Judge: David S. Cunningham, Case: 22STCV21036, Date: 2023-04-17 Tentative Ruling

Case Number: 22STCV21036    Hearing Date: April 17, 2023    Dept: 11

22STCV21036 (Gateway Blvd Holdings)

Tentative Ruling Re: Demurrer to First Amended Complaint

Date:                           4/17/23

Time:                          10:00 am

Moving Party:           California State Controller’s Office (“Controller”)

Opposing Party:        Gateway Blvd Holdings, LLC (“Gateway” or “Plaintiff”)

Department:              11

Judge:                        David S. Cunningham III

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TENTATIVE RULING

The demurrer is sustained with leave to amend as to the first, second, and fourth causes of action.

The demurrer is overruled as to the third, fifth, and sixth causes of action.

BACKGROUND

“For services performed by the recorder’s officer, the county recorder shall charge and collect the fees” set forth in Government Code Article 5.  (Cal. Gov. Code § 27360.)

One of the Article 5 fees is the section 27388.1 fee.  Section 27388.1 provides that, “in addition to any other recording fees specified in this code, a fee of seventy-five dollars ($75) shall be paid at the time of recording of every real estate instrument, paper, or notice . . . per each single transaction per parcel of real property.”  (Id. at § 27388.1, subd. (a)(1).)  “The fee . . . shall not exceed two hundred twenty-five dollars ($225).”  (Ibid.)

Gateway contends the statutory language means the fee, which Gateways calls the SB2 Tax, must be no more than $75 to record a single real estate document.  (See First Amended Complaint (“FAC”), ¶¶ 1-5, 44.) 

Allegedly, the Los Angeles County Recorder’s Office overcharged Gateway, doubling the fee “from $75 to $150 for the recordation of a single instrument titled ‘Substitution of Trustee and Full Reconveyance.’”  (Id. at ¶ 5.)  Gateway alleges that the overcharging violated section 27388.1(a)(1) and that the Controller is responsible because the recorder acted on behalf of the State and remitted the overcharge to the Controller.  (See, e.g., id. at ¶¶ 3, 5-6.)

The operative complaint is the FAC.  It asserts six causes of action for (1) writ of mandate, (2) declaratory relief, (3) refund, (4) failure to perform mandatory duty, (5) conversion, and (6) injunctive relief.  Each cause of action is a class cause of action because Gateway claims the alleged misconduct “is going on throughout the State[.]”  (Opposition Brief, p. 1 [claiming all 58 county recording offices overcharge in violation of section 27388.1].)[1]

Here, the Controller demurs to the entire FAC.  The Controller contends the FAC fails to allege facts sufficient to state causes of action given that the recording offices, not the Controller, assessed and collected the section 27388.1 fees.

LAW

Demurrer

When considering demurrers, courts read the allegations liberally and in context, and “treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.)  “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”  (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)  It is error “to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.”  (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

Section 27388.1

(a)(1) Commencing January 1, 2018, and except as provided in paragraph (2), in addition to any other recording fees specified in this code, a fee of seventy-five dollars ($75) shall be paid at the time of recording of every real estate instrument, paper, or notice required or permitted by law to be recorded, except those expressly exempted from payment of recording fees, per each single transaction per parcel of real property. The fee imposed by this section shall not exceed two hundred twenty-five dollars ($225). “Real estate instrument, paper, or notice” means a document relating to real property, including, but not limited to, the following: deed, grant deed, trustee's deed, deed of trust, reconveyance, quit claim deed, fictitious deed of trust, assignment of deed of trust, request for notice of default, abstract of judgment, subordination agreement, declaration of homestead, abandonment of homestead, notice of default, release or discharge, easement, notice of trustee sale, notice of completion, UCC financing statement, mechanic's lien, maps, and covenants, conditions, and restrictions.

(Cal. Gov. Code § 27388.1, subd. (a)(1).)

DISCUSSION

First Cause of Action (Writ of Mandate)

As noted above, the alleged misconduct is assessing and collecting a section 27388.1 fee greater than $75 for recording a single real estate document.  (See, e.g., FAC, ¶¶ 1-5, 44.)

The Controller does not dispute that the alleged overcharging occurred.  Nor does it challenge Gateway’s interpretation of section 27388.1.

Instead, the Controller contends it is the wrong Defendant because the county recorders assessed and collected the fees.  (See Moving Brief, pp. 8-9 [“Petitioners . . . acknowledge that the fee was charged and collected by the Los Angeles County Recorder. [Citation.] Thus, despite the petition’s further allegations, the Controller undertook no action that could be subject to a writ of mandate or that caused petitioner’s alleged injury. Accordingly, the Controller should not be named in this action, and the demurrer should be sustained.”].)

Gateway claims the recorders overcharged “on behalf of the State . . . and as the State’s agent” and remitted the alleged overcharges to the Controller (the fees are in the Controller’s possession).  (FAC, ¶ 3; see also id. at ¶ 6.)  Gateway contends the Controller had the power and duty to ensure that the recorders collected the fees “in conformance with the statute.”  (Opposition Brief, p. 7.)

The Court agrees with the Controller.  The first cause of action states:

40. Respondents have a clear, present, and ministerial duty to comply with California Government Code section 2[7]388.1 in connection with Respondents’ imposition of an SB2 Tax of $75 for the recordation of a single instrument.

41. Respondents refuse to comply with their statutory duty by charging Petitioner and the Class an SB2 Fee greater than $75 for the recordation of a single instrument documenting the removal of a lien on real property, such as a document entitled “Substitution of Trustee and Full Reconveyance.”

42. Petitioner and the Class have a clear, present, and beneficial right to the performance of Respondents’ duties.

43. Petitioner and the Class do not have an adequate remedy at law.

44. Accordingly, Plaintiff and the Class are entitled to a writ of mandate pursuant to Code of Civil Procedure section 1085 to compel Respondents’ compliance with the law and enjoin Respondents’ from the further wrongful collection of SB2 Fees exceeding $75 for the recordation of a single instrument documenting the removal of a lien on real property.    

(FAC, ¶¶ 40-44.)  Contrary to paragraphs 40 and 41, it was the Legislature who imposed the fees and the recorders who allegedly charged and collected them.  (See, e.g., id. at ¶¶ 1, 3, 5-6, 14-22.)  Paragraph 44 is similarly off target; it seeks to enjoin the Controller from collecting the fees even though the recorders do the collecting.  While the real goal of the lawsuit is to secure refunds and to prevent future overcharges, the first cause of action fails to request refunds from the Controller and focuses on the wrong entity in terms of collection.  To the extent Gateway claims the Controller should audit the remitted fees before accepting them from the recorders, the first cause of action fails to request this or to cite authority requiring audits.  The demurrer is sustained with leave to amend to give Gateway an opportunity to address these problems.

Gateway’s citations to Government Code sections 12410, 12418, and 12422.5 in the opposition brief fail to change the analysis at this time.  (See Opposition Brief, pp. 5, 7.)  None of these sections is alleged in the first cause of action, none of them expressly mandates audits with respect to section 27388.1 fees, and Gateway fails to cite authority interpreting them as requiring such audits.[2]

Second Cause of Action (Declaratory Relief)

The Controller contends the demurrer should be sustained because “[t]he Controller’s duties . . . do not include the charging of local county recorder fees[,]” and “the Los Angeles County Recorder . . . assessed and collected these fees and issued the receipt for their payment.”  (Moving Brief, pp. 10, 11.)

Gateway contends the FAC alleges an actual and present controversy as to whether the alleged overcharging violates section 27388.1.  (See Opposition Brief, pp. 8-9.)

The Court agrees with the Controller.  The second cause of action alleges:

46. An actual, present, and substantial controversy exists between Plaintiff and Defendants. Plaintiff contends that Defendants’ assessment of an SB2 Tax greater than $75 for recording a single instrument that documents the removal of a lien on real property in connection with a real estate transaction not exempted by Government Code section 27388.1, such as a document entitled “Substitution of Trustee and Full Reconveyance,” violated and continues to violate Government Code section 27388.1 because the recorded document is a single “real estate instrument, paper, or notice.” Defendants will no doubt contend that they have complied with the law and are entitled to assess a double tax for this single document.

47. Plaintiff and the other Class members have no adequate remedy at law to arrest and prevent ongoing conduct in violation of Government Code section 27388.1.

48. By reason of the foregoing, there is a present and ongoing controversy between Plaintiff and other Class members, on the one hand, and Defendants, on the other hand, with respect to which this Court should enter a declaratory judgment determining the rights and obligations of each. Plaintiff contends that such judgment should determine that Defendants’ conduct complained of herein is unlawful.

(FAC, ¶¶ 46-48.)  Like the first cause of action, paragraphs 46, 47, and 48 misidentify the Controller as the assessor and collector of the fees.  There is no request for declaratory relief regarding refunds or audits, and the second cause of action fails to cite statutes or other authority requiring audits.  The demurrer is sustained with leave to amend.

Third (Refund), Fourth (Failure to Perform Mandatory Duty), Fifth (Conversion), and Sixth (Injunctive Relief) Causes of Action

Gateway contends the demurrer should be overruled because “[t]he Controller offers no argument or analysis on these claims[.]”  (Opposition Brief, p. 9.)

In reply, the Controller asserts that the demurrer applies to all six causes of action.  (See Reply Brief, pp. 9-10.)

The Court agrees with Gateway.  The Controller’s notice and demurrer indicate that the demurrer covers the entire FAC (see Notice, pp. 1-2; see Demurrer, p. 2), but the moving brief only discusses the first and second causes of action.  (See Moving Brief, pp. 8-11.)  This is not a situation in which the third, fifth, and sixth causes of action are simply derivative.  For example, the refund and conversion claims appear independent because the Controller possesses the alleged overcharges.  The injunctive relief claim appears independent, in part, because it seeks to bar the Controller from accepting overcharges from the recorders.  Since the moving brief fails to address these causes of action, the demurrer is overruled.

The fourth cause of action is a different story.  The Controller is not the entity who allegedly overcharged, so the demurrer is sustained with leave to amend.