Judge: Blaine K. Bowman, Case: 37-2023-00033630-CU-BC-NC, Date: 2024-01-12 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

DEPT.:

EVENT DATE:

EVENT TIME:

SOUTH BUILDING TENTATIVE RULINGS - January 11, 2024

01/12/2024  10:00:00 AM  N-31 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Blaine K. Bowman

CASE NO.:

CASE CATEGORY:

EVENT TYPE:

CASE TITLE: CASE TYPE:

Civil - Unlimited  Breach of Contract/Warranty Demurrer / Motion to Strike 37-2023-00033630-CU-BC-NC SHELDON VS GHADBAN [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion to Strike, 10/02/2023

The Demurrer brought by defendants First American Title Insurance Company, First American Title Company and Steve Hlavacek (collectively 'First American') is SUSTAINED in part and OVERRULED in part.

The Request for Judicial Notice brought by Plaintiffs William Sheldon and Sandra Sheldon is GRANTED.

Code of Civil Procedure § 452.

First American's Motion to Strike Plaintiffs allegations of severe emotional and mental distress relating to Plaintiffs' fifth cause of action for breach of fiduciary duty is DENIED.

Factual Background This action was brought by the plaintiffs William and Sandra Sheldon ('Plaintiffs') who purchased a home in Poway in 2020 ('Subject Property') based upon alleged misrepresentations regarding 'designated open space' next to the home, which is now subject to development.

For the purpose of the demurrer and motion to strike, the moving parties are defendants First American Title Insurance Company, First American Title Company and Steve Hlavacek (collectively 'First American'). Plaintiffs have asserted causes of action against First American for: (1) Negligence: (2) Negligent Misrepresentation; (3) Intentional Misrepresentation; (4) Breach of Fiduciary Duty; and (5) constructive fraud arising from alleged statements made by Steve Hlavacek, as an employee of the First America title companies, to Plaintiff's real estate agent, regarding the adjacent property being open space that could not be developed ('Statement').

Merits of Demurrer At this stage of the case, the Court is required to liberally construe the allegations of the complaint, with a view to substantial justice between the parties. Code Civ. Proc., 452. In ruling on a demurrer, the court is to consider the legal sufficiency of an opponent's pleading based on defects that appear either on the face of the pleading or from matters subject to judicial notice. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.

The court should sustain a demurrer only if the facts alleged in the complaint, liberally construed, are insufficient to constitute any cognizable cause of action. Kiseskey v. Carpenters' Trust for So. California (1983) 144 Cal.App.3d 222, 228.

Insurance Code Sections 12340.10 and 12340.11 Calendar No.: Event ID:  TENTATIVE RULINGS

3031535 CASE NUMBER: CASE TITLE:  SHELDON VS GHADBAN [IMAGED]  37-2023-00033630-CU-BC-NC First American's primary argument is that all of Plaintiffs' claims against First American are barred under Insurance Code sections 12340.10 and 12340.11, which prevent a plaintiff from suing a title insurance company for negligence in failing to disclose negative information in a preliminary title report and instead only allow negligence claims when an abstract of title is provided.

An 'abstract of title' is a written representation provided by contract, which is intended to be relied upon by the other party, listing in detail the chain of title for a property. Ins. Code § 12340.10. Conversely, 'preliminary reports' are simply reports furnished in response to an application for title insurance and are offers to issue a title policy subject to the stated exceptions in the report, or other matters incorporated by reference within it. Ins. Code §12340.10.

A person who purchases an abstract of title receives all of the rights associated with that representation and a person negligently preparing the abstract may be held liable for their negligence. Southland Title Corp. v. Superior Court (1991) 231 Cal.App.3d 530, 536 A person receiving a preliminary report does not have the rights of someone purchasing an abstract since 'a policy of title insurance is not a representation that the title is in the condition described, and it is not an opinion regarding the condition of title.' Siegel v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 1181, 1191. Instead, a title policy is an agreement by the insurer to 'pay any loss or damage suffered by the insured from any omitted defect not excluded by the terms of the policy.' Id. 'A title insurer expressly does not intend to induce a buyer or lender to consummate a transaction in reliance on a preliminary report of title' rather the insurer 'intends to induce the prospective insured to purchase a policy of title insurance and to declare in advance of such purchase precisely the risk which it will agree to assume.' Southland, supra, 231 Cal.App.3d at 538.

In Soifer v. Chicago Title Co. (2010) 187 Cal.App.4th 365, a real estate investor alleged that he entered into an oral agreement with a title insurance employee, for the employee to provide title information upon which the investor could rely upon in deciding upon whether to make a bid at foreclosure sales. Soifer 187 Cal.App.4th at 368. In exchange for this information, the investor would provide future title insurance business. Id. The investor sued the title insurance company after purchasing a property based on the employee incorrectly responding 'yes' to an email inquiring into whether the foreclosing loan was in a senior position. Id. In affirming the trial court's sustaining of the title insurance company's demurrer, the court held that the employee's email did not constitute an abstract of title and therefore could not impose abstractor liability on the insurer. Id. at 372. The court also noted that the informal information was 'a lesser document' than a preliminary title report and the investor could not recover since he did not purchase an abstract of title or a policy of title insurance and therefore could not rely upon the information provided. Id. at 373.

In Soifer, the investor was essentially seeking a limited preliminary title report, informally requesting parts of information that would be provided in a preliminary title report-i.e. information on the priority of loans on the title to that particular property. Here, the Plaintiffs are alleging that First American's employee, defendant Steve Hlavacek, made misrepresentation to Plaintiff's real estate agent regarding the status of adjacent properties. Complaint, ¶¶ 6-7, 9-10, 19-20, 22. Plaintiffs further allege that First American went beyond the typical scope of a title insurer and represented information to Plaintiffs about the designation, character and future of the adjacent land. Complaint, ¶¶ 22, 53-54.

Since a preliminary title report is essentially an offer of coverage, which is expressly intended not to be relied upon, any information provided in that report or referenced therein clearly falls within the protection of Insurance Code section 12340.11. Plaintiff's however have alleged that the information provided by Steve Hlavacek was outside the scope of the preliminary title report and insurance policy.

While the informal information provided by the employee in Soifer was also not a preliminary title report, based on the pleadings, the Court cannot hold as a matter of law that the alleged statements fell within the protections of Insurance Code section 12340.11.

Calendar No.: Event ID:  TENTATIVE RULINGS

3031535 CASE NUMBER: CASE TITLE:  SHELDON VS GHADBAN [IMAGED]  37-2023-00033630-CU-BC-NC Thus, for the purpose of ruling on First American's demurrer, Plaintiffs' second, third, fourth and sixth causes of action are not barred by Insurance Code section 12340 et. seq.

2nd COA – Negligence First American's demurrer as to Plaintiffs' second cause of action for negligence relies entirely upon the lack of duty as stated in Soifer. For the reasons discussed above, Plaintiffs' cause of action for negligence against First American is not subject to demurrer on this basis.

3rd and 4th COA – Negligent Misrepresentation and Intentional Misrepresentation 'The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage.' Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230–231. The elements 'for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true. Id. at 231.

Each element in a cause of action for fraud or negligent misrepresentation must be factually and specifically alleged. Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519. The policy of liberal construction of the pleadings does not apply and a plaintiff must plead 'facts which show how, when, where, to whom, and by what means the representations were tendered.' Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 74. In pleading fraud against a corporate employer, the burden is higher and a 'plaintiff must allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.' Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.

The purpose of the heightened pleading requirement is 'to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action, although less specificity is required if the defendant would likely have greater knowledge of the facts than the plaintiff.' Chapman, supra, 220 Cal.App.4th at 231.

Here, Plaintiffs have alleged that Defendant Steve Hlavacek, in the course and scope of his employment with First American, made misrepresentations to Plaintiffs real estate agent regarding the nature of the adjacent properties, and that based on Mr. Hlavacek's role as a title insurance agent of First Americana that Plaintiffs reasonably relied upon this information in proceeding to purchase the Subject Property and have been subsequently injured by their reliance. Complaint, ¶¶ 6-7, 9-10, 19-22, 35-39. While Plaintiffs did not provide the specific date for the alleged second email, based on Plaintiffs alleged facts, the misrepresentation occurred between May 14, 2020, and the close of the sale in June 2020 See Complaint ¶¶ 20, 25.

Accordingly, Plaintiffs have sufficiently pled a cause of action against First American for negligent and intentional misrepresentation and Plaintiffs' third and fourth causes of action are not subject to demurrer.

5th COA – Breach of Fiduciary Duty '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 [internal citations omitted]. 'Whether a fiduciary duty exists is generally a question of law.' Hodges v. County of Placer (2019) 41 Cal.App.5th 537, 546. 'A fiduciary relationship is any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party.' Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29. It imposes 'obligations far more stringent than those required of ordinary contractors.' Id. at 30.

Here, Plaintiffs have not alleged facts sufficient to plausibly establish the existence of a fiduciary Calendar No.: Event ID:  TENTATIVE RULINGS

3031535 CASE NUMBER: CASE TITLE:  SHELDON VS GHADBAN [IMAGED]  37-2023-00033630-CU-BC-NC relationship. Plaintiffs' opposition concedes that First American did not act in a fiduciary role in issuing plaintiff a title policy but argues that a fiduciary relationship was created when Defendant Hlavacek acted outside the scope of that role and provided information on the nature of the adjacent property. Complaint ¶¶ 84-88. While an insurer may assume additional duties, merely providing additional information on the status of adjacent properties is insufficient to establish a fiduciary duty. See Jones v. Grewe (1987) 189 Cal.App.3d 950, 954; see also City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 388 (most contractual arrangements require a party to entrust its affairs to another with more expertise and on whom the party must rely upon the truth of the other party's representations, but this does not establish a fiduciary relationship).

Thus, Plaintiffs' fifth cause of action against First American is subject to demurrer.

6th COA – Constructive Fraud Constructive fraud only occurs when there is a fiduciary or confidential relationship and arises from a breach of duty by a person in that relationship, which induces justifiable by the other person in the relationship. Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1131.

As Plaintiffs have not alleged facts sufficient to establish a fiduciary or confidential relationship, Plaintiffs' sixth cause of action for constructive fraud against First American is subject to demurrer.

Motion to Strike First American's motion to strike Plaintiffs allegations of severe emotional and mental distress relating to Plaintiffs' fifth cause of action for breach of fiduciary duty is DENIED.

While Defendant's demurrer to Plaintiffs fifth cause of action for breach of fiduciary duty as to First American defendants has been sustained, Plaintiffs still have a cause of action for breach of fiduciary duty against defendants Eric Matz and San Diego Home and Estates, Inc. Further, Plaintiffs have alleged sufficient intentional conduct to plausibly infer a basis for emotional distress damages as to the other defendants. See Butler-Rupp v. Lourdeaux (2005) 134 Cal.App.4th 1220, 1228; Erlich v. Menezes (1999) 21 Cal.4th 543, 552.

Consequently, at this stage of the pleadings, striking Plaintiffs' claims for emotional and mental distress would be improper. See Code Civ. Proc. § 431.10 subsections (b)(3) and (c).

Accordingly, Defendants First American Title Insurance Company, First American Title Company and Steve Hlavacek's motion to strike (ROA #20) is DENIED and their demurrer to Plaintiffs William Sheldon and Sandra Sheldon's complaint (ROA #19) is SUSTAINED with leave to amend as to Plaintiffs' fifth and sixth causes of action and OVERRULED as to Plaintiffs' second, third, and fourth causes of action.

If Plaintiffs choose to amend their complaint, Plaintiffs are ordered to file an amended complaint by January 22, 2024.

If the parties are satisfied with the above tentative ruling or do not otherwise wish to argue the motion, they are encouraged to give notice to the Court and each other of their intention not to appear, though this notice is not required.

Calendar No.: Event ID:  TENTATIVE RULINGS

3031535