Judge: Daniel S. Murphy, Case: 22STCV27111, Date: 2023-01-25 Tentative Ruling

Case Number: 22STCV27111    Hearing Date: January 25, 2023    Dept: 32

BACKGROUND

            Plaintiff Ata Rouhi (“Plaintiff”) commenced this action against Defendants David Yadegaran (“Yadegaran”), Scott Brackett (“Brackett”), and SFRE Beverly Hills, Inc. (“SFRE”) (collectively, “Defendants”) on August 22, 2022. The Complaint asserts causes of action for (1) breach of fiduciary duty; (2) negligence; (3) fraud; (4) negligent misrepresentation; (5) violation of Business and Professions Code § 17200; and (6) breach of contract.

            The Complaint alleges that Plaintiff employed Yadegaran and SFRE to serve as Plaintiff’s real estate agent and broker. (Complaint ¶ 21.) Plaintiff alleges that Brackett is the designated officer of SFRE. (Complaint ¶ 7.) With Defendants’ assistance, Plaintiff tendered an offer for the acquisition of the Subject Property located at 525 Venice Way, Venice, CA 90291. (Complaint ¶¶ 21, 23.) At the time of the acquisition, Defendants represented that two of three units in the triplex were vacant, while the other one was occupied by a long-term tenant. (Complaint ¶ 22.) Plaintiff expressly conveyed to Defendants that he could not afford to pay for the Property or mortgage if the Subject Property was not completely vacant prior to the offer and prior to the close of escrow, and Defendants reassured him that the Subject Property would be completely vacant upon closing. (Complaint ¶¶ 24-25, 27-30.) Plaintiff alleges that Defendants told him that they had already contacted the remaining tenant and had an agreement in place, and they encouraged Plaintiff to sign the full contingency removal agreement. (Complaint ¶¶ 30-31.)

            However, Plaintiff alleges that Defendants did not even contact the tenant until five days after the contingency removal deadline and then they failed to advise Plaintiff that the tenant requested $200,000 to vacate. (Complaint ¶¶ 34-35.) Plaintiff believes that Defendants concealed this to ensure that Plaintiff closed by escrow to recover their sales commission. (Complaint ¶¶ 36-37.)

            Plaintiff also alleges that Defendants negotiated an extension to the close of escrow and agreed to a daily per diem charge of $500 in the event the transaction did not close by the established date. (Complaint ¶ 38.) Plaintiff also alleges that Defendants failed to advise or explain to Plaintiff the implications of the contingency removal. (Complaint ¶ 32.)

DEMURRER

            Defendants demur to all cause of action in the complaint, on the grounds that each fails to state a valid cause of action and are uncertain.

A.             Discussion

1.     Meet and Confer

Plaintiff argues that Defendant did not properly meet and confer because they only met and conferred one day before the responsive pleading was due. The Court finds Defendant properly complied with the meet and confer requirement. (Sorley Decl. ¶¶ 3-5.)

2.     Defendant Scott Brackett’s Liability

Defendants argue that Defendant Brackett has no personal liability or duty to Plaintiff, and thus all causes of action should be dismissed against him. Defendants argue that Plaintiff has failed to allege a single fact or any claim of involvement relating to Brackett. They argue that the only duty cited by Plaintiff is Bus. & Prof. Code 10159.2(a), which is a duty owed to the broker’s corporation, not to any third party. (Sandler v. Sanchez (2012) 206 Cal.App.4th 1431.) Moreover, they argue that an officer cannot be held vicariously liable under traditional agency principles for the torts of a corporate employee.

In opposition, Plaintiff argues that he properly alleges that Defendant SFRE is the alter ego of Defendant Brackett.

Plaintiff alleges Defendants “was, and is, the agent, servant or employee of each of the other Defendants and in doing all of the things hereinafter alleged was acting in the capacity of, and as agent of, the other Defendants, within the course, scope and authority of such agency and employment. The Defendants were the alter ego of one another, and acted in concert, thus responsible jointly and severally for the conduct of one another.” (Complaint ¶ 11.) Additionally, Plaintiff alleges that “The individual or other corporate defendants have used the main corporate or limited liability defendant as a mere shell, instrumentality, and/or conduit from which said Defendants have carried on their business as if the main corporate defendant did/does not exist, to such an extent that any individuality or separateness of the named Defendants has never existed, and that the activities of the main corporation were carried out without the required holding of directors' or shareholders meetings, and no records or minutes of any corporate proceedings were maintained.” (Complaint ¶ 13.)

These alter-ego allegations are sufficient to impose liability on Defendant Brackett. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-236.)

3.     First and Second Causes of Action for Breach of Fiduciary Duty and Negligence

Defendants argue that the first and second causes of action fail because Plaintiff fails to state how he was harmed.  Although Plaintiff states that he was damaged in an amount of at least $300,000, Defendants argue that Plaintiff has failed to make any causal connection between the Defendants’ actions and the resulting damage to Plaintiff.

The elements of an action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)

The elements of negligence are the existence of a duty of care, breach of that duty, and causation resulting in damages. (McIntyre v. Colonies-Pacific, LLC (2014) 228 Cal.App.4th 664, 671.)

Plaintiff alleges that “as a direct and proximate result of Defendant’s acts and omissions, Plaintiff has been damaged in an amount according to proof, but in no event less than $300,000.” (Complaint ¶¶ 46, 53.) Additionally, Plaintiff alleges that he expressly conveyed to Defendants that he “could not afford to acquire the Subject Property or pay for any resultant mortgage if the Subject Property was not acquired completely vacant,” and “Plaintiff additionally stated his intent to cancel the purchase the sale agreement and not remove his contingencies if the tenant did not vacate.” (Complaint ¶¶ 24, 29.) This is sufficient to allege causation and monetary damages that Plaintiff incurred because of Defendants’ various alleged breaches, specifically the false representations that led Plaintiff to believe that there was an agreement in place with the tenant and the failure to communicate the tenant’s counteroffer.

Defendants present various factual challenges, arguing that Defendants did discuss the contingency removal process and that Plaintiff knew that there was no written agreement with the tenant, but these factual challenges are inappropriate at the demurrer stage.

For these reasons, Defendants’ demurrer to Plaintiff’s first and second causes of action is overruled.

4.     Third and Fourth Causes of Action for Fraud and Negligent Misrepresentation

Defendants argue that these claims fail because they do not violate a duty independent of the contract. Further, they allege that Defendant fails to allege all the requisite elements with specificity.

“The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Hinesley v. Oakshade Town Ctr. (2005) 135 Cal.App.4th 289, 294.) The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

The elements of a cause of action for negligent misrepresentation include “[m]isrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage.” (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154, quotation marks omitted.) The facts alleging negligent misrepresentation must also be plead with specificity.

First, although “conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 989,) Plaintiff’s allegations of fraud arise from a duty independent of the contract. Plaintiff does not merely allege that the fraud allegations arise from the agreement to pay 50% of their commission to Plaintiff, but Plaintiff also alleges that Defendants deceptively negotiated an extension addendum, concealed the implications of removing all contingencies, made representations to Plaintiff about having an agreement in place with the tenant, and concealed from Plaintiff the tenant’s $200,000 counteroffer. (Complaint ¶ 56.)

Further, Plaintiff’s allegations are plead with the requisite specificity.  Plaintiff alleges that Defendants falsely represented that they were in the process of coming to an agreement with the remaining tenant, and then concealed the tenant’s demand of $200,000. (Complaint ¶ ¶ 30-31, 33, 36-37.) The Complaint alleges that Defendants made these representations in order to get Plaintiff to sign the contingency agreement. (Complaint ¶¶ 36-37.) Plaintiff alleges that these statements were false because Defendants did not contact the tenant until after the contingency removal deadline. (Complaint ¶ 34.) Further, Plaintiff states that he expressly told Defendants that he could not afford to purchase the house and he would not sign the closing agreement if the tenant had not vacated. (Complaint ¶¶ 24, 27, 29.) Additionally, Plaintiff has sufficiently alleged that harm in the amount of $400,000 arose from Defendant’s misrepresentations and concealments. (Complaint ¶¶ 58, 69.)

For these reasons, Defendants’ demurrer to Plaintiff’s third and fourth causes of action is overruled.

5.     Fifth Cause of Action for Violation of Bus. & Prof. Code § 17200

Defendants state that this cause of action should be dismissed “based on the arguments discussed throughout this Demurrer” and because “Plaintiff has failed to allege how any of the alleged actions resulted in any of Plaintiff’s alleged damages.”

Because the Court has overruled Defendants’ previous arguments in the demurrer, the Court overrules the demurrer as to the fifth cause of action as well.

6.     Sixth Cause of Action for Breach of Contract

Defendants argue that this cause of action fails because Plaintiff has failed to allege the material terms of the oral agreement and the mutual consideration.

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff.  (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) 

The Complaint states that “Plaintiff and Defendants entered into an oral contract, which was later memorialized in writing, whereby Defendants agreed to pay fifty percent (50%) of their commission from the purchase and sale of the Subject Property to Plaintiff upon closing of the transaction.” (Complaint ¶ 78.) This sufficiently pleads the material terms of the oral agreement.

Further, Defendant argues that the cause of action is barred because the subject matter of the contract is illegal. However, Defendant cites to no authority to support this proposition and the illegality of the contract does not appear on the face of the complaint.

Defendants also state that the complaint fails to explain how Plaintiff was damaged $150,000 for this breach when half of the commission only totals around $10,000. This is an inappropriate factual argument for the demurrer stage because it does not address the facts stated on the face of the complaint.

7.     Conclusion

Defendants’ demurrer as to all causes of action is overruled.

MOTION TO STRIKE

Defendants move to strike Paragraphs 47, 59, and 76, and Plaintiff’s prayer for judgment as to punitive damages and attorney fees.

A.    Punitive Damages Allegations

            Paragraphs 47, 59, and 76 of the Complaint all state a version of the following: “…Defendants acted with oppression, fraud, and malice as set forth in Civil Code § 3294, and thus, Plaintiffs are entitled to an award of punitive and exemplary damages…”. Defendant moves to strike these Paragraphs and the accompanying prayer for punitive damages.

            Civil Code section 3294(a), the general punitive damage statute, authorizes an award of punitive damages “[i]n an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.”

For purposes of section 3294, “malice” means “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” “Oppression” means “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” And “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.” (Civ. Code § 3294(c).)

 In order to state a prima facie claim for punitive damages, a complaint must contain allegations that the defendant has been guilty of oppression, fraud, or malice within the meaning of Civil Code section 3294. (See Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63.) Conclusory allegations that defendant’s conduct was intentional, willful, or fraudulent are insufficient. (Brousseau v. Jarrett (1977) 73 Cal.App.3d 864, 872; see also Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1042.)

Reading the Complaint’s allegations liberally and in context, the Court concludes that Plaintiff has alleged sufficient facts to show that Defendants acted fraudulently and/or with malice. Plaintiff has alleged that Defendants made false representations to Plaintiff that the Property would be delivered vacant and that they were in the process of coming to an agreement with the remaining tenant. Even when Plaintiff stated that he would have to cancel the sale agreement and not remove his contingencies if the tenant would not vacate, the Defendants falsely stated that an agreement was reached so that Plaintiff would sign the contingency removal agreement. Liberally construed, these allegations suggest that Defendants acted with a conscious disregard and/or intentionally misrepresented a material fact, which harmed Plaintiff’s financial interests.

The motion to strike punitive damages is denied.

B.    Attorney’s Fees

Defendant argues that none of the causes of action alleged support an award of attorney’s fees. Parties cannot recover attorney’s fees unless expressly authorized by a statute or contract.  (Hom v. Petrou (2021) 67 Cal.App.5th 459, 464.) Plaintiff has not provided any allegations that support the fact that he is entitled to attorney fees.

The motion to strike the prayer for attorney fees is granted.

CONCLUSION

Defendants’ demurrer is overruled. Defendant’s motion to strike is granted in part as to the prayer for attorney fees and denied in part as to the punitive damages allegations.