Judge: Margaret L. Oldendorf, Case: 22GDCV00224, Date: 2022-10-21 Tentative Ruling

Case Number: 22GDCV00224    Hearing Date: October 21, 2022    Dept: P

 

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

 

E AND E MORTGAGE BANKERS CORP.; SHAHRAM ELYASZADEH, an individual,

 

                                            Plaintiffs,

vs.

 

GHAZAR ZEHNALY, an individual; CENTRAL ESCROW LA, INC.,

 

                                            Defendants.

 

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Case No.: 22GDCV00224

 

 

[TENTATIVE] ORDER SUSTAINING DEMURRER OF DEFENDANT CENTRAL ESCROW WITH LEAVE TO AMEND AND TAKING PLAINTIFFS’ MOTION FOR LEAVE TO AMEND OFF CALENDAR

 

Date:   October 21, 2022

Time:  8:30 a.m.

Dept.:  P

 

           

I.         INTRODUCTION

            In this action, E and E Mortgage Bankers Corp. (E and E) and its principal Shahram Elyaszadeh (Elyaszadeh) (jointly, Plaintiffs) seek to recover $60,043 alleged to be owed on a contract pursuant to which they procured a loan at the request of Defendant Ghazar Zehnaly (Zehnaly). Also named in the complaint is Defendant Central Escrow LA, Inc. (Central).

Attached to the pleading are three documents: a written contract between Elyaszadeh and Zehnaly called “Exclusive Authorization & Agreement For Real Estate Loan”; two letters from Plaintiff E and E to Central requesting a broker fee of $47,595, one dated February 24, 2022, and another on February 27, 2022 following up on the first letter. The form pleading sets forth two causes of action, a first cause of action by both plaintiffs against Zehnaly for breach of contract; and a second cause of action by both plaintiffs against Zehnaly and Central for an open book common count.

Zehnaly answered the complaint. Central demurs to the second cause of action. For the reasons that follow, the demurrer is sustained with leave to amend. Plaintiffs’ motion for leave to amend is taken off calendar as moot.

 

II.        LEGAL STANDARD

A. Law Governing Demurrers

A general demurrer lies where a complaint fails to state a cause of action. (Code Civ. Proc. §430.10, subd. (e).) It admits the facts pleaded and tests the legal sufficiency of a pleading. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) 

Code Civ. Proc. §430.10, subd. (f), provides for a demurrer where a pleading is uncertain. Only where a pleading is so uncertain a defendant cannot determine what must be admitted or denied is a demurrer for uncertainty appropriate. (Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.)

A demurrer challenges defects appearing on the face of the complaint or in judicially noticeable material. (Code Civ. Proc. §430.30.) A demurrer may not, however, be based on evidence. “Speaking demurrers” are not permitted. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022), §7.8.)

The face of the complaint includes exhibits attached to the pleading.

“[T]o the extent the factual allegations conflict with the content of the exhibits to the complaint, we rely on and accept as true the contents of the exhibits and treat as surplusage the pleader’s allegations as to the legal effect of the exhibits.” (Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.)

            B. Law Governing Escrow Holders

            “An escrow holder is an agent and fiduciary of the parties to the escrow. (Citations.) The agency created by the escrow is limited—limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow.” (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711.)

            Escrow holders have no general duty to do anything beyond what is in the instructions and have no duty to protect persons who are not parties to the escrow. (Branscomb v. JPMorgan Chase Bank, N.A. (2014) 223 Cal.App.4th 801, 810.)

 

III.      ANALYSIS

            A. Procedural Requirements

                        1. Meet and Confer Requirement

The Declaration of Maurice K. Wong, ¶¶ 3 and 4, sufficiently satisfies Code Civ. Proc. §430.41’s meet and confer requirement. Plaintiffs respond by indicating they believed they were in the middle of the meet and confer process when this demurrer was filed. Specifically, in email exchanges between the parties Plaintiffs’ counsel asked if defense counsel had the escrow instructions. (Declaration of Jonathan B. Teperson, ¶¶ 4-13 and Exhibit A thereto.) Apparently, rather than provide Plaintiffs’ counsel with a copy of the instructions, Central filed this demurrer.

                        2. Proof of Service

The proof of service attached to the demurrer shows that service was effected via email at the email address for counsel shown on the complaint. Plaintiffs object that they never agreed to electronic service, but admit they also received a copy of the demurrer by mail. Code Civ. Proc. §1010.6(e) provides that a party represented by counsel who has appeared in the action “shall” accept service where, prior to service, the party serving the document has confirmed by telephone or email the appropriate electronic service address. Here, the email between counsel would seem to serve as such confirmation. Plaintiffs also object that the proof of service does not indicate that Zehnaly was served with the demurrer. Central responds that Zehnaly did not serve it with his answer; but that after filing this demurrer, Central was able to contact him and has since provided him with a copy of the demurrer.

            Defects in the service of the demurrer, if any, are insubstantial.

                        3. Speaking Demurrer

The demurrer itself discusses numerous facts not contained in the complaint. At page 3, lines 12-16, the demurrer discusses escrow for a property, a sale price, a loan, and a lender (US Metro Bank). Most of these facts are not in the complaint or its attached exhibits. The demurrer argues at 4:17 that Plaintiff was “a complete stranger to the escrow,” and at 4:21-26 that the borrower specifically instructed escrow not to disclose facts to E and E and not to recognize its charges. At 8:12-14, it is argued that Plaintiffs gave nothing of value to Central, had no agreement with Central, and did not work for Central. At 9:24 the assertion is made that Zehnaly instructed Central not to pay E and E. All of this is outside the pleading. And in the final two paragraphs, the demurrer makes additional statements of fact that are beyond what is permitted on demurrer. These statements are not considered in the analysis of the demurrer.

 

            B. Sufficiency of the Facts Alleged

            As is true with all form complaints, the essential elements of each cause of action are largely contained within the form itself. Few facts are alleged outside of those contained in the form pleading.

In the breach of contract cause of action Plaintiffs allege the existence of a written contract between E and E and Zehnaly. The alleged essential terms of the contract are that Zehnaly agreed to pay loan fees and failed to pay those fees, damaging Plaintiffs in the amount of $60,043.

The document attached to the pleading diverges somewhat from these allegations. The contract is apparently between Elyaszadeh and Zehnaly; E and E is not mentioned. Pursuant to the contract, Elyaszadeh agrees to use his best efforts to obtain a real estate loan for Zehnaly of a certain amount at a certain interest rate for the purchase of identified real property on Colorado Street in Glendale. The agreement is for a term of one year. It provides that if Zehnaly obtains a loan through his own efforts, Elyaszadeh is nevertheless to be paid a 1% fee. The agreement states that the funds may be deposited into the escrow company of record pending closing of a loan on the property, and when so deposited constitutes an “irrevocable instruction to escrow to pay directly to Shahram Elyaszadeh. (sic) The commission and fees hereinabove stated and to deduct the same from any sums due to borrower without further instruction from the borrower.”

            Central is a party to the action and demurs only to the second cause of action. There it is alleged that within the last four years, Zehnaly and Central became indebted to Plaintiffs on an open book account for money due, for work, labor, services, and material rendered at the special instance and request of defendants for which defendants agreed to pay plaintiffs $60,043. However, based on the contract attached to the pleading, it is evident that any claim against Central arises from its obligation to pay E and E and/or Elyaszadeh a broker commission. Pursuant to the attached contract, that obligation only arises upon deposit of the agreement into escrow. There is no allegation that such a deposit occurred. But, because escrow holders have a duty only to follow instructions, and because there is no allegation the escrow instructions directed payment of the broker fee called for in the contract, no cause of action is alleged. Demurrer to the second cause of action is therefore sustained.

 

            C. Leave to Amend

            When a demurrer is sustained, the plaintiff has the burden of showing that the complaint can be amended and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “The onus is on the plaintiff to articulate the ‘specifi[c] way’” to cure the identified defect.” (Schaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1145.)

            The closing paragraph of the opposition brief urges that leave to amend should be granted because Plaintiffs “can allege the payments to Plaintiffs were part of the escrow instructions and that those irrevocable instructions created by the borrower were deposited with the defendant Central Escrow LA, Inc.” Because Plaintiffs have stated the manner in which they proposed to amend the pleading and it directly affects the defect that gives rise to the demurrer, leave to amend is granted.

            In addition to opposing the demurer, Plaintiffs filed a separate motion for leave to amend. That motion for leave to amend is taken off calendar as moot in light of the demurrer order. However, a short discussion of the motion would perhaps be useful.

            In their motion for leave to amend, Plaintiffs essentially argue that the form pleading was not sufficient for the allegations and the Proposed First Amended Complaint (PFAC) better fleshes out the allegations. For example, they say, the principal amount was reduced to the 1% fee with a separate processing fee and request for attorney fees. Plaintiffs do not state that they seek leave to amend so that they can allege the existence of escrow instructions for payment of their alleged broker fee. Nevertheless, Central opposes the motion by arguing that Plaintiffs have decided to allege the existence of escrow instructions despite the fact they know this to be an unsupported allegation.

Plaintiffs have twice lodged PFACs, once on September 8 and again on September 16, 2022. In both versions they allege that the broker agreement was deposited in escrow on two occasions: February 24 and February 27, 2020. (PFAC, ¶¶ 29, 30.) The PFAC filed September 16 attaches as exhibits the same documents attached to the original pleading: the broker agreement and the two letters. The letters do not themselves contain the agreement, but the February 27 letter does state, “I am providing you the executed documents by Mr. Ghazar Zehnaly on 1/28/00 to secure the financing on the purchase of the subject site at 900 East Colorado Street Glendale CA 91205.”

Based upon these allegations, it seems that Plaintiffs are alleging that the letters are evidence that the agreement was deposited into escrow. Whether or not the agreement was deposited into escrow, these allegations fall short of the necessary allegation that the payment of a broker fee was made a part of the escrow instructions.

 

IV.      CONCLUSION AND ORDER

            Central’s demurrer to the second cause of action for common count is sustained for the reasons articulated herein. Plaintiffs are granted 10 days to file an amended pleading. They may file either a version they previously lodged with the Court or any other that is appropriate based on this ruling.

            If Plaintiffs decline to amend, Central may seek dismissal and this action will proceed on the original complaint as against Zehnaly.

            Central is ordered to provide notice of this order.

           

 

           

Dated:                                                                        _______________________________

                                                                                          MARGARET OLDENDORF

                                                                                 JUDGE OF THE SUPERIOR COURT