Judge: David Sotelo, Case: 21STCV33320, Date: 2022-08-09 Tentative Ruling
Case Number: 21STCV33320 Hearing Date: August 9, 2022 Dept: 40
MOVING PARTY: Defendant Joseph Lee.
Plaintiff Deborah D. Davis, as the Administratrix of the Estate
of Charles E. Cummings, sues Defendant Joseph
Lee (a fiduciary via brokerage responsibilities) and other defendants for their
roles in defrauding Mr. Cummings—85 years old at the time of his death in 2021—of
a substantial portion of his assets. The First Amended Complaint alleges that Defendant
Joseph Lee—a real estate broker—worked to ingratiate himself with the elderly Mr.
Cummings and, after having gained Mr. Cummings’s trust, convinced Mr. Cummings to
sign instruments to enter a series of real estate transactions that included selling
Cummings’s residential properties, purchasing new residential properties, and renting
out the new properties to tenants. Defendant Lee thereafter leveraged these instruments
to convey portions of Mr. Cummings’s estate to himself or other individuals known
to Lee at a profit; obtain loans on the properties without renumeration to Mr. Cummings;
charge Mr. Cummings excessive real estate brokerage fees in connection with various
real estate transactions; and divert real estate sale or rental profits away from
Mr. Cummings.
Defendant brings an opposed
Demurrer to the operative First Amended Complaint’s Fraud, Constructive Fraud, and
Cancellation of Instruments causes of action on the grounds that these claims are
not sufficiently pleaded within the meaning of Code of Civil Procedure section 430.10,
subdivision (e). Lee also brings a Motion to Strike punitive and treble damages
allegations from the operative First Amended Complaint (“FAC”).
After review of the
parties’ papers, the Court (1) OVERRULES the Demurrer in full because the
challenged claims— Fraud, Constructive Fraud, and Cancellation of
Instruments—are sufficiently pleaded and (2) DENIES the Motion to Strike
because Fraud and Constructive Fraud claims support allegations of punitive and
treble damages.
Legal Standard: A demurrer for sufficiency tests
whether the complaint states a cause of action.¿ (Hahn v. Mirda (2007)
147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).)¿ This
device can be used only to challenge defects that appear on the face of the
pleading under attack or from matters outside the pleading that are judicially
noticeable.¿ (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)¿ “To survive a
[general] demurrer, the complaint need only allege facts sufficient to state a
cause of action; each evidentiary fact that might eventually form part of the
plaintiff’s proof need not be alleged.”¿ (C.A. v. William S. Hart Union High
School Dist. (2012) 53 Cal.4th 861, 872.)¿ In testing the sufficiency of
the cause of action, the demurrer admits the truth of all material facts
properly pleaded.¿ (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th
962, 966-67.)¿ A demurrer, however, “does not admit contentions, deductions or
conclusions of fact or law.”¿ (Daar v. Yellow Cab Co. (1967) 67 Cal.2d
695, 713.)¿ When considering demurrers, courts read the allegations liberally
and in context.¿ (Taylor v. City of Los Angeles Dept. of Water and Power
(2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v.
Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.)¿ The face
of the complaint includes exhibits attached to the complaint.¿ (Frantz v.
Blackwell (1987) 189 Cal.App.3d 91, 94.)¿ If facts appearing in the
exhibits contradict those alleged, the facts in the exhibits take precedence.¿
(Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443,
1447.)
Third Cause of Action, Fraud: OVERRULED.
Analysis: “The
elements of fraud that will give rise to a tort action for deceit are: “‘(a)
misrepresentation (false representation, concealment, or
nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud,
i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’”
(Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974; see also
Odorizzi v. Bloomfield School Dist. (1966) 246
Cal.App.2d 123, 128; Wilhelm v. Pray, Price, Williams & Russell
(1986) 186 Cal.App.3d 1324, 1332.)
Allegations of fraud “must be pled with more detail than
other causes of action.” (Apollo Capital Fund, LLC v. Roth Capital Partners,
LLC (2007) 158 Cal.App.4th 226, 240.) “Every element of the cause of action
for fraud must be alleged . . . factually and specifically[,] and the policy of
liberal construction of the pleadings . . . will not ordinarily be invoked to
sustain a pleading defective in any material respect. [Citations.]” (Committee
on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197,
216.) Accordingly, a plaintiff pleading fraud must plead facts showing “how,
when, where, to whom, and by what means” the allegedly fraudulent
representations were tendered. (Lazar v. Superior Court (1996) 12
Cal.4th 631, 645.)
On demur, Joseph Lee argues that the FAC fails to
sufficiently allege fraud with particularity and points various passages of the
Complaint to highlight that the FAC does not allege how, when, where, to whom,
and by what means Joseph Lee made fraudulent misrepresentations to Mr.
Cummings. (Demurrer, 8:20-9:15 [introduction to argument], 9:16-11:2 [challenging
allegations at FAC, ¶¶ 27, 29-30, 45], 11:3-12:28 [same at FAC, ¶¶ 71, 84, 89,
93], 13:1-14:12 [same at FAC, ¶ 132].)
On Opposition, Presents two arguments. First, Davis argues
that “[t]he exact words Lee articulated in perpetrating his fraud on Cummings
need not be alleged” and points to a string of case law holding that at
evidence to prove fraud at trial may be indirect due to the secrecy in a tort
like fraud. (Demurrer, Opp’n, 5:23-11.) Second, Davis invokes case law holding
that, at trial, the burden of proof as to fraud is relaxed is cases where a
grantor gives gifts or benefits to a fiduciary, triggering a presumption of
fraud, and shifting the burden on the fiduciary to demonstrate the fraud’s
nonexistence. (Demurrer, Opp’n, 7:1-27.)
Lee argues on Reply that the case law to which Davis refers
involves standard of proof of trial, not to be confused with standard of
pleading on demur. (Demurrer, Reply, 4:11-21.) The Court largely agrees with
Lee. Plaintiff Davis presents arguments regarding standards of proof and burden
shifting at trial, not in pleadings.
However, guiding case law on the sufficiency of fraud
pleading on demur exists.
In an action for cancellation of a deed of trust on the
ground of fraud, exemplary damages, declaration of the invalidity of a
foreclosure sale, and quiet title to realty, the Supreme Court of California
held, en banc, that when a “complaint [for these claims] could be more certain
in some respects, the asserted uncertainties are not sufficient to warrant the
sustaining of the demurrer on that ground” if “[t]he allegations are
sufficiently clear to apprise the defendant of the issues he is to meet.” (Smith
v. Williams (1961) 55 Cal.2d 617, 619.)
Here, the Court finds that the FAC’s allegations are more
than sufficiently clear to apprise Lee of the issues he is to meet and
OVERRULES the Demurrer.
The FAC sufficiently alleges that:
Lee was a fiduciary of Mr. Cummings by virtue of Mr. Lee
being Mr. Cummings’s broker with respect to numerous real estate transactions
(see FAC, 25-70 [Lee’s management or control over five properties on behalf of
Cummings, including (i) 1820 W. 42nd Place, Los Angeles, CA 90062, (ii) 3123 S.
Grand Avenue, Los Angeles, California 90007, (iii) 1749 N. Edgemont Street #3,
Los Angeles, California 90027, (iv) 132-132 ½, 134-136 S. Edgemont Street, Los
Angeles, California 90004, and (v) 138 S. Edgemont Street, Los Angeles,
California 90004, with 1820 42nd, 132 Edgemont, and 138 Edgemont being
Multi-Family Properties], 82-84 [fiduciary relationship], 88
[incorporation]);
To effectuate these transactions, Lee had Mr. Cummings sign
multiple documents that Mr. Cummings could not read or fully understand,
sometimes arriving at Mr. Cummings’s home at night to do so, to “sell[]
Cummings’ then-owned properties, purchas[e] new properties, and rent[] out the
new properties to prospective tenants” (FAC, ¶¶ 19-22, 88 [incorporation]);
Lee isolated Mr. Cummings from other people, including his
family, by managing Mr. Cummings’s phone and its ability to receive messages or
calls from numbers (FAC, ¶¶ 23-24, 88 [incorporation]);
Lee profited from the real estate transactions under
circumstances where Cummings was unaware that he was selling his property at a
loss, outright giving it away, or paying more than necessary for real estate
transactions (see, e.g., FAC, ¶¶ 27-28 [Cummings “unaware” that he is signing
away 40% interest in his 1820 W. 42nd Property to Lee], 35 [Lee is outright
given a 50% interest in a property sold by Cummings to third parties with Lee’s
assistance, where the third parties underpaid for the property and thereafter
conveyed this interest to Lee], 88 [incorporation]);
Lee, in concert with others, worked to divert rental income to
which Mr. Cummings was entitled away from the aging senior and informed tenants
at some of the Multi-Family Properties that Cummings was not the owner of the properties
(see FAC, ¶¶ 65-70); and
Mr. Cummings eventually discovered that Mr. Lee’s
transactions were to his detriment, causing him emotional distress, as well as damages
(see FAC, ¶ 71 [distress], 72 [in-depth list of the damages alleged to have
been suffered by Mr. Cummings because Lee and his conduct in concert with the actions
of other defendants as it relates to the five properties at issue], 88
[incorporation]).
From these allegations—particularly from the allegations as
to the properties and damages at issue (FAC, ¶¶ 25-70 [Lee’s management of the
properties and profit thereby to the detriment of Mr. Cummings], 72 [damages],
88 [incorporation])—the Court is persuaded that sufficient facts are alleged in
the FAC to apprise Lee that he faces allegations that: he made false
representations to help administer Mr. Cummings’s real estate properties to Cummings’s
benefit; Lee’s representations were false insofar as Lee had Mr. Cummings sign
documents he could not understand; Lee thereafter greatly profited from these
transactions when the properties were sold under market value, gifted away, or
sold with exorbitant costs, showing basis for intent and knowledge; Mr.
Cummings relied on Lee’s representations as to Mr. Cummings’s best interests in
signing off on these real estate transactions; and Mr. Cummings suffered
substantial losses and injuries as a result.
Fourth Cause of Action, Constructive Fraud: OVERRULED
Analysis: Constructive fraud is a special type of
fraud arising from a fiduciary relationship between a plaintiff and a
defendant. (Peterson Dev. Co. v. Torrey Pines Bank (1991) 233
Cal.App.3d 103, 116.) In comparing “actual” fraud to constructive fraud, one
court observed, “actual fraud and undue influence generally involve active
misconduct . . . by the defendant. Unlike fraud and undue influence, a
constructive fraud claim allows relief for negligent omissions constituting
breach of duty in a confidential relationship.” (Tyler v. Children’s Home
Society (1994) 29 Cal.App.4th 511, 548.)
California Civil Code section 1573 provides that
constructive fraud consists of “any breach of duty which, without an actually
fraudulent intent, gains an advantage to the person in fault . . . by
misleading another to his prejudice.” “[C]onstructive fraud comprises any act,
omission or concealment involving a breach of legal or equitable duty, trust or
confidence which results in damage to another, even though the conduct is not
otherwise fraudulent.” (Efron v. Kalmanovitz (1964) 226 Cal.App.2d 546,
560.)
The court-fashioned elements of constructive fraud are (1) a
fiduciary relationship, (2) nondisclosure, (3) intent to deceive, and (4)
reliance and resulting injury. (Tindell v. Murphy (2018) 22 Cal.App.5th
1239, 1249-50.)
As with fraud, an action for constructive fraud must be pled
with specificity. (Know v. Dean (2012) 205 Cal.App.4th 417, 434 [citing
to Schauer v. Mandarin Gems of California, Inc. (2005) 125
Cal.App.4th 949, 960-61].)
On demur, Lee attacks the Fourth Cause of Action on the same
grounds as the Third Cause of Action: not sufficiently specific or particular in
pleading to establish the elements of the cause of action. (Demurrer, 8:20-9:15
[introduction to argument], 9:16-11:2 [challenging allegations at FAC, ¶¶ 27,
29-30, 45], 11:3-12:28 [same at FAC, ¶¶ 71, 84, 89, 93], 13:1-14:12 [same at
FAC, ¶ 132].)
The Court thus adopts its discussion as to the Third Cause
of Action in finding that the Fourth Cause of Action sufficiently alleges: a
fiduciary relationship (see FAC, ¶¶ 82-84, 92 [incorporation]); nondisclosure
of circumstances in which Mr. Cummings was selling his properties at a loss,
giving it away outright, or paying more than necessary for the real estate
transactions at issue (see Third Cause of Action discussion supra); an
intent to deceive for profit (see Third Cause of Action discussion
supra); and reliance and injury by Mr. Cummings (see FAC, ¶¶ 72, 92
[incorporation]).
Ninth Cause of Action, Cancellation of Instruments: OVERRULED.
Analysis: The FAC’s Ninth Cause of Action seeks to
nullify instruments executed by Mr. Cummings in relation to the Mutli-Family
Properties—1820 W. 42nd Place, Los Angeles, CA 90062, (ii) 132-132 ½, 134-136
S. Edgemont Street, Los Angeles, California 90004, and (iii) 138 S. Edgemont
Street, Los Angeles, California 90004—because these were “procured by Fraud” by
Mr. Lee. (FAC, ¶¶ 132, Exs. 1-5.)
“To prevail on a claim to cancel an instrument, a plaintiff must
prove (1) the instrument is void or voidable due to, for example, fraud; and (2)
there is a reasonable apprehension of serious injury including pecuniary loss or
the prejudicial alteration of one’s position.” (U.S. Bank National Assn. v. Naifeh
(2016) 1 Cal.App.5th 767, 778; see Civ. Code, §§ 3412-15 [statutory grounds supporting
cancellation of instruments].)
On demur, Lee essentially argues that because the Fraud and
Constructive Fraud claims fail on demur, so must the Cancellation of
Instruments claim. (See Demurrer, 8:20-9:15 [introduction to argument],
13:1-14:12 [reasons why FAC, ¶ 132 fails]; see also Demurrer Reply, 2:27-3:1 [“claims
for fraud, constructive fraud, and cancellation of instruments” [are] “based on
fraud in the FAC”].)
Those claims survived demur. (See Third Cause of Action,
Fourth Cause of Action discussion supra.)
The Ninth Cause of Action thus sufficiently alleges
Cancellation of Instrument by incorporation.
Legal Standard: The court may, upon a motion or at any
time in its discretion and upon terms it deems proper: (1) strike out any irrelevant,
false, or improper matter inserted in any pleading; or (2) strike out all or any
part of any pleading not drawn or filed in conformity with the laws of California,
a court rule, or an order of the court.¿ (Code Civ. Proc. §§ 435, 436, subd. (a)-(b);
Stafford v. Shultz¿(1954) 42 Cal.2d 767, 782.)
Punitive and Treble Damages: In relevant part,
Defendant Joseph Lee seeks a Court order striking treble and punitive damages allegations
from the FAC on the ground that they are not supported by any valid claim
surviving demur. (Strike Mot., 4:21-5:6.)
However, the Court has found that both the Fraud and
Constructive Fraud claims survive demur (see Third Cause of Action, Fourth
Cause of Action discussion supra), and therefore, pleadings of punitive and
treble damages are not irrelevant or otherwise improper in this action.
Defendant Joseph Lee’s Demurrer to First Amended Complaint
is OVERRULED in its entirety because the FAC alleges sufficient facts to
apprise Mr. Lee of the Fraud, Constructive Fraud, and Cancellation of
Instruments allegations he is to meet at trial.
Defendant Joseph Lee’s Motion to Strike Portions of First Amended
Complaint Referring to, Mentioning, or Seeking Punitive Damages and Dependent Treble
Damages is DENIED because Fraud and Constructive Fraud claims survived demur
and properly support these damages allegations.