Judge: Christian R. Gullon, Case: 23PSCV01974, Date: 2023-08-31 Tentative Ruling

Case Number: 23PSCV01974    Hearing Date: August 31, 2023    Dept: O

Tentative Ruling

DEMURRER TO COMPLAINT BY DEFENDANT STARCREST ESCROW, INC is
SUSTAINED in its entirety, with leave to amend.

Background

This case pertains to the sale of real property. Plaintiff
SBR EMPIRE LLC (“Plaintiff”) alleges the following against Defendants OPTIMUM
REAL ESTATE LLC (“Optimum”); THELMA SAZON (“Sazon”); and STARCREST ESCROW, INC.
(“Starcrest” or “Escrow”): Plaintiff contracted with the subject property’s
owners to buy the property and had similarly contracted, in the same time
frame, to sell the property to Optimum. (Complaint ¶12, see Ex. 1 [Purchase and
Sale Agreement (“Agreement”).) Optimum paid a non-refundable $40,000 deposit into
escrow with Starcrest. (¶14.) According to the terms of the Agreement, should
the buyer (here, Optimum) breach, Plaintiff was to retain Optimum’s deposit as
liquidated damages. (¶15.) However, despite demands to close escrow, Optimum
did not perform, and Starcrest refuses to cancel the escrow and provide the
$40,000 deposit to Plaintiff.[1]

On June 30, 2023, Plaintiff filed the instant action
asserting causes of action (COA) for:

On July 24, 2023, Starcrest filed the instant demurrer.

On August 18, 2023, Plaintiff filed its opposition to
Starcrest’s demurrer.

On August 21, 2023, Starcrest filed its Reply to Plaintiff’s
opposition to Starcrest’s demurrer.

Legal Standard

Starcrest bring forth the demurrer pursuant to California
Code of Civil Procedure (CCP) section 430.10 subdivisions (e) and (f). (See
Notice of Demurrer p. 2.)

In turn, subdivision e provides that a demurrer may be
asserted when the pleading does not state facts sufficient to constitute a
cause of action. (Code of Civ. Proc., §430.10 subd. (e).) A pleading may fail
to for uncertainty if material facts are not directly alleged with clearness
and precision. (Code of Civ. Proc., §430.10 subd. (f); see Ankeny v.
Lockheed Missiles and Space Co. (1979) 88 Cal.App.3d 531, 537 [“It is settled law
that a pleading must allege facts and not conclusions, and that material facts
must be alleged directly and not by way of recital. [Citation
omitted]. Also, in pleading, the essential facts upon which a
determination of the controversy depends should be stated with clearness and
precision so that nothing is left to surmise. [Citation omitted]. Those
recitals, references to, or allegations of material facts which are left to
surmise are subject to special demurrer for uncertainty. [Citation
omitted]. Such conclusionary allegations as are noted above, without facts
to support them, are ambiguous . . . hence uncertain.”].) In testing the
sufficiency of the pleading, the grounds for a demurrer must appear on the face
of the pleading or from judicially noticeable matters. (Code of Civ. Proc. §
430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Meet and Confer

According to CCP section 430.41 subdivision (a), “Before
filing a demurrer pursuant to this chapter, the demurring party shall meet and
confer in person or by telephone with the party who filed the pleading that is
subject to demurrer for the purpose of determining whether an agreement can be
reached that would resolve the objections to be raised in the demurrer.” The
meet and confer process includes that the demurring party “identify all of the
specific causes of action that it believes are subject to demurrer and identify
with legal support the basis of the deficiencies.” (Code of Civ. Proc.,
§430.41, subd. (a), subs. (2).)

Plaintiff disputes that Starcrest adequately met and
conferred because it was not by telephone or in person as required by section
431.41(a). (Opp. p. 2.) The court finds Plaintiff’s argument unavailing for
multiple reasons.

For one, contrary to Plaintiff’s contention (Opp. p.
2:18-19), an insufficient meet and confer process “shall not be grounds” to
overrule a demurrer. (Code of Civ. Proc., §430.41, subd. (a), subs. (4).) Thus,
even if Starcrest did not meet and confer appropriately, the court would not
overrule its demurrer on said ground.[2]
Second, and of import Plaintiff’s Counsel did not respond. to Starcrest’s meet
and confer letter(Reply p. 2.) If Plaintiff’s Counsel should have desired to
meet in person or talk via phone, at the very least, such could have been her
response.

Therefore, as Starcrest attempted to informally resolve the
matters—which is the very purpose of meet and confer process—but it was
Plaintiff who did not engage in that process, then the court determines meet
and confer efforts were satisfied.  

Discussion

Starcrest demurs to the three COAs asserted against it. The
court will begin with the breach of contract COA.

1.    
3^rd COA for Breach of Contract

The elements of a breach of contract claim include (1) the
existence of a valid contract between the parties; (2) the failure of
performance of one or more of the terms of the agreement; (3) the unjustified
or unexcused failure to perform; and (4) damages suffered by the plaintiff as a
direct and proximate cause of the defendant’s conduct resulting from the breach
of an agreement. (Careau & Co. v. Security Pacific Business Credit, Inc.
(1990) 222 Cal.App.3d 1371, 1388.)

Turning to the allegations, the pertinent allegations
comprising this COA are as follows:[3]

-       
On April 26, 2022, Plaintiff executed and delivered to
Optimum a Notice to Buyer to Perform No. 1 (the “Notice”), specifying that
Optimum was to “DEPOSIT FUNDS/ CLOSE ESCROW” within 2 days.  As recited on the form Notice to Buyer, if
OPTIMUM failed to comply within two days, “Seller may cancel the Agreement.”  (Complaint ¶17, Ex. 2.)

-       
That same day, Plaintiff also executed and delivered to
Optimum and Demand To Close Escrow (the “Demand”), specifying that OPTIMUM was
to “close escrow on the Property … within 3 … days after Delivery of this
Demand … .”  (Complaint ¶18, Ex. 3)

-       
Optimum did not perform as required by either the
Notice and Demand. (Complaint ¶19)

-       
On May 5, 2022, “Plaintiff executed and delivered to
Starcrest a Cancellation of Contract, Disposition of Deposit and Cancellation
of Escrow (“Cancellation”).” (Complaint ¶20, Ex. 4.)

Upon notice of said
Cancellation, the following provision of the Agreement is triggered:

Notwithstanding the
foregoing, in the event the Closer requires Buyer to execute a joint escrow
instruction in order to release the Deposit to Seller (a “Joint Escrow
Instruction”), Buyer shall promptly execute same. If Buyer fails to execute any
Joint Escrow Instruction within 2 days following Seller or Closer’s written
request therefor, Seller
may make a written demand to Closer for the Deposit[4]
and Closer shall promptly deliver notice of the demand to
Buyer. If, within 10 days after Closer’s notice, Buyer does not object
to the demand, then Closer shall disburse the Deposit to Seller, and Buyer is
hereby deemed to have authorized Closer to so disburse the Deposit. Buyer may
be subject to a civil penalty of up to $1,000 for refusal to sign a Joint Escrow
Instruction if no good faith dispute exists as to who is entitled to the
deposited funds.

(Complaint, Ex.
1, Addendum A, ¶23, p. 30 of 52 of PDF) (emphasis added and italics added).

Based thereon,
Plaintiff alleges “Starcrest breached the aforementioned portion of the
Agreement by failing to ‘promptly deliver notice of the demand to Buyer’
and thereby trigger the 10-day objection period.” (Complaint ¶22.)  

In its demurrer, Starcrest
argues that Optimum did object to the Cancellation. Indeed, Plaintiff alleges
that “Starcrest has refused to cancel the escrow and provide the $40,000.00
deposit to Plaintiff, claiming that Starcrest will not do so absent either
Optimum’s written authorization, which Optimum refuses to provide.”
(Complaint ¶22) (emphasis added). Effectively, plainly read, Plaintiff itself
pleads Optimum refuses to provide written authorization (amounting to an
objection) to Plaintiff’s Cancellation and release of deposit funds.

But, as noted in opposition, the
issue is not whether Optimum objected but whether Closer/Starcrest promptly
delivered notice of the Cancellation to Optimum (Opp. p. 3:9-13.) To
address this issue, Starcrest points to a letter dated June 1, 2022 by
Optimum/Buyer’s Counsel to Plaintiff. (Demurrer p. 8, see also Reply p. 2.) The
letter, in pertinent part, sets forth the following:

I.               
On May 10, 2022 at 2 Seller through its
Transaction Coordinator, issued a Cancellation of Contract, Release of Deposit
and Cancellation of Escrow dated 05.05.22 on the ground D. The other
Party has failed to close escrow after being given a Demand to Close Escrow
(CAR Form DCE). Buyer responded in an email dated 05/11/2022
by stating among others: 1. Buyer and Seller need not cancel the Contract,
the Contract expired as stipulated in Contract itself on 04/25/2022 at 5 pm
local time. 2. The Other Party (Buyer) failure to close escrow was caused
directly by the intentional or unintentional or negligent act of the Seller by
failing to monitor the Closer to deliver the estimate on time and to this date
the estimate was still wrong.

(Complaint, Ex. 5, p. 45 of 52 of PDF) (emphasis added).

Based
thereon, the court agrees with Starcrest’s interpretation: Buyer/Optimum
received notice of the Cancellation (on 5/10/22) and the next day, on May 11,
2022, responded with objections as to why the release of the deposit is
improper. Put another way, Optimum could have only timely objected
within the ten-day window—since ten days from May 5, 2022 is May 15, 2022,
making an objection by May 11, 2022 timely—if Optimum had received prompt
notice by Starcrest of Plaintiff’s Cancellation.[5]
And this conclusion is the reasonable inference drawn from the facts pleaded.
(See Flynn v. Higham (1983) 149 Cal.App.3d 677, 679.)    

To the extent that Plaintiff in opposition argues the court
should not rely upon the letter because it did not “intend to adopt the
tendentious factual assertions in the letter” by attaching it to the complaint
and referencing it in its complaint (Opp. p. 3:4-21), Plaintiff’s intention
with drafting its complaint is not a consideration that a court must consider
in assessing the sufficiency of the pleadings. As noted in Starcrest’s papers
(Demurrer p. 5, Reply p. 2), in testing the sufficiency of the face of the
pleading, that includes matters shown in exhibits attached to the
complaint and incorporated by reference. (Frantz v. Blackwell (1987) 189
Cal.App.3d 91, 94.) “To the extent the factual allegations conflict with the
content of the exhibits to the complaint, [a court] rel[ies] on and accept[s] as
true the contents of the exhibits and treat[s] as surplusage the pleader's
allegations as to the legal effect of the exhibits.” (Barnett v.
Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505) (emphasis added).
And as the letter is referenced in the complaint (Complaint ¶23) and attached
as an exhibit, it is then too a part of the pleadings and considered as true. Thus, “giv[ing]
the complaint a reasonable interpretation, reading it as a whole and its parts
in their context” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318), Plaintiff
has alleged that Starcrest did provide prompt notice of the Cancellation to
Optimum, meaning that Plaintiff has not alleged that Starcrest breached
the contract.

Therefore, the court SUSTAINS the demurrer as to the 3^rd
COA for breach of contract with leave to amend.

As the 4^th COA for negligence and 5^th
COA for money had and received are predicated upon the same allegation(s)
(i.e., Starcrest breached its duty by not promptly provide notice of the
Cancellation and Starcrest has unlawfully retained the deposit),[6]
the court SUSTAINS the demurrer as to those COAs as well with leave to amend.

Conclusion

Based on the foregoing—notably as the complaint, when read
together with the exhibits, alleges Starcrest did provide prompt notice of
Plaintiff’s Cancellation to Buyer/Optimum—then the court SUSTAINS the demurrer
in its entirety, with leave to amend.