Judge: Mark H. Epstein, Case: 19SMCV01619, Date: 2023-04-07 Tentative Ruling

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Case Number: 19SMCV01619    Hearing Date: April 7, 2023    Dept: R

There are two motions for judgment on the pleadings.  Plaintiff opposes both motions on procedural and substantive grounds.  In prior orders, the court has recounted the allegations of the complaint.  Therefore, the court will only do so here in thumbnail form.  Because these are pleading motions, the court accepts as true the allegations in the complaint.  The following facts are taken from the complaints; it probably goes without saying (although the court will say it anyway) that defendants dispute many of these facts so they should not be taken as findings.  The case involves property in Malibu.  It was owned by a foreign government official.  As a result of a settlement with the US Department of Justice, it was agreed that the property would be sold and the proceeds given in part to the US Government but mostly to the foreign government.  The Umansky defendants were chosen as the brokers representing the sellers.  Oberfeld and Hakim were each interested buyers.  Hakim was represented by Segal, his broker.  The asking price was $32 million and Hakim was willing to pay that much and more.  He claims that, through Segal, he told Umansky that he would go up to $40 million to secure the property.  Umansky alleged told Segal that Hakim should keep his money in his pocket because the seller was not motivated by price, but that Umansky would orally convey the information.  What Segal (and therefore Hakim) did not know was that Umansky and Oberfeld had agreed to become partners to buy the property, renovate it, and sell it for a profit.  Due to that partnership, Umansky had an ulterior motive to ensure that Hakim was not the successful bidder.  There were multiple bids, so the seller issued a multiple-buyer counter-offer at $33.5 million.  Again, Segal told Umansky that Hakim was willing to go substantially higher and again Umansky told Segal to have Hakim keep the money in his pocket but that Umansky would orally convey the offer.  Ultimately, Oberfeld was chosen as the successful bidder at $33.5 million (although the price was later reduced before closing).  Some time later, after renovations, the property was sold.  It was only then that plaintiffs learned of Umansky’s involvement in the deal and at that point they suspected the fraud that they claim is at the heart of this case.

On the procedural side, plaintiffs each note that this is not the first time defendants have raised these or similar arguments and they ought to be barred from raising them again.  There is some merit to that.  However, if the court is of the view that it plainly erred in its earlier rulings, there is no point in compounding that error.  That said, the court is not inclined to re-invent the wheel multiple times.  If the court is convinced it erred, that is one thing.  But the court is not going to re-walk the same path over and over again.

The court turns first to the motion pertaining to Hakim.  The gist of the motion is that the fraud cause of action ought to be dismissed as to Umansky for the same reason as it was dismissed when Oberfeld made the motion.  Specifically with regard to Oberfeld’s motion, Oberfeld asserted that the plaintiff in a fraud case where property was not purchased as the result of the fraud is entitled only to recover out-of-pocket expenses, meaning money that was actually spent in reliance on the fraud.  The plaintiff is not allowed to recover the difference between what the plaintiff was willing to pay for the property and the property’s actual value.  In other words, benefit of the bargain damages are not available to someone who does not consummate the purchase.  Because Hakim sought only benefit of the bargain damages and alleged (and still claims) no other damages, the court granted Oberfeld’s motion.  However, the court denied Oberfeld’s motion as it related to the allegations of interference with prospective business advantage.  The court reasoned that the gist of that tort is that the plaintiff was deprived of a profitable business opportunity and therefore the damages are value of that opportunity.  Umansky now brings the same motion.  Hakim argues that Umansky is differently situated because Umansky was an agent, not the buyer (like Oberfeld).  Both sides mis-perceive what the court meant in its last ruling on this subject when it made the comment that Umansky was differently situated than Oberfeld.  Hakim suggests that the court was signaling that the same motion would not be granted as to Umansky due to the different relationship.  Umansky views the statement as a sort of throw away.  What the court actually meant was that it did not need to, and did not, consider what effect, if any, Umansky’s status as the seller’s broker had on the argument.  The matter is therefore properly before the court.

On reflection, the court is of the view that the same principles that led to granting Oberfeld’s motion do apply here.  Tort law concerning fraud involving the sale of land gives rise generally only to out-of-pocket damages.  So, for example, if Hakim spent $10,000 to hire an independent surveyor or appraiser to look into the property, or $5000 to do a title search to see if there were any easements that might prevent development, that would be recoverable.  Similarly if he spent $1 million to draw up plans for the renovation to see whether this was the property he wanted to buy, that might be recoverable.  But the difference between what the land was worth and what Hakim would have been willing to pay is not available in a straight up fraud case.  The court explained its reasoning in the prior order and will not repeat it here.  (The court does note, though, that there is at least a reasonable inference that the amount Hakim was willing to pay had he been the successful bidder is in fact a reflection on its market value at the time.  Its appreciated value after the passage of time and a substantial renovation is a stretch of a stretch.)  There is a difference between the expectation damages available in contract and the actual loss available as a make-whole remedy in tort.  The court still does not view Ward v. Taggart (1951_ 51 Cal.2d 736, as being to the contrary.  There, the plaintiff did purchase the land—just at a price higher than the true buyer was willing to sell.  The lying intermediary, who pocketed the difference, was required to give the profit back to the seller who paid the inflated price.  That is just not the case here.  Hakim also cites to Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, but the court does not find it persuasive in this instance for the reasons given in the prior order.  Hakim also cites to Coleman v. Ladd Ford Co (1963) 215 Cal.App.2d 90, Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, and Brokway v. Hellman (1967) 250 Cal.App.2d 807.  The two earlier cases predate Civil Code section 3343, which was added in 1971.  All are also distinguishable on their facts in that the plaintiff actually paid money to the defendant.  Hakim paid no money to Umansky.  Continental post-dates the statute, but it concerns the purchase of a defective aircraft and involves the Commercial Code for damages purposes.   

The difference between the two motions is, of course, that Umansky was a broker.  As a broker, he had some additional duties Oberfeld did not have.  But the duty he had was a not fiduciary duty.  Umansky did owe a fiduciary duty to the seller—he was the seller’s broker.  As a fiduciary, the damages may be different.  Often a fiduciary is liable for more than the out-of-pocket harm caused.  Fiduciaries have a duty to disgorge secret profits, for example.  Applied here, it might mean that Umansky, unlike Oberfeld, would have a duty to disgorge the profit he made that should have gone to the person to whom he owed the duty even though that person is not out-of-pocket.  The problem is that Hakim is the buyer, not the seller.  While Umansky may have had a duty to act fairly even to potential buyers, and under the pleadings he did not, a general duty of fairness is not nearly as robust as a fiduciary duty and, in the court’s view, is not strong enough to warrant the enhanced damages measure.  Because Hakim does not allege that he suffered any damages other than lost profits (even in opposition to the motion), there is nothing left of the cause of action and the motion is GRANTED as to both the fraud and misrepresentation causes of action.

That is not to say that Hakim cannot recover what he seeks.  If he can prove his case, he can.  But he will have to recover it under the interference cause of action, not the fraud cause of action.

Turning to the motion against Segal, here the argument is that Segal has no independent standing for any harm because his rights are totally derivative of those held by Hakim.  In other words, Umansky argues that Segal was only an agent; the person with the cause of action is the principal.  Thus, Umansky suggests, Segal can no more sue for damages than can an attorney who has a continent fee and blows the statute of limitations because the defendant misled him about a tolling agreement.  The client might sue.  But the attorney cannot sue for the contingent fee that would have been received had the case been timely filed.

Segal contends that Umansky had a duty to be fair to “all parties” and that he therefore has standing to sue for Umansky’s lack of fairness.  But “all parties” to the transaction refers to the principals, not the brokers.  Segal was not a party.  He might have been a party if he had the same deal with Hakim that Umansky had with Oberfeld—that the property would be owned by an entity of which Segal had a piece.  But there was no such deal.  This is simply the agent’s contingent fee, at least with regard to the general commission.  While there are a number of cases that discuss a broker’s duty of fairness to non-clients who are buyers or sellers, Segal cites to no case in which the plaintiff is the buyer’s or seller’s broker.  (See, e.g., Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35 [seller’s broker owed certain duties to buyer and a third party that held a security interest in the property].) 

However, Segal also alleges a separate contract with Umansky.  Segal contends that he had an actual contract directly with Umansky that Umansky would pay Segal 1% if the deal with Hakim went through.  That, too, is somewhat of a stretch in that it was contingent.  In other words, his right had not vested; it would only vest if Hakim was the successful purchaser.  In other words, there was a condition precedent to Umansky’s obligation to pay Segal anything and that condition never came to pass.  Umansky argues that this condition dooms Segal’s case.  The court is not so sure, at least as a matter of pleading.  Although contingent, Umansky still owed Segal a duty.  The court is not prepared to say that Umansky is able to walk away by himself making the condition precedent impossible through wrongdoing.  The general rule is that one cannot rely on the failure of a condition precedent where the condition never came to pass due to the defendant’s own wrongful conduct.  (An easily distinguishable example used only to illustrate the point would be that if there is an agreement to buy a car but it is conditioned on the sale taking place before a certain time, the seller cannot avoid the sale by falsely imprisoning the buyer until the time has run.)  The court believes that it is one step too many when the ultimate (though conditional) duty to pay was owed by Hakim, but the court believes that it could well be within bounds for Segal to argue he can recover when the conditional duty was owed to him directly by the alleged wrongdoer, Umansky.  That makes Segal much closer to a party to the transaction than might otherwise be the case.  Umansky need not have made the separate deal with Segal—and in fact, maybe he didn’t given that we are resolving a pleading motion—but the alleged fact is that he did, and that gives Segal more standing than he would otherwise have.  Beyond that, this aspect of the motion is a re-hash of what the court has considered before.  The court is not inclined to go over this ground again.  The demurrer is, to this extent, OVERRULED.

The UCL claim is a bit different.  The court is unsure how Segal has a remedy there.  The UCL remedy is disgorgement.  But Segal did not give Umansky something of value and thus there is nothing to restore.  Typical restitution occurs where the plaintiff provides something to the defendant and the defendant is forced to give it back.  For example, in the Tobacco cases, the plaintiffs alleged disgorgement because they paid money to the tobacco companies (indirectly through the retail sales) based on allegedly false statements those companies made concerning the safety of their product.  And indirect restitution is appropriate as well.  Where an employee provides labor to the employer, the employer can be forced to pay in restitution the value of that labor.  But that is because the work plaintiff did inured to the employer’s benefit.  While the employer cannot give the employee back the time and effort already expended, the employer can give the financial equivalent.  There is nothing like that here.  Segal did not provide anything of value to Umansky for which Umansky must give the financial equivalent. 

Therefore, the motion is GRANTED as to the UCL cause of action WITHOUT LEAVE TO AMEND.  The motion is DENIED in all other respects.