Judge: Mark H. Epstein, Case: 23MSCV03937, Date: 2024-06-03 Tentative Ruling

Case Number: 23MSCV03937    Hearing Date: June 3, 2024    Dept: I

This is a demurrer by defendant Elliman.  The gist of the argument is that Elliman, who represented plaintiff as plaintiff’s broker in plaintiff’s purchase of certain property, did all that it was required to do as a matter of law and that the allegations of breaches of duty are without merit because there was no duty breached and the allegations regarding fraud are also meritless.  The demurrer is OVERRULED.

Specifically, plaintiff bought property.  What plaintiff did not know was that a third party had been buying up adjacent property lots to build a large multi-unit housing development.  That caused the price of the lots purchased by the third party to skyrocket, but would have the effect of making the other lots less valuable, at least according to the complaint.  Plaintiff asserts that Elliman and the individual broker, Roffer, knew or should have known of the development and advised plaintiff of that fact.  Defendants assert that they had no such duty.  While they agree that they represented plaintiff as plaintiff’s agent and broker, and that there is some fiduciary aspect to that duty, they contend that the limits of their duty are set forth in Civil Code section 2079 and whatever other duties are undertaken by contract.  They also assert that there is no fraud here or concealment.

In opposition, plaintiff notes that defendants advertised their superior position regarding knowledge about the area.  Roffer touted his “market intel” as a reason he should be retained.  Elliman’s public statements say that “access to timely information is a vital resource in a market that is constantly changing.  Committed to providing the best information in the industry, we are proud to offer this service to you and your clients.”  According to plaintiff, any minimal effort to review public records would have disclosed the development and defendant had a duty (in light of its statements) to undertake such an investigation.  Further, plaintiff notes that a different agent at Elliman had represented sellers of the property bought by the third party, so Elliman knew of the development.

Turning first to the demurrer based on uncertainty, that is disfavored and the elements for it have not been met.  That aspect of the demurrer is OVERRULED.  (Butler v. Sequeira (1950) 100 Cal.App.2d 143.)

Next is the demurrer as to the breach of fiduciary duty cause of action.  The court believes that defendants were fiduciaries given the broker/client relationship.  (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18.)  But the fact that there is a fiduciary relationship does not mean that the duties are unlimited.  The court generally agrees that Civil Code section 2079 and the contract delimit the boundaries of that duty.  Field discusses the issue in general terms.  Even so, the court does not believe that the matter can be resolved on demurrer for two independent reasons.  The first, and major, reason is that Elliman has presumptive knowledge of the information in its files.  As such, it is alleged that it had actual knowledge of the incoming development.  The court does not believe that (at least as a matter of pleading) a broker who actually has knowledge of a material fact can elect not to disclose that fact to the client, at least absent some contractual notification of that point that is clear and unambiguous.  Such a limit is not unheard of.  For example, where a broker represents both a buyer and a seller, there can be clauses as to what information a broker will share.  But that is not at play here.  Defendants represented only the buyer; not the seller.  And there is no limitation of which the court is aware in any contract in which defendants limit or purport to limit their duties.  For that reason, defendant’s reliance on Padgett v. Phariss (1997) 54 Cal.App.4th 1270 is off point.  That case involved a duty to investigate.  Here, no investigation was needed because defendants already had knowledge of the fact at issue.  The matter is a bit harder as to Roffer, who was not the actual agent in the other transaction.  But the court does not know, and it cannot tell from the pleading, whether Roffer in fact had knowledge of this.  Further, Roffer might well have been under a duty to at least inquire as to any actual knowledge that Elliman had concerning the property.  That might not be the case, but Roffer did not demur on that particular basis.

Because of defendants’ actual knowledge of the development (as alleged), the court need not decide whether its representations of superior “market intel” and the like constituted an obligation to do more than they did and at least make some minimal effort to gather the “market intel.”  But if the court did have to consider it, the court would likely find it is enough for pleading purposes.  The reason is not that defendants had a duty to go to the Hall of Records and see what’s what.  The reason is that the very comps that defendants provided were based in part on this information.  Where comps are unusually high for the market, one with superior “market intel” would know the reason or at least try to find out.  After all, it is those comps that form much of the underpinning for the price offered by the buyer for the property.  For pleading purposes, then, the allegations are sufficient.  It could be that such a theory would not survive summary judgment.  It could be that Roffer actually did inquire as to what was driving the market and found a different answer (for example, that the other homes were twice as large as the house being purchased and were on larger lots).  Or there could be some other factual defense.  But this is a pleading motion.

As to the cause of action for fraud, that, too, is OVERRULED.  This is a concealment case, so there is perhaps no actual fraudulent statement; the fraud is the failure to disclose something that needed to be disclosed.  As just discussed, defendants (or at least Elliman) had actual knowledge of a material fact and defendants were plaintiff’s fiduciary.  That gives rise to a duty to disclose. 

The court is aware that defendants might view this burden as too large.  The court disagrees.  First, defendants can always plainly and forthrightly disclaim any duty to disclose information to their client even if it is material.  The court renders no opinion on the limits of such a disclaimer, but at least it would put a client on notice that it ought to disregard statements that it has superior information or can be trusted to make full disclosures of known facts.  Relatedly, defendants do not have to sell themselves on their superior knowledge.  Second, defendants could undertake a search of its own files as to a particular property.  Law firms do it all the time when they run conflict checks; it would not seem to be too big a burden on the broker, or at least, if it is too big, that has not been argued here and cannot be decided on demurrer.  But to be plain, this decision is WITHOUT PREJUDICE to a claim later by the defense that it has no duty to disclose information in its own files that would materially influence its client’s decision.  That issue was not the basis for the demurrer, and because it was not the basis, the court is assuming the normal legal rule but without definitively adjudicating whether there might be law out there to the contrary in this context and under these sorts of particular facts.

The motion to strike is DENIED.  Because the various causes of action survived, there is a basis for punitive damages.  As to emotional distress, the court agrees that typically such damages are not available regarding the purchase of property.  But they might be available where there is a breach of fiduciary duty.  (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226.)  The court believes that the prayer survives at least a pleading motion.  But the court gives no assurance that it will survive consideration on the facts and merits.

Defendants have 30 days to answer.