Judge: Armen Tamzarian, Case: 24STCV04924, Date: 2024-11-13 Tentative Ruling
Case Number: 24STCV04924 Hearing Date: November 13, 2024 Dept: 52
Defendants Hilton & Hyland Real Estate, Inc. and
Richard Maslan’s Demurrer and Motion to Strike Portions of First Amended
Complaint
Demurrer
Defendants Hilton & Hyland Real Estate, Inc.
(H&H) and Richard Maslan demur to plaintiff Seong Ho Cho aka Eric Cho’s
fourth cause of action for concealment.
Plaintiff alleges sufficient facts for this cause of
action. Fraud by concealment requires: (1) the defendant
concealed or suppressed a material fact; (2) defendant had a duty to disclose
the fact to plaintiff; (3) defendant intentionally concealed or suppressed the
fact with intent to defraud plaintiff; (4) plaintiff must have been unaware of
the fact and would have acted otherwise if she had known of the concealed fact;
and (5) plaintiff suffered damage as a result of the concealment. (Boschma v. Home Loan Center, Inc.
(2011) 198 Cal.App.4th 230, 248.)
Generally, a
plaintiff must specifically allege claims for fraud. (Lazar v. Superior Court (1996) 12
Cal.4th 631, 645.) That requirement does
not fully apply to concealment claims because it is difficult to show “how” and “by what means” something did
not happen. (Alfaro v. Community
Housing Improvement System & Planning Assn., Inc. (2009) 171
Cal.App.4th 1356, 1384.)
Plaintiff alleges each element
with sufficient specificity.
First, plaintiff alleges H&H
and Maslan concealed material facts regarding defects in the subject property:
“On May 12, 2021, Plaintiff walked the Property with Maslan/H&H and
Maslan/H&H represented to Plaintiff that the Remodel Project was fully
completed that addressed all the water intrusion issues of the Property. Maslan/H&H failed to tell Plaintiff about
the false wall built at the back of the garage that covered the exterior stucco
that had water intrusion issues that were never actually fixed.” (FAC, ¶ 30.) “Maslan/H&H were aware of the false wall
in the garage and the full extent of the water intrusion issues occurring not
just on the bottom floor of the Property but that there was intrusion on all
levels, and they intentionally neglected to mention this on the May 12, 2021
walk through with Plaintiff.” (Ibid.)
Second, plaintiff alleges facts establishing defendants’ duty to
disclose. Generally, “[a] duty to disclose
can arise from the making of affirmative representations with knowledge of
undisclosed facts that ‘ “materially qualify the facts disclosed, or ... render
[the disclosed facts] likely to mislead... .” ’ ” (Blickman Turkus, LP v. MF Downtown
Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 877, alterations in original.) When a seller or a seller’s agent “ ‘knows of
facts materially affecting the value or desirability of the property which are
known or accessible only to him and also knows that such facts are not known
to, or within the reach of the diligent attention and observation of the buyer,
the seller is under a duty to disclose them to the buyer.’ ” (Holmes v. Summer (2010) 188
Cal.App.4th 1510, 1518–1519.)
Plaintiff alleges H&H Maslan “were aware of the false wall in the
garage and the full extent of the water intrusion.” (FAC, ¶ 30.)
They had a duty to disclose because of their alleged actual knowledge of
facts materially affecting the property’s value or desirability.
Defendants argue the alleged concealment exceeds the
scope of their duty to perform a visual inspection of the property. Civil Code section 2079, subdivision (a)
provides that real estate brokers owe a duty “to conduct a reasonably competent
and diligent visual inspection of the property offered for sale and to disclose
to that prospective buyer all facts materially affecting the value or
desirability of the property that an investigation would reveal.” But “[i]n enacting section 2079, the
Legislature did not intend to preclude a real estate agent’s liability for
fraud.” (Peake v. Underwood
(2014) 227 Cal.App.4th 428, 444.)
Third, plaintiff alleges H&H and Maslan concealed the facts with an
intent to defraud plaintiff. “[T]he only
intent by a defendant necessary to prove a case of fraud is the intent to induce
reliance. Moreover, liability is affixed not only where the
plaintiff's reliance is intended by the defendant but also
where it is reasonably expected to occur.” (Lovejoy v. AT&T Corp. (2001)
92 Cal.App.4th 85, 93.) Plaintiff
alleges H&H and Maslan concealed defects “to induce Plaintiff to waive his
contingencies under the RPA and purchase the Property.” (FAC, ¶ 80.)
On demurrer, these allegations suffice to show his reliance would reasonably
be expected to occur.
Fourth, plaintiff alleges he was unaware of the defects and would have
acted differently if he had known. “Plaintiff
did not know, nor should he have known, that the failures to disclose,
omissions, and/or active concealments … were, in fact, false and misleading and/or
material.” (FAC, ¶ 81.) He alleges he relied on the omissions because
he “did, in fact, waive [the] contingencies (and ultimately purchased the
Property).” (¶ 82.) He alleges that “had he known at the time
that the waterproofing leaks were not remedied, he either would not have purchased
the Property or required that the Seller remediate and repair the same prior to
the closing.” (¶ 37.)
Finally, plaintiff alleges his reliance resulted in damages to him. He alleges he bought the property, which then
“suffered substantial damage from water leaks and the resultant mold caused by
the Defects.” (FAC, ¶ 37.)
Motion to Strike
Defendants
Hilton & Hyland Real Estate, Inc. (H&H) and
Richard Maslan move to strike plaintiff’s prayer for punitive damages. Courts may strike a
“demand for judgment requesting relief not supported by the allegations of the
complaint.” (Code Civ. Proc., § 431.10,
subd. (b)(3).)
Plaintiff alleges
sufficient facts to recover punitive damages from Maslan. Punitive damages require “that the defendant
has been guilty of oppression, fraud, or malice.” (Civ. Code, § 3294, subd. (a).) “ ‘Fraud’ means an intentional
misrepresentation, deceit, or concealment of a material fact known to the
defendant with the intention on the part of the defendant of thereby depriving
a person of property or legal rights or otherwise causing injury.” (Id., subd. (c)(3).) As discussed
above, plaintiff alleges sufficient facts for concealment. The same allegations constitute fraud for the
purpose of recovering punitive damages.
Plaintiff does not,
however, allege sufficient facts to recover punitive damages from H&H. Civil Code section 3294, subdivision (b)
provides, “An employer shall not be liable for” punitive damages “based
upon acts of an employee of the employer, unless the employer had advance
knowledge of the unfitness of the employee and employed him or her with a
conscious disregard of the rights or safety of others or authorized or ratified
the wrongful conduct for which the damages are awarded or was personally guilty
of oppression, fraud, or malice. With
respect to a corporate employer, the advance knowledge and conscious disregard,
authorization, ratification or act of oppression, fraud, or malice must be on
the part of an officer, director, or managing agent of the corporation.” This provision “limit[s] corporate punitive
damage liability to those employees who exercise substantial independent
authority and judgment over decisions that ultimately determine corporate
policy.” (White v. Ultramar, Inc.
(1999) 21 Cal.4th 563, 573.) The first
amended complaint includes no allegations whatsoever about any officer,
director, or managing agent of H&H.
Plaintiff
argues Civil Code section 3294, subdivision (b) does not apply because, rather
than relying on “vicarious liability from the conduct of Maslan,” plaintiff
alleges the company is “personally liable for malice oppression and
fraud.” (Opp., p. 4.) Plaintiff provides no authority holding that
one can recover punitive damages against a corporation without satisfying Civil
Code section 3294, subdivision (b)’s requirements.
Alleging
the corporation itself is “personally liable” is insufficient. “ ‘A corporation can act only through its
individual employees.’ ” (People ex
rel. Herrera v. Stender (2012) 212 Cal.App.4th 614, 638.) “Corporations are legal entities which do not
have minds capable of recklessness, wickedness, or intent to injure or deceive.
An award of punitive damages against a
corporation therefore must rest on the malice of the corporation’s employees.” (Cruz v. HomeBase (2000) 83
Cal.App.4th 160, 167.) By limiting
liability to officers, directors, or managing agents, “the statute avoids
punishing the corporation for malice of low-level employees which does not
reflect the corporate ‘state of mind’ or the intentions of corporate leaders. This assures that punishment is imposed only
if the corporation can be fairly be [sic] viewed as guilty of the evil
intent sought to be punished.” (Ibid.)
Disposition
Defendants Hilton & Hyland Real Estate, Inc. and Richard Maslan’s demurrer to
plaintiff Seong Ho Cho’s fourth cause of action is overruled.
Defendant Richard Maslan’s motion to strike
portions of the first amended complaint is denied.
Defendant Hilton & Hyland Real Estate, Inc.’s motion
to strike portions of the first amended complaint is granted with leave to
amend. The court hereby strikes
the following portions of the first amended complaint as against Hilton &
Hyland Real Estate, Inc., with leave to amend: (1) “Plaintiff is entitled to an award of punitive damages and exemplary
damages in an unascertained amount, according to proof, pursuant to Civil Code
Section 3294(a)” (FAC, ¶ 85, p. 19:7-9), and (2) “For punitive and exemplary
damages in an amount to be determined by the Court” (FAC, prayer ¶ 8, p.
22:19.) Plaintiff shall have 20 days to
file a second amended complaint.
Defendants Westside Estate Agency, Inc. and Trevor
Bergher’s Demurrer and Motion to Strike Portions of First Amended Complaint
Demurrer
Defendants Westside Estate Agency, Inc. (Westside) and
Trevor Bergher demur to the sixth and seventh causes of action alleged in the
first amended complaint by plaintiff Seong Ho Cho aka Eric Cho.
6th Cause of Action: Negligence
Plaintiff alleges
sufficient facts for negligence.
Defendants contend plaintiff has not adequately alleged duty because he
makes conclusory allegations that do not “indicate which ‘California law’
codifies the duty allegedly owed to Plaintiff.”
(Demurrer, p. 7.) Plaintiffs need
not rely on a codified duty. “A ‘ duty may arise through
statute, contract, or the relationship of the parties.’ ” (Lichtman v. Siemens Industry Inc.
(2017) 16 Cal.App.5th 914, 920.) Though
Civil Code section 2079 imposes some statutory duties on real estate brokers,
the statutory scheme does not “abrogate any other fiduciary duties owed to
buyers of residential real property.” (William
L. Lyon & Associates, Inc. v. Superior Court (2012) 204 Cal.App.4th
1294, 1305 (Lyon).) “The
statutory duties owed by sellers’ brokers under section 2079 are separate and
independent of the duties owed by brokers to their own clients who are buyers.” (Ibid.) Westside and Bergher were plaintiff’s real
estate brokers when he bought the subject property. They owed common law duties to him.
Defendants also argue plaintiff “failed to allege
specific facts that demonstrate how Defendants alleged breach caused the
alleged harm to Plaintiff.” (Demurrer,
p. 7.) Plaintiff is not required to
specifically allege negligence. Plaintiff’s
first amended complaint alleges defendants failed to exercise adequate care in
acting as his brokers. (FAC, ¶ 46.) Plaintiff alleges the property he bought was
materially defective, which caused damages to him. (FAC, ¶¶ 49, 97.) When liberally construing the pleading in
plaintiff’s favor, one can reasonably infer that, had defendants met their
standard of care, plaintiff would not have purchased the property.
7th Cause of Action: Breach
of Fiduciary Duty
Plaintiff alleges sufficient facts for this cause of
action. “ ‘The elements of a cause of
action for breach of fiduciary duty are the existence of a fiduciary
relationship, its breach, and damage proximately caused by that breach.’ ” (Knox v. Dean (2012) 205
Cal.App.4th 417, 432.)
First, plaintiff alleges a fiduciary relationship. “Real estate brokers representing
buyers of residential property are licensed professionals who owe fiduciary
duties to their own clients.” (Lyon,
supra, 204 Cal.App.4th at p. 1312.)
The first amended complaint alleges Westside and Bergher were real estate brokers
representing plaintiff as a buyer of residential property. (FAC, ¶¶ 11-12, 21, 46.)
Second, plaintiff alleges defendants breached their
fiduciary duty. The “buyers’
broker … owe[s] a common law fiduciary duty to the [buyers] requiring ‘the
highest good faith and undivided service and loyalty.’ ” (Lyon, supra, 204 Cal.App.4th at p.
1311.) Plaintiff alleges Westside and
Bergher breached those duties in numerous ways, such as “failing to properly
inform, counsel, guide and advise Plaintiff” regarding the seller’s
disclosures, “swaying Plaintiff to close the deal despite Plaintiff’s concerns
with the Property,” and “not advising the Plaintiff to have all area drains
inspected through an actual water test and video pipe inspection.” (FAC, ¶ 46.)
The gravamen of this cause of action is that plaintiff’s brokers should
“have had Plaintiff’s best interests in mind, but, instead they only were
concerned with their own self-interests (closing the transaction to receive
their sales commissions).” (Ibid.)
On the pleadings, the allegation that
defendants sought to get their payment by “swaying” their client to accept a bad
deal constitutes a breach of the fiduciary duty of loyalty.
Third, plaintiff alleges defendants’
breach damaged him in that he “waived his contingencies under the RPA and
proceeded with the purchase of the property” (FAC, ¶ 101), which has material
defects.
Westside
and Bergher argue the Residential Purchase Agreement limits the scope of their
duties. (Demurrer, p. 8.) For example, it provides that “Buyer and
Seller acknowledge and agree that Broker: … (v) Shall not be responsible for
identifying defects on the Property, in common areas, or offsite unless such
defects are visually observable by an inspection of reasonably accessible areas
of the Property or are known to Broker.”
(FAC, Ex. 1, ¶ 18.B.) Plaintiff,
however, alleges Westside and Bergher failed to disclose information about “the
condition of the roof, the ceilings, the other defects that could have and
should have been discovered by a diligent visual inspection.” (FAC, ¶ 47.)
Moreover, none of the provisions on the brokers’ duties specified in the
agreement limit the duty of loyalty.
Motion to Strike
Defendants Westside Estate Agency, Inc. and Trevor
Bergher move to strike the first amended complaint’s prayers for
punitive damages and attorney fees against them. Courts may strike a
“demand for judgment requesting relief not supported by the allegations of the
complaint.” (Code Civ. Proc., § 431.10,
subd. (b)(3).)
A. Punitive Damages
For punitive damages, courts may strike such
allegations where the facts alleged “do not rise to the level of malice,
oppression or fraud necessary” to recover punitive damages under Civil Code
section 3294. (Turman v. Turning Point
of Central California, Inc. (2010) 191 Cal.App.4th 53, 64.) The complaint must make “factual assertions
supporting a conclusion [defendants] acted with oppression, fraud or
malice.” (Smith v. Superior Court (1992)
10 Cal.App.4th 1033, 1042.)
Plaintiff does not allege
sufficient facts to recover punitive damages from Westside or Bergher. Alleging breach of fiduciary duty is not
enough. “ ‘ “[A] breach of a fiduciary
duty alone without malice, fraud or oppression does not permit an award of
punitive damages. [Citation.] The wrongdoer ‘ “must act with the intent to
vex, injure, or annoy, or with a conscious disregard of the plaintiff’s rights.
[Citations.]” ’ Punitive damages are appropriate if the
defendant’s acts are reprehensible, fraudulent or in blatant violation of law
or policy. The mere carelessness or
ignorance of the defendant does not justify the imposition of punitive
damages... . Punitive damages are proper
only when the tortious conduct rises to levels of extreme indifference to the
plaintiff’s rights, a level which decent citizens should not have to tolerate.”
’ ” (Lackner v. North (2006) 135
Cal.App.4th 1188, 1210.)
Plaintiff does not allege Westside or
Bergher intentionally harmed him. Without allegations of intent to harm,
“malice” and “oppression” require “despicable conduct.” (Civ. Code, § 3294, subds. (c)(1), (2); College
Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.) “ ‘Despicable conduct’ is defined … as
‘conduct which is so vile, base, contemptible, miserable, wretched or loathsome
that it would be looked down upon and despised by ordinary decent people.’ Such conduct has been described as ‘[having]
the character of outrage frequently associated with crime.’ ” (Tomaselli v. Transamerica Ins. Co.
(1994) 25 Cal.App.4th 1269, 1287.)
Plaintiff alleges
Westside and Bergher did not meet their standard of care as “experienced real
estate professional[s]” and instead pushed plaintiff to accept a bad deal. (FAC, ¶ 46.)
Those allegations constitute breach of the fiduciary duty of loyalty, but
they are not so vile, base, or contemptible as to approach the character of
outrage associated with crime. These
allegations do not rise to the level of despicable conduct.
For Westside, plaintiff’s prayer for
punitive damages is improper for an additional reason. Civil Code section
3294, subdivision (b) provides, “An employer shall not be liable for”
punitive damages “based upon acts of an employee of the employer, unless the
employer had advance knowledge of the unfitness of the employee and employed
him or her with a conscious disregard of the rights or safety of others or
authorized or ratified the wrongful conduct for which the damages are awarded
or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the
advance knowledge and conscious disregard, authorization, ratification or act
of oppression, fraud, or malice must be on the part of an officer, director, or
managing agent of the corporation.” This
provision “limit[s] corporate punitive damage liability to those employees who
exercise substantial independent authority and judgment over decisions that
ultimately determine corporate policy.”
(White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 573.) The first amended complaint includes no
allegations about any officer, director, or managing agent of Westside.
Plaintiff
argues Civil Code section 3294, subdivision (b) does not apply because he does
not rely on “vicarious liability from the conduct of Bergher.” (Opp., p. 4.)
Plaintiff provides no authority holding that one can recover punitive
damages against a corporation without satisfying Civil Code section 3294,
subdivision (b)’s requirements. “ ‘A
corporation can act only through its individual employees.’ ” (People ex rel. Herrera v. Stender
(2012) 212 Cal.App.4th 614, 638.) “Corporations
are legal entities which do not have minds capable of recklessness, wickedness,
or intent to injure or deceive. An award
of punitive damages against a corporation therefore must rest on the malice of
the corporation’s employees.” (Cruz
v. HomeBase (2000) 83 Cal.App.4th 160, 167.) By limiting liability to officers, directors,
or managing agents, “the statute avoids punishing the corporation for malice of
low-level employees which does not reflect the corporate ‘state of mind’ or the
intentions of corporate leaders. This
assures that punishment is imposed only if the corporation can be fairly
be [sic] viewed as guilty of the evil intent sought to be punished.” (Ibid.)
B. Attorney Fees
Plaintiff does not
allege sufficient facts to recover attorney fees from Westside or Bergher. A plaintiff may only recover attorney fees when authorized by contract,
statute, or other law. (Code Civ. Proc.,
§ 1033.5, subd. (a)(10).) Plaintiff’s first amended complaint prays “[f]or attorneys’ fees
pursuant to the RPA” (FAC, prayer ¶ 12), meaning the Residential Purchase
Agreement attached as Exhibit 1 (FAC, ¶ 32).
The RPA includes the following attorney fee provision: “In any action,
proceeding, or arbitration between Buyer and Seller arising out of this
Agreement, the prevailing Buyer or Seller shall be entitled to reasonable
attorney fees and costs from the non-prevailing Buyer or Seller.” (FAC, Ex. 1, ¶ 25.) It does not apply to the brokers. The RPA also expressly provides, “Brokers are
not Parties to this Agreement.” (Id., Ex. 1, ¶
1.E.)
Plaintiff’s opposition
does not address the prayer for attorney fees.
Plaintiff shows no reasonable possibility of amending the complaint to
cure this defect.
Disposition
Defendants Westside Estate Agency, Inc. and Trevor Bergher’s demurrer to the first
amended complaint is overruled.
Defendants Westside Estate Agency, Inc. and Trevor
Bergher’s motion to strike is granted without leave to amend as to the
prayer for attorney fees. The court
hereby strikes the following portion of the first amended complaint
without leave to amend: “For Attorneys’ fees pursuant to the RPA.” (FAC, prayer ¶ 12, p. 23:4.)
Defendants Westside Estate Agency, Inc. and Trevor
Bergher’s motion to strike is granted with leave to amend as to the
prayer for punitive damages. The court
hereby strikes the following portion of the first amended complaint with
leave to amend: “In addition, said Broker Breaches were oppressive, fraudulent
and/or malicious because the Buyer’s Brokers put their interest to close the
sale and obtain the commission ahead of their duties to the Plaintiff and,
therefore, Plaintiff is entitled to an award of punitive damages and exemplary
damages in an unascertained amount, according to proof, pursuant to Civil Code
Section 3294(a).” (FAC, ¶ 102.)
Plaintiff shall have 20 days to file a second amended
complaint.