Judge: Mark H. Epstein, Case: 22SMCV02866, Date: 2023-04-18 Tentative Ruling

Case Number: 22SMCV02866    Hearing Date: April 18, 2023    Dept: R

The demurrer is OVERRULED.  (The court is still not sure why this is not a probate matter, however.)

According to the FAC, the property in question was originally owned by defendants’ mother (Sarah), Sarah’s husband (Meyer), and Meyer’s son David.  David and Meyer are the plaintiffs here.  Defendants are Sarah’s children.  Before December 3, 2019, the property was held by the three owners as joint tenants.  But on December 3, 2019, the deed was reformed and rather than refer to the three as joint tenants, it failed to so describe the manner of holding title.  As a result, under the law, the property was deemed to be held (at least as between Sarah and Meyer) as community property (or, more specifically, as a tenancy in common).  The difference is significant.  To the extent that all are joint tenants, there is a right of survivorship, meaning that when one of them dies that person’s interest belongs to the remaining joint tenants; it does not pass to the decedent’s heirs.  Community property is different.  Under community property laws, each spouse owns a half share of the community property and when that person dies, the community property passes to the decedent’s heirs.

Sarah passed away.  Had the property been a joint tenancy, it would mean that David and Meyer would own the property and defendants would have no interest in it, at least absent some other theory.  However, because it was held as community property, defendants claim to have inherited their mother’s interest.

Plaintiffs assert that the deed must be reformed to reflect the parties’ true intent, which plaintiffs allege was that it would continue to be held as a joint tenancy.  Plaintiffs assert that they can prove that the escrow officer—a fiduciary—simply messed up and did not draft the deed to reflect the parties’ true intent.  Defendants contend (among other things) that the claim comes too late because the statute of limitations on reforming a deed is three years and the complaint was filed three years and two weeks after the deed was reformed.  Plaintiffs counter that the statute of limitations did not begin until to run until they discovered the facts constituting the fraud or mistake, which the court presumes occurred after Sarah’s passing.  (Breen v. Donnelly (1887) 74 Cal. 301.)  They also argue that because the escrow officer was a fiduciary, the normal statute of limitations arguments do not apply.  (Defendants also rely on a spousal agreement, but the court agrees that the spousal agreement cannot be considered in the context of a demurrer.)

The court believes that, but for the statute of limitations issue, the complaint would survive a pleading motion.  The statute of limitations is a significant hurdle, and it could ultimately prove dispositive.  But the court believes that the issue is better resolved on an evidentiary record than at the pleading stage.  Plaintiffs rely on Breen, a 136 year-old case.  But while Breen is pretty old, the court is aware of no case overruling it, and thus it appears to remain good law.  Oddly, defendants did not reply, so their view on Breen remains unspoken.  That said, and assuming the continued vitality of Breen, the discovery rule must at least allege the reasons why discovery was delayed.  Here, plaintiffs argue that they could not tell from the new deed either that there had been a change in the way the property was held or the legal significance of the change.  The court is not sure that this will suffice in the end, but the court would want to see a more robust factual record develop before concluding that such is insufficient to toll the statute.  (The court rejects the fiduciary duty argument.  Even if one assumes the escrow officer owed a fiduciary duty, defendants did not.  The court is not convinced that the statute of limitations is tolled against the defendants based on the fiduciary duty obligation when defendants had no such duty.  It might well run as against the allegedly errant fiduciary.)

Accordingly, the demurrer is OVERRULED, but without prejudice to a motion for summary judgment.  The court warns plaintiffs that the statute of limitations argument is a serious one and the court is not fully convinced that their claimed understanding of the legal significance of the language in the deed will suffice to toll the statute outside the pleading stage.