Opinion
D072886
08-01-2018
DANIEL D. SMOLKO et al., Plaintiffs and Appellants, v. CAPITAL ONE, N.A., Defendant and Respondent.
Daniel D. Smolko and Linna R. Smolko, in pro. per., for Plaintiffs and Appellants. Severson & Werson, Jan T. Chilton and Kerry W. Franich for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2015-00040171-CU-NP-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Eddie Sturgeon, Judge. Affirmed. Daniel D. Smolko and Linna R. Smolko, in pro. per., for Plaintiffs and Appellants. Severson & Werson, Jan T. Chilton and Kerry W. Franich for Defendant and Respondent.
Daniel and Linna Smolko sued their lender's successor, Capital One, N.A., alleging the lender reported the wrong amount of cancelled debt on a federal tax form (1099-C) after the lender foreclosed on their home. The Smolkos asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and intentional infliction of emotional distress. The court initially sustained a demurrer on the emotional distress cause of action. Capital One then successfully moved for summary judgment on the remaining claims.
On appeal, the Smolkos challenge the summary judgment on their fraud claim. We determine their contentions are without merit and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
We summarize the admissible evidence in the light most favorable to the Smolkos, the parties opposing the summary judgment. (See Duarte v. Pacific Specialty Ins. Co. (2017) 13 Cal.App.5th 45, 52.)
Background
In February 2007, the Smolkos borrowed $562,500 from ING Bank (ING) to refinance their home loan. This loan was secured by a deed of trust on their home. In early 2009, the Smolkos defaulted on the ING loan. Later that year, a notice of default was recorded.
On August 20, 2010, a nonjudicial foreclosure sale was held, and the trustee accepted ING's credit bid for $404,191.92. The trustee's deed conveying the property to ING was recorded on September 3, 2010, and reflected a total unpaid debt of $622,572.
Several months later, in January 2011, ING sent the Smolkos a 1099-C tax form stating that on September 30, 2010, ING cancelled $242,500 in debt owed by the Smolkos. A 1099-C is an Internal Revenue Service (IRS) form that creditors must file when they discharge indebtedness, including certain mortgage debt. (See 26 U.S.C. § 6050P; 26 C.F.R. § 1.6050P-1; see also Dimas v. JP Morgan Chase Bank, N.A. (N.D. Cal. 2018) ___ F.Supp.3d ___, ___ [2018 WL 809508 *1, 8.) It is a reporting tool designed to assist the IRS in tracking lenders' debt forgiveness, which can sometimes constitute taxable income to the borrower. (Ibid.; see F.D.I.C. v. Cashion (4th Cir. 2013) 720 F.3d 169, 180; Newton v. Beneficial Financial I, Inc. (W.D. Va. 2018) 2018 WL 934873, *5.)
A few days later, on January 28, 2011, the 1099-C form was delivered to the Smolkos' home, and Mr. Smolko (who has a Ph.D. in chemical engineering) opened the envelope. Upon reviewing the form, Mr. Smolko became very upset because of the substantial amount of the claimed cancelled debt. Because of this distress, Mr. Smolko decided not to disclose the form to his tax accountant or to his wife. He instead put the envelope away, and took no action pertaining to the document. He did not include the 1099-C form with the couple's 2010 tax return. He did not pay any taxes for the claimed cancelled debt, nor did he have any communications with his accountant or the IRS about the form. The IRS has never contacted him about paying any income tax for any cancelled debt pertaining to the foreclosure. He nonetheless worried for the next several years that the IRS might demand additional income tax based on the identified cancelled debt.
More than four years later, in July 2015, the Smolkos received an unsolicited letter from attorney Terence Mix. In the letter, Mix said that based on a foreclosure lawsuit on behalf of unrelated third parties, he gained access to ING's "confidential records" and discovered that in many cases ING had improperly reported "a substantially larger sum than the amount that was actually owed" on 1099-C forms. He said, "[b]ased upon my review of your records, including the Trustee's Deed recorded on September 3, 2010, you very well may have a meritorious lawsuit against ING Bank and Capital One (which acquired ING in late 2012). All I need to see to make that determination is the FORM 1099-C (Cancellation of Debt) that should have been mailed to you by ING in January 2011. My review of this single-page form is all that I will need to see, which I would then compare with ING Bank records that I already have." Mix further said that if "ING cancelled non-existent debt and exposed you to an increase in tax liability[,] . . . we can then (if you want to pursue it further) discuss the extent to which you have been damaged."
Complaint
About five months later, on December 15, 2015, the Smolkos (represented by attorney Mix) filed a complaint against Capital One, ING's successor, alleging fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, and intentional infliction of emotional distress.
On the fraud claim, the Smolkos alleged that at the time of the August 20, 2010 foreclosure sale, ING was aware the Smolkos owed "$162,500 in principal debt" and that "$162,500 was the maximum principal debt owed by [them]," but "ING issued a Form 1099-C to [plaintiffs] and the IRS, which allegedly cancelled $242,500 in principal debt . . . on September 30, 2010." Plaintiffs claimed that ING knew the $242,500 cancellation amount was "false" and that the figure should have been $162,500, and that ING made the misrepresentation "with the intent to defraud [them], to induce them to accept said misrepresentations as true, and thus not challenge said purported cancellation of debt with the IRS or any other federal agency."
The Smolkos further alleged they did not know the representations were false and believed them to be true, and they "justifiably and reasonably relied upon [the] representations . . . ." They claimed they "were and are not knowledgeable about income tax matters and have no expertise in the area of taxation; that they reasonably assumed that a major national bank, with all of its resources, including experts on taxes and real estate, would know all of the rules and laws and would not have made the cancellation of debt if not allowed under the law." They alleged that "[a]s a legal and proximate result" of the erroneous debt cancellation amount on the 1099-C form, they "sustained economic damages in an amount not currently known" and emotional distress damages.
Capital One demurred to the complaint, and the court sustained the demurrer on the emotional distress claim, but overruled it on the other causes of action.
Capital One's Summary Judgment Motion
Capital One then moved for summary judgment on the remaining claims, raising various arguments, including that the undisputed facts show the Smolkos' claims were barred by the statute of limitations; the Smolkos suffered no recoverable economic damages resulting from the claimed wrongful act; and the Smolkos cannot prove the intent-to-cause-reliance and actual-reliance elements of their fraud claim.
In support, Capital One produced Mr. Smolko's deposition testimony in which he admitted he received the 1099-C form from ING on January 28, 2011. He testified that when he reviewed the form, he believed the amount of the cancellation debt was incorrect. He said the $242,500 amount caused him to be "very stressed" because he was concerned he would have to pay income tax on this incorrect figure. He said he did not show the form to his tax accountant "[b]ecause there was no way to pay taxes on $242,500."
Capital One also produced the Smolkos' interrogatory responses, in which they denied having any contact or communication with the IRS regarding the reported cancelled debt, and acknowledged they have not been subject to an IRS audit, investigation, or demand regarding any obligation to pay taxes on the reported cancelled debt amount or on any other cancelled debt amount relating to the August 2010 foreclosure.
Capital One also requested the court to take judicial notice of two IRS publications pertaining to 1099-C forms. These publications provide that financial institutions must file a 1099-C form pertaining to debt cancellation events. A debt cancellation event includes: "A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a 'power of sale' in the mortgage or deed of trust is exercised." The rules state lenders need only include the principal portion of the cancelled debt, and not interest or related costs.
The Smolkos' Opposition to Summary Judgment Motion
In response to Capital One's summary judgment motion, the Smolkos stated they "are withdrawing and dismissing their causes of action for Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing." But they argued Capital One did not meet its summary judgment burden on the fraud cause of action, and/or triable issues of fact exist on the merits and timeliness of this claim.
They submitted their supporting declarations. Mr. Smolko's declaration read in part:
"[When I received the Form 1099-C in January 2011], I understood that cancelled debt represented taxable income and believed that my wife and I were facing taxes on $242[,]500 of income. I also believed that [the form] accurately stated the amount of cancelled debt and had no reason at that time to suspect that it was erroneous. I was not present at the foreclosure auction and had no information as to what took place at that time, but assumed that a major national bank, with all its resources, including experts on taxes and real estate, would know all the rules and laws and would not have made the cancellation of debt if not allowed under the law.
". . . I was so convinced of the accuracy of the 1099-C . . . that I did not inform my wife about the 1099-C and our potential tax liability. My wife suffers from Type 2 diabetes, which can cause her blood sugar to elevate dangerously high as a result of stress. I thus considered this information as a threat to her health. And because she always reviews and signs our tax returns, I also made the decision to not inform our CPA about the 1099-C as well. It was my hope that it would somehow slip past the IRS. We had absolutely no funds to pay taxes on any additional income, let alone taxes on such an astronomical amount of income. The 1099-C was thus not attached to our 2010 tax returns or in any way addressed in those returns.
". . . Had I known that the 1099-C falsely reported the $242,500 in cancelled debt income, and instead represented ING's projected future loss upon a later sale of the Property[,] . . . I would have informed my wife of the form and sent it on to our CPA to challenge on our tax returns, not to mention contacting ING and demanding an amended 1099-C. [¶] . . . [¶]
" . . . Upon realizing in January 2011 that we were faced with tax liability on $242,500 of cancelled debt income, I began experiencing
severe emotional distress. I became increasingly depressed as I thought of the monumental debt we were facing and having absolutely no way of ever paying taxes on it, and for 6½ years have frequently worried about the day I would get a knock on the door or a phone call from the IRS, demanding to know why I did not report the 1099-C on my tax returns. This has resulted in frequent loss of sleep and an inability to concentrate that persists to this day."
Mrs. Smolko's declaration was similar. She denied knowing about ING's 1099-C form until she received Mix's letter in July 2015. She said that after reading Mix's letter, she began experiencing severe emotional distress manifested by depression, frequent lack of sleep and inability to concentrate, and her blood glucose level has gone "through the roof."
The Smolkos also identified their economic losses in their declarations. As detailed below, these claimed losses consisted of attorney fees and investigation/litigation costs incurred after they were contacted by attorney Mix.
The Smolkos also submitted the deposition testimony of a former ING default servicing manager. He testified that during the relevant periods ING calculated cancellation debt income for purposes of 1099-C forms by using " 'the unpaid principal balance less 75 percent of the market value [of the property] at the time of foreclosure sale.' "
In addition to submitting their own evidence, the Smolkos asked the court to "suppress" their deposition testimony submitted by Capital One, claiming they were not given the opportunity to read, correct, and sign the deposition transcripts. In support, the Smolkos submitted their attorney's declaration stating that Capital One's counsel had refused to stipulate to allow the court reporter to mail the original of the deposition transcripts to the Smolkos, who were living in Kentucky with relatives. In his declaration, Mr. Smolko said that he and his wife could not afford "to fly to San Diego to review, correct and sign our deposition[s]."
Capital One's Reply
In response to the Smolkos' motion to strike the submitted deposition transcripts, Capital One argued the Smolkos had the full opportunity to review and correct their transcripts. Capital One explained the applicable "statute provides that 'the deponent may [change an answer] and may approve or refuse to approve the transcript by means of a letter to the deposition officer signed by the deponent which is mailed by certified or registered mail with return receipt requested.' " (See Code Civ. Proc., § 2025.520(c).)
Capital One also reiterated its arguments that the undisputed facts establish the Smolkos' fraud claim is untimely and that they have no evidence to support the reliance, intent-to-rely, and damage elements of their claim.
Court's Ruling
After considering the parties' moving papers and conducting a hearing, the court granted summary judgment in Capital One's favor. The court found the fraud claim was untimely because Mr. Smolko admitted he was aware of, and suffered injuries from, the alleged misrepresentation in January 2011, more than three years before filing the complaint. The court alternatively found the undisputed facts showed ING did not intend to induce reliance on the form and the Smolkos failed to identify any recoverable economic damages resulting from the alleged misrepresentation.
The court also rejected the Smolkos' request to strike the designated deposition transcripts, finding they could have reviewed the transcripts with their counsel even though they were living in another state. The court explained the statutes permit a deponent to make changes to deposition testimony by certified letter. (See Code Civ. Proc., § 2025.520, subd. (c).)
The court entered judgment in Capital One's favor.
DISCUSSION
I. Appellate Rules and Appellate Record Issues
A challenged judgment is presumed correct. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) " 'All intendments and presumptions are indulged to support it on matters as to which the record is silent,' " and it is the appellant's burden to affirmatively demonstrate error. (Ibid.; see In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) To satisfy this burden, an appealing party must designate all superior court documents necessary for the proper consideration of the issues, including any item upon which the appellant should reasonably assume the respondent will rely. (Cal. Rules of Court, rule 8.124(b)(1)(B); see Rhule v. WaveFront Technology, Inc. (2017) 8 Cal.App.5th 1223, 1227; Hernandez v. California Hospital Medical Center (2000) 78 Cal.App.4th 498, 502.)
The Smolkos (who are representing themselves on appeal) did not designate many of the documents relevant to their appeal, including the statement of undisputed facts and the evidentiary materials submitted in support of and in opposition to the summary judgment motion. Based on these record deficiencies, Capital One argues the Smolkos have forfeited their appellate arguments.
We agree the Smolkos failed to designate an adequate record, but we decline to treat this as a forfeiture. As a respondent, Capital One designated a record sufficient for this court to reach the merits of the Smolkos' appellate contentions, and we exercise our discretion to do so in the interest of justice. Contrary to Capital One's assertions, our decision to rely on its record designation does not mean we are "punish[ing]" it for supplying the missing portions of the record. Rather, this approach is consistent with the court's preference to decide issues on the merits. (See Barickman v. Mercury Casualty Co. (2016) 2 Cal.App.5th 508, 518, fn. 4.) Under the circumstances, it was appropriate for Capital One to designate the relevant portions of the record to allow a merits review.
However, we grant Capital One's motion to strike Volumes 2 and 3 of the Smolkos' Appellant's Appendix. These volumes consist of documents (certain deposition transcripts) that were not submitted in the superior court proceedings. Thus, they are not properly before this court. (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 184, fn. 1 ["documents not before the trial court cannot be included as part of the record on appeal"]; California Valley Miwok Tribe v. California Gambling Control Com. (2014) 231 Cal.App.4th 885, 898, fn. 13; Szadolci v. Hollywood Park Operating Co. (1993) 14 Cal.App.4th 16, 19.) We thus disregard the Smolkos' contentions that are based solely on information contained in these two appendices. We are precluded from considering any factual information unless it was before the superior court when it made the challenged ruling.
II. Summary Judgment Standards
A summary judgment motion "shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) A triable issue of material fact exists only if "the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar).)
The issues on a summary judgment motion are framed by the pleadings. (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1250 (Conroy).) A moving defendant has the initial burden to show one or more elements of the plaintiff's cause of action cannot be established, or that there is a complete defense to the claim. (Minish v. Hanuman Fellowship (2013) 214 Cal.App.4th 437, 444.) A moving defendant can satisfy this burden by showing "through factually devoid discovery responses that the plaintiff does not possess and cannot reasonably obtain needed evidence." (Collin v. CalPortland Co. (2014) 228 Cal.App.4th 582, 587 (Collin).)
If the defendant meets this burden, the burden shifts to the plaintiff to show the existence of a triable issue. (Collin, supra, 228 Cal.App.4th at p. 588.) The plaintiff must set forth specific facts based on admissible evidence showing a triable issue of material fact on the cause of action. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477; Trujillo v. First American Registry, Inc. (2007) 157 Cal.App.4th 628, 635.) In ruling on the motion, the trial court must consider the admissible evidence and all inferences reasonably drawn from the evidence in the light most favorable to the plaintiff. (Aguilar, supra, 25 Cal.4th at p. 843.)
"On appeal, the reviewing court makes ' "an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law. [Citations.]" ' " (Hesperia Citizens for Responsible Development v. City of Hesperia (2007) 151 Cal.App.4th 653, 658.) Under this de novo review standard, the appellant retains the burden to show trial court error, and our evaluation is limited to the "contentions adequately raised in the [appellant's] briefs." (Paslay v. State Farm General Ins. Co. (2016) 248 Cal.App.4th 639, 644-645; accord Orange County Water Dist. v. Sabic Innovative Plastics US (2017) 14 Cal.App.5th 343, 368.)
III. Fraud Cause of Action
Under California law, the elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity; (3) intent to induce reliance; (4) actual and justifiable reliance; and (5) resulting damage. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239; Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.)
In moving for summary judgment on the fraud claim, Capital One contended the claim was barred by the three-year statute of limitations, and the Smolkos would be unable to prove the reliance, intent-to-rely, and damage elements of the claim. On appeal, the Smolkos challenge these contentions. We determine the court properly found the undisputed facts showed the cause of action was untimely and, alternatively, there is no factual basis to support the reliance and damages elements of the claim.
A. Statute of Limitations Defense
A fraud cause of action must be brought three years from accrual. (Code Civ. Proc., § 338, subd. (d).) The cause of action accrues upon "the discovery, by the aggrieved party, of the facts constituting the fraud . . . ." (Ibid.) "Discovery of the cause of action occurs when the plaintiff 'has reason . . . to suspect a factual basis' for the action." (Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797; accord Doe v. Roman Catholic Bishop of Sacramento (2010) 189 Cal.App.4th 1423, 1430.) "The discovery rule does not encourage dilatory tactics because plaintiffs are charged with presumptive knowledge of an injury if they have ' " 'information of circumstances to put [them] on inquiry ' " ' or if they have ' " 'the opportunity to obtain knowledge from sources open to [their] investigation.' " ' " (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807-808 (Fox); see Pooshs, at p. 797; Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.) Belated discovery is usually a question of fact, but may be decided as a matter of law when reasonable minds cannot differ. (Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 375; E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1320 (E-Fab).)
Mr. Smolko admitted at his deposition and in his declaration that he received the 1099-C form containing the allegedly inflated debt cancellation amount in January 2011, and that he immediately suffered emotional distress because he did not believe he could afford to pay taxes if this debt cancellation amount was treated as income. He also acknowledged during his deposition that he believed the debt cancellation amount was inaccurate, but he took no action to challenge or correct this amount and instead concealed the 1099-C form from his wife and from the accountant responsible for preparing his 2010 tax returns.
On this record, the limitations period accrued in January 2011, and thus the complaint filed more than four years later was untimely. In January 2011, Mr. Smolko had all the information that would have placed a reasonable person on notice regarding the claimed misrepresentation (wrong debt cancellation amount) on the 1099-C form. He acknowledged in his deposition that at the time he believed the debt cancellation amount was inaccurate. He was also on notice of the outstanding principal balance on the ING loan and was thus necessarily aware that the identified debt cancellation amount was different from this principal amount.
In the proceedings below, the Smolkos contended that even if Mr. Smolko's claim was time-barred, there was no evidence that Mrs. Smolko was aware of the misrepresentation until July 2015 when the Smolkos received attorney Mix's letter. However, Mr. Smolko was Mrs. Smolko's agent for purposes of receiving the tax form or forms mailed to both spouses for their joint tax return. Notice (actual or constructive) possessed by an agent is imputed to the principal, and this rule applies to the delayed discovery rule. (See Santillan v. Roman Catholic Bishop of Fresno (2008) 163 Cal.App.4th 4, 11; E-Fab, supra, 153 Cal.App.4th at pp. 1318-1319; Capron v. State (1966) 247 Cal.App.2d 212, 231-232.)
On appeal, the Smolkos contend the court erred in relying on Mr. Smolko's deposition testimony about his awareness of the claimed error on the 1099-C form because they were unable to correct misstatements in the deposition transcripts. They argue they "requested numerous times to review the [deposition] record and were denied such an opportunity." They do not cite to the record in support of this argument.
In the court below, the Smolkos argued they were prevented from making changes to their depositions because the original deposition transcripts were not forwarded to them, and they could not afford to travel to San Diego to review and sign the original transcripts. The court did not abuse its discretion in rejecting this assertion as a basis to strike the deposition testimony. Under the applicable statutes, a deponent can make changes to his or her deposition testimony by sending a letter by certified mail. (See Code Civ. Proc., § 2025.520, subd. (c).) The Smolkos were represented by counsel who had the opportunity to obtain copies of the deposition transcripts and invoke the statutory procedure to correct any inaccurate testimony. We also find unavailing the Smolkos' appellate contention (without any citation to the record) that the court abused its discretion because it failed to admit "key evidence relating to the 1099-C," and "only admitted one page of the uncorrected depositions." There is no evidence before us that the Smolkos relied upon, or asked the court to admit, additional pages of their deposition transcripts. Absent such proffer, there was no error.
Further, even assuming we were to disregard Mr. Smolko's deposition testimony that he was aware in January 2011 that the debt cancellation amount on the 1099-C form was wrong, actual notice of fraud is not required to delay the accrual of a cause of action. A plaintiff is "charged with presumptive knowledge of an injury" by having " ' " 'the opportunity to obtain knowledge from sources open to [its] investigation.' " ' "' (Fox, supra, 35 Cal.4th at pp. 807-808.) "[I]t is the discovery of facts, not their legal significance, that starts the statute [of limitations]." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1113.)
When Mr. Smolko received the 1099-C form in January 2011, he was on notice of all facts relevant to his current fraud claim (the fact that the identified debt cancellation amount ($242,500) differed from the alleged principal amount of his unpaid loan ($161,000)), and he claimed he began suffering emotional distress damages on that date. The Smolkos argue they were unaware of the true facts (that the debt cancellation amount was inflated) and thus had no reason to investigate until they received Mix's letter four years later in July 2015. However, Mix's letter did not provide them with any additional facts to support their claim. Mix's letter stated only that he had allegedly discovered ING had misidentified the correct debt cancellation amount on other debtor forms, and offered an opinion that such misidentification may be legally actionable. But he also confirmed that he could determine whether the 1099-C form was allegedly inaccurate "solely" by viewing the Smolkos' 1099-C form and the Smolkos' bank records. This statement confirms the Smolkos were in possession of all facts necessary to determine whether the 1099-C form accurately stated the amount of the cancelled debt no later than January 2011.
On appeal, the Smolkos argue "there is no statute of limitations on fraud," and/or a six-year limitations period should govern because "of the large scale of the tax fraud involved." These contentions are factually unsupported because there is no admissible evidence in the record that ING engaged in "large scale" tax fraud. These contentions are also legally unsupported. The Smolkos rely on a federal statute that provides time limits applicable to IRS tax assessments and federal criminal tax fraud prosecutions. (26 U.S.C. § 6531.) They also rely on federal rules applicable to foreign entities. (See 26 U.S.C. § 6038.) These federal laws do not alter the three-year statutory limitations period governing state law fraud claims. (Code Civ. Proc., § 338, subd. (d).)
B. Reliance and Damages Elements
Even assuming the fraud cause of action was timely, the court's summary judgment was proper on the grounds that the record does not support the Smolkos relied on the 1099-C form to their detriment or that they suffered any recoverable economic loss based on the alleged misstatement on the IRS form.
On the reliance element, " '[a]ctual reliance occurs when a misrepresentation is " 'an immediate cause of [a plaintiff's] conduct, which alters his legal relations,' " and when, absent such representation, " 'he would not, in all reasonable probability, have entered into the contract or other transaction.' " ' " (Conroy, supra, 45 Cal.4th at p. 1256.) " ' "A plaintiff asserting fraud by misrepresentation is obliged to . . . ' "establish a complete causal relationship" between the alleged misrepresentations and the harm claimed to have resulted therefrom.' " [Citation.]' " (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1499 (Rossberg); see Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 776.)
Capital One met its summary judgment burden on this element by showing the Smolkos have admitted they have not paid any taxes on the debt cancellation amount stated on the 1099-C form; the IRS has never demanded or requested that the Smolkos pay taxes on the reported debt cancellation amount; and they are not, and have never been, subject to an audit or an investigation about their 2010 tax return.
In response, the Smolkos claimed that Mr. Smolko relied on the 1099-C form in deciding not to disclose the information to his wife or his tax accountant. However, this form of reliance does not support a fraud claim. To establish a fraud claim, the reliance must reflect a causal relationship between defendant's alleged misrepresentation and the plaintiff's alleged harm. (Rossberg, supra, 219 Cal.App.4th at p. 1499.) ING's conduct did not cause the Smolkos' claimed losses. Mr. Smolko's decision to hide the 1099-C form from his wife and accountant, and then his worries about whether he would be contacted by the IRS resulting from this concealment, are not reasonably related to anything that ING did.
Likewise, there is no evidence the Smolkos suffered any recoverable economic damages based on the alleged misrepresentation. As they acknowledged in the proceedings below, emotional distress damages are not available in a fraud cause of action absent accompanying pecuniary or economic loss. (See Sprague v. Equifax, Inc. (1985) 166 Cal.App.3d 1012, 1031; Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1269; accord, Williams v. Wraxall (1995) 33 Cal.App.4th 120, 134, fn. 12.)
Because the Smolkos admit they have not suffered any tax obligations in connection with the cancelled debt identified on the 1099-C form, they state in their declarations that their economic damages consisted of: "(1) pre-litigation time of [several hours] consulting with our attorney and searching for and reviewing records; (2) post-litigation time of 1.5 hours consulting with [their] attorney; (3) 3.5 hours responding to written discovery; (4) 5.0 hours preparing for and attending deposition, not including travel time from . . . Kentucky to San Diego and back; (5) $435.00 filing fee [for this] lawsuit; (6) $150.00 for jury fee deposit; and (7) approximately $1,700 in travel and room rental costs for [the Smolkos] to fly to San Diego and back to [Kentucky]."
These claimed damages reflect solely prelitigation investigation/attorney costs and postlitigation attorney fees and costs. As such, they are not recoverable economic losses on a fraud claim. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 112; Trails Trucking, Inc. v. Bendix-Westinghouse Etc. Air Brake Co. (1973) 32 Cal.App.3d 519, 524 [general litigation expenses "have never been allowable as damages"]; see Falk v. Waterman (1874) 49 Cal. 224, 225.) An exception to this rule applies to a "tort of another" cause of action, in which a party's fraud or other wrongful conduct required the plaintiff to bring or defend a lawsuit against a third party. (See Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 505; Prentice v. North American Title Guaranty Corp. (1963) 59 Cal.2d 618, 620-621.) This exception has no applicability in this case.
Moreover, to the extent the Smolkos argue they could in the future suffer economic loss if the IRS decides to conduct an audit of their 2010 taxes, any such damages are speculative and thus not recoverable. (See Frustuck v. City of Fairfax (1963) 212 Cal.App.2d 345, 367-368.) There is no evidence that the IRS has conducted or will conduct an audit based on the Smolkos' failure to file the 1099-C form with their 2010 tax return, nor is there any evidence the Smolkos will be required to pay income taxes on the debt cancellation figure identified by ING if the Smolkos show the figure is not accurate.
Because we do not reach the issue of the accuracy or effect of the identified debt amount, we do not discuss the impact of the Mortgage Forgiveness Debt Relief Act of 2007 (26 U.S.C. § 108) on debt-cancellation taxes, nor do we discuss various exceptions to debt cancellation income-tax rules such as those applying to insolvent taxpayers (see 26 U.S.C. § 108(a)(1)(B)).
III. Additional Contentions
We have reviewed each of the Smolkos' additional contentions raised in their appellate brief, and conclude each is without merit. For example, the Smolkos' assertions regarding ING tax forms sent to other San Diego County borrowers have no factual support in the record, nor do these arguments show the court erred in granting summary judgment in this case. Likewise, the Smolkos' contentions that ING "took 7.73 Billion Dollars of excessive tax deductions in 2010" are factually unsupported.
In their appellate brief, the Smolkos state they "believe" the court "unfairly" sustained Capital One's demurrer to their intentional infliction of emotional distress claim. However, they do not discuss or cite to the portions of the factual record relevant to this claim, identify any supporting legal authority, or develop their argument as to why the court purportedly erred in sustaining the demurrer on this cause of action. Thus, the claim is forfeited. (See Salas v. Department of Transportation (2011) 198 Cal.App.4th 1058, 1074; Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956.) " ' "When an appellant . . . asserts [a point] but fails to support it with reasoned argument and citations to authority, we treat the point as waived." ' " (Cahill, at p. 956.)
DISPOSITION
Judgment affirmed. Appellants to bear respondent's costs on appeal.
HALLER, J. WE CONCUR: NARES, Acting P. J. IRION, J.