Court Upholds $23 Million Award Against Contractor in CA Real Estate Fraud Case

Concept of construction and design. 3d render of blueprints and designer tools on the panorama of construction site.

When Delores McGinty created a special needs trust in 2006 on behalf of her daughter Kathleen,  who suffers from autism, which included ownership of a 1,477 square foot home in Santa Monica, she no doubt wanted to provide for her daughter after her own death, which came to pass in 2009. Unfortunately, a contractor who had offered to make needed repairs on the property took advantage of Kathleen and her brother Tim, who was appointed as trustee, and who lived with Kathleen in the home with only a $865 monthly disability payment for income. After the contractor took ownership of the home through fraudulent actions, a second trustee took action against the contractor resulting in a $23 million award – including $21 million in punitive damages – which was recently upheld by California’s Second Appellate District.

Bouzaglou’s Fraudulent Actions

According to the appellate court’s decision, the detached garage at the McGinty family’s home was cited by the City of Santa Monica for being noncompliant with city residency requirements. Tim, who suffered from severe depression and bipolar syndrome, reached an agreement with Noam Bouzaglou, a salesman at Triangle Construction, for $3,500 to make repairs to the garage and plumbing repairs. The contract was later increased to $16,480.

Bouzaglou later reached an agreement with Tim by which his own construction company, Ness Construction, would build a 650 square foot guest house for $397,000 on the property. Bouzaglou assisted Tim in obtaining a $400,000 loan to cover the cost of the construction and had the funds transferred to his own agent.

Bouzaglou continued to persuade Tim to enter into further agreements for work even after Tim had attempted to commit suicide and was placed in a psychiatric hospital. Bouzaglou eventually persuaded Tim to transfer ownership of the Santa Monica property to him shortly after Tim was released from the psychiatric hospital and just prior to Tim’s death from a stroke. As part of this scheme, Bouzaglou forced Kathleen to move out of the house.

The Appellate Court Upholds the $23 Million Award

At trial, a jury found Bouzaglou and his construction company liable for fraud and ordered both parties to pay $1.33 million in compensatory damages and over $21 million in punitive damages to Kathleen’s trust.

The defendants appealed on procedural grounds as well as on the grounds that the amount of punitive damages was overly high. The court disagreed, finding that the compensatory damages were justified for a number of reasons, including that, “evidence showed that Kathleen suffered physical, mental, and emotional distress when Bouzaglou moved her from the home where she had lived her entire life to an apartment in Encino.” The court further found that the punitive damages were justified given the fact that “the defendants’ actions were highly culpable” and there was a reasonable relationship between those actions and the award.

Work With an Experienced Los Angeles Real Estate Attorney

Attorney Laine T. Wagenseller of the Wagenseller Law Firm has published numerous articles on real estate law and works with individuals and businesses across Southern California in resolving real estate matters, including allegations of real estate fraud. Contact the Wagenseller Law Firm today to schedule a consultation.