Judge: George F. Bird, Jr., Case: 20CMCV00304, Date: 2023-01-31 Tentative Ruling

Case Number: 20CMCV00304    Hearing Date: January 31, 2023    Dept: B

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES – SOUTH CENTRAL DISTRICT

I.       BACKGROUND

             Plaintiff Alpha Real Estate Investment & Development Properties, Inc. (“Plaintiff,” “Cross-Defendant,” or “ALPHA”) brought nine causes of action against Life is Amazing, LLC (“LIA” or “Cross-Complainant”), and Ashwood TD Services, LLC, (collectively “Defendants”) relating to a foreclosure on a property located at 355 West 124th Street, Los Angeles, California 90061 (the “Property” or “124^th STREET PROPERTY) which Plaintiff owned, and Defendants had a Deed of Trust (“DOT”) on. (Complaint, (“Compl.”), ¶¶ 1, 15, 16, 20, 24.)

            Life is Amazing, LLC, subsequently filed a cross-complaint on August 29, 2022, against Plaintiff/ALPHA, Letica Romero Prado (“PRADO”), and Jack Eliakim (“ELIAKIM”) (collectively “Cross-Defendants”) for (1) breach of contract – continuing guaranty, (2) breach of contract – continuing guaranty, and (3) fraud.

II.       DEMURRER

A.    Demurrer filed December 23, 2022.

            Cross-Defendants filed a general demurrer to the third cause of action in the Cross-Complaint for fraud alleging that the Cross-Complaint failed to allege facts sufficient to support a cause of action and that the allegations for fraud were fatally uncertain.

B.     Opposition filed January 18, 2023.

            Cross-Complainant argues that the Cross-Complaint sufficiently alleges a cause of action for fraud against Cross-Defendants both collectively and individually on three theories: (1) Cross-Defendants forged and falsified documents submitted to an escrow which allows Cross-Defendants to obtain title to a property clear of an existing loan held by Cross-Complainant; (2) that Cross-Defendants violated the terms of the loan agreement by spending loan proceeds on matters unrelated to construction; and (3) that Cross-Defendants falsely represented who the owner of ALPHA was when executing two guaranties.

C.     Reply filed January 24, 2023.

            Cross-Defendants argue that all three theories for fraud presented by Cross-Complainant fail to allege a cause of action for fraud and are fatally uncertain.

III.       LEGAL STANDARDS

            A demurrer tests the legal sufficiency of the factual allegations in the complaint. (K.G. v. S.B. (2020) 46 Cal.App.5th 625, 630.) “The purpose of a demurrer is to test whether, as a matter of law, the properly pleaded facts in the complaint state a cause of action under any legal theory.” (Olson v. Hornbrook Community Services Dist. (2019) 33 Cal.App.5th 502, 516.) In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint in favor of plaintiff. (Code Civ. Proc., § 452; See Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.) 

            The court must assume the truth of (1) the properly pleaded factual allegations; (2) facts that can be reasonably inferred from those expressly pleaded; and (3) judicially noticed matters. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; McBride v. Smith (2018) 18 Cal.App.5th 1160, 1173.) “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.” (Savea v. YRC Inc. (2019) 34 Cal.App.5th 173, 178; See also Moore v. Conliffe (1994) 7 Cal.App.4th 634, 638.) For a statutory violation, “facts in support of each of the requirements of a statute” must be “specifically pled,” and simply “parroting the language” of a statute is insufficient to survive a demurrer. (Hawkins v. TACA Internat. Airlines, S.A. (2014) 223 Cal.App.4th 466, 477-478.)

            When a demurrer is based on grounds that the complaint fails to allege a cause of action, “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 [77 Cal.Rptr.2d 709, 715, 960 P.2d 513, 519], as modified (Sept. 23, 1998).) Because a demurrer tests the legal sufficiency of a pleading, the plaintiff must show that the pleading alleges facts sufficient to establish every element of each cause of action. (Rakestraw v. California Physicians Service (2000) 81 Cal.App.4th 39, 43.) Sufficient facts are the essential facts of the case “with reasonable precision and with particularity sufficiently specific to acquaint the defendant with the nature, source, and extent of his cause of action.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 643-644.) Where the pleading fails to state facts sufficient to constitute a cause of action, courts should sustain the demurrer. (Code Civ. Proc., § 430.10, subd. (e); Zelig v. County of Los Angeles (2002) 27 Cal.App.4th 1112, 1126.)

            A party may demurrer to a complaint for being uncertain, but “demurrers for uncertainty are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Internal quotations omitted.) (A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 695 [251 Cal.Rptr.3d 423, 439, 38 Cal.App.5th 677, 695], as modified (Aug. 13, 2019).)

IV.       DISCUSSION

            To properly allege a cause of action for fraud, a pleading must allege (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another's reliance on the misrepresentation, (4) actual and justifiable reliance, and (5) resulting damage. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166.) The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of "liberal construction" of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.)

            Cross-Complainant alleges three theories of fraud in the Cross-Complaint. If the Cross-Complaint properly alleges any theory of fraud, the demurrer must be overruled. (See Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 [77 Cal.Rptr.2d 709, 715, 960 P.2d 513, 519], as modified (Sept. 23, 1998).)

A.    Fraud on the KRAFT PROPERTY loan

            Cross-Complainant alleges that Cross-Defendant ALPHA entered into a loan transaction with Cross-Complainant where ALPHA was given a loan secured by a deed of trust (“DOT”) on a property ALPHA owned referred to as the KRAFT PROPERTY. (Cross-Complaint, ¶ 12.) Under the terms of the loan, ALPHA was allegedly obligated to make monthly payments of $3,356.00 to Cross-Complainant. (Cross-Complaint, ¶ 16.) Cross-Complainant alleges that Cross-Defendants committed fraud by opening an escrow for the purposes of refinancing the KRAFT PROPERTY loan and “Cross-Defendants caused to be submitted into Escrow false, forged and fraudulent documents consisting of a Substitution of Trustee and Full Reconveyance purportedly signed on behalf LIA along with a payoff demand indicating that a zero ($0.00) balance was due and owing to LIA under the KRAFT AVFNUE LOAN.” (Cross-Complaint, ¶ 18.) As a result of the alleged fraud, Cross-Complainant states that the refinance was closed without payoff of Cross-Complainant’s loan and “title to the KRAFT AVENUE PROPERTY transferred into the name of PRADO free and clear of LIA's secondary deed of trust.” (Cross-Complaint, ¶ 19.)

            The Court finds that the fraud is clearly alleged by Cross-Complainant. Cross-Complainant states that the forged documents are a Substitution of Trustee and Full Reconveyance falsely indicating that ALPHA had a zero-balance due on the loan. (Cross-Complaint, ¶ 18.) Cross-Defendants allegedly submitted these documents into escrow at Greater LA Escrow in Los Angeles County in October of 2019 and this was done in bad faith, for personal gain, done with oppression, fraud, and malice. (Cross-Complaint, ¶¶ 50, 59.) Cross-Complainant alleges that they were unaware of the fraud until the transaction had already closed. (Cross-Complaint, ¶ 52.) Cross-Complainant alleges they were injured and continue to be injured. (Cross-Complaint, ¶ 19, 52.)

            The fraud regarding the loan on the KRAFT PROPERTY is clearly laid out and the Court determines that the Cross-Complaint properly alleges a cause of action for fraud. The Demurrer is OVERRULED.

B.     Fraud on the 124^th STREET PROPERTY loan

            Cross-Complainant alleges that ALPHA entered into a loan transaction with Cross-Complainant where ALPHA was given a loan and the loan was secured by a deed of trust on a property Cross-Defendant owned referred to as the 124^th STREET PROPERTY. (Cross-Complaint, ¶ 21.) The loan terms are alleged to require Cross-Complainant to distribute the loan in three distributions with the first two disbursements to be used for construction purposes and the third disbursement to be used for cosmetic purposes. (Cross-Complaint, ¶ 25.) Cross-Complainant alleges that Cross-Defendants committed a fraud when “Cross-Defendants used some or all of the loan's proceeds disbursed by LIA to ALPHA under Phases 1 and 2 of the WEST 124^th STREET LOAN for purposes other than the construction purposes for which those funds were specifically intended, including but not limited to use by PRADO and ELIAKIM for their personal use rather than for construction purposes on the WEST 124^th STREET PROPERTY.” (Cross-Complaint, ¶ 53.)

            The Court does not find that these allegations meet the heightened pleading standard for fraud. Cross-Complainant does not allege facts demonstrating how, when, where, to whom, and by what means any alleged misrepresentations were made.

C.     Fraud in the execution of two guaranties

            For the loans associated with the KRAFT PROPERTY and the 124^th STREET PROPERTY, Cross-Complainant alleges that they required all officers and owners of ALPHA to sign a continuing guaranty. (Cross-Complainant, ¶ 54.) Cross-Complainant alleges that ELIAKIM is the true owner of ALPHA but the guaranties “… were signed by PRADO only on July 20, 2019 and not by ELIAKIM. Had the actual facts been known, LIA would have also required ELIAKIM to sign CONTINUING GUARANTY #1 and CONTINUING GUARANTY #2 as a condition for funding either the KRAFT AUFNUE LOAN and/or the WEST 124^th STREET LOAN. Such fraud and omission by Cross-Defendants has caused damages to LIA and continues to cause damages to LIA.” (Cross-Complaint, ¶ 55.) Cross-Complainant alleges that the omissions caused damage and continues to cause damage to Cross-Complainant. (Cross-Complaint, ¶ 55.) Cross-Complainant also states that the reliance on the representation of who was an officer and owner was justified. (Cross-Complaint, ¶ 58.)

            The Court does not find that these allegations meet the heightened pleading standard for fraud. Because Cross-Complainant states that all Cross-Defendants are implicated in this fraud and have caused damage, it is unclear who Cross-Complainant alleges committed this misrepresentation and how it was made. PRADO is alleged to have falsely signed the document, but was he signing in a representative capacity so that ALPHA is also guilty of misrepresentation? Is Cross-Complainant alleging that ELIAKIM made a false representation by allowing PRADO to sign? While Cross-Complainant sufficiently alleges the date on which the misrepresentation happened, Cross-Complainant fails to demonstrate how and by what means the misrepresentation was made.

            The Cross-Complainant does not allege facts demonstrating how, when, where, to whom, and by what means any alleged misrepresentations were made.

V.       CONCLUSION

             The Court finds that the cause of action for fraud is not uncertain. Because the Cross-Complaint properly alleges at least one theory for a fraud cause of action, the Demurrer is OVERRULED.

Dated: January 31, 2023                                             __________________________________

                                                                                                Judge of the Superior Court