as a director and chief financial officer, and Schmer was listed as secretary; shares of stock were issued to both of them.

Also in 1992, Levinski and Schmer agreed orally to transfer responsibility for the school district and state agency contracts to Schmer because he had a home computer, and he could invoice customers more easily. Levinski [*5] therefore transferred existing inventory and the billing for the school district and state agency contracts to Schmer. Under the parties' agreement, Schmer and his daughter would do sales for the school district and state agency sales operation and generate the invoices, Levinski would provide the working capital to run the business, and the parties would continue to share the profits.

Levinski obtained $ 175,000 under his personal line of credit. In July 1992, Levinski wrote two checks, totaling $ 175,000, from his Davies account to Sun West Co., an entity through which Schmer and his wife did business. The checks were marked "loan," and the funds were to be used as working capital for the business. Levinski testified that Schmer was to repay the $ 175,000 loan when they received federal government approval for the Myra Sales venture. Levinski stated in the application for federal approval that he had a $ 300,000 line of credit; which included the $ 175,000 that he had lent to Schmer.

Schmer testified, however, that the $ 175,000 was an advance toward what would ultimately be determined as his share of the profits from past sales made by Davies. He testified that the $ 135,000 [*6] that Levinski had earlier paid him in 1991 and 1992 was solely for his half of the profits on the cheese sold to school districts, and Levinski had never given him an accounting for the state agency sales. He testified that he had his own line of credit in 1992. Schmer contended that the parties had gone their separate ways in 1992, and after that, Levinski was free to bid on state and school district contracts on his own behalf. Schmer denied that Levinski had transferred any existing inventory to him in 1992.

After July 1992, Levinski continued to do all the work on the broker sales of Gallo Cheese and Quality Candy. In the account with Gallo Cheese, Schmer had been the initial contact, so Gallo Cheese sent monthly commission checks to Schmer, Inc. for the cheese that both Schmer and Levinski sold. Schmer then sent Levinski checks for half of the commissions until 1997 when Levinski filed the present action. The checks to Levinski were initially from Schmer, Inc., signed by Schmer, and then later from that account signed by Diana Schmer. In the Quality Candy account, Levinski did all of the sales, but he gave Schmer half the profits until 1997 "because we were in a partnership [*7] agreement, sharing brokerage 50/50." Levinski testified that he had paid Schmer $ 15,000 to $ 20,000 per year based on the candy sales.

Levinski testified that Schmer never told him that Schmer was going off on his own in 1992 to do his own bids on state and school business. Rather, the two men continued to act as partners. One witness testified that as late as 1995, Schmer and Levinski described themselves as partners in a venture to sell cheese. Another witness testified that in 1993, Schmer and Levinski had a booth together at a school food show in Sacramento. A business acquaintance of both Schmer and Levinski, who was involved in the food business in Las Vegas, testified that in late 1992, Schmer and Levinski had visited his business, and they had discussed working together on some food sales projects. Moreover, in 1996, Schmer signed a personal guarantee so that Myra Sales could be certified to sell to the federal government.

In 1996, when he finally obtained the federal bidding certification for Myra Sales, Levinski asked Schmer to repay the $ 175,000 loan. Schmer requested an accounting of Levinski's previous state agency sales for 1990 through 1992, and when Levinski provided [*8] one, Schmer asked for a more detailed accounting and then asked to see the original invoices. However, Schmer did not repay the loan. Schmer and his wife had written checks to themselves totaling at least $ 160,000 from the Sun West Co. account within six months after the loan was made. The memo lines of many of the checks indicated that the checks were for "draw" or "loan repayment."

Levinski testified that he paid a total of $ 389,517 in principal and interest to pay off the initial $ 175,000 he obtained through his line of credit. In his complaint, he alleged that he had suffered the loss of his 50 percent interest in the profits of the partnership between 1992 and 1997 in a sum in excess of $ 250,000. In closing argument, Levinski's counsel stated that Levinski was seeking the return of his $ 175,000, his out-of-pocket interest on that amount, and the agreed shared profits from cheese sales.

The jury found in favor of Levinski on three causes of action: (1) conversion; (2) breach of partnership agreement; and (3) fraud and deceit. n3

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n3 The first cause of action in the second amended complaint was entitled "estoppel." However, at trial, that cause of action was presented as being a claim based on a false promise; Levinski's counsel argued that Schmer had made a promise without an intent to perform it. In its special verdict, the jury found in favor of Schmer on that cause of action.

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First, the jury found that the $ 175,000 "was a loan to be repaid upon the certification of Myra Sales to sell products to the United States government." The jury found that the loan had been made for one specific purpose, but that Schmer had used the money "for his own benefit and for a purpose different from the one agreed upon between him and the plaintiff." The jury found that Schmer had not proven by a preponderance of the evidence that Levinski owed him money at the time the $ 175,000 was paid to Sun West Co. in July 1992. The jury also found that a joint venture existed between Levinski and Schmer "concerning the sales of food to school districts and state agencies after July, 1992." The jury awarded Levinski $ 700,000 in compensatory damages.

The jury found that Schmer did not act with malice or oppression when he used the loan proceeds for his own benefit rather than for the agreed-upon purpose, and the jury found that Schmer did not make a promise with the intention not to perform it. The jury also found that Schmer had failed to disclose material facts, of which Schmer was fully aware, with the intention to induce Levinski to rely on them, and that Levinski was not aware [*10] of the undisclosed facts. The jury found that Levinski acted in justifiable reliance on the facts that were undisclosed, and that the failure to disclose facts caused Levinski damages in the amount of $ 700,000. The jury found by clear and convincing evidence that Schmer committed fraud in his dealings with Levinski, and the jury assessed punitive damages in the amount of $ 800,000.24. The court found that Mercantile was an alter ego of Schmer.

Schmer moved for judgment notwithstanding the verdict (JNOV), new trial, remittitur, and to vacate the jury award on the grounds of insufficient evidence and the defense of the statute of limitations. The trial court denied the motion for JNOV and denied the motion for new trial, conditioned on Levinski's agreement to accept a reduction in the compensatory and punitive damages awards. Levinski accepted the remittitur. The court partially granted the motion to vacate and deducted an additional $ 8,410.40 from the compensatory damages award. In its statement of reasons, the court explained, "With respect to the compensatory damages, the court finds that the proper compensatory damages, as testified to by Mr. Levinski and as supported by the evidence, [*11] consist of $ 175,000.00 for the loan amount, plus the interest on the loan amount at 10% from the date of the filing of the complaint to the verdict of $ 87,500.00, plus the $ 214.517.00 testified to by Mr. Levinski as out-of-pocket costs for payment of the line of credit for the loan under the fraud theory, plus prejudgment interest at 7% on the $ 214,517.000 calculated at $ 56,219.97.[n4 ] The court concludes the evidence was insufficient to justify the damage amount as arrived at by the jury, in that the only elements of damage were the loan amount ($ 175,000.00), the amount paid on the line of credit ($ 214,517.00), and the interest described thereon, and those amounts do not add up to $ 700,000.00." Judgment was then entered against Schmer and Mercantile.

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n4 In the judgment, this figure was changed to $ 47,809.46.

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On appeal, Schmer contends that the evidence was not sufficient to establish anything except breach of contract. In addition, Schmer contends that even the remitted compensatory damages were [*12] excessive. Levinski argues that the trial court erred in remitting the compensatory damages award and asks us to reinstate the damages awarded by the jury.

DISCUSSION

I. Standards of Review

The principles governing appellate review of the sufficiency of evidence to support the verdict are well established: "(1) all conflicts must be resolved for the respondent and all legitimate and reasonable inferences indulged in to uphold the verdict where possible; (2) the appellate court's power begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the jury's conclusion; and (3) when two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court." (Estate of Gelonese (1974) 36 Cal. App. 3d 854, 861, 111 Cal. Rptr. 833.) In determining the sufficiency of the evidence to support a judgment, this court does not reweigh the evidence. Rather, we resolve all conflicts in favor of the prevailing party and view the evidence in the light most favorable to that party (Hasson v. Ford Motor Co. (1982) 32 Cal.3d 388, 398, 185 Cal. Rptr. 654), [*13] giving the prevailing party the benefit of every reasonable inference from the evidence. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614, 122 Cal. Rptr. 79.)

Schmer also challenges the damages awards as excessive. Here, the trial court denied Schmer's motion for a new trial conditioned on Levinski's acceptance of a reduction in the damages awards. When the trial judge has passed on the issue of excessive damages in connection with a motion for new trial, as a general rule, his or her conclusion in the matter will not be disturbed unless it is clearly wrong. (Neumann v. Bishop (1976) 59 Cal. App. 3d 451, 492, 130 Cal. Rptr. 786.) This same rule applies when the trial judge has reduced the award and a remittitur has been accepted. (Ibid.)

II. Fraud

Because the trial court based its damages computation on the jury's finding of fraud, we first address that cause of action. The jury found in its special verdict that Schmer failed to disclose material facts to Levinski, Schmer was fully aware of the undisclosed facts, Schmer concealed facts from Levinski with the intent to induce Levinski to rely on them, Levinski was unaware of the undisclosed [*14] facts, Levinski justifiably acted in reliance on the undisclosed facts, and the nondisclosure caused Levinski to suffer damages in the amount of $ 700,000. The jury also found, by clear and convincing evidence, that Schmer "was either guilty of or has committed fraud in his dealings with" Levinski.

In its statement of reasons for denying the motion for new trial on condition that Levinski accept a reduction in the damages award, the trial court stated that it was awarding Levinski the out-of-pocket interest on his line of credit based on the jury's finding of fraud. Schmer contends, however, that the jury finding of fraud by concealment was not supported by substantial evidence. Rather, Schmer argues, Levinski has shown, at best, nondisclosure without actual loss.

A cause of action for fraud or concealment requires allegation and proof of: "(1) misrepresentation of a material fact (consisting of false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to deceive and induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damage." (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 481.) [*15]

Moreover, a cause of action for fraud requires a showing of actual damages. (Auerbach v. Great Western Bank (1999) 74 Cal.App.4th 1172, 1184, quoting Civ. Code, § 3333 ["In order to recover on a claim for fraud, the plaintiff must establish the 'detriment proximately caused' by the defendant's tortious conduct. [Citation.] 'Deception without resulting loss is not actionable fraud. [Citation.]'"].) Schmer argues that no damages were shown to have resulted from the concealment.

The second amended complaint alleged that Schmer had failed to inform Levinski that Schmer had been barred from bidding State of California bids while he was managing the joint venture and had failed to disclose that fact to Levinski. In a joint venture, the parties are fiduciaries subject to a duty of disclosure. (Boyd v. Bevilacqua (1966) 247 Cal. App. 2d 272, 290, 55 Cal. Rptr. 610.) The jury found, based on substantial evidence, that Levinski and Schmer were in a joint venture. Thus, Schmer had a duty to disclose the fact of the decertification to Levinski. Schmer points out, however, that although his company was briefly suspended as a state [*16] bidder in 1994, it was reinstated after an investigation. Moreover, the suspension occurred after Levinski made the loan, and the reinstatement occurred before Levinski demanded repayment of the loan, so the suspension could not have caused either the loan to be made or the failure to repay it. We agree with Schmer's argument on this point - even though Schmer, as a joint venturer with Levinski, had a duty to disclose the decertification, Levinski has failed to show that any damages resulted from the failure to disclose that information.

Levinski's counsel argued at trial, in support of the fraud allegations, that ownership of Schmer, Inc., had been transferred to Diana Schmer; Schmer had shut down his business entity, Sun West Co., which had received the $ 175,000 loan, and had conducted bidding on state contracts through another entity, Sun West Provisions. Schmer had eventually shut down Sun West Provisions and after that had done business through Mercantile. However, Schmer never disclosed these facts to Levinski.

Schmer argues, however, that the ownership of Schmer, Inc., by Diana Schmer, was not a cause of any harm. Levinski never testified that he was lending money to Schmer, [*17] Inc., and he knew that Schmer and Diana Schmer were doing business outside of his partnership with Schmer, but he did not expect to participate in such business. The trial court dismissed Schmer, Inc., as a defendant. In addition, Schmer commenced doing business through Sun West Provisions in late 1992 or early 1993, after the loan had been made and did not do business through Mercantile until even later. Because the evidence did not show any damages caused by the nondisclosure of the various business entities, we conclude that this nondisclosure did not establish a requisite element of fraud.

Finally, on appeal, Levinski argues that the jury "found Schmer was guilty of fraud because of his concealment of the conversion of the $ 175,000.00 and the venture from Levinski." However, Levinski has not explained how he suffered damages from the concealment of the conversion apart from the damages he suffered from the conversion itself. Thus, even though the evidence establishes that Schmer made various misrepresentations to Levinski, we conclude that the evidence does not support the jury finding of fraud because no damages were shown to have been caused by those misrepresentations. Thus, [*18] the trial court's calculation of the reduced damages on the motion for new trial was not supported by the jury's finding on the fraud cause of action.

III. Conversion

Schmer also contends that the evidence is insufficient to establish conversion. The operative pleading alleged that "on or about July 30, 1995," defendants took $ 175,000 plus accrued interest from plaintiffs and "converted the same to his own use."

"Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff's ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages." (Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 543-544.) "'. . . It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. [Citations.]' [Citation.] Money can be the subject of an action for conversion if a specific sum capable of identification is involved. [Citation.]" [*19] (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-452; see also Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072 [holding that an agent had an obligation to turn over to the principal on demand the definite sum it received in connection with the sale of the principal's farm products, and affirming judgment for the principal; also stating that each coin or bill need not be earmarked, but that a specific sum must be capable of identification].)

A partner may be liable for conversion of partnership assets if he or she converts those assets to personal use without authorization. (See Oakdale Village Group v. Fong, supra, 43 Cal.App.4th at p. 546.) ("Wang, in violation of the partnership agreement, used partnership assets without authorization to repay a personal debt. Applying the rule of People v. Sobiek [(1973)] 30 Cal. App. 3d 458, 106 Cal. Rptr. 519, Wang can be held liable for conversion of partnership property. One is not permitted to rob Peter in order to pay Paul, even if 'Peter' is a partnership.") In Oakdale, the court stated that a partner's stealing part of the partnership property [*20] that did not belong to him was indistinguishable from stealing another person's property. (Oakdale Village Group, at p. 546.) Thus, the court held that a partner who used partnership assets without authorization to repay a personal debt could be liable for conversion of partnership property. (Ibid.)

Schmer contends that the evidence showed that he used the loan for the purpose for which it was intended, i.e., to purchase cheese for the fulfillment of state contracts. However, other evidence established that a series of checks totaling over $ 160,000 were written from the Sun West Co. account to Ronald and Diana Schmer in the six months after the loan was made. Moreover, Schmer refused to turn over or account for the loaned funds on demand. The jury therefore reasonably found, based on substantial evidence, that he was liable for conversion. (See Fischer v. Machado, supra, 50 Cal.App.4th at p. 1072.)

Schmer next contends that the compensatory damages award exceeded the proper recovery for the conversion. The basic recovery in a conversion action is for the value of the property with interest. Civil Code section 3336 provides: "The [*21] detriment caused by the wrongful conversion of personal property is presumed to be: [P] First-The value of the property at the time of the conversion, with the interest from that time, or, an amount sufficient to indemnify the party injured for the loss which is the natural, reasonable and proximate result of the wrongful act complained of and which a proper degree of prudence on his part would not have averted; and [P] Second-A fair compensation for the time and money properly expended in pursuit of the property." However, expenses incurred in preparation for litigation rather than in pursuit of the converted property are not recoverable. (See Haines v. Parra (1987) 193 Cal. App. 3d 1553, 1559, 239 Cal. Rptr. 178.)

Under Civil Code section 3336, the appropriate measure of damages is recovery of the property plus interest at the legal rate. (Beverly Finance Co. v. American Casualty Co. (1969) 273 Cal. App. 2d 259, 265, 78 Cal. Rptr. 334.) We conclude that the trial court's award of Levinski's out-of-pocket interest was not available on the fraud cause of action.

IV. Breach of Partnership Agreement

The jury found [*22] in its special verdict that a joint venture existed between Levinski and Schmer concerning the sales of food to school districts and state agencies after July 1992. The second amended complaint requested damages for breach of the partnership agreement including one half of the profits on the school district and state agency sales. In argument to the jury, Levinski's counsel requested an award of "the agreed shared profits from the future profits from the bid and cheese sales." The jury's special verdict did not assign specific amounts of damages to the specific causes of action; rather, the jury found that Levinski had been damaged in the amount of $ 700,000.

The trial court found, on the motion for new trial, that the evidence was insufficient to establish damages in that amount, and, as discussed above, the trial court denied the motion for new trial conditioned on Levinski's acceptance of reduced damages in the amount discussed above. We give great deference to the trial court's decision on a motion for new trial. (Neumann v. Bishop, supra, 59 Cal. App. 3d at p. 492.) We conclude that the trial court did not abuse its discretion in finding that the evidence [*23] did not support additional damages other than those awarded for conversion.

V. Alter Ego

Schmer argues that the trial court erred in finding that Mercantile was an alter ego of Schmer. A claim that a corporation is the alter ego of an individual arises when recognizing the separate existence of the corporation would be inequitable. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) "When a corporation is used by an individual . . . to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the acts as if they were done by the individuals themselves . . . ." (9 Witkin, Summary of Cal. Law (9th ed. 1989) Corporations, § 12, p. 524.) "The issue is not whether the corporate entity should be disregarded for all purposes, nor whether its very purpose was to defraud the plaintiff. Rather, the issue is 'whether in the particular case presented and for the purpose of such case justice and equity can best be accomplished and fraud and unfairness defeated by a disregard of the distinct entity of the corporate [*24] form.' [Citations.]" (Id. at p. 525.)

Two conditions must be met to invoke the alter ego doctrine: "First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone." (Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th 523, 538.)

Here, Schmer testified that Mercantile lacked corporate minutes; he was the sole shareholder; and the sole director, Schmer's aunt, had died a year before trial. Thus, the evidence was sufficient to establish the first condition of the alter ego doctrine.

In addition, the court reasoned that Sun West Co., Sun West Provisions, and Mercantile were all simply extensions of Schmer. Schmer successively used those entities in the single venture of bidding state contracts, the same venture that Schmer shared with Levinski. Schmer himself testified that Mercantile was worth nothing without him. We conclude that the trial court reasonably found that it would be inequitable [*25] to recognize the separate existence of the corporate entity under the circumstances presented. We conclude that substantial evidence supports the finding that Mercantile was an alter ego of Schmer.

VI. Punitive Damages Award

Schmer contends that the evidence does not support an award of punitive damages, and the amount awarded was excessive, in that it represented more than his entire net worth after the compensatory damages award was subtracted. Because we find merit in the first contention, we need not address the second.

Punitive damages may be recovered "in an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice . . . ." (Civ. Code, § 3294, subd. (a).) Under subdivision (c)(3) of section 3294, "'Fraud' means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury." We have concluded that the evidence did not support the jury's finding of fraud; [*26] thus, fraud cannot support the award of punitive damages.

Punitive damages may be awarded in an action for conversion "'. . . given the required showing of malice, fraud or oppression. [Citations.]' [Citations.]" (Haines v. Parra, supra, 193 Cal. App. 3d 1553, 1560.) Here, however, the jury found in its special verdict that Schmer had not "acted with malice or oppression when he used the $ 175,000.00 for his own benefit and for a purpose different from the one agreed upon between him and the plaintiff."" Thus, we conclude the conversion action does not support the punitive damages award.

DISPOSITION

The judgment in favor of Levinski is affirmed in part, but the judgment is modified consistent with the views expressed in this opinion to award Levinski the principal sum of the loan plus interest at the legal rate. The judgment with respect to the award of punitive damages is reversed. Appellant Levinski shall be awarded costs on appeal.

HOLLENHORST, Acting P. J.

We concur:

RICHLI, J.

KING, J.

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