Judge: Jon R. Takasugi, Case: 21STCV31128, Date: 2024-01-25 Tentative Ruling

Case Number: 21STCV31128    Hearing Date: January 25, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendant EBR Escrow’s motion for summary judgment as to Grand Pacific Financing Corp. is DENIED. EBR’s motion for summary adjudication as to Grand Pacific Financing Corp. is DENIED.  EBR Escrow’s motion for summary judgment/adjudication is MOOT as to Plaintiff.

On 8/23/2021, Plaintiffs Grant Grigoryan and Gorbushka, LLC (collectively, Plaintiffs) filed suit against Stewart Title of California, Inc., Grand Pacific Financing Corporation c/o Beacon Default Management, Inc., and EBR Escrow (EBR), alleging: (1) fraud; (2) conversion; and (3) identity theft.

On 11/3/2023, Defendant EBR Escrow filed a motion for summary judgment.

On 1/5/2024, Plaintiff dismissed the entire Complaint as to EBR Escrow.

Accordingly, Defendant EBR Escrow’s motion for summary judgment is moot as to Plaintiff.

However, Cross-Complainant Grand Pacific Financing Corporation (GPFC) has maintained its claim against EBR.

Now, EBR moves for summary judgment, or, in the alternative, summary adjudication, of GPFC’s Cross-Complaint (XC).

Discussion

            This action involves allegations that some unidentified nonparty misappropriated Plaintiff Grigoryan’s identity in order to take out a loan. EBR Escrow was the escrow company that oversaw the transaction, and GPFC provided a $2,700,000 bridge loan as part of the transaction.

EBR argues that no triable issue of fact exists as to GPFC’s claims of negligence, negligent misrepresentation and unjust enrichment as EBR met its legal and contractual duties to GPFC.

After review, the Court finds triable issues of material exist as to each claim.

I.                   Negligent Misrepresentation

A negligent misrepresentation occurs when (1) the defendant made a false representation as to a past or existing material fact; (2) the defendant made the representation without reasonable ground for believing it to be true; (3) in making the representation, the defendant intended to induce the plaintiff’s belief; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff suffered damages as a result. (Majd. v. Bank of America, N.A. (2015) 243 Cal. App. 4th 1293, 1307.)

Here, GPFC submitted evidence that EBR negligently misrepresented to GPFC that all of the closing conditions had been met on or around March 30, 2021, and provided loan documents that EBR Escrow affirmatively asserted were duly “executed” pursuant to the lender’s instruction. (GPFC UMF, ¶ 18). Relying upon EBR Escrow’s representation that the loan documents were duly executed, GPFC did not object to EBR Escrow consequently closing escrow and wiring GPFC’s funds, totaling $2,586,023.05 to the Chase Bank account of the entity which purported to be Gorbushka, LLC.

The purpose of escrow is for the escrow parties to rely upon an independent, third-party escrow holder to deliver the deposit “upon satisfaction of the conditions stated in the escrow instructions” (J. Bushnell Nielsen, American Land Title Association, Title and Claims Guide, § 13.1 Types of Escrow and Their Purposes (2023).)

GPFC’s evidence supports a reasonable inference that it justified reliably upon EBR’s representation that the loan documents were “duly executed and acknowledged” to mean that: (1) the notary L.E. Rudzinski confirmed the identity of Plaintiff Grigoryan when he executed a portion of the loan documents; and (2) the notary Ariana Meiners was a licensed notary who confirmed the identity of the parties signing the remainder of the loan documents, including the Consent of Spouse or Guarantor, the Subordination Nondisturbance and Attornment Agreements and the Substitution of Trustee and Full Reconveyance.

GPFC submitted evidence that: (1) Mr. Rudzinski later testified that he “couldn’t say with 100 percent certainty” the person purporting to be Grant Grigoryan was in fact the Plaintiff as he did not remove his mask and partially covered his face with a handkerchief. (GPFC UMF, ¶ 6); (2) there is no valid notary with commission no. 189617 (which is the commission number on the remainder of the loan documents) therefore Ariana Meiners could not have notarized them despite EBR Escrow’s representation that all loan documents were “duly executed and acknowledged.” (GPFC UMF, ¶ 9); (3) EBR Escrow admitted it did not verify Ariana Meiners’ notary public status despite being unfamiliar with her as notary and that it had no written procedures regarding use of outside notary sources and review of notarized documents. (GPFC UMF, ¶¶ 10-11)

            In light of this, the Court agrees that there is a triable issue of fact whether EBR Escrow had reasonable grounds to believe that the documents it provided to GPFC and that it stated were “executed” were actually “duly executed and acknowledged” as required under the lender’s instructions.

II.               Negligence

EBR argues that GPFC cannot establish this claim because undisputed evidence indicates that EBR, through its agent Hendley, met its standard of care to all parties in managing the escrow process for the deed of trust.

After review, the Court disagrees.

EBR argues that it owed a limited duty to the escrow parties to communicate to its principals, knowledge acquired in the course of the agency with respect to material facts that might affect the principals’ decision regarding the pending transaction. (see Siegel v. Fidelity Nat’l Title Ins. Co. (1996) 46 cal.App.4th 1181,1193-1194.)  EBR argues that while an escrow agent may have a duty to conduct an investigation when suspicious circumstances arise, no suspicious circumstances existed here, and EGR did not have an affirmative duty to investigate the Borrower as “[t]he nature of the relationship is such as to cause the plaintiff to rely on the fiduciary, and awareness of facts which would ordinarily call for investigation does not excite suspicion under these special circumstances.” (3 Witkin, Cal. Procedure (3d ed. 1985) Actions, § 456, p. 487.)

However, GPFC argues that there were a number of issues which EBR was aware of and which did amount to suspicious circumstances. In support, GPFC submitted evidence that:

-         Plaintiff changed title companies three times and when Title was retained, multiple notaries were required to execute the Loan documents as Plaintiff was unable to execute all of them in the first instance with Larry Rudzinksi and the person purporting to be the Plaintiff obscured his identity by wearing a face mask and then further covering his face with a bandage allegedly due to a dental procedure. (GPFC UMF, ¶¶ 5-6 );

-         EBR Escrow was later also alerted to the fraud when it attempted to transfer the $2,586,023.05 in funds from GPFC to Plaintiff as part of the Loan transaction. EBR Escrow was advising in writing by the recipient bank, Chase Bank, that the transaction “does not fit the normal pattern of our customer” and was thus deemed by Chase Bank as “suspicious.” (GPFC UMF, ¶ 12)

-         EBR Escrow was advised to “check with the remitter to confirm whether or not this transaction was initiated correctly and whether or not there is fraud involved.” (Ibid.)

-         Despite this clear instruction from Chase Bank, EBR Escrow only notified the person purporting to be Plaintiff of the message from Chase Bank and worked only with the person purporting to be Grigoryan to resolve the issue – the party who provided the fraudulent account (i.e. putting the wolf in charge of the hen house). Unsurprisingly, the person purporting to be Grigoryan simply provided an account to receive the funds and the funds from GPFC were wired to a different account at a different banking institution, Bank of the West. EBR Escrow did not confirm these new wiring instructions with GPFC. (GPFC UMF, ¶ 17)

-         Though EBR Escrow contends, now belatedly, that they “called either Trinh, Lin or Kong” from GPFC to inform them that the funds did not transfer, this wholly misstates EBR Escrow agent, Michelle Hendley’s testimony. (EBR UMF ¶ 24). Ms. Hendley testified that she did not remember whether she called anyone at GPFC but that she “might have.” (GPFC UMF, ¶ 16).

-         Further, neither Trinh, Lin, nor Kong received any notification regarding the failed wire transfer to Chase Bank nor the instruction by a person purporting to be Grigoryan to wire the funds to a separate account in a separate bank, which certainly creates a triable issue of fact. (GPFC UMF, ¶¶ 13-14, 17).

Taken together, the Court agrees that there is a triable issue of fact as to: (1) whether EBR owed a fiduciary duty to inform all parties, including GPFC of the potential fraud detected by Chase Bank when it rejected the $2,586,023.05 wire transaction and (2) whether EBR performed under that duty as GPFC has no record of such communication and denies receiving any notification from EBR Escrow regarding the rejected transaction.

III.            Unjust Enrichment

EBR argues that GPFC cannot establish this claim because unjust enrichment is not a stand-alone cause of action, and it is inequitable to demand recovery from EBR.

As to the first contention, while unjust enrichment is not a stand-alone cause of action (which GPFC concedes in opposition), California courts have recognized that “where a breach of fiduciary duty occurs, a variety of equitable remedies are available including…restitution” under a theory of unjust enrichment. (Meister v. Mensinger (2014) 230 Cal. App. 4th 381, 396.) A party is required to make restitution if that party is “receives a benefit at another’s expense” where “benefit means any type of advantage.” (Am. Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal. App. 4th 1451, 1481.)

As to the second contention, EBR Escrow points to GPFC’s dismissal of other defendants from the cross-complaint as grounds that it is “inequitable” for GPFC to maintain its unjust enrichment claim against EBR. However, the issue here is whether or not GPFC is entitled to restitution based on the jury’s finding of (1) whether EBR Escrow indeed breached its fiduciary duty to GPFC by failing to deliver “duly executed and acknowledged” loan documents to Title and failing to notify GPFC when EBR Escrow had clear evidence of fraud; and (2) whether, as between the two parties – GPFC and EBR Escrow, it is unjust for EBR Escrow to retain the fee paid to EBR Escrow.

            Such determinations are properly made by a trier of fact.

            Based on the foregoing, EBR’s motion for summary judgment as to GPFC is denied. EBR’s motion for summary adjudication as to GPFC is denied. 

It is so ordered.

Dated:  January    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.