Judge: Mark A. Young, Case: 22SMCV00405, Date: 2023-04-11 Tentative Ruling
Case Number: 22SMCV00405 Hearing Date: April 11, 2023 Dept: M
CASE NAME: Affinity House
Inc., v. Lighthouse Brooks LLC, et al.
CASE NO.: 22SMCV00405
MOTION: Demurrer
to the Complaint
HEARING DATE: 4/11/2023
Legal
Standard
A
demurrer for sufficiency tests whether the complaint states a cause of action.
(Hahn v. Mirda (2007)
147 Cal.App.4th 740, 747.) When considering demurrers, courts read the
allegations liberally and in context. In a demurrer proceeding, the defects
must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968, 994.) A demurrer tests the pleadings alone and not
the evidence or other extrinsic matters. Therefore, it lies only where the
defects appear on the face of the pleading or are judicially noticed. (CCP §§
430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate
facts sufficient to apprise the defendant of the factual basis for the claim
against him. (Semole v. Sansoucie
(1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit
contentions, deductions or conclusions of fact or law alleged in the pleading,
or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964)
226 Cal.App.2d 725, 732, internal citations omitted.)
A
special demurrer for uncertainty is disfavored and will only be sustained where
the pleading is so bad that defendant cannot reasonably respond—i.e., cannot
reasonably determine what issues must be admitted or denied, or what counts or
claims are directed against him/her. (CCP § 430.10(f); Khoury v. Maly’s
of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if
the pleading is somewhat vague, “ambiguities can be clarified under modern
discovery procedures.” (Ibid.)
“Liberality in permitting amendment
is the rule, if a fair opportunity to correct any defect has not been given.” (Angie
M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.) It is an abuse of
discretion for the court to deny leave to amend where there is any reasonable
possibility that plaintiff can state a good cause of action. (Goodman v.
Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on plaintiff to
show in what manner plaintiff can amend the complaint,
and how that amendment will change the legal effect of the
pleading. (Id.)
Analysis
Defendants Lighthouse Brooks, LLC, Ramin Kolahi, and Feredoon
Ghassemieh demur to the second cause of
action for fraud and concealment. Ghassemieh also demurs to the third and fifth
causes of action for negligence and negligent concealment.
Second Cause of
Action for Fraud and Concealment
The complaint alleges that Plaintiff began negotiating with the
Lighthouse Defendants towards the end of to 2018 to rent new construction built
upon four real estate parcels in the Venice area of Los Angeles. (Compl., ¶
14.) Plaintiff disclosed to Defendants the intended residential use for the
Properties as a shared space/co-living environment. (Id.) During these
negotiations, Defendants knew that the Properties needed a Certificate of
Occupancy issued by the city for Affinity House to operate the Properties for
the purposes of being leased. (¶¶ 15. 16.) Accordingly, the parties entered
into a written residential lease for 742, 744, 746, and 748 Brooks Avenue in
Venice, California, in January 2019 (the "Lease Agreement"). (¶ 17.)
As a part of the agreement, the parties agreed to an option whereby Plaintiff
could purchase the Properties outright. (¶ 18.)
During the negotiation process,
Defendants were embroiled in litigation involving neighbors in the Venice
community and the California Coastal Commission, whereby the neighbors alleged
fraud against Lighthouse during the governmental approval process and
construction of the Properties. (Compl., ¶ 19.) The plaintiffs in the
Construction Lawsuit sought to demolish the Properties and/or have the
Certificate of Occupancy revoked. (Id.)
The complaint further alleges that in
the "Exempt Seller Disclosure” page of the Lease Agreement, Kolahi marked
disclosures about certain insurance claims and matters affecting title,
indicating that there was water intrusion claim, which was being handled
through insurance and would be resolved soon. (Compl., ¶ 21.) Kolahi expressly
represented to Robert O'Neill that the disclosures affirmatively marked on the
Lease Agreement were a matter of real estate semantics, there was nothing to
worry about, and Affinity House would not have any problems with the Properties
related to Affinity House's intended use as a co-living environment. (¶ 21.) By
affirmatively disclosing some issues, Kolahi put Plaintiff at ease that there
was nothing additional to disclose to them that would affect the planned use of
the Properties. (¶ 22.) Plaintiff would not have entered into the Agreement and
rented the Properties if there was a discernable risk of the space losing its
Certificate of Occupancy. (Id.) Defendants knew such follow-up statements to
the disclosure were false. (¶ 23.) Kolahi knew about the risk to the
Certificate of Occupancy stemming from the Construction Lawsuit, but failed to
share this information. (Id.) Plaintiff relied upon such statements to execute
the Lease Agreement. (Id.) But for those affirmative misrepresentations and
concealments, Plaintiff would have taken further investigatory steps, learned
of the pending Construction Lawsuit, and would not have closed on the
lease/option transaction. (¶ 24.)
After signing the Lease, the
plaintiffs in the Construction Lawsuit prevailed, and the City of Los Angeles
Department of Building and Safety (“LADBS”) revoked the Certificate of
Occupancy. (Compl., ¶ 25.) Defendants did not inform Plaintiff of the
revocation of the Certificate of Occupancy by LADBS, and authorized Plaintiff
to complete approximately $800,000.00 in renovations. (¶ 27.) Defendants
continued to collect the rent. (Id.)
In May 2019, Plaintiff began to
discuss with Defendants their intent to invoke the purchase option. (¶ 29.)
While conducting due diligence for exercising the Option and purchasing the
Properties, Plaintiff first became aware of the Construction Lawsuit and the
revoked certificate. (Id.) Thus, Plaintiff was precluded from invoking the Option.
In their demurrer, Defendants assert
that the second cause of action is ambiguous, because it states a claim for
fraud and concealment. Defendants contend that this is a contradiction, because
concealment and active misrepresentation are separate causes of action. However,
this misstates the law as to the pleading standard for a cause of action, and
the standard for the special demurrer for uncertainty. Simply put, the cause of
action is not so poorly drafted that Defendants cannot reasonably respond. As
such, the demurrer for uncertainty cannot be sustained.
Further, the elements of fraud are:
“(a) misrepresentation (false representation, concealment, or nondisclosure);
(b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to
induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay
v. Cobert (2006) 145 Cal.App.4th 170, 184.) Thus, any
misrepresentation—whether by active misrepresentation or concealment of a
material fact—will support a claim for fraud.
The Court, however, agrees that
there is no claim for a false misrepresentation stated with sufficient
specificity. The positive misrepresentations alleged in the complaint relate to
the exempt seller disclosure. (Compl., ¶21.) There, Defendant Kolahi
represented that there were insurance claims affecting the property and matters
affecting title of the property. This included that there was a claim “to
insurance for water damage during construction” and indicated the “Preliminary
Title Commitment.” However, the complaint does not attach the Preliminary
Title, and thus does not show if such a document made further representations.
Critically, Defendant Kolahi made no affirmative statements regarding the
Construction Lawsuit. There is no indication that the insurance claim was the
only legal issue potentially affecting title. The complaint further alleges
that Kolahi represented that the disclosures made were matters of semantics (nothing
to worry about), and that Plaintiff would have no problems with the Properties
related to the residential co-living use. Such representations are either not
alleged to be untrue, or are simply statements of opinion/future events, and
thus not actionable as an active misrepresentation. Thus, the complaint does
not state any facts showing an affirmative misrepresentation regarding the
Lawsuit or the Certificate of Occupancy. Further facts would need to be alleged
for such to be considered false representations of a then-existing fact.
That said,
the concealment theory is well-pled. The elements of concealment are the same
as fraud, except that the defendant must have been under a duty to disclose the
fact to the plaintiff. (Blickman¿Turkus, LP v. MF Downtown Sunnyvale, LLC¿(2008)
162 Cal.App.4th 858, 868.) The party must be under a legal duty to
disclose these facts, either as a result of a fiduciary or confidential
relationship, privity of contract, or other special circumstances. (Warner
Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.) The duty to
disclose generally arises in four circumstances: (1) when the defendant is in a
fiduciary relationship with the plaintiff (2) when the defendant had exclusive
knowledge of material facts not known to the plaintiff; (3) when the defendant
actively conceals a material fact from the plaintiff; and (4) when the
defendant makes partial representations but also suppresses some material
facts. (LiMandri¿v.¿Judikins¿(1997) 52 Cal. App. 4th 326, 336.)
Generally, fraud must be
pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th
167, 184.) “The particularity demands that a plaintiff plead facts which show
how, when, where, to whom, and by what means the representations were
tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462,
1469.) Despite this general rule, less specificity as to
fraud claims is required if it appears from the nature of allegations that
defendant must necessarily possess full information, or if the facts lie more
in the knowledge of opposing parties. (Alfaro v. Community Housing Improvement
System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384-1385.) Logically,
the rule of specificity of pleading is intended to apply only to affirmative
representations and not to fraud by concealment. (Id.) As the Alfaro
court observed: “it is harder to apply [the requirement of specificity] to a
case of simple nondisclosure. ‘How does one show “how” and “by what means”
something didn't happen, or “when” it never happened, or “where” it never
happened?’ ” (Ibid.; see Jones v. ConocoPhillips (2011) 198
Cal.App.4th 1187, 1200 [concealment is sufficiently pled when the complaint as
a whole provides sufficient notice of the claims against defendants].)¿
The
complaint alleges that Lighthouse and Kolahi had a duty to disclose the
material fact of the Construction Lawsuit, which risked the revocation of the
Certificate of Occupancy. Here, Kolahi allegedly had exclusive knowledge of the
Construction Lawsuit. (Compl., ¶¶ 19-21.) Further, Kolahi represented some
relevant facts regarding matters “affecting title of the Property” in the
disclosures and oral representations but failed to disclose the Construction
Lawsuit. These facts, combined with the alleged materiality of the Construction
Lawsuit, support a duty to disclose the lawsuit to Plaintiff.
Defendants further argue that the
allegations fail against Ghassemieh because only Lighthouse allegedly has a
duty as the landlord after entering into the Lease Agreement (Compl., ¶¶ 26,
45), and there is no allegation that Ghassemieh was party to the Lease or any
of the disclosure documents, or made any specifics regarding the oral
representations (¶¶ 23, 43). They reason that he cannot be held liable simply
because he is a member of an LLC. Indeed, the complaint only alleges that
Kolahi made the partial representations. (¶¶ 20-21.) In addition, only Kolahi
allegedly knew of the risk to the Certificate of Occupancy stemming from the
Lawsuit. (¶ 23.) According to the complaint, it is only these concealments that
Plaintiff relied on, and induced Plaintiff into the Lease Agreement. (¶ 44.) Thus,
the Complaint does not state facts sufficient to support a duty to disclose
against Ghassemieh.
Accordingly,
Ghassemieh’s demurrer to the second cause of action is SUSTAINED with leave to
amend. Lighthouse and Kolahi’s demurrer to this cause of action is OVERRULED.
Third and Fifth Causes
Ghassemieh also demurs to the
negligence and negligent concealment causes of action. Negligent misrepresentation requires the
defendant to make false statements believing them to be true, but without
reasonable ground for such belief. (Bily v. Arthur Young & Co.
(1992) 3 Cal.4th 370, 407.) Furthermore, an action for fraud based on concealment requires that a person
intentionally conceal a fact with the intent to defraud another.¿(Kaldenbach
v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 850; Buy v. Arthur
Young & Co. (1992) 3
Cal.4th 370, 407.)¿As a
result, a plaintiff cannot logically pursue a claim of negligent concealment.
To the extent that Plaintiff relies on positive false statements, the above-discussed
defects would equally apply to the negligence causes of action. (¶¶ 54-55, 65.) Further, the claim would
fail as to Ghassemieh, since there is not allegation of any representations by
Ghassemieh.
Thus, Plaintiff will only be
granted leave to amend to state the negligence-based causes of action on a
theory of negligent misrepresentation, i.e., based on false statements, honestly
believed true, but without reasonable ground for such belief.
Accordingly, the demurrer is
SUSTAINED with leave to amend.
Plaintiff is granted 10 days leave
to amend the complaint consistent with this ruling.