Judge: Donald F. Gaffney, Case: "Raft Master Fund II, LLC v. Roman James Design Build, Inc.", Date: 2022-08-31 Tentative Ruling

TENTATIVE RULING: 

Cross-Defendant Raft Master Fund II, LLC’s Demurrer to the Second  Amended Cross-Complaint (SACC) is OVERRULED as to the Second, Fourth, Fifth, Sixth and Eleventh Causes of Action. The Demurrer is SUSTAINED without leave to amend as to the First and Eighth Causes of Action.

Request for Judicial Notice (ROA 344): Raft Master requested that court take judicial notice of requests for admissions and responses.  That request is granted.

Chronology:  On 11/2/21, the court ruled on the Demurrer to the First Amended Cross-complaint (“FACC”). (ROA 265) The court overruled the First, Third and Fourth Causes of Action. The court sustained with leave to amend the Fifth, Seventh and Eighth Causes of Action.

On 5/10/22, the Second Amended Cross-Complaint (SACC) was filed. (ROA 225). The causes of action were for (1) Rescission; (2) Breach of Contract; (3) Constructive Fraud; (4) Promissory Fraud; (5) Fraud (Intentional Misrepresentation); (6) Conspiracy to Commit Fraud; (7) Fraud (Concealment); (8) Violation of the Rosenthal Act; (9) Violation of Cal. Business & Professions Code § 17200; (10) Violation of Cal. Financial Code Sections 22750 and 22755; and (11) Set Aside Trustee’s Sale.

In the SACC, there were three new causes of action. These were the ninth, tenth and eleventh. The ninth and tenth causes of action were later dismissed. The only remaining new cause of action is the eleventh to set aside trustee’s sale.

Demurrer: “A demurrer tests the legal sufficiency of factual allegations in a complaint.” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 225.) In ruling on a demurrer, a court must accept as true all allegations of fact contained in the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer challenges only the legal sufficiency of the affected pleading, not the truth of the factual allegations in the pleading or the pleader’s ability to prove those allegations. (Cundiff v. GTE Cal., Inc. (2002) 101 Cal.App.4th 1395, 1404-05.) A demurrer is limited to the operative complaint’s four corners, attached exhibits, and judicially noticeable matters. (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400.)

Questions of fact cannot be decided on demurrer. (Berryman v. Merit Prop. Mgmt., Inc. (2007) 152 Cal.App.4th 1544, 1556.) “A demurrer does not lie to a portion of a cause of action.” (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682 [citation omitted].) “To properly state a cause of action, and as pertinent here, the operative complaint must sufficiently allege (1) every element of [that] cause of action and (2) the plaintiff’s standing to sue.” [Citations.]” (Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125 [internal quotation marks omitted].)

Because a demurrer tests only the sufficiency of the complaint, “[a] court will not consider facts that have not been alleged in the complaint unless they may be reasonably inferred from the matters alleged or are proper subjects of judicial notice. (Hall v. Great W. Bank (1991) 231 Cal.App.3d 713, 718 n.7 [citation omitted].) “[A] demurrer may be sustained where judicially noticeable facts render the pleading defective . . . and allegations in the pleading may be disregarded if they are contrary to facts judicially noticed.” (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 751 [citations omitted].)

“A court ruling on a demurrer ... cannot take judicial notice of the proper interpretation of a document submitted in support of the demurrer. [Citations]. [A] court cannot by means of judicial notice convert a demurrer into an incomplete evidentiary hearing in which the demurring party can present documentary evidence and the opposing party is bound by what that evidence appears to show.” (New Liveable California v. Association of Bay Area Governments (2020) 59 Cal.App.5th 709, 716 [citations omitted].)

Successive Demurrers: “’[A] party is within its rights to successively demur to a cause of action in an amended pleading notwithstanding a prior unsuccessful demurrer to that same cause of action.’” (Carlton v. Dr. Pepper Snapple Group, Inc. (2014) 228 Cal.App.4th 1200, 1211.) There is some authority to the contrary. (Bennett v. Suncloud (1997) 56 Cal.App.4th 91, 97.)

Code Civ. Proc., § 430.41 (b) provides that “A party demurring to a pleading that has been amended after a demurrer to an earlier version of the pleading was sustained shall not demur to any portion of the amended complaint, cross-complaint, or answer on grounds that could have been raised by demurrer to the earlier version of the complaint, cross-complaint, or answer.”

Demurrer to Full Cause of Action: “A demurrer does not lie to a portion of a cause of action.” (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682.) “A demurrer must dispose of an entire cause of action to be sustained.”(Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

First Cause of Action for Rescission: This cause of action in the SACC is new. The original first cause of action of the FACC is now the Second Cause of Action for Breach of Contract.

Rescission is a remedy that disaffirms the contract (Civil Code § 1688 et seq.). A prerequisite to any claim for rescission is a contract between the parties. . . This is because rescission requires each party to the contract to restore to the other everything of value received under the contract: “[T]o effect a rescission a party to the contract must, promptly upon discovering the facts which entitle him to rescind if he is free from duress, menace, undue influence or disability and is aware of his right to rescind: [¶] (a) Give notice of rescission to the party as to whom he rescinds; and [¶] (b) Restore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so.” (Civ. Code, § 1691, italics added.)” Viterbi v. Wasserman (2011) 191 Cal.App.4th 927, 935.)

The time has now long passed for rescission. Roman James has failed to restore the benefits of the contract to Raft Master, assuming that, at this point, such restoration is even possible. Therefore, the Demurrer as to the First Cause of Action in the SACC is sustained without leave to amend.

Second Cause of Action for Breach of Contract: “The elements of a cause of action for breach of contract are: (1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” (Coles v. Glaser (2016) 2 Cal.App.5th 384, 391 [citation and internal quotation marks omitted].)

The court has compared the Breach of Contract cause of action contained in the FACC with the Breach of Contract cause of action alleged in the SACC.  The causes of action are almost identical.  Some allegations not found in the FACC are found in the SACC.  These additional allegations are found in ¶79 of the SACC and in some of the paragraphs that precede, but are realleged in and incorporated into, the Breach of Contract cause of action.  The court, having already overruled a demurrer to the substantively identical cause of action in the FACC, now overrules the demurrer to the same cause of action in the SACC.

Sham Pleading: “When a plaintiff files an amended complaint, it may not ‘omit harmful allegations ... from previous complaints.’ . . . Unless the plaintiff provides a ‘plausible’ explanation for dropping the harmful allegations (such as the need to correct a mistaken allegation or to clarify ambiguous facts), the trial court will take judicial notice of the harmful allegations and disregard the new and contrary allegations. . . . This is known as the ‘sham pleading’ doctrine and prevents the abuse of process that would arise if parties could circumvent prior adverse rulings by pleading the underlying facts in the alternative.” (Smyth v. Berman (2019) 31 Cal.App.5th 183, 195.)

As stated above, the court finds the Breach of Contract cause of action in the FACC to be substantively identical to the Breach of Contract cause of action in the SACC.  The court finds no support for the assertion that the SACC is a sham pleading.

Statute of Limitations: In this latest Demurrer, Raft Master raises a new issue, the two year statute of limitations for an oral contract. In August 2019, Raft Master allegedly breached the agreements by foreclosing. On July 7, 2020, Raft Master filed this action.

Although "[o]rdinarily the statute of limitations will bar a cross-complaint in the same fashion as if the defendant had brought an independent action the rule is different when "the original complaint was filed before the statute of limitations on the cross-complaint had elapsed." (Liberty Mut. Ins. Co. v. Fales (1973) 8 Cal.3d 712, 715, fn. 4.) Raft Master has not shown a violation of the two year statute of limitations.

Fourth Cause of Action for Promissory Fraud &

Fifth Cause of Action for Fraud (Intentional Misrepresentation): These causes of action were previously the Third and Fourth Causes of Action in the FACC. The court overruled the Demurrer to these causes of action as alleged in the FACC.

The court has compared the Promissory Fraud and Intentional Misrepresentation Fraud causes of action contained in the FACC with the Promissory Fraud and Intentional Misrepresentation Fraud causes of action alleged in the SACC.  The causes of action are almost identical.  Some allegations not found in the FACC are found in the SACC.  These additional allegations are found in some of the paragraphs that precede, but are realleged in and incorporated into, the Promissory Fraud and Intentional Misrepresentation Fraud causes of action.  The court, having already overruled a demurrer to the substantively identical causes of action in the FACC, now overrules the demurrer to the same causes of action in the SACC.

Sixth Cause of Action for Conspiracy to Commit Fraud: This cause of action was previously the Fifth Cause of Action in the FACC. The court sustained with leave to amend the Demurrer to this cause of action in the FACC. This cause of action was substantially amended.

“Conspiracy is not an independent cause of action, but rather a doctrine imposing liability for a tort upon those involved in its commission.” (1–800 Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 590.) Thus, liability for a conspiracy “must be activated by the commission of an actual tort.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 511.) “To allege a conspiracy, a plaintiff must plead: (1) formation and operation of the conspiracy and (2) damage resulting to plaintiff (3) from a wrongful act done in furtherance of the common design. [Citation.]” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1173 [internal quotation marks omitted].)

“[F]acts must be alleged” as to each element (117 Sales Corp. v. Olsen (1978) 80 Cal.App.3d 645, 649) and “bare legal conclusions, inferences, generalities, presumptions, and conclusions are insufficient.” (Nicholson v. McClatchy Newspapers (1986) 177 Cal.App.3d 509, 521.) “The conspiring defendants must also have actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose.” (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582.)

Even “actual knowledge of the planned tort, without more, is insufficient to serve as the basis for a conspiracy claim. Knowledge of the planned tort must be combined with intent to aid in its commission.” (Ibid.) “The elements of a cause of action for fraud are well established … 1) a misrepresentation or actionable concealment of fact; 2) knowledge of falsity or the duty of disclosure; 3) intent to defraud or induce reliance; and 4) actual reliance by the plaintiff. [Citations.] The plaintiff must allege and prove that he actually relied upon the misrepresentations, and that in the absence of fraud, would not have entered into the contract or other transaction. [Citation.]” (The MEGA Life & Health Ins. Co., 172 Cal.App.4th at 1530.

In this cause of action, the SACC alleges that the residence was appraised for $8,225,000. At the Trustee’s Sale, the property was sold for $3,500,000. Roman’s former wife and her boyfriend refused to vacate the premises. (SACC 135 & 136.)  Raft, through its agent, promised Roman James that he could get the couple to move out quickly, and Raft would deem the Notes and Guaranties fully satisfied when the property was resold. (SACC 137.) In reliance on the promise, Roman James borrowed $331,000 to pay the couple to move out. They moved out, but took $200,000 in appliances from the residence. (SACC 138 & 139.)

Raft conspired with the couple to defraud Roman James from receiving the benefit of selling the residence at the highest price, which would mitigate his debt. (SACC 142.) Raft agreed that the couple would return the appliances from the residence and that Raft would release them from liability. (SACC 143.)  Jimenez, the boyfriend, sold the residence to an associate for a reduced price of $6,425,00. This was $1,800,000 less than the appraisal and $3,575,000 less than a willing buyer. (SACC 145.)

While confusing, Roman James sufficiently alleged  a conspiracy and resulting damages. Roman James asserts that he sustained damages for the payment of $331,000 to his former wife. Raft contends that this payment was spousal support. Roman James contends that he paid extra, because of the agreement. This dispute is a factual question not subject to resolution on demurrer. The demurrer to this cause of action is overruled.

Eighth Cause of Action for Violation of the Rosenthal Act: This cause of action was previously the Seventh Cause of Action. For the FACC, the court sustained with leave to amend the Demurrer to this cause of action.

In Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 295–296 (internal quotation marks and footnotes omitted), the appellate court described the Rosenthal Act and references the Fair Debt Collection Practices Act (“FDCPA”): The Rosenthal Act was enacted to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts. [Citation.] The Rosenthal Act is a remedial statute [that] should be interpreted broadly in order to effectuate its purpose. [Citation.] It was enacted in 1977, the same year that its federal counterpart, the FDCPA, was enacted. [Citation.] In addition to its other requirements and prohibitions, the Rosenthal Act generally requires debt collectors to comply with the provisions of the FDCPA. [Citation.]

The Rosenthal Act defines a debt collector as any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. [Citation.] The Rosenthal Act defines the term debt collection as follows: any act or practice in connection with the collection of consumer debts. [Citation.] The Rosenthal Act defines consumer debt and consumer credit as money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction. [Citation.] The Rosenthal Act further defines the phrase consumer credit transaction as a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes. [Citation.]

Thus, a debt collector is a person who regularly engages in the act or practice of collecting money, property or their equivalent that is due or owing by a natural person as a result of a transaction between that person and another person, in which the natural person acquired property, services, or money on credit, primarily for personal, family, or household purposes. The legislative findings of the Rosenthal Act indicate “[t]here is need to ensure that debt collectors and debtors exercise their responsibilities to one another with fairness, honesty and due regard for the rights of the other.” (Civil Code., § 1788.1(b).) To establish a claim under the FDCPA, the allegation must show the existence of a debt collector, as defined by the FDCPA, conduct that demonstrates a debt collector, as defined by the FDCPA, conduct that constitutes debt collection, as defined by the FDCPA, and that the debt collection violated a provision of the FDCPA. (See Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250, 1262 [“In order to establish a claim under the FDCPA against Recon, the facts as alleged must show that Recon was a “debt collector” as defined by the Act, that Recon’s challenged conduct constituted “debt collection,” and that the debt collection actions violated a provision of the Act] [citation omitted].)

In this case, Raft contends that the SACC does not allege the loan proceeds provided by Genesis to Design was “acquired on credit … by that natural person.” (Civ. Code §1788.2(e).) Raft points out that it was Design, not James, who received the loan, and Design is not a natural person. James’ Request for Judicial Notice supports this conclusion, and James does not sufficiently respond to this issue in the Opposition.

James failed to correct the key flaw in this cause of action. The loan was not acquired by a natural person. Therefore, the demurrer to the Eighth Cause of Action is sustained without leave to amend.

Ninth Cause of Action for Violation of Cal. Business & Professions Code § 17200 and Tenth Cause of Action for Violation of Cal. Financial Code Sections 22750 and 22755:

These causes of action have been dismissed.

Eleventh Cause of Action to Set Aside Trustee’s Sale: This cause of action is new. Roman James alleges that the foreclosure occurred due to fraudulent misrepresentations.

“[T]he elements of an equitable cause of action to set aside a foreclosure sale are: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.” (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 104.)

“[A]s a condition precedent to an action by the borrower to set aside the trustee's sale on the ground that the sale is voidable because of irregularities in the sale notice or procedure, the borrower must offer to pay the full amount of the debt for which the property was security.” (Id., 112.) There are four exceptions to this requirement. “First,  if the borrower's action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmation of the debt. . . . Second, a tender will not be required when the person who seeks to set aside the trustee's sale has a counterclaim or setoff against the beneficiary. . . . Third, a tender may not be required where it would be inequitable to impose such a condition on the party challenging the sale. . . . Fourth, no tender will be required when the trustor is not required to rely on equity to attack the deed because the trustee's deed is void on its face. (Id., 113.)

Since Roman James attacked the validity of the underlying debt, he was not required to tender the debt.  The SACC alleges sufficient facts to set forth this cause of action. Therefore, the Demurrer is overruled as to the Eleventh Cause of Action..

Moving party to give notice.