Judge Elaine W. Mandel, Case Number: 20SMCV00909, Date: 2023-05-19 Tentative Ruling

Judge: Elaine W. Mandel, Case: 20SMCV00909, Date: 2023-05-19 Tentative Ruling

Case Number: 20SMCV00909 Hearing Date: October 18, 2023 Dept: P

Tentative Ruling

Nohaile, et al. v. HLI Holdings, LLC et al., Case No. 20SMCV00909

Hearing Date October 18, 2023

Defendants Levy and HLI Holdings’ Demurrer & Motion to Strike Second Amended Complaint

Plaintiffs allege the home built and developed by defendants Titan, Li and HLI Holdings and has various defects and deviations from construction plans. The court sustained defendants HLI and Yaron Levy’s demurrer to the first amended complaint (FAC) on August 3, 2023 with leave to amend. Those parties now demur to the second amended complaint (SAC) and move to strike punitive damages.

Levy

The court sustained Levy’s prior demurrer because Levy was not a party to the purchase agreement (attached to the FAC; 8/3/2023 minute order, p. 2). The court ruled the FAC failed to allege wrongdoing by Levy or facts establishing alter ego liability. Id. Levy argues the SAC does not cure these defects.

The SAC contains alter ego allegations: “there is truly no separation or distinction between Levy and HLI[.]” SAC ¶7. These allegations are vague and conclusory. The SAC sets forth the legal elements of alter ego liability, without supporting facts, such as how Levy allegedly disregarded the corporate form or how failing to pierce the corporate veil would sanction fraud or promote injustice. The boilerplate allegations are insufficient.

Plaintiffs do not allege Levy is directly liable, as he is not a party to the purchase agreement, but argue he is liable for the right to repair, breach of contract, breach of warranty, strict liability and negligence causes of action based on alter ego status. Plaintiffs have not adequately alleged alter ego liability, so there is no basis for these claims to proceed against Levy. SUSTAINED without leave to amend as to all causes of action except fraud.

Fraud and Fraudulent Concealment

Defendants argue the SAC fails to allege fraud with sufficient particularity. The SAC alleges HLI and Levy falsely represented in the Transfer Disclosure Statement and New Construction Property Disclosure statement that the home was in substantial conformance with the construction plans.

Levy and HLI argue documents containing these alleged misrepresentation were signed in early June 2017; the purchase agreement was signed May 22, 2017, some weeks earlier. See SAC exh. 1, p. 1; exh. 2, p. 3. The SAC does not indicate how plaintiffs allege they were fraudulently induced to enter a contract by statements made after that contract was signed, nor does the opposition address this argument. The fraud based on affirmative misrepresentation claim fails.

As to fraudulent concealment, the SAC alleges HLI and Levy had actual knowledge the home “was not constructed in substantial conformance with the architectural plans for which the permit was obtained to build the home,” but failed to disclose this to plaintiffs. SAC ¶59. This is sufficiently specific to support a cause of action for fraudulent concealment against HLI and Levy (directly, rather than as an alter ego).

Defendants argue the fraudulent concealment claim is barred by the statute of limitations, and plaintiffs have not alleged delayed discovery. The sale closed July 7, 2017, but the SAC alleges plaintiffs were not able to discover the full extent of the property’s deviation from the plans until June 1, 2020, after forensic construction consultant Dave Ball concluded an inspection. SAC ¶¶15-16. For purposes of pleading, this allegation must be treated as true, so the FAC alleges delayed discovery.

Defendants argue these allegations are contradicted by other facts in the SAC. They note the SAC alleges on November 13, 2019 plaintiffs provided written notice to defendants of various defects at the property, including inconsistency with approved construction plains. SAC ¶¶19-20. Defendants argue this is inconsistent with plaintiffs’ claim they did not discover the defects until Ball’s examination in 2020.

Plaintiffs allege they did not discover the full extent of the property’s nonconformity until the 2020 inspection. Even if the statute started to run on November 13, 2019, the complaint was filed July 9, 2020, within the three-year limitations period for fraud. Any alleged factual inconsistencies cannot be resolved on demurrer.

SUSTAINED without leave to amend as to fraud, OVERRULED as to fraudulent concealment.

Motion to Strike Punitive Damages

Plaintiffs properly alleged fraudulent concealment. Since fraud can give rise to an award of punitive damages, plaintiffs’ punitive damages request is proper. DENIED.