Judge: Mark H. Epstein, Case: 23SMCV04945, Date: 2024-02-16 Tentative Ruling

Case Number: 23SMCV04945    Hearing Date: February 16, 2024    Dept: I

The demurrers are OVERRULED.  The motion to strike is DENIED.

This is a fraud action brought by plaintiff against a former broker.  Plaintiff contends that he bought a property in Los Angeles.  He alleges that defendants knew or should have known of certain defects in the home including water intrusion and other problems. 

Plaintiff bought the home on 1/18/23 for $2.75 million.  Plaintiff did a home inspection but no defects were found, although the inspector noted that the water supply was shut off for the toilets (except for one).  Defendants executed an agent’s Inspection Disclosure Statement, but it did not disclose these issues even though defendants were allegedly aware of them.  Plaintiff closed escrow, claiming he relied on the disclosure statement.  Shortly after he moved in, plaintiff claims he learned of the water issues.  According to plaintiff, that is the reason that the water was turned off during the inspection—to hide the water damage problem.  Plaintiff contends that he has since learned that there is extensive water damage and staining.  He also states that he discovered wet rags that plaintiff believes were placed in the home to conceal evidence of water intrusion.  Plaintiff asserts that because the problems were hidden, he could not deal with them during the escrow process. 

Defendants have demurred.  Although there are two separate demurrers, they are substantively the same and so are dealt with together.  Plaintiff opposes.

Defendants demur to the third and fourth causes of action.  Initially, defendants demur on grounds of uncertainty.  As a general matter, such demurrers are disfavored and succeed only when the complaint is so incomprehensible that a defendant cannot understand the allegations.  (Butler v. Sequeira (1950) 100 Cal.App.2d 143.)  The complaint does not fail that test.

More to the point, defendants contend that plaintiff alleges only concealment, but that the third and fourth causes of action require an actual misrepresentation.  There is a difference, defendants assert, and because there was no false statement only the fifth cause of action (which is for concealment) can go forward.  Defendants misperceive the nature of the complaint.  True, plaintiff’s over-arching theory is that defendants should have disclosed the water issue and did not.  That would normally constitute concealment and nothing more and would give rise to a tort only if there is a duty to speak.  But that is not quite the situation here.

The Inspection Disclosure Statement changes the nature of the case.  By filling out that document, defendants allegedly affirmatively represented that the items disclosed were the only items that needed to be disclosed to the best of the agent’s knowledge.  That is an affirmative representation, and plaintiff alleges that it was false.  For example, if one is buying a car and the owner knows it has been in a major accident and does not tell the buyer, that is concealment, and it is a tort only if the seller has a duty to disclose.  But if the seller goes further and states “there is nothing about the car that affects its value other than the ripped seat,” all the while knowing of the prior huge accident, that is a misrepresentation.  As such, the third and fourth causes of action do include an affirmative misrepresentation: that there are no other disclosures necessary.  Of course, the court is not saying that defendants actually knew of the problem.  They might well not have known.  But for purposes of demurrer, the court must assume the allegation to be true.  For that reason, the demurrer is OVERRULED.

There is also a motion to strike punitive damages.  However, the court finds that the allegations here are sufficient.  There is a suit for fraud.  If fraud is proven, that would constitute “oppression, fraud, or malice.”  Defendant also asserts that there is no basis to seek punitive damages against the corporate entity.  It is true that a corporate entity is subject to punitive damages only if the conduct was done by an officer, director, or managing agent, or if the company authorized or ratified the misconduct.  Plaintiff alleges, though, that KW’s officers or directors or managing agents had actual knowledge of the problem and that the failure to discipline those committing the torts constitutes ratification.  Plaintiff has not yet been able to take discovery, and while these allegations are not the strongest the court has ever seen, the court is reluctant to strike the prayer on a pleading motion.  Of course, at the end of the day, a mere allegation won’t do.  But it will do for now.  The motion to strike is DENIED.

Defendants have 30 days to answer.