OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (157 Cal. App. 4th 835, 2007)

Opinion

MANEELA, J.

Several investment funds initiated actions against CIBC World Markets Corp. (CIBC), alleging misrepresentation and fraud in connection with the issuance and sale of promissory notes. After a jury returned a verdict in favor of the investment fimds, the trial court denied prejudgment interest to three of the funds, namely, OCM Principal Opportunities Fund, L.P. (OCM), together with Pacholder Value Opportunity Fund, L.P., and Pacholder Heron, L.P. (collectively, Pacholder). CIBC appeals from the judgment in favor of the investment funds, and OCM and Pacholder cross-appeal from the denial of prejudgment interest. We reverse the denial of prejudgment interest, and otherwise affirm the judgment in favor of the investment funds.

FACTUAL AND PROCEDURAL BACKGROUND

Renaissance Cosmetics, Inc. (RCI), manufactured and marketed perfumes, colognes, makeup, and related products. In early 1997, CIBC assisted RCI in raising approximately $200 million through a sale of high-yield promissory notes with a maturity date of February 15, 2004. The sale was conducted under Securities and Exchange Commission (SEC) rule 144A (17 C.F.R. § 230.144A (1997)) (Rule 144A), which permits an entity to sell securities that are not registered under the Securities Act of 1933 (15 U.S.C. § 77a et seq.)—and thus cannot be publicly traded—to enumerated qualified buyers (In re Livent, Inc. Noteholders Securities Litig. (S.D.N.Y. 2001) 151 F.Supp.2d 371, 431). Following a well-established practice, RCI sold the unregistered notes, and later exchanged them for substantially identical—but registered— notes that could be publicly traded.

CIBC oversaw the creation of an offering memorandum regarding the unregistered notes, and acted as the “initial purchaser” of the notes. In February 1997, RCI and CIBC issued the offering memorandum, which contained RCI’s promise that it would ultimately exchange them for registered notes. CIBC also bought unregistered notes with a face value of $200 million from RCI at a 3 percent discount, and resold these notes to qualified buyers. In May 1997, RCI conducted the promised exchange.

OCM and Pacholder, along with TCW Opportunity Fund H, L.P., TCW Shared Opportunity Fund IIB, L.L.C., TCW Shared Opportunity Fund III, L.P., TCW Leveraged Income Trust, L.P., and TCW Leveraged Income Trust II, L.P. (collectively, TCW), began buying the registered notes in February 1998. General Electric Capital Corporation (GECC), RCI’s senior creditor, forced RCI into liquidation in June 1999.

In April 2000, OCM and Pacholder initiated an action against CIBC, asserting claims that CIBC had engaged in fraud, misrepresentation, and violations of federal and state securities laws in connection with RCI’s notes. TCW initiated a similar action against RCI for fraud and misrepresentation in May 2001. These actions were later consolidated.

Trial was by jury. At trial, TCW, OCM, and Pacholder asserted three claims for intentional and negligent misrepresentation, and intentional nondisclosure; in addition, OCM and Pacholder asserted two claims for violation of Corporations Code section 25500 and federal securities law. Following the close of the plaintiffs’ case-in-chief, the trial court denied CIBC’s motions for nonsuit. On September 4, 2003, the jury returned its verdict, concluding that OCM, Pacholder, and TCW had suffered damages as the result of CIBC’s negligent misrepresentation and intentional nondisclosure. The trial court subsequently denied OCM and Pacholder’s request for prejudgment interest pursuant to Corporations Code section 25500.

On October 15, 2003, the trial court entered a judgment that awarded OCM, Pacholder, and TCW, respectively, $13,412,489, $2,440,504, and $16,249,490 in damages, and later denied CIBC’s motions to vacate the judgment and for judgment notwithstanding the verdict (j.n.o.v.). CIBC appealed from the judgment, and OCM and Pacholder cross-appealed from the denial of their request for prejudgment interest under Corporations Code section 25500.

DISCUSSION

I.

CIBC contends that (1) its motions for nonsuit and for j.n.o.v. were improperly denied, and (2) the judgment incorporates an impermissible double recovery of damages.

A. Motions for Nonsuit and J.N. O. V.

CIBC contends that the trial court erred in denying nonsuit and j.n.o.v. because the evidence is insufficient to support the claims for negligent misrepresentation and intentional nondisclosure.

1. Governing Principles

The crux of respondents’ fraud claims is that CIBC misrepresented the success of RCI’s business strategy and growth plan, and concealed RCI’s failed marketing strategy and weak financial condition, as well as sales tactics RCI used to disguise its poor prospects for survival. Generally, “ ‘ “[t]he elements of fraud, which give[] rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” ’ [Citation.]” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173 [132 Cal.Rptr.2d 490, 65 P.3d 1255].)

Claims for negligent misrepresentation and intentional concealment deviate from this set of elements. “The tort of negligent misrepresentation does not require scienter or intent to defraud. [Citation.] It encompasses ‘[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true’ [citation], and ‘[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true’ [citations].” (Small v. Fritz Companies, Inc., supra, 30 Cal.4th at pp. 173-174.) Additionally, to establish fraud through nondisclosure or concealment of facts, it is necessary to show the defendant “was under a legal duty to disclose them.” (Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735 [29 Cal.Rptr. 201].)

Rulings on motions for nonsuit and for j.n.o.v. are reviewed for the existence of substantial evidence. (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1580 [47 Cal.Rptr.2d 752] [nonsuit]; Stubblefield Construction Co. v. City of San Bernardino (1995) 32 Cal.App.4th 687, 703 [38 Cal.Rptr.2d 413] [j.n.o.v.].) Although the trial court addressed different bodies of evidence in issuing these rulings, we examine the entire record for substantial evidence to support them. Whereas the body of evidence pertinent to nonsuit is that identified in the plaintiff’s opening statement or case-in-chief (7 Witkin, Cal. Procedure (4th ed. 1997) Trial, § 416, p. 477), the entire body of evidence presented at trial is pertinent to a j.n.o.v. motion. (Pusateri v. E. F. Hutton & Co. (1986) 180 Cal.App.3d 247, 250 [225 Cal.Rptr. 526].) However, “an order denying nonsuit will not be disturbed on appeal despite justification of nonsuit by evidence presented at close of [the] plaintiff’s case, if the evidence subsequently introduced by [the] defendant ‘cures’ the missing element.” (Housley v. City of Poway (1993) 20 Cal.App.4th 801, 814 [24 Cal.Rptr.2d 554].)

Substantial evidence is not “ ‘synonymous with “any” evidence. It must be reasonable . . . , credible, and of solid value . . . .’ [Citation.]” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633 [29 Cal.Rptr.2d 191].) However, “the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination [of the trier of fact], and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the [trier of fact].” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874 [197 Cal.Rptr. 925], italics omitted.)

As we elaborate below (see pt. I.A.2., post), respondents’ theory at trial was that in late 1996, CIBC decided to terminate its role as RCI’s creditor. To this end, CIBC conducted a Rule 144A transaction with RCI in early 1997 which permitted RCI to repay CIBC’s loans through funds obtained from the sale of the unregistered notes. In arranging the transaction, CIBC determined that RCI had experienced poor holiday sales in 1996 and that its marketing strategy was failing. As the initial purchaser of the unregistered notes, CIBC prepared a misleading offering memorandum, knowing that if it disclosed RCI’s poor holiday sales and unsuccessful business strategy, the sale of the unregistered notes and subsequent sale of the registered notes would collapse. CIBC reviewed RCI’s registration statement, which triggered the exchange of the unregistered notes for the registered notes, and which reaffirmed many of CIBC’s misrepresentations. CIBC then repeated its favorable characterization of RCI in investment opinions intended to guide buyers of the registered notes. Respondents relied on CIBC’s misrepresentations in buying the registered notes, and ultimately lost their entire investment in them.

2. Evidence at Trial

a. RCI

In 1994, Thomas Bonoma participated in the founding of RCI and served as its chairman, chief executive officer, and president. RCI’s business strategy was to acquire the rights to familiar fragrance products such as Chantilly, Tabu, and English Leather, and reinvigorate their presence in the market through a variety of techniques. RCI also created new products it called “focused flankers,” which were associated with its familiar products but were aimed at other segments of the market.

RCI effectively sold its products to retailers on consignment. It permitted its retailers to return unsold product for full credit, and paid for the return shipping. Nonetheless, accounting rules permitted RCI to “book” sales to retailers upon shipment, provided it maintained reserves based on a reasonable estimate of returns.

The market for RCI’s products was highly seasonal. Over half of all sales typically occurred during the year-end holiday season from October to December, and a relatively minor surge in sales occurred before Mother’s Day. RCI tracked the retail sales of its products by means of data from Information Resources, Inc. (IRI), an independent market research firm. IRI data for a given sales period was available to RCI through an online electronic system 24 to 30 days after the end of the period.

b. RCI’s Dealings with CIBC

In April 1996, RCI projected that sales of its products in the 1996 fiscal year—which ended March 31, 1997—would increase, but it needed loans to finance its acquisitions and expand its operations. CIBC, which is engaged in investment banking, assisted RCI in obtaining financing. Mark Dalton was the CIBC employee responsible for its transactions with RCI.

CIBC first arranged for a loan of $20 million, which was repaid through the sale of RCI preferred stock, in which CIBC participated. At the closing dinner for this sale, which occurred in September or October 1996, Bonoma distributed to Dalton and other CIBC employees a document entitled “The Weasel Parade.” This document disparaged RCI and other participants in the transaction, and characterized the “morals involved” in it as “giv[ing] crooks, sophisters and Nazis something to aspire to, if one aspires to a lower circle of Hell as much as a higher.”

In November 1996, CIBC provided a bridge loan of $117.5 million for RCI, on the condition that RCI would refinance the loan by issuing the notes that are the subject of the underlying litigation. According to Jeremy Back, a CIBC employee who participated in the preparation of the offering memorandum, RCI’s sale of the unregistered notes was arranged at CIBC’s insistence to ensure repayment of the bridge loan, to end CIBC’s exposure to risk as RCI’s creditor, and to earn CIBC a fee for the sale. CIBC controlled the issuance of the unregistered notes. In addition to overseeing the preparation of the offering memorandum regarding the unregistered notes and functioning as the “initial purchaser” of the notes, CIBC organized a “road show,” that is, meetings by RCI executives with potential buyers of the notes.

c. CIBC’s Conduct Regarding the Offering Memorandum

Sales of RCI’s products during the 1996 Christmas season—that is, the third quarter of its 1996 fiscal year—were weaker than RCI had projected. Shawn Bookin, a senior vice-president and investment analyst at TCW, opined that if RCI had disclosed this fact prior to the sale of the unregistered notes, the sale would have failed. RCI responded to the weak Christmas season by “stuffing the channel,” that is, stuffing retailers with its products knowing that a large amount would be returned unsold. This tactic permitted RCI to boost its sales and revenue figures for the 1996 fiscal year, but was likely to drain its cash reserves in the long term. In addition, the tactic was likely to injure the public’s view of RCI’s products when the returned products were ultimately sold in discount stores.

In a report dated January 27, 1997, IRI confirmed to RCI that sales of its products by retailers had been weak in the 1996 Christmas season. Although retail sales of RCI’s fragrance products for men had increased during that period, sales of its fragrance products for women had decreased by 2 percent, contrary to RCI’s expectations for the 1996 fiscal year. The report also indicated that the market for perfumes and colognes had diminished during the 1996 Christmas season: industrywide sales of women’s and men’s fragrances had decreased, respectively, 13 percent and 9 percent.

A key issue at trial was the extent to which CIBC knew about RCI’s poor Christmas season sales during the preparation of the offering memorandum, which was issued in early February 1997. According to Jeremy Back, CIBC could obtain IRI data about RCI’s sales upon request to RCI. Dalton provided conflicting testimony about whether CIBC knew about this data. At trial, he denied that CIBC knew that RCI had IRI data regarding the 1996 Christmas season. However, during his deposition, he stated that CIBC was aware of the IRI data, but declined to examine it. He stated: “We could either spend the month of December looking at IRI data or putting together an offering memorandum and a road show presentation with information that investors would find relevant. We chose to do the latter.” Back and Dalton also testified that while CIBC prepared the offering memorandum and sold the unregistered notes, they never saw the January 1997 IRI report.

The evidence at trial nonetheless indicated that as early as December 1996, Dalton knew about RCI’s weak performance in the third quarter of the 1996 fiscal year. In a memorandum dated December 10, 1996, Dalton provided advice to a CIBC superior who was scheduled to meet with Bonoma. Dalton’s memorandum identified questions Bonoma might ask at the meeting, and supplied responses to these questions. If Bonoma were to ask, “Should I wait ’til the end of my fiscal year (3/31) to refinance?,” Dalton advised the following answer: “If you believe that your fourth quarter will be great, we can sell through the poor third quarter. The risk is waiting for the fourth quarter, missing the numbers and being unable to refinance in May, or that the market goes away.” (Italics added.)

A second key issue at trial concerned whether CIBC knew, or should have known, that the financial data in the offering memorandum reflected RCI’s “channel stuffing.” In preparing the offering memorandum, CIBC used a forecast RCI provided for the 1996 fiscal year, which predicted RCI’s total net sales—that is, its sales after returns—and earnings before interest, taxes, depreciation, and amortization (EBITDA), a measure of cash flow that reflects an entity’s ability to support debt. The forecast contained detailed financial estimates for each month of the 1996 fiscal year, and projected total net sales of $198,895,000 and EBITDA amounting to $22,536,000. The forecast supported these estimates by predicting that RCI would achieve higher net sales and EBITDA in the final quarter than in the third quarter. This prediction relied on RCI’s estimated performance in March 1997, for which the forecast projected the highest net sales and the second highest EBITDA of any month in the 1996 fiscal year.

The evidence at trial indicated that Dalton knew RCI’s forecast was suspect and deserved special scrutiny. In a memorandum dated January 7, 1997, Dalton addressed the estimates in the forecast, noted that the sales and revenue RCI projected for the fourth quarter of the 1996 fiscal year—especially for March 1997—were “highly aggressive,” and stated: “I think that we should ask Tom Bonoma point-blank if these numbers are padded with squirrelly sales assumptions, and, if so, make him lower the projections . . . .”

Dalton provided conflicting testimony at trial about the January 7, 1997 memorandum. He initially testified that after writing this memorandum, he talked to Bonoma, who reduced the forecast’s estimates for the final quarter of the 1996 fiscal year, and that these reduced estimates were incorporated in CIBC’s offering memorandum. This testimony was contrary to the offering memorandum itself, which incorporated the forecast’s estimates. Dalton later testified that before January 7, 1997, he challenged Bonoma’s then current projections for the fourth quarter of RCI’s 1996 fiscal year and persuaded Bonoma to reduce them. Bonoma then offered CIBC the estimates found in RCI’s forecast, which were lower than Bonoma’s previous projections. According to Dalton, after he questioned Bonoma’s revised estimates in his January 7, 1997 memorandum, Bonoma vouched for their validity, and CIBC relied on them in preparing the offering memorandum.

d. The Offering Memorandum

CISC’s offering memorandum dated February 3, 1997, contained lengthy descriptions of RCI’s business strategy and financial status. The memorandum stated: “In developing new products, [RCI] seeks to build on its growing brand values, expanding customer base, increasing allocation of retail shelf space and point-of-sale consumer access.” It asserted that RCI used IRI data and electronic information systems to track and regulate sales, and to “provide sophisticated inventory management and distribution capabilities.” According to the offering memorandum, RCFs employment of “state-of-the-art mathematical modeling tools to understand the sales dynamics of categories [and] brands” facilitated “strategic partnering with retailers,” and thereby “strengthen[ed] its overall relationship with retailers.” The offering memorandum asserted that “[s]ince inception, management believes that it has successfully reestablished trust and a reputation for reliability with [retailers] resulting from [RCFs] reinvigoration of previously underperforming fragrances and the successful launch of focused flankers.”

Regarding the focused flankers, the offering memorandum further stated: “[RCI’s] new products . . . draw on the consumer recognition and heritage of [RCI’s] existing brand equities while simultaneously enhancing and revitalizing the ‘parent’ products being flanked. ... To date, [RCI] has successfully launched White Chantilly as a flanker of the classic Chantilly brand in the fall of 1995, DREAMS BY TABU as a flanker of the classic TABU brand in February 1996 and Navigator from Canoe as a flanker of the classic Canoe brand in September 1996.” (Italics omitted.)

The offering memorandum also provided financial data for RCFs 1995 fiscal year and a projection for its 1996 fiscal year. Although this projection omitted the month-by-month financial analyses found in the forecast that RCI had provided to CIBC, it repeated the forecast’s estimates for total sales and revenue, which rested on the predictions for the final quarter that Dalton had characterized in January 1997 as “highly aggressive.” The offering memorandum estimated that RCI’s total net sales for the 1996 fiscal year would be $198,895,000, thus exceeding its total net sales in the 1995 fiscal year. It also projected an increase in RCFs EBITDA from $16,501,000 in the 1995 fiscal year to $22,536,000 in the 1996 fiscal year.

e. Sale and Exchange of the Unregistered Notes

CIBC conducted the sale of the unregistered notes in early February 1997, and thereafter engaged in no new transactions with RCI. CIBC nonetheless continued to act as RCFs financial advisor, and Mark Dalton attended RCI board meetings. In April 1997, at the closing dinner regarding the sale of the unregistered notes, Bonoma distributed to CIBC employees a document entitled “The Weasel Parade News.” This document disparaged both RCI and CIBC. Regarding RCI, it stated, “I [Bonoma] did my song and dance, which can be called ‘Improved Lying and Cheating’ when this and last year’s prospectuses are compared,” and added that Bonoma’s biography in the offering memorandum should have asserted: “Thomas V. Bonoma: paroled, cannot leave state, ankle bracelet.” It stated, “Nobody challenges [RCI’s chief financial officer] on the company’s numbers because nobody understands the company’s numbers,” and characterized what CIBC called a “pro forma” as a “fiction of a fiction.”

On May 8, 1997, RCI issued the registration statement—also known as a prospectus or “S4”—regarding the registered notes. It closely resembled the offering memorandum, but contained a modified description of RCI’s financial performance. The registration statement described RCI’s business strategy and products in terms materially similar to the offering memorandum. Unlike the offering memorandum, it omitted a projection or description of RCI’s financial performance for the full 1996 fiscal year, but nonetheless indicated that RCI’s net sales and EBITDA for the first three quarters of the 1996 fiscal year exceeded its net sales and EBITDA for the corresponding period of the 1995 fiscal year. In May 1997, RCI filed the registration statement with the SEC and conducted the exchange.

f. CIBC’s Initial Recommendations Regarding the Registered Notes

Bonoma died of a heart condition on May 21, 1997. On May 23, 1997, CIBC issued an investment opinion regarding the registered notes, recommending “Buy.” The opinion asserted that the registered notes were undervalued and “an attractive buying opportunity,” recited financial data showing steady growth in RCI’s EBITDA, and reaffirmed the offering memorandum’s estimates regarding RCI’s EBITDA for the 1996 fiscal year. It acknowledged Bonoma’s death, but stated that RCI “continues to demonstrate its ability to reinvigorate established brand names.”

In late June and early July 1997, RCI acknowledged in SEC filings and elsewhere that its actual net sales and EBITDA for the 1996 fiscal year were, respectively, $174,612,000, and $19,233,000, and that it had not achieved the sales and earnings projected in the offering memorandum. In an internal CIBC memorandum dated July 10, 1997, Mark Dalton stated that although RCI had missed its predicted sales and earnings, it claimed that its actual net sales and EBITDA for the final quarter of the 1996 fiscal year had exceeded its actual net sales and EBITDA for the third quarter. In large measure, RCI attributed its failure to meet the predictions for the 1996 fiscal year to an accounting error in the third quarter, which had led RCFs management, in projecting its performance for the final quarter, to overestimate its likely sales and earnings.

In a second investment opinion dated August 15, 1997, CIBC again recommended “Buy,” and predicted an increase in RCFs sales and EBITDA. It estimated that RCI’s EBITDA for the 1997 fiscal year would exceed its EBITDA for the 1996 fiscal year. Noting that “the overall domestic fragrance market [was] underperforming,” CIBC asserted that RCI was “poised to combat the trend through new product introductions and revitalized promotional campaigns,” including the launching of new flankers.

On September 18, 1997, CIBC issued a lengthy investment opinion recommending “Buy.” The opinion stated: “Management’s impressive track record in reinvigorating several mass market fragrance brands . . . bodes well for the prospect of repeating these successes with several recently-purchased brands . . . .” In addition, it asserted that RCI had successfully introduced three flanker brands, including DREAMS BY TABU and Navigator. The opinion recited financial data indicating that RCFs sales and EBITDA had increased from the 1995 fiscal year to the 1996 fiscal year, and concluded that RCI “has proven that its strategy works.”

g. OCM, Pacholder, and TCW

OCM, Pacholder, and TCW are investment funds that seek out fundamentally sound companies in financial distress. Their business strategy is to buy up the debt of these companies at a discount and later exchange it for stock during bankruptcy proceedings, thereby freeing the companies from debt payments while acquiring an ownership interest in them. This strategy assumes that the market for notes is not perfectly efficient; in some cases, the market value of a note or bond issued by a company in financial distress may be too low, given the company’s underlying strength. Bruce Karsh, OCM’s president, testified: “[0]ur whole goal and the intent is to buy a bond at 50, participate in the reorganization proceeding, and get new stock, let’s say, that might be valued at 70. It’s on the dollar, and that’s how we make our profit.”

On February 3, 1998, RCI announced that its sales for the 1997 Christmas season were lower than expected, resulting in serious losses, that is, negative EBITDA between $14 million and $16 million. RCI attributed its low sales and revenue primarily to a fundamental change in its “business environment,” stating that the 1997 Christmas season was “the second holiday season in a row in which the mass market fragrance industry underperformed relative to industry expectations.” It warned that it might be unable to pay a scheduled interest payment due on the registered notes, but nonetheless expressed confidence in its long-term business strategy.

Following this announcement, the market value of the registered notes fell to approximately half their initial price. OCM, Pacholder, and TCW began buying the notes in response to this drop in price. Their business strategy required them to make a careful analysis of the company’s strengths and weaknesses, as well as its ability to survive. Thus, in deciding whether to buy the registered notes, they examined the offering memorandum, the registration statement, and CISC’s investment opinions. They concluded that RCI’s products were assets with substantial value, given the representations in the offering memorandum and registration statement that RCI had successfully reinvigorated established products and launched “focused flankers,” and that it exercised sound control over its sales to retailers.

In an investment opinion dated February 3, 1998, CIBC warned that RCI’s earning capacity was difficult to assess, but estimated that its annual EBITDA could be as high as $25 million “with operational fixes.” On the assumption that RCI would be reorganized or sold through a bankruptcy, CIBC estimated the then present value of the notes at between 38.3 percent and 85 percent of their face value. In an analysis dated February 6, 1998, CIBC recommended “Hold” regarding the registered notes, and reaffirmed the estimates of the prior investment opinion (with minor modifications). CIBC indicated that RCI’s meager EBITDA for the 1997 fiscal year was due to undescribed “prior-year events.” On February 20, 1998, a CIBC analysis again recommended “Hold,” attributed RCI’s difficulties to “a very difficult year in the industry,” and estimated that its EBITDA for the 1998 fiscal year would be approximately $19.3 million.

From February to July 1998, OCM, Pacholder, and TCW bought approximately $53.8 million worth of the registered notes, whose market value decreased throughout this period. In late June 1998, they began to discuss with RCI a reorganization through bankruptcy. In August 1998, they learned that RCI had no cash to continue its operations, and that GECC, RCI’s senior secured creditor, intended to liquidate RCI. On August 26, 1998, OCM, Pacholder, and TCW loaned RCI $2 million to forestall liquidation, hoping to preserve their investment in the registered notes by funding RCI’s 1998 Christmas season. They persuaded GECC to give this loan priority in bankruptcy proceedings equivalent to GECC’s loan. In making the loan, they also signed a confidentiality agreement permitting them to examine RCI’s finances, and learned that RCI “was in a complete meltdown,” “worthless,” and “a total mess.” RCI’s warehouses were full of returned inventory from previous Christmas seasons, and its accounts and computer systems were in chaos. GECC liquidated RCI in June 1999.

3. Absence of Affirmative Misrepresentation

CIBC contends that respondents’ claim for negligent misrepresentation fails for want of an affirmative misrepresentation. Generally, “[p]arties cannot read something into a neutral statement in order to justify a claim for negligent misrepresentation. The tort requires a ‘positive assertion^] ’ [Citation.] ‘An “implied” assertion or representation is not enough. [Citations.]’ [Citations.]” (Diediker v. Peelle Financial Corp. (1997) 60 Cal.App.4th 288, 297-298 [70 Cal.Rptr.2d 442].)

A single material misrepresentation may establish the tort. (Oakes v. McCarthy Co. (1968) 267 Cal.App.2d 231, 261 [73 Cal.Rptr. 127].) Moreover, as our Supreme Court explained in Randi W. v. Muroc Joint Unified School Dist. (1997) 14 Cal.4th 1066, 1081-1084 [60 Cal.Rptr.2d 263, 929 P.2d 582], when the defendant purports to convey the “whole truth” about a subject, “ ‘misleading half-truths’ ” about the subject may constitute positive assertions for the purpose of negligent misrepresentation. Thus, in Randi W., the court held that letters of recommendation for an instructor that extolled his rapport with students and urged his employment but omitted reference to complaints about his improper contact with female students amounted to “false and misleading” representations. (Id. at p. 1084.)

Similarly, in Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 106-108 [128 Cal.Rptr. 901], a partnership sought a loan, and a law firm connected with the partnership provided the lender with an opinion letter about the nature of the partnership. The letter opined that the partnership consisted solely of general partners, but did not mention that most members believed they were in a limited partnership with a single general partner; it thus did not address whether this widespread belief affected the status of the partnership. (Ibid.) The lender subsequently asserted a claim of negligent misrepresentation against the law firm. (Id. at pp. 106-107.) On appeal, the law firm challenged this claim, arguing that the lender had failed to identify an affirmative falsehood in the letter. (Id. at p. 111.) The court rejected this contention. (Ibid.) Because the lender had relied on the letter for guidance about the partnership’s status, the court concluded that the letter’s description of the partnership was a half-truth “as misleading as outright falsehood.” (Ibid.)

Here, the offering memorandum is replete with representations about the established success of RCI’s business strategy, including the “reinvigoration of previously underperforming fragrances and the successful launch of focused flankers,” the soundness of its relationship with retailers, its ability to track sales accurately, and the likelihood of a strong performance throughout the 1996 fiscal year. Furthermore, there was testimony from respondents and Jeremy Back, the CIBC employee who helped prepare the offering memorandum, that investors would have expected CIBC to try to avoid material omissions in the offering memorandum. Because the offering memorandum omits any reference to RCI’s poor third quarter and the channel stuffing that inflated its financial estimates for the 1996 fiscal year but degraded its ultimate prospect for survival, the offering memorandum contained half-truths “as misleading as outright falsehood” (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, supra, 57 Cal.App.3d at p. 111). The same conclusion must be drawn about the registration statement and investment opinions, which repeat many of the representations in the offering memorandum.

CIBC suggests that the offering memorandum did not contain half-truths because there is insufficient evidence that RCI engaged in channel stuffing. It points to RCI’s admission in mid-1997 that it had not achieved the sales and earnings predicted for the 1996 fiscal year in the offering memorandum. Notwithstanding the admission, however, RCI asserted that its actual sales and earnings in the final quarter of the 1996 fiscal year had exceeded its actual sales and earnings for the third quarter. In view of RCI’s poor sales in the third quarter of the 1996 fiscal year and the discovery of large amounts of returned inventory from previous holiday seasons in RCI’s warehouses in August 1998, it is reasonable to conclude that RCI achieved its claimed performance during the fourth quarter of the 1996 fiscal year through channel stuffing.*

4. Limitation on Liability

CIBC contends that it cannot be liable to respondents on a theory of negligent misrepresentation because it did not intend the offering memorandum to influence their purchase of the registered notes. In Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 408-415 [11 Cal.Rptr.2d 51, 834 P.2d 745], our Supreme Court held that an auditor who plays a “secondary” role in the preparation of a financial report for a client—that is, who relies entirely on information provided by its client—is liable only to a limited class of third parties for negligent representations contained in the financial report, viz., the class delimited in section 552, subdivision (2), of the Restatement Second of Torts (section 552(2)). CIBC argues that it held a position akin to that of an auditor in preparing the offering memorandum, and thus it is not liable to respondents, who purportedly fall outside the class defined in section 552(2).

Section 552(2) places a special limitation on negligent misrepresentation claims against professionals such as auditors, attorneys, architects, engineers, and title insurers, who generally provide opinions to clients on the basis of information supplied by the clients. (Bily v. Arthur Young & Co., supra, 3 Cal.4th at pp. 399—402, 410; see Rest.2d Torts, § 552, com. h, p. 132.) Section 552(2) provides that the liability of such parties is limited to the “loss suffered [|] (a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and [f] (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.” This limitation extends “liability only to those persons for whose benefit and guidance it is supplied,” as “distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance on it.” (Rest.2d Torts, § 552, com. h, pp. 132-133.) The limitation restricts the liability of “the maker of the representation” to “a particular person or persons, known to him, or a group or class of persons” the maker intends the representation “to reach and influence.” (Rest.2d Torts, § 552, com. h, at pp. 132-133.)

CIBC contends that as a matter of law, the limitation in section 552(2) precludes liability to respondents for misrepresentations in the offering memorandum, arguing that respondents bought registered securities well after CIBC ended its participation in RCI’s issuance of securities. We disagree. For the reasons explained below, CIBC placed itself outside the class of professionals and other parties eligible for protection under the limitation.

As we elaborate below (see pt. I.A.6, post), the evidence at trial established that when CIBC prepared the offering memorandum it was aware of IRI sales data reflecting a poor third quarter of RCI’s 1996 fiscal year. Because CIBC had access to reliable nonpublic information from a third party that disconfirmed RCI’s financial forecast, CIBC cannot be viewed as playing only a “secondary role” in preparing the offering memorandum, and thus is not exempt from liability under section 552(2). (See Nutmeg Securities, Ltd. v. McGladrey & Pullen (2001) 92 Cal.App.4th 1435, 1443-1444 [112 Cal.Rptr.2d 657] [outside accountant who helps client create financial documents subsequently reviewed in audit does not play secondary role for purposes of § 552(2)].)

In addition, the evidence at trial disclosed (1) that CIBC knew RCI was likely to employ the offering memorandum as a basis for the registration statement and the initial distribution of the registered securities; (2) that CIBC reviewed the registration statement prepared and filed by RCI; and (3) that CIBC, in its investment opinions, reaffirmed some of the misrepresentations in the offering memorandum and registration statement. CIBC’s agreement with RCI obliged RCI to seek the registration rights described in the offering memorandum. Prior to the filing of the registration statement, RCI sent CIBC a copy of the draft statement, which was reviewed by a CIBC attorney. Up until February 1998, when appellants began buying the registered securities, CIBC’s investment opinions repeated the half-truths in the offering memorandum about RCI’s demonstrated ability to revive stale brands, and indicated that RCI had underlying financial strength.

In view of CIBC’s awareness that the offering memorandum constituted the basis for the registration statement, section 552(2) does not shield CIBC from liability to buyers of the registered securities who relied directly on the misrepresentations in the registration statement. (See Murphy v. BDO Seidman (2003) 113 Cal.App.4th 687, 702-703 [6 Cal.Rptr.3d 770].) However, no California case has addressed whether CIBC is liable to the broader class of persons who, like appellants, bought the registered securities well after the registration statement had been filed.

We find guidance on this issue in Bowers v. Allied Inv. Corp. (D.Me. 1993) 822 F.Supp. 835. There, a group of investors asserted a claim for negligent misrepresentation, alleging that an accounting firm misrepresented a corporation’s inventory while conducting an audit, and then knowingly allowed the investors to rely on the audit when they decided to buy the corporation’s securities. (Id. at pp. 839-840.) The accounting firm contended that section 552(2) shielded it from liability because there was no allegation that when it prepared the audit, the firm knew the investors might consult it. The court in Bowers rejected this contention, reasoning that although section 552(2) “seeks to allow professionals to retain some control over their liability exposure at the time they actually perform their services, professionals can not invoke the Restatement’s limitations on liability if they allow third parties to use their work after performing the actual service.” (Bowers v. Allied Inv. Corp., supra, 822 F.Supp. at p. 840.)

This rationale encompasses the situation before us: CIBC may not invoke section 552(2) after repeating its misrepresentations in the investment opinions, thereby inviting investors to consult—and place reliance upon—the offering memorandum and registration statement. In our view, CIBC placed itself outside the class of persons protected under section 552(2) by playing an active advisory role in the market for the registered notes before and at the time respondents bought them.

CIBC argues that disclaimers in the offering memorandum and the investment opinions establish that CIBC lacked the intent to influence appellants and similarly situated investors. The offering memorandum states that it had been prepared “solely for use” in the sale of the unregistered securities; in addition, each investment opinion states that it is not an offer to buy or sell securities, “reflects judgments as of [the date of issuance,] and is subject to change.” In our view, these disclaimers do not obviate liability. As we elaborate below (see pt. I.A.7.b.ii., post), the efficacy of disclaimers is assessed by reference to their context and specificity. (See E. H. Morrill Co. v. State of California (1967) 65 Cal.2d 787, 793 [56 Cal.Rptr. 479, 423 P.2d 551]; Murphy v. BDO Seidman, supra, 113 Cal.App.4th 687, 702-703.) Here, CIBC reviewed the registration statement, which repeated the misrepresentations in the offering memorandum; moreover, the misrepresentations in the investment opinions were false when made, and thus they fall outside the disclaimers in the opinion, which warned only that the opinions had limited temporal validity. (See Murphy v. BDO Seidman, supra, 113 Cal.App.4th at pp. 703-704.)

5. Duty to Disclose

CIBC contends that respondents’ claim for intentional nondisclosure fails because CIBC had no duty to respondents to disclose the full facts about RCI, including the poor sales during the 1996 Christmas season and RCI’s dubious tactics to conceal this market failure. CIBC is mistaken.

“There are ‘four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. [Citation.]’ ” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336 [60 Cal.Rptr.2d 539], quoting Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651 [226 Cal.Rptr. 509].) Where, as here, there is no fiduciary relationship, the duty to disclose generally presupposes a relationship grounded in “some sort of transaction between the parties. [Citations.] Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement. [Citation.]” (LiMandri, at p. 337, in. omitted.)

Here, CIBC acted as the initial purchaser of the unregistered notes, which it sold to qualified buyers; the unregistered notes were subsequently exchanged for—or transformed into—registered notes that were traded on the open market and eventually purchased by respondents. Under California law, a vendor has a duty to disclose material facts not only to immediate purchasers, but also to subsequent purchasers when the vendor has reason to expect that the item will be resold. (Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 605-609 [37 Cal.Rptr.2d 483]; Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 191-193 [183 Cal.Rptr. 881] (Barnhouse).)

Thus, in Barnhouse, a developer concealed deficient soil conditions in a housing tract, and several homeowners—including some who had bought their houses from the original purchasers—initiated an action for intentional fraud by omission against the developer. The court rejected the developer’s contention that its liability was limited to the initial purchasers, observing that the developer had reason to expect that “in a development of relatively inexpensive suburban tract homes, some would change hands.” (Barnhouse, supra, 133 Cal.App.3d at pp. 191-192.) It reasoned: “While an affirmative misrepresentation might not be repeated [citation], a nondisclosure must necessarily be passed on. . . . Under these circumstances it would be anomalous if liability for damages resulting from fraudulent concealment were to vanish simply because of the fortuitous event of an intervening resale. Ultimately in such a case it is the subsequent purchaser who is directly damaged by the initial nondisclosure. [Citation.] The original purchaser neither suffers damage nor has knowledge to disclose.” (Id. at p. 192.)

In our view, CIBC is subject to liability under the principle explained in Barnhouse. The record establishes that the unregistered notes, as sold by CIBC, were essentially identical to the registered notes, with the exception that they were not (yet) saleable on the open market. Geoffrey Liebmann, an attorney employed by CIBC when it sold the unregistered notes, testified that both kinds of notes carried the same interest rate and due date, and differed only in their marketability. Because CIBC sold the unregistered notes knowing that they would—in effect—become saleable, it had reason to expect that the notes would pass into the hands of subsequent purchasers; moreover, it actively advised potential purchasers regarding the registered notes. Accordingly, CIBC had a duty to disclose RCI’s circumstances to potential purchasers, including respondents.

CIBC argues that it had no duty of disclosure toward respondents because it sold unregistered notes in a private transaction with qualified buyers, whereas respondents bought registered notes in a public market. The crux of CIBC’s argument is that Rule 144A and certain state regulations regarding Rule 144A displace California common law on this point. We are not persuaded.

Although no court has addressed CIBC’s contention regarding Rule 144A, federal case authority indicates that an initial purchaser’s immunity from liability is limited. Under Rule 144A, an initial purchaser is “deemed not to be engaged in a distribution of [public securities] and therefore not to be an underwriter of such securities.” (17 C.F.R. § 230.144A(b) (2007).) The initial purchaser in a Rule 144A transaction is thus exempt from liability under various provisions of federal law when the initial purchaser limits its role to (1) preparing the offering memorandum and (2) distributing the unregistered security in a private offering to qualified purchasers. (American High-Income Trust v. AlliedSignal, supra, 329 F.Supp.2d at pp. 541-542; In re Enron Corp. Sec., Deriv. & “ERISA" Lit. (S.D.Tex. 2004) 310 F.Supp.2d 819, 860-866; In re Hayes Lemmerz Intern., Inc. (E.D.Mich. 2003) 271 F.Supp.2d 1007, 1028-1029; In re Safety-Kleen Corp. (D.S.C. Mar. 27, 2002) 2002 WL 32349819, at pp. *l-*3; In re Livent, Inc. Noteholders Securities Litig., supra, 151 F.Supp.2d at p. 432.)

Nonetheless, Rule 144A does not preclude fraud claims under Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) rule 10b-5 (17 C.F.R. § 240.10b-5 (2007)) (Rule 10b-5) against initial purchasers who make misrepresentations in the offering memorandum and actively promote the sale of the pertinent unregistered securities. (Gabriel Capital, L.P. v. Natwest Finance, Inc. (S.D.N.Y. 2000) 94 F.Supp.2d 491, 503 (Gabriel Capital).) Rule 10b-5 is violated when corporate “insiders” privy to information material to the sale of corporate securities fail to disclose the information for deceptive or manipulative purposes. (In re Enron Corp. Sec., Derivative & ERISA Lit. (S.D.Tex. 2003) 258 F.Supp.2d 576, 589-590.) Outside parties— including initial purchasers—share this duty to disclose when they are aware of the information and participate in the sale. (Gabriel Capital, supra, 94 F.Supp.2d at p. 503.) Accordingly, Rule 144A does not protect CIBC from liability for intentional nondisclosures to the purchasers of the registered notes, including respondents.

The state regulations in question (Cal. Code Regs., tit. 10, §§ 260.102.15, 260.105.13.1) recognize Rule 144A transactions and exempt initial purchasers from statutory registration requirements regarding securities transactions (Corp. Code, §§ 25102, subd. (f), 25110, 25111, 25130), but do not otherwise address or limit an initial purchaser’s liability for fraud. They therefore do not limit CIBC’s duty to disclose.

CIBC also contends that respondents failed to establish any relationship between CIBC and respondents that can support a duty to disclose. CIBC’s reliance on Wilkins v. National Broadcasting Co. (1999) 71 Cal.App.4th 1066 [84 Cal.Rptr.2d 329] (Wilkins) and Kovich v. Paseo Del Mar Homeowners’ Assn. (1996) 41 Cal.App.4th 863 [48 Cal.Rptr.2d 758] (Kovich) is misplaced, as these cases are factually distinguishable. In Wilkins, owners of an adult entertainment telephone service asserted claims for fraud and invasion of privacy against a television network and some of its news journalists for conducting a hidden-camera interview with the owners and using the videotape in a news broadcast. (Wilkins, supra, 71 Cal.App.4th at pp. 1071-1073.) The court found the journalists had no duty to disclose their true identities to the owners, reasoning that the parties lacked any relationship supporting this duty. (Id. at pp. 1082-1083.) Similarly, in Kovich, the court held that a homeowners association had no duty to disclose defects in a home to the buyer because the association was not the seller or a party to the sales agreement, and it had assumed no special relationship to the buyer. (Kovich, supra, 41 Cal.App.4th at p. 866.) In contrast with these cases, CIBC not only sold the unregistered notes, but it reviewed the registration statement, and thereafter repeatedly tendered advice about the registered notes to investors.

6. Scienter

CIBC contends that it lacked the requisite scienter for intentional concealment of the IRI report for RCI’s 1996 holiday season, arguing that there is no substantial evidence that it had actual knowledge of the report’s contents when it prepared the offering memorandum. It argues that Dalton’s memorandum regarding RCI’s poor third quarter for the 1996 fiscal year was prepared before IRI issued the report in late January 1997, and that there is no evidence CIBC received a copy of the IRI report. We are not persuaded. Generally, “[knowledge of falsity” or scienter is an element of fraud, with the exception of claims for negligent misrepresentation. (5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 800, p. 1157.) A finding of scienter with respect to intentional concealment is examined for the existence of substantial evidence. (Zinn v. Ex-Cell-O Corp. (1957) 148 Cal.App.2d 56, 69 [306 P.2d 1017].)

Here, the record contains evidence that RCI received IRI data on a regular basis 24 to 30 days after a sales period, and that as of November 27, 1996, it had received IRI data for the period ending November 3, 1996. The record also discloses that CIBC obtained knowledge of IRI data through conversations with RCI employees. When Mark Dalton supervised CIBC’s preparation of the offering memorandum, he knew in early December 1996 that RCI was having a “poor third quarter.” Moreover, in early January 1997, he was sufficiently aware of RCI’s situation to question RCI’s “padded” numbers and “squirrelly sales assumptions” for the following quarter. In our view, this evidence supports the reasonable inference that Dalton was well aware of the negative data in the IRI report, even if CIBC did not obtain a copy of it.

7. Reliance

CIBC contends that respondents’ claims fail for want of substantial evidence of justifiable reliance. To establish this element of fraud, plaintiffs must show (1) that they actually relied on the defendant’s misrepresentations, and (2) that they were reasonable in doing so. (5 Witkin, Summary of Cal. Law, supra, Torts, § 808, pp. 1164—1165, § 812, pp. 1173-1174.)

a. Actual Reliance

We begin with the requirement of actual reliance. A plaintiff asserting fraud by misrepresentation is obliged to plead and prove actual reliance, that is, to “ ‘establish a complete causal relationship’ between the alleged misrepresentations and the harm claimed to have resulted therefrom.” (Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1092 [23 Cal.Rptr.2d 101, 858 P.2d 568], quoting Garcia v. Superior Court (1990) 50 Cal.3d 728, 737 [268 Cal.Rptr. 779, 789 P.2d 960].) Actual reliance is also an element of fraud claims based on omission. (Mirkin v. Wasserman, supra, 5 Cal.4th at p. 1093.)

CIBC contends that respondents did not establish this element because the evidence unequivocally showed that the “immediate cause” of respondents’ decision to buy the registered notes was the precipitous fall in the price of the notes in early 1998. This argument misapprehends the required showing. “ ‘It is not . . . necessary that [a plaintiff’s] reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor in influencing his conduct. ... It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.’ ” (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at pp. 976-977, quoting Rest.2d Torts, § 546, com. b, p. 103.) Regarding concealment claims, the plaintiff may establish this element by showing that “had the omitted information been disclosed, [he or she] would have been aware of it and behaved differently.” (Mirkin v. Wasserman, supra, 5 Cal.4th at p. 1093.) Here, there is ample evidence that respondents relied on the offering memorandum, registration statement, and investment opinions in deciding that the market had undervalued the notes, and that respondents would not have bought the notes had they known about RCI’s disastrous 1996 Christmas season and channel stuffing.

b. Reasonable Reliance

“Besides actual reliance, [a] plaintiff must also show ‘justifiable’ reliance, i.e., circumstances were such to make it reasonable for [the] plaintiff to accept [the] defendant’s statements without an independent inquiry or investigation.” (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1332 [231 Cal.Rptr. 355].) The reasonableness of the plaintiff’s reliance is judged by reference to the plaintiff’s knowledge and experience. (5 Witkin, Summary of Cal. Law, supra, Torts, § 808, p. 1164.) “ ‘Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact.’ [Citations.]” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [44 Cal.Rptr.2d 352, 900 P.2d 601], quoting Blankenheim v. E. F. Hutton & Co. (1990) 217 Cal.App.3d 1463, 1475 [266 Cal.Rptr. 593].)

CIBC contends that respondents’ reliance on the offering memorandum and investment opinions was unreasonable in light of (1) other information available to respondents when they bought the registered notes, and (2) the presence of disclaimers within the memorandum and opinions. Generally, “[a] plaintiff will be denied recovery only if his conduct is manifestly unreasonable in the light of his own intelligence or information. It must appear that he put faith in representations that were ‘preposterous’ or ‘shown by facts within his observation to be so patently and obviously false that he must have closed his eyes to avoid discovery of the truth.’ [Citation.] Even in case of a mere negligent misrepresentation, a plaintiff is not barred unless his conduct, in the light of his own information and intelligence, is preposterous and irrational. [Citation.]” (Hartong v. Partake, Inc. (1968) 266 Cal.App.2d 942, 965 [72 Cal.Rptr. 722].) The effectiveness of disclaimers is assessed in light of these principles. (Winn v. McCulloch Corp. (1976) 60 Cal.App.3d 663, 671 [131 Cal.Rptr. 597].)

i. Other Information

CIBC contends that the record establishes that respondents acted irrationally in placing confidence in the offering memorandum and investment opinions. CIBC argues that respondents had access to RCI’s SEC filings and press releases, which disclosed that RCI had experienced two consecutive disappointing holiday seasons. It also points to two memoranda prepared by TCW vice-president Shawn Bookin in March 1998, and a report sent to respondents by an outside analyst in April 1998.

Bookin’s memorandum, dated March 13, 1998, stated that “it is inconceivable that [RCI] did not know that it had a channel inventory problem,” and that “[i]t is clear that for at least a year, [RCI] misrepresented reality [regarding this problem] and was essentially overstating revenues and cash flow”; the memorandum advised, “[turnaround will be difficult; this company is very sick.” His subsequent memorandum dated March 29, 1998, stated that the decline in the fragrance market threatened RCI’s business strategy and that RCI’s “true operating results and potential [were] very difficult to assess,” but nonetheless recommended buying the registered notes. In April 1998, Chanin Kirkland Messina (CKM), an outside analyst, concluded that RCI was too “overleveraged” to execute its business plan and service its “near term debt,” and that it had “flat sales growth” due to “the inability to integrate acquisitions” and “declines in the fragrance industry.”

CIBC’s argument misapprehends our role as an appellate court. Review for substantial evidence is not trial de novo. (Angela S. v. Superior Court (1995) 36 Cal.App.4th 758, 762 [42 Cal.Rptr.2d 755].) On review for substantial evidence, “all of the evidence must be examined, but it is not weighed. All of the evidence most favorable to the respondent must be accepted as true, and that unfavorable discarded as not having sufficient verity to be accepted by the trier of fact. If the evidence so viewed is sufficient as a matter of law, the judgment must be affirmed.” (Estate of Teel (1944) 25 Cal.2d 520, 527 [154 P.2d 384].)

Bookin testified that when he analyzed RCI’s financial condition, RCI’s SEC filings and press releases had only “started [the] process of dribbling out the bad information,” and “there was a lot more to come.” At the time, he did not believe that RCI’s disclosures were only “the tip of the iceberg” because “the common practice” among troubled companies was “to get all the bad news out and move on with clean numbers going forward.” According to Bookin, the statements in the March 13, 1998 report were based on his discovery of an accounting mistake by RCI, and he later deleted the statements upon the request of a supervisor, who concluded that the evidence was insufficient to support them. Regarding the reports, Bookin testified: “I was on the right track, but I didn’t see the scam that had taken place and that there was a lot more behind it[,] and the category management, [the] computer systems, the channel stuffing . . . was all a problem waiting to explode.” In view of the information then available, Bookin believed “there was still a lot of value there.”

Richard Goldstein, a managing director for OCM, testified that the CKM report was a “pitch” to respondents to employ CKM as an advisor regarding RCI. Respondents eventually hired CKM in late June 1998. According to William Morgan, who is president and managing director of Pacholder, CKM evaluated RCI for respondents in June 1998, and concluded that RCI’s worth was then sufficient for respondents to get “most, if not all of their money out.”

In view of this testimony, we cannot conclude that the jury erred in determining that respondents reasonably relied on CIBC’s representation, despite other information available to them when they bought the registered notes. On review for substantial evidence, “ ‘[conflicts and even testimony which is subject to justifiable suspicion do not justify the reversal of a judgment, for it is the exclusive province of the trial judge or jury to determine the credibility of a witness and the truth or falsity of the facts upon which a determination depends.’ ” (Daly v. Wallace (1965) 234 Cal.App.2d 689, 692 [44 Cal.Rptr. 642], italics omitted, quoting People v. Huston (194