Judge Holly J. Fujie, Case 22STCV09350 2022-10-24 Tentative Ruling

MOVING PARTY: Defendants Danny M. Elia (“Elia”), Walter Tharp (“Tharp”), Capital Financial Advisors, Inc. (“CFA”), and El Conector LLC (“ECL”) (collectively, “Moving Defendants”)

This action arises out of a dispute over a loan connected to real property (the “Property”). On March 16, 2022, Plaintiff filed a complaint (the “Complaint”) alleging: (1) common count – money had and received; (2) common count – goods and services rendered; (3) reasonable value of work, labor and services; (4) breach of written contract; (5) intentional misrepresentation; (6) false promise; (7) suppression of fact; (8) interference with economic relations; (9) unjust enrichment; and (10) unlawful business practices.

In relevant part, the Complaint alleges: Defendants Alex A. Khadavi (“Khadavi”) and Palazzo de Vista, LLC (“Palazzo”) owned and were working on developing the Property. (See Complaint ¶¶ 2-4, 12.) In or about November 2019, several creditors sought to foreclose on the Property. (Complaint ¶ 12.) Khadavi and Palazzo engaged Elia to help them avoid foreclosure. (Id.) Khadavi, Palazzo and Elia thereafter retained Plaintiff to procure commercial bridge loan funding. (Complaint ¶ 13.) The retainer agreement, which included the terms of Plaintiff’s compensation, was memorialized in a written contract (the “Agreement”). (See Complaint ¶, 15, Exhibit A.) The Agreement, which is addressed to and signed by Khadavi, states, in relevant part:

You agree to pay through the close of escrow 2.5% of the loan amount the final loan amount as set by my lender.” (See id.)

Plaintiff procured three potential loans. Khadavi ultimately accepted the loan proposed by AXOS Bank (“AXOS”) (the “AXOS Loan”). (Complaint ¶ 16.) Due to Plaintiff’s relationship with its Senior Vice President, Darin Judis (“Judis”), AXOS offered terms that were acceptable to Khadavi. (Id.)

Judis thereafter introduced Plaintiff to Tharp and CFA to process the placement of the AXOS Loan. (Complaint ¶ 17.) After an escrow account was opened for the placement of the AXOS Loan, Plaintiff continued to provide services and provided all the work, labor, and services that Tharp and CFA requested with regard to processing it. (See Complaint ¶ 17.) These services included getting the lender to increase the loan amounts. (See id.)

Both before and during escrow, Tharp and CFA knew of the existence and terms of the Agreement and falsely represented to Plaintiff that they would process the Loan through escrow in order to properly indicate the fee provided for in the Agreement. (Complaint ¶ 18.) Tharp and CFA also falsely promised Plaintiff that it would be paid in accordance with the Agreement pursuant to the terms of the Agreement. (Id.)

Defendants led Plaintiff to believe that the closing of escrow was delayed, which Plaintiff learned to be false through an independent investigation in or around November 2021. (Complaint ¶ 19.) At this time, Plaintiff learned that he had not been paid his fee pursuant to the Agreement and that at least part of the amount was diverted to ECL. (See id.)

Moving Defendants filed a demurrer (the “Demurrer”) to the first through third and fifth through tenth causes of action on the grounds that Plaintiff filed to state sufficient facts to constitute a claim with respect to each cause of action and the pleading is uncertain.

A demurrer tests the sufficiency of a complaint as a matter of law. (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.) The court accepts as true all material factual allegations and affords them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts. (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.) With respect to a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded. (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.) Demurrers for uncertainty are disfavored. (Chen v. Berenjian (2019) 33 Cal.App.5th 811, 822.) A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. (Id.) A demurrer will be sustained without leave to amend if there exists no reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

As a preliminary matter, the Court finds that the Demurrer is sufficiently compliant with California Rules of Court, rule 3.1320(e) and will consider the Demurrer on its merits.

In relevant part, Business & Professions Code section 10131 provides that a real estate broker is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity. (See Bus. & Prof. Code § 10131, subd. (d).)

Under Business & Professions Code section 10136, no person engaged in the business or acting in the capacity of a real estate broker or a real estate sales person within this state shall bring or maintain any action in the courts of this state for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he or she was a duly licensed real estate broker or real estate sales person at the time the alleged cause of action arose. (Bus. & Prof. Code § 10136.)

Those whose role is limited to finding and introducing two parties to a real estate transaction are not subject to the statutory bar to recovering fees for unlicensed brokerage activities. (GreenLake Capital, LLC v. Bingo Investments, LLC (2010) 185 Cal.App.4th 731, 736.) Such an intermediary or middleman is protected by the finder's exception to the real estate licensing laws. (Id.) Under the finder's exception, a person who simply finds and introduces prospective parties to a real estate transaction may obtain a commission for his services without a real estate license. (Id.) The fee is forfeited, however, if he or she has played any role in negotiating the transaction, no matter how slight. (Id.)

The line between brokers and finders is based on whether the person in question has engaged in any negotiating to consummate the transaction. (Preach v. Monter Rainbow (1993) 12 Cal.App.4th 1441, 1452.) Whether a person acted as a finder or as a broker is a question of fact, requiring examination of his conduct after the introduction of the principals to the transaction. (Id.) Business and Professions Code section 10136 does not prevent a plaintiff from seeking compensation for acts for which no real estate license was required. (MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 802.)

Moving Defendants take the position that Plaintiff lacks standing to assert the causes of action alleged in the Complaint because the Complaint does not allege that Plaintiff is a licensed real estate broker. As alleged in the Complaint, Plaintiff did engage in at least some conduct that seemingly requires a real estate license, i.e., getting the lender to increase amount of the AXOS Loan. (See Complaint ¶ 17.) With respect to Elia, the Complaint alleges conduct that may have fallen within the finder’s exception, such as connecting him, Khadavi, Palazzo with AXOS. Therefore, whether Plaintiff’s conduct was otherwise of a nature that required a license raises factual questions inappropriate for resolution on demurrer. As such, there are factual issues regarding Plaintiff’s entitlement to payment for services which may fall outside the licensing requirements of Business & Professions Code sections 10131 and 10136. (See GreenLake Capital, supra, 739-40.)

Furthermore, to the extent that Elia adopts the argument that he was not a party to the Agreement, recovery in quantum meruit or for money paid at the defendant's request does not require the existence of an enforceable contract. (MKB Management, Inc., supra, 184 Cal.App.4th at 805.) Even if an entire contract was illegal and unenforceable, a plaintiff may recover the reasonable value of services rendered provided that those particular services were not legally prohibited. (Id. at 805-06.)

With respect to Tharp, CFA, and ECI, however, the Complaint alleges conduct that goes beyond finding and introducing prospective parties to a real estate transaction, as the Complaint alleges Plaintiff’s ongoing participation in the placement of the AXOS Loan.

A common count is proper whenever the plaintiff claims a sum of money due, either as an indebtedness in a sum certain, or for the reasonable value of services, goods, etc., furnished. (Kawasho Internat., U.S.A. Inc. v. Lakewood Pipe Service, Inc. (1983) 152 Cal.App.3d 785, 793.) It makes no difference in such a case that the proof shows the original transaction to be an express contract, a contract implied in fact, or a quasi-contract. (Id.) The only essential allegations of a common count are: (1) the statement of indebtedness in a certain sum; (2) the consideration, i.e., goods sold, work done, etc.; and (3) nonpayment. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.) A cause of action for money had and received is stated if it is alleged the defendant is indebted to the plaintiff in a certain sum for money had and received by the defendant for the use of the plaintiff. (Id.)

The requisite elements of quantum meruit are: (1) the plaintiff acted pursuant to “an explicit or implicit request for services” by the defendant; and (2) the services conferred a benefit on the defendant. (MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 805.)

The Court finds that the first through third causes of action are sufficiently alleged against Elia as they pertain to Plaintiff’s right to recovery for the work Plaintiff performed that may not have required a real estate license. Plaintiff’s conduct vis a vis Tharp, CFA, and ECI, on the other hand, appears to solely allege work whose performance required a real estate license. The Court therefore OVERRULES the Demurrer to the first through third causes of action with respect to Elia and SUSTAINS the Demurrer with respect to Tharp, CFA, and ECI with 20 days leave to amend.

The elements of intentional misrepresentation are: (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, 428.) Each element must be alleged with particularity. (Id.) The facts required to be pled are facts that show how, when, where, to whom, and by what means the representations were tendered. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

The fifth cause of action is alleged against all Defendants and presumably relates to two separate sets of wrongs, the first regarding Khadavi, Palazzo, and Elia with respect to representations made in connection to their obligations under the Agreement, and the second regarding Tharp and CFA’s promises with respect to processing the AXOS Loan.

The Court finds that the fifth cause of action is insufficiently alleged, as it does not specify the alleged false representations or how, when, where, to whom, and by what means the representations were made. The Court therefore SUSTAINS the Demurrer to the fifth cause of action with 20 days leave to amend.

The elements of promissory fraud¿ are: (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promisee. (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1498.) Promissory fraud must be alleged with particularity. (Id.)

The Court finds that the sixth cause of action is not sufficiently alleged for the reasons discussed regarding the fifth cause of action. The Court therefore SUSTAINS the Demurrer to the sixth cause of action with 20 days leave to amend.

The elements of fraudulent concealment are: (1) the defendant must have concealed or suppressed a material fact; (2) the defendant must have been under a duty to disclose the fact to the plaintiff; (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff; (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5) as a result of the concealment or suppression of the fact, the plaintiff suffered damage. (Boschma v. Home Loan Center, Inc (2001) 198 Cal.App.4th 230, 248.)

The seventh cause of action has the same deficiencies identified with respect to the fifth and sixth causes of actions. While the heightened pleading for standard for fraud claims is relaxed for fraudulent concealment claims if it appears from the nature of the allegations that the defendant must necessarily possess full information, or if the facts lie more in the knowledge of opposing parties, the Complaint fails to plead specific facts regarding the “how, when, where, to whom” which are Plaintiff’s control, such as, for example the identity of the speakers who fraudulently omitted information. (See Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384-85.) Moreover, the Complaint appears to allege that the fraudulent misrepresentation occurred on March 24, 2020, the date that Plaintiff became entitled to compensation, but it is unclear how this alleged concealment caused any reliance or change in conduct on Plaintiff’s part. It is also unclear if the claim is based on other allegedly fraudulently concealed information.

The Court therefore SUSTAINS the Demurrer to the seventh cause of action with 20 days leave to amend.

The elements of intentional interference with contractual relations are: (1) a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of this contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55.)

The Complaint does not allege facts to show how Tharp and CFA intentionally acted to induce Khadavi to breach the Agreement. Nor does the Complaint allege facts to show that any interference resulted in damages, since the Complaint also alleges that Khadavi already never intended to perform the promises underlying the Agreement.

The Court therefore SUSTAINS the Demurrer to the eighth cause of action with 20 days leave to amend.

There is no cause of action in California for unjust enrichment. (Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793.) Unjust enrichment is a general principle, underlying various legal doctrines and remedies, rather than a remedy itself; it is synonymous with restitution. (Id.) In addition, there is no freestanding cause of action for restitution in California. (Munoz v. MacMillan (2011) 195 Cal. App. 4th 648, 661. The Court therefore SUSTAINS the Demurrer to the ninth cause of action with 20 days leave to amend. While Plaintiff may not file an amended pleading that reasserts an unjust enrichment claim, Plaintiff may file an amended pleading that alleges a basis for the relief of restitution.

The Unfair Competition Law (“UCL”), Business and Professions Code section 17200 prohibits any unlawful, unfair or fraudulent business act or practice. (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) To show a violation of the UCL, a plaintiff must establish: (1) a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury; and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.) A business act or practice only needs to meet one of the requirements to be considered unfair competition under the UCL. (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1093.) Statutory causes of action must be alleged with particularity. (Lopez v. Southern Cal. Rapid Transit Dist. (1985) 40 Cal.3d 780, 795.)

The Complaint identifies the underlying basis for the UCL claim as violations of Civil Code sections 1709 and 1710, both of which relate to the false promise cause of action. (See Complaint ¶ 43.) In light of the Court’s ruling on that cause of action, the Court SUSTAINS the Demurrer to the tenth cause of action with 20 days leave to amend.

In consideration of the current COVID-19 pandemic situation, the Court strongly encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative. If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to SMC_DEPT56@lacourt.org stating your intention to appear in person. The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date. This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court