Judge David S. Cunningham, Case Number: 22STCV21036, Date: 2023-12-08 Tentative Ruling

Judge: David S. Cunningham, Case: 22STCV21036, Date: 2023-12-08 Tentative Ruling

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

Amici: California State Association of Counties (“CSAC”) and County Recorders’ Association of California (“CRAC”)

CSAC and CRAC’s request for judicial notice is denied as to Attachment 1 and granted as to Attachments 2, 3, and 4. The Court judicially notices the existence of the website pages and legislative history.

The Controller’s motion for judgment on the pleadings is granted in part and denied in part with leave to amend.

“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.)

Gateway claims the Los Angeles County Recorder overcharged, 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.)

Each claim is a class cause of action because Gateway contends 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]

On 4/17/23, the Court heard the Controller’s demurrer to the FAC. The Court sustained with leave to amend as to the first, second, and fourth causes of action and overruled as to the third, fifth, and sixth causes of action. Plaintiff chose to not amend. (See Motion, p. 7 n.1.)

On 5/25/23, the Controller filed a motion for judgment on the pleadings. The motion concerns the third, fifth, and sixth causes of action.

Now, the Court must determine whether the briefs support granting or denying judgment on the pleadings.

“A motion for judgment on the pleadings has the same function as a general demurrer but is made after the time for demurrer has expired.” (Edmon & Karnow, Cal. Practice Guide: Civ. Procedure Before Trial (The Rutter Group June 2023 Update) ¶ 7:275.) Generally, “the rules governing demurrers apply.” (Ibid.)

Code of Civil Procedure section 438 is the statute that authorizes motions for judgment on the pleadings. It states:

(B) If the moving party is a defendant, that either of the following conditions exist:

(i) The court has no jurisdiction of the subject of the cause of action alleged in the complaint.

(ii) The complaint does not state facts sufficient to constitute a cause of action against that defendant.

The “limitations” imposed by section 438 “may be meaningless because a nonstatutory motion for judgment on the pleadings apparently survives without such limitations.” (Edmon & Karnow, supra, at ¶ 7:277, emphasis in original.) “A court should be able to decide there is no valid cause of action at any time. There is no point in forcing a case to go to trial because the motion was made too late or otherwise failed [] § 438 requirements.” (Ibid., emphasis in original.)

(a) A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.

Plaintiff is required to join as parties to the action any person whose interest is such that:

* In the person’s absence, complete relief cannot be accorded among those already parties to the action; or

* Any judgment rendered in the person’s absence might either (a) prejudice the person's ability to protect his or her interest in later litigation; or (b) leave any of the parties before the court exposed to a risk of additional liability or inconsistent obligations.

Plaintiff contends the Controller’s motion is improper because it repeats the demurrer argument, and it “seek[s] a ruling on a defect or misjoinder of parties[.]” (Opposition to Motion, p. 4.) Plaintiff claims misjoinder is not a basis for judgment on the pleadings. (See ibid.)

The Controller asserts that the motion presents different arguments than the demurrer did and that the Court did not rule on the arguments at the demurrer stage. (See Reply, pp. 5-7.)

The Court agrees with the Controller. The Court overruled the demurrer to the third, fifth, and sixth causes of action because the Controller “fail[ed] to address” them in the moving brief. (4/17/23 Ruling Re: Demurrer to First Amended Complaint, p. 5.) The substantive arguments here were not made, considered, or decided there, so the instant motion constitutes a new and different motion.

The fact that section 438 does not list misjoinder as a ground for judgment on the pleadings fails to change the result. The Court is permitted to treat the Controller’s motion as a nonstatutory motion despite section 438’s limitations.

Turning to the third (refund) and fifth (conversion) causes of action, the Controller claims it is entitled to Government Code section 815 immunity. (See Motion, pp. 9-11; see also Reply, pp. 7-8 [citing section 815 for the proposition that “public entities . . . are immune from common law claims, specifically tort claims allegedly resulting in damages”].)

Plaintiff contends section 815 immunity does not apply because the refund and conversion claims:

* do not involve an “injury” as defined in Government Code section 810.8 (see Opposition to Motion, pp. 8-10); and

Plaintiff’s first point is questionable. Plaintiff cites City of Dinuba v. County of Tulare (2007) 41 Cal.4^th 859, arguing that an “injury” under section 810.8 must result from a wrong that would be actionable if it had been inflicted by a private person. Plaintiff contends a private person could not have overcharged the SB2 Tax. (See id. at pp. 8-9.) Arguably, though, overcharging and converting personal property are wrongs, nature-wise, that a private person could commit and that would be actionable. (See Reply, p. 8.)

Plaintiff’s second point is contradicted by the FAC. The refund claim alleges that “Plaintiff and the Class have been damaged in an amount to be proven at trial” and that they “are entitled to a refund and/or damages, plus prejudgment interest.” (FAC, ¶ 51, emphasis added.) The conversion claim is similar. It states that “Plaintiff and Class members have suffered damages in an amount to be determined at trial” and that they “are entitled to actual damages sustained as a result of Defendants’ wrongful acts and sums sufficient to compensate” them “for all harm suffered as a result of Defendants’ conduct.” (Id. at ¶ 63, emphasis added.) The plain language clearly seeks damages.

Nevertheless, the Court finds that this part of the motion should be denied. The “partial demurrer” rule applies to judgment on the pleadings. (See Edmon & Karnow, supra, at ¶ 7:295.) This means a motion for judgment on the pleadings cannot attack “only part of a cause of action[.]” (Ibid.) The refund and conversion claims request restitution in addition to damages (see FAC, ¶¶ 51 [requesting a “refund” of the overcharged amounts], 64 [stating that “Plaintiff and the class are entitled to restitution”]), and the Controller fails to cite a published case holding that section 815 immunity extends to restitution requests, so this portion is denied. (See Edmon & Karnow, supra, at ¶ 7:295 [instructing that, “where a claim may be based on alternative grounds one of which is properly pleaded, the motion will ordinarily be denied”].)

Plaintiff asserts that, even if section 815 covers the refund and conversion claims, the Controller is not immune since it failed to comply with mandatory duties created by Government Code sections 12410, 12418, and 12422.5(a) to conduct audits and to establish guidelines to prevent financial errors. (See Opposition to Motion, pp. 10-12.)

As a matter of guidance, the argument is unavailing at this point. The Court explained last time that “[n]one of these sections is alleged” in the FAC, “none of them expressly mandates audits with respect to the [SB2 Tax],” and Plaintiff “fail[ed] to cite authority interpreting them as requiring such audits.” (4/17/23 Ruling Re: Demurrer to First Amended Complaint, p. 4.) Here, Plaintiff still fails to cite authority. (See Opposition to Motion, pp. 7, 10-11, 12-13.)

Plaintiff’s request for leave to amend is granted. While it is appropriate to deny this part due to the applicability of the “partial demurrer” rule, Plaintiff should receive an opportunity to amend to add “facts outlining the Controller’s” purported duties and violations under sections 12410, 12418, and 12422.5(a) and to make the complaint consistent with Plaintiff’s theories. (Id. at p. 13 n.3.)

The Controller contends the sixth (injunctive relief) cause of action should be dismissed because:

* the Controller “is not undertaking any act that can be the subject of an injunction” (Motion, p. 11 [stating that “‘the Controller is not the entity who allegedly overcharged’ the recording fees”]); and

* the Court lacks jurisdiction to enjoin enforcement of a valid law. (See id. at pp. 11-12; see also Reply, pp. 9-10.)

Plaintiff claims the “requested injunctive relief to stop the Controller from accepting the SB2 overcharges collected by the county recorders is simply an enforcement of the Controller’s duty under . . . sections 12410, 12418, and 12422.5(a)[.]” (Opposition to Motion, p. 13.)

Plaintiff also claims the Controller’s jurisdiction argument mischaracterizes Plaintiff’s position. Rather than seeking to enjoin enforcement of the SB2 Tax statute, Plaintiff says it wants the Controller to be ordered to comply with the law. (See id. at pp. 12-14.)

This part of the motion is denied. The FAC states that “Plaintiff seeks an injunction prohibiting the state from directing the counties to collect, or accepting from the counties any collection of, any SB2 fee in excess of $75.00 triggered by the recording of a single instrument that documents the removal of a lien on real property.” (FAC, ¶ 66.) At this stage, assuming Plaintiff’s construction of the SB2 Tax statute is correct, the injunctions do not appear to involve an act that cannot be enjoined pursuant to the statute, nor is Plaintiff moving to enjoin the statute’s enforcement. The Court finds that Plaintiff states a claim.

Again, however, leave to amend is granted to give Plaintiff a chance to allege facts related to sections 12410, 12418, and 12422.5(a).[2]

Next, the Controller argues that the Los Angeles County Recorder is an indispensable party. (See Motion, pp. 12-13; see also Reply, pp. 10-12.)

CSAC and CRAC go an extra step or two. They insinuate that the Los Angeles County Recorder is indispensable (see Amicus Brief, p. 12) yet claim judgment on the pleadings should be granted because Plaintiff failed to exhaust administrative remedies, and it is too late to substitute the Los Angeles County Recorder for a Doe Defendant. (See id. at pp. 10-12.)

Plaintiff contends the Los Angeles County Recorder is not indispensable because:

* “[r]eturn of the subject funds by the Controller (the only entity with access to and control over the Trust) and an order requiring the Controller to refuse funds subsequently tendered by any county will provide complete relief” (Opposition to Motion, p. 5); and

* “[t]he county recorders have no interest in what happens to” the money in the Trust. (Id. at p. 6.)

Also, Plaintiff contends the amicus brief should be ignored because it advances different arguments than the motion does. (See Opposition to Amicus Brief, pp. 2-3.)

This portion of the motion is granted with leave to amend. County recorders, not the Controller, charge and collect the alleged overcharges. Plaintiff alleges that this conduct is ongoing. (See, e.g., FAC, ¶ 67.) Since the FAC requests damages, restitution, and injunctions, the Court doubts that complete relief could be had without the Los Angeles County Recorder – and perhaps the other county recorders – present. If the Court were to grant the injunctions as alleged, the Controller would be (1) “prohibit[ed] . . . from directing the counties to collect” overcharges, and (2) ordered to stop “accepting” overcharges “from the counties[.]” (Id. at ¶ 66.) Neither injunction would necessarily prevent current and future collections by the county recorders, and the county recorders would possess and control any overcharges that the Controller refused to accept. In situations like that, damages and restitution presumably would need to come from the county recorders. Thus, Plaintiff should amend to name the Los Angeles County Recorder or to allege facts that render the Los Angeles County Recorder non-indispensable. Plaintiff is free to do the same as to the other county recorders.

The Court agrees with Plaintiff about the amicus brief. CSAC and CRAC’s issues – failure to exhaust administrative remedies and failure to add the Los Angeles County Recorder on time – pertain to a nonparty and are premature.

Last, the Controller asserts that it does not possess the alleged overcharges. (See Motion, pp. 14-15 [claiming the money has been deposited in the “Building Homes and Jobs Trust Fund” for appropriation by the Legislature]; see also Reply, pp. 8-9.)

Plaintiff contends the Controller’s alleged duties under sections 12410, 12418, and 12422.5(a) give the Controller “ultimate responsibility for the SB2 funds regardless of whether the funds have been disbursed or otherwise appropriated.” (Opposition to Motion, p. 7.)

This part of the motion is denied with leave to amend. The possession issue is a factual issue. (See id. at p. 6.) Moreover, to repeat, Plaintiff should receive an opportunity to add allegations regarding sections 12410, 12418, and 12422.5(a).

[1] The Controller is the only named Defendant. The 58 county recording offices are not named.

[2] CSAC and CRAC argue that Plaintiff’s construction is incorrect. (See Amicus Brief, pp. 5-9.) The Court declines to analyze the argument. The Controller does not contest Plaintiff’s interpretation in the motion (see Motion, pp. 9-15 [merely arguing (1) immunity, (2) that injunctive relief is unavailable, (3) that Plaintiff failed to join an indispensable party, and (4) that Plaintiff fails to allege that the Controller possesses the alleged overcharges]; see also 4/17/23 Ruling Re: Demurrer to First Amended Complaint, p. 2 [stating that the Controller “does not challenge Gateway’s interpretation of section 27388.1”]), and it cannot raise the issue for the first time in reply. (See Reply, pp. 11-12.) In terms of the interpretation question, the amicus brief goes beyond the issues proffered in the motion.