Judge: Mark A. Young, Case: 22SMCV02679, Date: 2024-04-23 Tentative Ruling
Case Number: 22SMCV02679 Hearing Date: April 23, 2024 Dept: M
CASE NAME: Revah, et al.,
v. Miller, et al.
CASE NO.: 22SMCV02679
MOTION: Demurrer
to the Complaint
HEARING DATE: 4/23/2024
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
Request for
Judicial Notice
Defendants’ request for judicial notice is GRANTED.
Allegations
Defendants Steven Mark Miller and National Mortgage Resources (“NMR”) demur
to Plaintiffs Haim Revah and Lucinda Revah’s Second Amended Complaint (“SAC”). The
SAC states three causes of action for breach of fiduciary duty, constructive
fraud, and fraudulent concealment.
The SAC arises from a series of loans brokered by Defendants and funded
by NMR that were secured by deeds of trust on Plaintiffs’ primary residence
located at 705 N. Alta Drive, Beverly Hills, California 90210. (SAC, ¶ 10.) According to the SAC, Miller acted as a mortgage
broker, real estate broker, and mortgage loan originator (MLO) for Plaintiffs.
(SAC, ¶¶ 2, 11.) At the same time, Miller
is also the President and CEO of NMR dba Finance West. (Id.) Plaintiffs allege
that Miller and NMR are alter egos. (SAC, ¶¶6-7.) NMR funded and serviced the loans to
plaintiffs and their corporation Metropolitan Real Estate Investors, LLC
(“MRE”). (Id.) The broker-lender-client relationship between Defendants, on the
one hand, and Plaintiffs and MRE, on the other hand, began in March 2015. (SAC,
¶ 14.) The first and second loan transactions both involved a Note Secured by
Deed of Trust with MRE as the borrower/maker and NMR as the lender. (SAC, ¶ 15,
Exs. A-B.) Plaintiffs each entered into a Guaranty of Recourse Obligation of
Borrower for each of the first and second loans securing MRE’s obligations. (SAC,
¶ 16, Exs. C-D.) Plaintiffs, as trustors, granted a Deed of Trust with
Assignment of Rents to NMR, the beneficiary, to secure each of the first and second
Notes Secured by Deed of Trust. (SAC, ¶ 17, Exs. E-F.)
On January 8, 2019, another note secured by a Deed of Trust payable to NMR
was entered by MRE as a co-maker in the amount of $4,561,325. (SAC ¶ 19, Ex.
G.) On this promissory note, Plaintiffs were included as co-makers. (Id.)
Plaintiffs also entered into a personal guarantee regarding this note, even
though they were already co-makers on the note. (SAC, ¶ 20, Ex. H.) Plaintiffs granted
NRM another Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing on Plaintiffs’ Residence securing the obligations under the
January 8, 2019, Note Secured by a Deed of Trust and under the Guaranty of Recourse
Obligation of Borrower. (SAC, ¶ 21, Ex. I.) The deed of trust is noted as a
“SECOND” deed of trust, junior to the prior deeds. (Id.)
The SAC alleges that these transactions were undertaken because Plaintiffs,
and MRE, were unable to make the monthly and maturity payments on the prior
loans by NMR. (SAC, ¶¶ 22-25.) Because of this experience, Defendants knew or
should have known that Plaintiffs were in an untenable and dire financial
condition, would be unable to repay these loans and perform on the promissory
notes payable to NMR, that Plaintiffs would default on those promissory notes
and guarantees, and that Plaintiffs would default on the deeds of trust that
Defendants had recorded on Plaintiffs’ Residence. (Id.) Defendants acted as
real estate brokers during these transactions. (SAC, ¶ 26.) Further, NMR acted
as the escrow agent with Miller as the escrow officer. (SAC, ¶ 27.)
On December 16, 2018, Defendants obtained an appraisal of Plaintiffs’
residence as part of performing their services as Plaintiffs’ real estate
brokers and mortgage loan brokers
and for purposes of obtaining a real estate secured loan for Plaintiffs which
gave an opinion of value of Plaintiffs’ Residence of $20,150,000. (SAC, ¶ 29.)
Miller, acting on for himself and NMR as Plaintiffs’ real estate broker
and mortgage loan broker, held himself out to potential lenders as Plaintiffs’
real estate broker and mortgage loan broker. (SAC, ¶¶ 41-43.) For example, on
February 25, 2020, Miller, as Plaintiffs’ mortgage broker and real estate
broker, interviewed Plaintiffs for purposes of obtaining a residential loan for
Plaintiffs secured by Plaintiffs’ Residence for purposes of refinancing the
January 8, 2019, Note Secured by Deed of Trust. (SAC, ¶ 31.) Miller completed a
Uniform Residential Loan Application on behalf of Plaintiffs as their agent, real
estate broker, and mortgage broker and thereby represented to Plaintiffs and/or
led Plaintiffs to reasonably believe that Defendants were searching the market
for all available and appropriate loan options for Plaintiffs. (Id.) Throughout
March 2020, Miller, acting for himself and on behalf of NMR as Plaintiffs’ real
estate broker and mortgage broker, was in contact, via email and telephone,
with potential lender Axos Bank for the purposes of submitted Plaintiffs’ loan
application and attempting to obtain a obtain a residential loan secured by
Plaintiffs’ Residence. (SAC, ¶ 40.)
As was or should have been foreseen by Defendants, Plaintiffs were unable
to pay the amounts due on the January 8, 2019, Note Secured by Deed of Trust by
the maturity date thereof. (SAC, ¶ 44.) As a result, Defendants successfully
instituted non-judicial foreclosure proceedings against Plaintiffs’ Residence
pursuant to the Deed of Trust, Security Agreement, Assignment of Leases and
Rents and Fixture Filing securing said promissory note by recording a Notice of
Default and Election to Sell Under Deed of Trust and thereafter recording a
Notice of Trustee’s Sale. (Id.) NMR foreclosed on Plaintiffs’ Residence
pursuant to the power of sale in the Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing on Plaintiffs’ Residence
securing the obligations under the January 8, 2019, Note Secured by Deed of Trust.
A trustee sale was held on September 24, 2021. NMR was the winning bidder and purchaser
of Plaintiffs’ Residence at said trustee sale with a purported full credit bid
in the amount of $6,921,107.17 that was allegedly due and owing by Plaintiffs
pursuant to the January 8, 2019, Note Secured by Deed of Trust. (SAC, ¶45.)
The SAC alleges that Miller owed a fiduciary duty to Plaintiffs because
of his real estate broker–client relationship with both Plaintiffs and as well
as his mortgage broker/MLO–client relationship. (SAC, ¶¶48-49.) Miller owed a
fiduciary duty to Plaintiffs as a result of their close relationship of trust
and confidence, which position of trust and confidence Miller voluntarily
solicited, assumed, and accepted. (SAC, ¶¶ 50-54.) Miller allegedly breached
these duties by failing to disclose certain material facts, including the types
of loan programs that Defendants have access to or are offering, the
availability of loans on better terms than those offered by NMR, to explain the
possibility that the terms of the loans might increase the risk of foreclosure
on Plaintiffs’ Residence, any and all other facts or information that might
affect Plaintiffs’ decision to borrow from NMR and enter into all transactions
with Defendants. (SAC, ¶ 55.)
Defendants had an obligation and duty to obtain all financial and other
relevant information from the Plaintiffs, including but not limited to
financial assets, liabilities, income, expenses, credit circumstances, how the
loan relates to their long-term plans, their financial goals, and alternatives
available to the Plaintiffs; analyze the information; and determine what
options were in Plaintiffs’ best interest. (SAC, ¶ 56.) Defendants had a duty
to make recommendations to Plaintiffs as to the best financing options, choices
of different loan programs from different lenders that offer loans of the type sought
by Plaintiff; and, if Defendants were lending their own funds, Defendants had a
duty to discuss the proposed loan program with Plaintiffs and assist Plaintiffs
in determining if accepting the loan being offered was in Plaintiffs best
interest. (SAC, ¶ 56.) The SAC identifies the following breaches:
a. Failing to disclose to Plaintiffs that NMR was loaning
broker-controlled, broker-owned funds;
b. Failing to disclose to Plaintiffs that Defendants were not providing
Plaintiffs with options for alternative loans available in the market or
failing in any way to search for other available lenders or loans in the market
for Plaintiffs;
c. Failing to submit Plaintiffs’ residential loan application to lenders
in the market;
d. Failing to make mortgage loan disclosures to Plaintiffs required by
the DRE, including but not limited to the DRE form 882 disclosures, which would
have disclosed, inter alia, that the loans were being made with the broker’s
funds;
e. Failing to disclose to Plaintiffs that Defendants had a dual agency
relationship with both Plaintiffs and Defendants’ investors;
f. Maintaining dual and conflicting fiduciary duties to Plaintiffs, on
the one hand, and to Defendants’ investors, on the other hand;
g. Failing to disclose to Plaintiffs that Defendants had a dual agency
relationship with Plaintiffs, on the one hand, and with NMR as the
lender/servicer, on the other hand;
h. Extending additional credit and loans to Plaintiffs when Plaintiffs
were already in default on the existing loans, were unable to pay the existing
loans, had no ability to pay the new loans, and were in a dire financial
condition, thereby adding enormous amounts of unpaid payments, interest,
default interest, penalties, and fees to Plaintiffs’ debt owed to NMR and
creating new payment obligations that were larger than the ones Plaintiffs
already were unable to pay.
i. Recording multiple, serial deeds of trust on Plaintiffs’ Residence
thereby rendering the property unmarketable and impairing Plaintiffs’ ability
to obtain a new loan to satisfy the debt owed to NMR and secured by said deeds
of trust, and failing to reconvey previously recorded deeds of trust recorded
on Plaintiffs’ Residence.
j. Taking adverse actions against their principals, Plaintiffs, by
foreclosing on
Plaintiffs’
Residence.
k. Executing a Grant Deed recorded in the Official Records Recorder’s
Office, Los Angeles County, on October 11, 2022, conveying Plaintiffs’
Residence to a purported third party, profiting from the foreclosure and sale
of Plaintiffs’ Residence, and preventing Plaintiffs from the ability to recover
Plaintiffs’ Residence.
l. Failing to act in the best financial interests of Plaintiffs.
(SAC, ¶60.)
Fiduciary
Relationship
Defendants argue that Plaintiffs fail to establish a fiduciary
relationship between themselves and Miller as a mortgage broker or real estate
broker. The existence of a fiduciary duty is a required element for all the pled
causes of action of the SAC. To maintain an action for breach of
fiduciary duty, a plaintiff must allege: 1) the existence of a fiduciary duty
between plaintiff and defendant; 2) defendant’s breach of that duty; and 3)
damage caused by the breach. (Gutierrez v. Girardi (2011) 194
Cal.App.4th 925, 932.) A fiduciary duty is founded upon a special relationship
imposed by law or under circumstances in which “confidence is reposed by persons
in the integrity of others” who voluntarily accept the confidence. (Tri-Growth
Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216
Cal.App.3d 1139, 1150.)
Constructive fraud “is a unique species of fraud applicable
only to a fiduciary or confidential relationship.” (Prakashpalan v.
Engstrom, Lipscomb & Lack¿(2014) 223 Cal.App.4th 1105.) It arises when
there is a breach of duty in a confidential or fiduciary relationship which
induces justifiable reliance. (Id.) “Constructive fraud allows
conduct insufficient to constitute actual fraud to be treated as such where the
parties stand in a fiduciary relationship.” (Estate of Gump¿(1991) 1
Cal.App.4th 582, 601.)
“[T]o establish fraud through nondisclosure or concealment of facts, it
is necessary to show the defendant ‘was under a legal duty to disclose them.’”
(OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157
Cal.App.4th 835, 845.) Nondisclosure or concealment may constitute actionable
fraud when there is a fiduciary relationship between the parties, among other
circumstances. (Los Angeles Memorial Coliseum Commission v. Insomniac, Inc.
(2015) 233 Cal.App.4th 803, 831.)
“Whether a ¿duciary duty exists is generally a question of
law. Whether the defendant breached that duty towards the plaintiff is a
question of fact.” (Marzec v. Public Employees’ Retirement System (2015)
236 Cal.App.4th 889, 915, internal citation omitted.) “A ¿duciary relationship
is any relation existing between parties to a transaction wherein one of the
parties is in duty bound to act with the utmost good faith for the bene¿t of
the other party. Such a relation ordinarily arises where a con¿dence is reposed
by one person in the integrity of another, and in such a relation the party in
whom the con¿dence is reposed, if he voluntarily accepts or assumes to accept
the con¿dence, can take no advantage from his acts relating to the interest of
the other party without the latter’s knowledge or consent…” (Wolf v.
Superior Court (2003) 107 Cal.App.4th 25, 29, internal citations and
quotations omitted.) “‘[B]efore a person can be charged with a fiduciary
obligation, he must either knowingly undertake to act on behalf and for the
benefit of another, or must enter into a relationship which imposes that
undertaking as a matter of law.’” (City of Hope Nat'l Med. Ctr. v. Genentech
(2008) 43 Cal.4th 375, 386.) Facts giving
rise to a confidential, fiduciary or trustee relationship must be pled, and a
“bare allegation that defendants assumed a fiduciary relationship” is a
conclusion. (Zumbrun v. Univ. of So. Cal. (1972) 25 Cal.App.3d 1,
13.)
Defendants argue that there are no allegations that any
agreement was entered into between the parties to establish a fiduciary
relationship. However, a fiduciary relationship allegedly
existed between Plaintiffs, personally, and Miller, as either a mortgage broker
or real estate broker. (SAC ¶ 48.) Mortgage brokers owe their principals the
obligation of undivided service and loyalty, and to make a
full and accurate disclosures of the terms of a loan to borrowers. (Wyatt v.
Union Mortgage Co.¿(1979) 24 Cal.3d 773, 782 [mortgage loan
broker is customarily retained by a borrower to act as the Borrower's agent in
negotiating an acceptable loan]; see Bus. & Prof. Code § 10131(d) [a “real
estate broker” is a person who “[s]olicits 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”].) As¿fiduciaries, real
estate agents must act in the “highest good faith” toward their principals and
may not obtain any advantage over the principal in any transaction arising out
of the agency¿relationship. (Ibid.) This relationship not only imposes
upon him the duty of acting in the highest good faith toward his principal but
precludes the agent from obtaining any advantage over the principal in any
transaction had by virtue of his agency. (Citation.)” (Batson v. Sterehlow
(1968) 68 Cal.2d 662, 674-765.) Additionally, a real estate
licensee is “‘charged with the duty of fullest disclosure of all material facts
concerning the transaction that might affect the principal's decision.’” (Wyatt,
supra, 24 Cal.3d at 782.)
As a matter of fact, Defendants allegedly
undertook a real estate agent relationship with Plaintiffs in 2018, when Defendants obtained appraisals of
Plaintiffs’ residence for the purpose of listing and marketing it as their real
estate brokers. (SAC ¶ 29.) In February 2020, Miller interviewed Plaintiffs as
their real estate broker and mortgage broker for purposes of obtaining a loan
for Plaintiffs, and then completed a Uniform Residential Loan Application,
which Defendants would use to obtain a loan for Plaintiffs. (SAC ¶¶ 31-33.) In
March 2020, Miller, acting for himself and on behalf of NMR, emailed Plaintiffs
a “Residential Listing Agreement” for the sale of their home with NMR’s dba
Finance West identified as the real estate broker. (SAC ¶ 34.) In April 2020,
Miller, on his own behalf and on behalf of NMR, acting as Plaintiffs’ mortgage
broker and real estate broker, emailed potential lender Axos Bank on behalf of Plaintiffs
regarding how he would market Plaintiffs’ home as the listing agent. (SAC ¶ 38,
Ex. K.) Miller submitted Plaintiffs’ loan application to Axos Bank on their
behalf. (SAC ¶¶ 39-40.) In fact, third parties, such as Axos Bank, were led to
believe and did believe, based on Miller’s representations and acts, that
Miller was acting as Plaintiffs’ mortgage/real estate broker. (SAC ¶¶ 41-43.)
Whether or not Defendants acted as a broker in 2015-2018 during the underlying
loan transactions, Plaintiffs allege facts which show that Defendants undertook
a broker relationship with Plaintiffs starting in 2018 and 2020. (SAC ¶¶
29-43.) During this same time, Defendants
failed to disclose certain material facts concerning their transactions,
including different types of loan programs that Defendants have access to or
are offering, availability of loans on better terms than those offered by NMR, among
other things. (¶55.) Defendants
engaged in a conflict of interest and placed their own financial interest ahead
of Plaintiffs by extending additional credit and loans to Plaintiffs when
Plaintiffs were already in default on the existing loans and pursuing and
directly profiting from the foreclosure. (SAC ¶ 60.) For these reasons, the
Court concludes that the SAC pleads facts demonstrating the existence of a
fiduciary duty.
Accordingly, the demurrer is OVERRULED.
Defendants to file an answer within 20 days.