Judge John J. Kralik, Case Number: 20GDCV00614, Date: 2023-10-06 Tentative Ruling

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Superior Court of California

County of Los Angeles

Department B

Plaintiff Anna Imogen Arrowsmith (“Plaintiff”) alleges that while she resided in England, she retained Defendant buyer agent David Goldberg (“Goldberg”) in 2013 to help her purchase real property in southern California. She alleges that she met Defendant buyer agent Peter Martocchio (“Martocchio”) and Goldberg in March 2014. Plaintiff alleges that in April 2014, using Defendant buyer broker Sotheby’s International Realty, Inc. (“SIR”), Goldberg, and Martocchio (collectively, “SIR Defendants”), she and her husband purchased property in Pasadena. In November 2015, Timothy Arrowsmith, using SIR Defendants, purchased property in Lake Arrowhead in his name alone.

In April 2017, SIR Defendants represented Plaintiff in her efforts to purchase 74337 Peppergrass Street, Palm Desert, CA 92260 (“Peppergrass Property”). Plaintiff alleges that Defendant seller broker ProNet Partners, Inc. dba Capitis Real Estate (“ProNet”) and Defendant seller agent Daniel Prince Ball (“Ball”) represented the owners/sellers of the Peppergrass Property. Plaintiff alleges that Ball resided at the property under a “landlord tenant” with the sellers such that he had considerable personal knowledge of the property’s condition at the time of Plaintiff’s purchase. Plaintiff alleges that Martocchio and Goldberg knew that Plaintiff was purchasing the Peppergrass Property with her pension investment savings to amass assets for retirement with the intent of selling the property in 20 years. She alleges that on February 28, 2017, SIR Defendants investigated and learned about unpermitted improvements and defective work at the Peppergrass Property. (SAC, ¶17.) Plaintiff alleges that SIR Defendants informed her about some permitting issues, but they were cavalier in addressing issues regarding building code violations and permits (or lack thereof). Plaintiff alleges that Defendants did not provide information that they possessed or lacked permits during inspection or appraisal, assured her that the City of Palm Desert would not be checking the issues, and encouraged her to purchase the property. During the purchase process, the proposed tenant was Ball (who had already resided there) for a discounted rental amount.

In 2018, Ball vacated the property after it was learned that he was subletting the property. Plaintiff then entered into a rental agreement with a new tenant, but the new tenant requested the entire deposit returned due to lack of permits and deficiencies with the property. Plaintiff alleges she was unaware of and did not discover the property condition until she contacted SIR and Martocchio in July 2018 about the issues.

In December 2018, Plaintiff listed the Peppergrass Property for sale with another local agent. She listed the property for $459,000, but due to permitting issues, the property sold for $370,000, less $10,000 for credit due to permitting issues with the garages and the fact that only 3 bedrooms and 1 bathroom were permitted.

The Second Amended Complaint (“SAC”), filed August 2, 2021, alleges causes of action for: (1) violation of Civil Code, § 1102, et seq.; (2) fraudulent concealment; (3) breach of fiduciary duty; (4) fraud; (5) breach of duty to disclose; (6) breach of duty to be honest and truthful; (7) negligence; (8) negligent misrepresentation; (9) constructive fraud; (10) breach of contract; and (11) civil conspiracy.

On September 1, 2021, SIR, Martocchio, and Goldberg filed a cross-complaint against ball, ProNet, Hartmut Bichler, and Lynda Wright for: (1) implied indemnity/equitable indemnification; (2) equitable contribution and apportionment; and (3) declaratory relief.

On October 1, 2021, ProNet and Ball filed a cross-complaint against SIR, Martocchio, and Goldberg for: (1) total equitable indemnity; (2) partial equitable indemnity; (3) contribution; and (4) declaratory relief.

On April 25, 2023, Sotheby’s International Realty, Inc., Peter Martocchio, and David Goldberg (collectively, “SIR Defendants”) filed an ex parte application to specially set a hearing on a motion for summary adjudication (“MSA”). On April 26, 2023, the Court granted the ex parte application and set the hearing for July 14, 2023.

On June 22, 2023, the Court signed the parties’ joint stipulation and order to continue the trial date and other dates, including continuing the MSA hearing to September 8, 2023.

On August 25, 2023, Plaintiff filed an opposition to the MSA, though an MSA had not yet been filed.

On September 6, 2023, SIR Defendants filed an ex parte application to permit them to file the MSA to be heard within 30 days of trial. On September 8, 2023, the Court granted the ex parte application and set the hearing for October 6, 2023.

On September 11, 2023, SIR Defendants filed the MSA on the following issues regarding punitive damages:

· Issue No. 1: Plaintiff’s claims for punitive damages against Martocchio and Goldberg fail because Martocchio disclosed all defects as evidenced by the sale documents and Plaintiff's deposition testimony, and thus he has not committed any act of oppression, fraud, or malice.

· Issue No. 2: Plaintiff’s claim for punitive damages against SIR fails because SIR agents Martocchio and Goldberg's actions were not fraudulent, malicious, or oppressive, and Plaintiff cannot prove that SIR had advanced knowledge of or ratified any fraudulent conduct on account of Martocchio and Goldberg.

· Issue No. 3: Emotional distress damages are not available to Plaintiff under Cal. Civil Code § 3343 or under the facts of this case.

· Issue No. 4: Lost profit damages are not available to Plaintiff under Cal. Civil Code § 3343(a)(4).

On September 25, 2023, Plaintiff filed amended opposition papers. The Court will consider the amended opposition papers as the operative opposition.

With the opposition papers, Plaintiff submitted evidentiary objections to SIR Defendants’ evidence in support of the motion papers. The Court rules as follows:

· Declaration of Shane Agergel: Objection Nos. 1-4 are overruled. Objection no. 5 to paragraph 7 is sustained in part as to the portion stating that “Plaintiff checked the box to indicate that her broker, Defendants SIR and Martacchio advised her to conduct a final inspection of the Property, but Plaintiff declined.” Objection no. 6 is overruled. Objection no. 7 to paragraph 9 is sustained.

With the reply brief, SIR Defendants submitted evidentiary objections to Plaintiff’s evidence in support of the opposition. The Court rules as follows:

· Plaintiff’s disputed responses to the separate statement: Objection Nos. 9-12 and 15 are overruled.

· Plaintiff’s Exhibit 10 at p. 01-054, lines 16-25 and p. 01-055, line 5 to p.01-056 to line 1: Objection Nos. 13 and 14 are overruled. Pages 117 to 119 of Martocchio’s deposition are provided. Only page 118 is identified with Bates Stamp “01-055” but it is understood that “01-054” refers to page 117 and “01-056” refers to page 119. The evidence is provided.

Civil Code § 3294 authorizes a plaintiff to obtain an award of punitive damages when there is clear and convincing evidence that the defendant engaged in malice, oppression, or fraud. Section 3294(c) defines the terms in the following manner:

(1) "Malice" means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

(2) "Oppression" means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.

(3) "Fraud" means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

According to the SAC, Plaintiff seeks punitive damages in connection with the 2^nd, 4^th, and 11^th causes of action for fraudulent concealment, fraud, and civil conspiracy. (SIR Fact 2.)

SIR Defendants argue that Plaintiff’s claim for punitive damages against Martocchio and Goldberg fail because: (1) Martocchio disclosed all defects about the Peppergrass Property such that his actions were not undertaken with malice, oppression, or fraud; and (2) Goldberg’s only role in the transaction was signing written disclosures that Martocchio helped prepare and he was not involved in the sale of the property.

SIR Defendants provide the following facts in support of Issue 1. Martocchio disclosed to Plaintiff the following defects in the Agent Visual Inspection Disclosure (“AVID”): (a) main bedroom linked to the garage through an adjacent room with glass patio doors, creating danger of toxic vehicle fumes inside the property; (b) family room did not reflect square footage of county assessor data and room not permitted; (c) half-bathroom not permitted; (d) overstated square footage; and (e) unpermitted fourth bedroom. (SIR Fact 3; SIR Ex. D [AVID].)[1] Plaintiff reviewed the defects in the AVID with Martocchio. (SIR Fact 4.) Martocchio disclosed to Plaintiff the following defects in the Home Inspection Report: (a) ungrounded electrical system; (b) unsafe gas lines; and (c) unsafe electrical wiring. (SIR Fact 5.) The Seller’s Transfer Disclosure Statement (“TDS”) provided to Plaintiff by Martocchio had a box check marked that indicated that room additions and structural modifications were made without permits. (SIR Fact 6; SIR Ex. E [TDS].) Plaintiff also received a document entitled Verification of Property Condition, which checked the box indicating that SIR and Martocchio advised her to conduct a final inspection of the property and that she waived the right to conduct the final inspection, but the document is not signed. (SIR Fact 7; SIR Ex. F.) Plaintiff was provided with a Buyer’s Inspection Advisory by Martocchio which informed Plaintiff that it was her duty to inspect the property and to investigate the condition and suitability of all aspects of the property and her failure to do so would be acting against the advice of her brokers. (SIR Fact 8; SIR Ex. G.) In addition to these documents, Martocchio provided all permits related to the property prior to her purchase. (SIR Fact 11-12.) In Fact 14, SIR Defendants state that Plaintiff does not recall discussing permits related to the property with Goldberg. Other than Fact 2 and 14, there are no other mentions of Goldberg in Issue 1 of the separate statement regarding Goldberg.

Based on these facts, SIR Defendants argue that Martocchio provided all the necessary documents to Plaintiff and disclosed the unpermitted issues and other property issues prior to Plaintiff’s purchase of the property. Thus, they argue that his conduct was not fraudulent, malicious, or oppressive.

SIR Defendants have established their initial burden in showing that Martocchio did not act with malice, oppression, or fraud against Plaintiff during the transaction regarding the Peppergrass Property. However, the Court does not find that SIR Defendants have presented sufficient evidence and material facts regarding Goldberg. According to the SAC, punitive damages are sought against all Defendants for their alleged oppression, fraud, and malice. “A motion for summary adjudication tenders only those issues or causes of action specified in the notice of motion, and may only be granted as to the matters thus specified.” (Schmidlin v. City of Palo Alto (2007) 157 Cal.App.4th 728, 743–744.) “The motion must be denied if the movant fails to establish an entitlement to summary adjudication of the matters thus specified; the court cannot summarily adjudicate other issues or claims, even if a basis to do so appears from the papers.” (Id. at 744.) The Court will not grant summary adjudication as to only a part of an Issue (i.e., in favor of Martocchio only) when both Martacchio and Goldberg are included in Issue 1. This in itself would be a ground to deny the motion as to Issue 1.

In opposition, Plaintiff argues that there are triable issues of material fact because Martocchio did not visit the Peppergrass Property. However, this in itself is not sufficient to show malice, oppression, or fraud. It appears undisputed that even if Martocchio did not visit the property, he still disclosed all known defects and lack of permits (personally known to him) to Plaintiff. Plaintiff’s attempt to raise disputes with the material fact fail to show that Martocchio acted with malice, oppression, or fraud. Further, in the opposition’s memorandum of points and authorities, Plaintiff also argues that “Martacchio explained how economically advantages [sic] it was for Plaintiff to be aware of the permits as she could use them as leverage to reduce the sales price. … “Martocchio has a strategy based on using the defects as leverage if the lender’s appraiser’s [sic] found there were such defects and declined the loan for the amount sought.” (Opp. at p.3.) However, Plaintiff has not provided evidentiary support or opposing material facts in the separate statement to this effect.

Nevertheless, as discussed above, SIR Defendants have not upheld their burden with respect to Goldberg. The Court will not enter summary adjudication on only a part of an issue. As such, the motion for summary adjudication is denied as to Issue 1.

When the punitive damages are sought against an employer, Civil Code § 3294(b) requires the plaintiff to establish the following:

(1) the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized,

(2) the employer ratified the wrongful conduct for which the damages are awarded, or

With respect to a corporate employer, section 3294(b) requires that the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.

SIR Defendants move for summary adjudication on Issue 2, arguing that Plaintiff’s claim for punitive damages against SIR fails because: (1) the action of its agents Martocchio and Goldberg were not fraudulent, malicious, or oppressive, and (2) Plaintiff cannot prove that SIR had advance knowledge of or ratified any fraudulent conduct on account of Martocchio and Goldberg.

As discussed above, the motion for summary adjudication is denied as to Issue 1. Thus, the Court considers SIR’s alternative argument that it lacked advance knowledge or ratified Martocchio and Goldberg’s purported fraudulent conduct.

SIR argues that Plaintiff cannot establish that SIR had any “advance knowledge” of Martocchio or Goldberg’s unfitness and that there is no evidence to show that any acts were conducted on the part of an officers, director, or managing agent of the corporation. The Court notes that the material facts supporting Issue 2 are essentially identical to those of Issue 1.

While SIR argues that Plaintiff cannot establish SIR’s advance knowledge and ratification by an officer, director, or managing agent of the corporation, SIR has not upheld its initial burden on these points. If SIR was intending to make a “no evidence” motion, it would have needed to provide the requisite showing. A defendant making a “no evidence” motion must introduce admissible evidence (by declaration or otherwise) that, “discovery was ‘sufficiently comprehensive, and plaintiffs' responses so devoid of facts, as to lead to the inference that plaintiffs could not prove [their case] upon a stringent review of the direct, circumstantial and inferential evidence.’” (Casey v. Perini Corp. (2012) 206 Cal.App.4th 1222, 1231 [quoting Andrews v. Foster Wheeler LLC (2006) 138 Cal.App.4th 96, 107].) In addition, a defendant making a “no evidence” motion must also establish that, by the time the case comes up for trial, the plaintiff “cannot reasonably expect to obtain” the evidence necessary to raise a triable issue of fact on the issue. (Schieding v. Dinwiddie Construction Company (1999) 69 Cal.App.4th 64, 83; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855 [noting that a defendant seeking summary judgment “must show that the plaintiff does not possess needed evidence . . . the defendant must also show that the plaintiff cannot reasonably obtain needed evidence . . .”].) Here, SIR has not provided any showing that Plaintiff lacked evidence and therefore could not establish advance knowledge or ratification.

SIR Defendants move for summary adjudication on Issue 3, arguing that emotional distress damages are not available to Plaintiff under Civil Code, § 3343 or under the facts of this case. They argue that while Plaintiff has pleaded that she suffered mental and emotional distress due to SIR Defendants’ acts, omissions, and negligence (SIR Fact 35-36; SIR Ex. A [SAC ¶¶55, 94]), she has not provided any factual or evidentiary support for these conclusory allegations (SIR Fact 37-38). In support of Facts 37 and 38, SIR Defendants cite to the declaration of their counsel Shane Abergel at paragraphs 2 and 9 and Exhibit A. Paragraph 2 and Exhibit A are regarding the SAC. The Court has sustained Plaintiff’s evidentiary objection to paragraph 9 (as noted above). Even if considered, counsel states in paragraph 9: “Defendants propounded multiple rounds of written discovery but received non-responsive answers as to Plaintiff’s claims for mental and emotional distress damages. To date, Plaintiff has not provided any evidence to support an award for mental and emotional distress damages in this litigation.” SIR Defendants have not provided any discovery requests and discovery responses to show that Plaintiff failed to provide discovery responses or supporting documents for this request for damages. As discussed above, if SIR Defendants intended to make this motion based on a “no evidence” basis, they should have followed the proper procedure to do so. Based on the arguments, documentary evidence, and material facts currently before the Court in Issue 3, SIR Defendants have not met their initial burden.

SIR Defendants move for summary adjudication on Issue 4, arguing that lost profit damages are not available to Plaintiff under Civil Code, § 3343(a)(4) because Plaintiff must first establish that fraud is present because they fully disclosed all defects reasonably known to Martocchio at the time of sale and Plaintiff has not provided evidence that she incurred lost profits in relation to SIR Defendants’ actions.

(a) One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction, including any of the following:

(4) Where the defrauded party has been induced by reason of the fraud to purchase or otherwise acquire the property in question, an amount which will compensate him for any loss of profits or other gains which were reasonably anticipated and would have been earned by him from the use or sale of the property had it possessed the characteristics fraudulently attributed to it by the party committing the fraud, provided that lost profits from the use or sale of the property shall be recoverable only if and only to the extent that all of the following apply:

(i) The defrauded party acquired the property for the purpose of using or reselling it for a profit.

(ii) The defrauded party reasonably relied on the fraud in entering into the transaction and in anticipating profits from the subsequent use or sale of the property.

(iii) Any loss of profits for which damages are sought under this paragraph have been proximately caused by the fraud and the defrauded party's reliance on it.

First, SIR Defendants argue that Plaintiff cannot establish that they engaged in fraud against Plaintiff because Martocchio disclosed all defects reasonably known to him. While SIR Defendants may have shown this with respect to Martocchio only, they have not shown this with respect to Goldberg and SIR.

Second, SIR Defendants argue that “Plaintiff has not provided substantive evidence that indicates she incurred lost profits in relation to the SIR Defendants’ action—there is no nexus.” (Mot. at p.18; SIR Fact 42.) SIR Fact 42 cites to counsel Abergel’s declaration at paragraph 2 and Exhibit A. Paragraph 2 attaches Exhibit A, which is the SAC. This evidence does not support SIR’s Fact 42 that “Plaintiff has not provided any factual or evidentiary support as to how Plaintiff suffered these losses, particularly in relation to the value lost in the sale of the Property.” Again, it is SIR Defendants’ initial burden to show that Plaintiff failed to provide this evidence.

Defendants Sotheby’s International Realty, Inc., Peter Martocchio, and David Goldberg’s motion for summary adjudication is denied as to Issues 1-4.

[1] More specifically, the AVID states in the highlighted portions that the family room appears to be enclosed without a permit, the front bedroom was divided into 2 bedrooms and were not accurately reflected in the assessor’s data, powder bath (bathroom #2) was not reflected in the assessor’s data, and the art studio was not measured correctly and likely was not to code or permitted. The AVID advises that not all defects are observable and that the buyer should obtain advice about and inspection of the property from other professionals and if the buyer fails to do so, she is acting against the advice of brokers.