## Facts

- Sellers developed a shopping center, sold it to a partnership formed by the purchasers, and leased the property back while retaining responsibility for tenanting and sharing gross rentals.
- To induce the purchasers to complete the acquisition, a seller-affiliated corporation (Devcorp) executed written guarantees of rent for two troubled tenant leases for a defined period.
- After later corporate restructuring, Devcorp became a shell and its remaining business was effectively handled by personnel of an affiliated corporation (Hahn, Inc.).
- When a replacement tenant was found for one problem lease, the sellers initially agreed to cover the rent shortfall but then asserted only Devcorp was liable and later contended the guarantees were invalid.
- Purchasers offset unpaid guarantee amounts against sums otherwise owed; sellers sued for declaratory relief to establish the guarantees were terminated and that purchasers were in default.
- Purchasers cross-complained for breach of contract and fraud and sought to impose liability on the affiliated corporation under an alter ego theory.

## Issues

1. Whether substantial evidence supported findings of promissory fraud (guarantees made without intent to perform) and resulting liability.
2. Whether the corporate veil could be pierced to hold an affiliated corporation liable as the alter ego of the guarantor entity.
3. Whether compensatory damages for fraud could exceed contract damages where the evidence showed the same loss.
4. Whether the punitive damages award was excessive and required reduction.
5. Whether contractual attorney’s fees were recoverable for prosecuting the fraud claim and/or for defending the declaratory-relief action.
6. Whether defendants forfeited or were estopped from invoking statutory bifurcation of punitive damages proceedings by an untimely request.

## Decision

- Affirmed liability findings for fraud and breach of contract and upheld the alter ego determination imposing liability on the affiliated corporation.
- Modified the compensatory damages by reducing the fraud award to $232,393 because the proven fraud loss was identical to the contract loss.
- Reduced punitive damages from $10 million to $2 million as excessive.
- Reversed contractual attorney’s fees to the extent allocated to prosecuting the tort (fraud) claim after respondents elected to recover on that theory.
- Affirmed entitlement to contractual attorney’s fees incurred in defending the sellers’ declaratory-relief action as an action on the contract, and remanded for proceedings consistent with the modifications.
- Upheld the unified trial on punitive damages, concluding the delayed bifurcation request could be denied and the requesting party could be estopped from asserting the statutory right.

## Legal Principles

- Promissory fraud is established when a party enters a contractual undertaking without intent to perform; punitive damages may be awarded when a contract is procured by fraud.
- On substantial evidence review, the appellate court considers the whole record and does not reweigh credibility; testimony of a single witness can be sufficient if it constitutes substantial evidence.
- Alter ego liability may be imposed where affiliated entities lack meaningful separateness and recognizing the corporate form would sanction a fraud or produce an unjust result.
- A plaintiff may not obtain duplicative compensatory recovery for the same injury under both contract and tort theories; where the losses coincide, compensatory damages are limited to a single measure.
- Punitive damages must bear a reasonable relationship to the harm and may be reduced when excessive in light of compensatory damages and the conduct shown.
- Contractual attorney’s fees generally track “actions on the contract”; fees for prosecuting tort claims are not recoverable under a contract fee clause when the claimant elects a tort recovery, but fees may be recovered for defending a contract-based declaratory-relief action when the party prevails.
- Statutory procedural rights, including punitive-damages bifurcation, may be lost through untimely assertion when delay prejudices the opposing party; estoppel may bar later reliance on the statute.

## Conclusion

The court sustained fraud and alter ego liability arising from lease-guarantee commitments made without intent to perform, but prevented double recovery by reducing fraud compensatory damages to the contract loss, cut punitive damages as excessive, and limited attorney’s fees to those incurred in defending the contract-based declaratory-relief action while rejecting an untimely demand for punitive-damages bifurcation.


Las Palmas Assocs. v. Las Palmas Ctr. Assocs., 235 Cal. App. 3d 1220, 1 Cal. Rptr. 2d 301 (Ct. App. 1991)