Judge Michael E. Whitaker, Case Number: 24SMCV02809, Date: 2024-11-21 Tentative Ruling

Judge: Michael E. Whitaker, Case: 24SMCV02809, Date: 2024-11-21 Tentative Ruling

Case Number: 24SMCV02809 Hearing Date: November 21, 2024 Dept: 207

TENTATIVE RULING - NO. 1

DEPARTMENT	207
HEARING DATE	November 21, 2024
CASE NUMBER	24SMCV02809
MOTION	Demurrer to First Amended Complaint
MOVING PARTIES	Defendants Closing Agents Escrow Inc. and Judith Sender
OPPOSING PARTY	Plaintiff 27715 PCH LLC

MOTION

On June 11, 2024, Plaintiff 27715 PCH LLC (“Plaintiff”) filed suit against Defendants Closing Agents Escrow (“Closing Agents”); First American Title Company (“First American”) and Judith Sender (“Sender”). The operative First Amended Complaint (“FAC”) alleges four causes of action; three against Closing Agents for (1) Conspiracy to Commit Fraud; (2) Aiding and Abetting; and (3) Negligent Misstatements; and the fourth against First American for Vicarious Liability.

Closing Agents and Sender (“Moving Defendants”) demur to all three causes of action alleged against them for failure to state facts sufficient to constitute a cause of action pursuant to Code of Civil Procedure section 430.10, subdivision (e). Plaintiff opposes the demurrer and Moving Defendants reply.

ANALYSIS

1. DEMURRER

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) In testing the sufficiency of a cause of action, a court accepts “[a]s true all material facts properly pled and matters which may be judicially noticed but disregard contentions, deductions or conclusions of fact or law. [A court also gives] the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (290 Division (EAT), LLC v. City & County of San Francisco (2022) 86 Cal.App.5th 439, 450 [cleaned up]; Hacker v. Homeward Residential, Inc. (2018) 26 Cal.App.5th 270, 280 [“in considering the merits of a demurrer, however, “the facts alleged in the pleading are deemed to be true, however improbable they may be”].)

Further, in ruling on a demurrer, a court must “liberally construe” the allegations of the complaint “with a view to substantial justice between the parties.” (See Code Civ. Proc., § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

In summary, “[d]etermining whether the complaint is sufficient as against the demurrer on the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

A. FAILURE TO STATE A CAUSE OF ACTION

i. First Cause of Action – Conspiracy to Commit Fraud

“Civil conspiracy is not an independent tort. Instead, it is a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors.” (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 211-212 [cleaned up].) “The elements of a civil conspiracy are (1) the formation of a group of two or more persons who agreed to a common plan or design to commit a tortious act; (2) a wrongful act committed pursuant to the agreement; and (3) resulting damages.” (Id. at pp. 211-212.)

Here, the underlying wrong alleged is fraud. The elements for fraudulent misrepresentation are “(1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant knew that the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; and (7) the plaintiff's reliance on the defendant's representation was a substantial factor in causing that harm to the plaintiff.” (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 605–606.)

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Ibid.)

“One of the purposes of the specificity requirement is notice to the defendant, to furnish the defendant with certain definite charges which can be intelligently met.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384.) As such, less specificity is required “when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy[.]” (Ibid.) “Even under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Ibid.)

Here, the FAC alleges:

11. On June 12, 2021 the Plaintiff 27715 entered into a California Residential Purchase Agreement (the “Purchase Agreement”; Exhibit A) for the sale of 27715 Pacific Coast Highway, Malibu, California (the “Malibu Property”) for the purchase amount of $16,000,000.00. The Purchaser was a California limited liability Company by the name of Hacopian Design & Development Group, LLC spearheaded by its sole principal Ando Hacopian (together “Hacopian”).

12. Hacopian put together financing for the purchase of the Malibu Property. The principal lender was Marquee Funding Group, Inc. which contributed $11,000,000.00 and was granted a first position deed of trust. Hacopian induced Plaintiff to provide carryback financing. Hacopian would satisfy all prior liens and payment of Plaintiff’s closing costs and Plaintiff was to receive the net sum of $6,000,000.00. Plaintiff was to receive $2,000,000 payable in cash at closing (the “Net Cash at Closing”) and the remaining $4,000,000.00 through two promissory notes from Hacopian each in the amount of $2,000,000 at Closing.

13. In the days between the June 12, 2021 execution of the Purchase Agreement and the closing held on July 1, 2024, Plaintiff learned that Hacopian was getting involved with a private lender by the name of VIG Private Lending, Inc. and its affiliate the Val Serebryany Family Trust. (together “VIG”). VIG lent Hacopian a total of $5,225,000.00 and took a second priority deed of trust on the Malibu Property.

14. In anticipation of settlement on the property, Hacopian opened escrow with the Defendant Closing Agents through Sender, its principal. At all relevant times, Sender was acting in her capacity as an officer of Closing Agents and as an authorized agent acting on behalf of First American.

15. Prior to closing, Hacopian represented to Plaintiff that its lender required that $1,000,000.00 of the Net Cash at Closing be held back for a brief time (the “$1mm Holdback”) following the closing pending receipt of something called a title insurance indemnification letter. (the “Escrow Representations”). Defendant Sender was copied on the email in which Hacopian made the representation. (Exhibit B).

16. Trusting in what it believed to be Hacopian’s good faith, and believing the Escrow Representations to be true, on or about June 29th, 2021, Plaintiff entered into an Amendment to the Purchase Agreement (the “Escrow Agreement”; Exhibit C) which stated in pertinent part as follows:

1. Closing. Seller shall receive a minimum of One Million ($1,000,000) Dollars of the closing proceeds immediately upon closing which is scheduled for on or around June 28th, 2021.

2. Release of the Funds: Seller shall receive the Funds held back in escrow upon the occurrence of the first of the following events:

A. Receipt of an indemnification letter from the Title Insurance Company or

B. July 25th, 2021.

Upon the occurrence of the earlier of the aforementioned events, the Funds shall immediately wire funds to the Seller. A default in the payment of the funds by July 25th, 2021 shall result in the assessment of a ten percent penalty.

17. Plaintiff would not have closed the transaction, and conveyed title to Hacopian but for the Escrow Representations that Hacopian made to Plaintiff.

18. As it developed, Plaintiff never received any indication that a title indemnification letter was ever issued or even required.

19. The July 25, 2021 deadline came and went, and Plaintiff has never received any portion of the $1,000,000.00 that Hacopian represented had been held back by Marquee.

20. Upon information and belief, the whole story concerning the Escrow Holdback was a charade engineered by Hacopian to trick Plaintiff into closing the transaction, rather than calling a default and pursuing its right to, inter alia, liquidated damages.

21. Upon information and belief, The Closing Agents and Sender were aware that the HDDG was making specific representations regarding the lender’s requirements to hold back $1,000,000 from the closing. These Defendants were aware that no monies were held back from the Lender yet conspired with Hacopian to intentionally withhold the information from the Plaintiff causing Plaintiffs to complete the transaction.

22. Upon information and belief, the Defendants were fully aware that Marquee did not insist upon the $1mm Holdback and that the Escrow Representations were fraudulent as a result, Plaintiff received only half of the Cash Due at Closing.

23. A few months following the closing, Hacopian defaulted on its obligations to VIG as a consequence of which VIG foreclosed on its deed of trust, extinguishing Plaintiff’s third position $2mm deed of trust. The bottom line here is that Plaintiff was to receive $6 million from the sale of the Malibu Property to Hacopian. Instead, it received only $1 million.

[…]

25. Plaintiff alleges the following upon information and belief:

(a) The Escrow Representations were representations of fact that were false when made;

(b) Defendants and Hacopian knew the Escrow Representations were false;

(c) Defendants and Hacopian made the Escrow Representations to Plaintiff with the intent of inducing Plaintiff’s reliance upon them;

(d) Plaintiff reasonably relied upon the Escrow Representations to its detriment;

(e) Plaintiff’s reliance upon the Escrow Representations caused it to sustain material injury and harm.

26. Plaintiff alleges the following upon information and belief:

(a) Closing Agents and Hacopian formed and operated a conspiracy to wrongfully and fraudulently induce Plaintiff into closing the sale of the Malibu Property;

(b) In furtherance of this conspiracy, Hacopian made the fraudulent Escrow Representations to Plaintiff;

(c) On June 29, 2021, counsel for the Plaintiff emailed Sender asking where in the closing documents the $1mm Holdback was referenced. Sender sent the following response (Exhibit D) which she knew to be false: Title does not want to insure against Mechanic’s Liens and the Lender is concerned that some mechanics may come forward with large Liens, the Buyer is negotiating with them for the last few days to reach agreement;

(d) But for the fraudulent conspiracy formed and operated by Closing Agents, Sender and Hacopian, Plaintiff would not have closed the sale of the Malibu Property because it was deceived into believing that Hacopian was going to provide the $2 million Net Cash when in fact he had no intention of doing so.

(e) By reason of the foregoing, Plaintiff was fraudulently induced into closing the sale of the Malibu Property, resulting in a $5,000,000 loss.

(f) Alternatively, Plaintiff was defrauded out of the $1mm Holdback as a result of the aforementioned conspiracy.

27. By reason of the foregoing, Plaintiff is entitled to Judgment awarding damages in an amount to be determined by the trier of fact, as well as the costs of this action including reasonable attorneys (sic) fees.

(FAC ¶¶ 11-27.)

Thus, although Plaintiff alleges specific facts about Hacopian’s fraud, Plaintiff’s only allegations with respect to Moving Defendants’ knowledge or involvement in Hacopian’s fraud are made on information and belief. But allegations made “on information and belief,” are insufficient to satisfy the heightened pleading requirement “unless the facts upon which the belief is founded are stated in the pleading.” (Dowling v. Spring Val. Water Co. (1917) 174 Cal. 218, 221.)

Therefore, the Court sustains Moving Defendants’ demurrer to the first cause of action.

ii. Second Cause of Action – Aiding and Abetting

“Liability may also be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person.” (Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303, 324.)

In addition to the above allegations, the FAC alleges:

29. Upon information and belief, Closing Agents and Sender knew that Hacopian’s conduct in making the Escrow Representations was wrongful.

30. Upon information and belief, knowing that Hacopian’s conduct was unlawful, Closing Agents gave substantial assistance and/or encouragement to Hacopian in fraudulently inducing Plaintiff into closing the Sale of the Malibu Property. By making false representations to Plaintiff regarding the $1mm Holdback, Closing agents and Sender, separately considered, breached a duty to Plaintiff.

31. By reason of the foregoing, Closing Agents and Sender aided and abetted Hacopian’s fraud and are liable to Plaintiff for the damages proximately caused thereby, in an amount to be determined by the trier of fact.

(FAC ¶¶ 29-31.)

Again, the only allegations concerning Moving Defendants’ knowledge of or provision of substantial assistance to the fraud are made upon “information and belief” which is insufficient to satisfy the heightened pleading requirements of fraud.

Therefore, the Court sustains the demurrer to the second cause of action.

iii. Third Cause of Action – Negligence

“The elements of a negligence cause of action are the existence of a legal duty of care, breach of that duty, and proximate cause resulting in injury.” (Castellon v. U.S. Bancorp (2013) 220 Cal.App.4th 994, 998, citation omitted.) Here, Plaintiff alleges:

33. When asked by Plaintiff’s attorney to verify the $1mm Holdback, Sender owed to Plaintiff a duty of care in formulating her response.

34. Even if she did not know that the $1mm Holdback was a fraud, Sender had a duty to verify that it was a legitimate aspect of the transaction before confirming that it was.

35. By representing that the Lender in fact was requiring the $1mm Holdback, thereby giving assurance that Plaintiff would receive the full $2mm Net at Closing, Sender made a negligent misstatement to Plaintiff and is liable to Plaintiff for all damages proximately caused thereby, in an amount to be determined by the trier of fact.

(FAC ¶¶ 33-35.)

Moving Defendants argue that as the escrow holder, their only duty of care was to follow the joint escrow instructions, but “an escrow holder has no general duty to police the affairs of its depositors; rather, an escrow holder’s obligations are limited to faithful compliance with [the depositors’] instructions.” (Summit Fin. Holdings, Ltd. v. Cont’l Lawyers Title Co. (2002) 27 Cal.4th 705, 711 (hereafter Summit).)

Plaintiff attempts to distinguish Summit on the grounds that the aggrieved party there was not a party to the escrow, and therefore the escrow holder owed them no general duty of care. By contrast, here, Plaintiff argues, Moving Defendants failed to follow the escrow instructions to pay Plaintiff $2 million.

But the FAC alleges that, upon Hacopian’s misrepresentation to Plaintiff, Plaintiff and Hacopian entered into an amended purchase agreement, that provided for $1 million to be held back. (FAC ¶ 16.) Thus, Plaintiff alleges that Moving Defendants followed the joint escrow instructions as laid out in the amended purchase agreement, and Moving Defendants owed no general duty of care to investigate or police the transaction beyond following those joint instructions in the operative amended purchase agreement.

Therefore, the Court sustains Moving Defendants’ demurrer to the third cause of action.

2. LEAVE TO AMEND

A plaintiff has the burden of showing in what manner the complaint could be amended and how the amendment would change the legal effect of the complaint, i.e., state a cause of action. (See The Inland Oversight Committee v. City of San Bernardino (2018) 27 Cal.App.5th 771, 779; PGA West Residential Assn., Inc. v. Hulven Int'l, Inc. (2017) 14 Cal.App.5th 156, 189.) A plaintiff must not only state the legal basis for the amendment, but also the factual allegations sufficient to state a cause of action or claim. (See PGA West Residential Assn., Inc. v. Hulven Int'l, Inc., supra, 14 Cal.App.5th at p. 189.) Moreover, a plaintiff does not meet his or her burden by merely stating in the opposition to a demurrer or motion to strike that “if the Court finds the operative complaint deficient, plaintiff respectfully requests leave to amend.” (See Major Clients Agency v Diemer (1998) 67 Cal.App.4th 1116, 1133; Graham v. Bank of America (2014) 226 Cal.App.4th 594, 618 [asserting an abstract right to amend does not satisfy the burden].)

Here, Plaintiff requests leave to amend the complaint to add allegations that Moving Defendants knew or should have known that the lender did not in fact require that $1 million be held back from the transaction, yet failed to raise the issue to Plaintiff and instead simply went along with the fraudulent transaction.

Therefore, the Court grants Plaintiff leave to amend to add these factual allegations as to all three causes of action. However, the Court notes that the proposed second amended complaint Plaintiff has attached to the opposition also attempts to add four new causes of action for breach of fiduciary duty and breach of contract against Closing Agent and against First American, respectively. These new causes of action are beyond the scope of the demurrer. If Plaintiff wants to add additional causes of action or factual allegations unrelated to the existing causes of action, Plaintiff must move for leave to amend the complaint.

CONCLUSION AND ORDER

For the reasons stated, the Court sustains Moving Defendants’ demurrer to the first three causes of action with leave to amend. Plaintiff shall file and serve a second amended complaint in conformance with this ruling on or before December 20, 2024.

Moving Defendants shall provide notice of the Court’s ruling and file the notice with a proof of service forthwith.

DATED: November 21, 2024 ___________________________

Michael E. Whitaker

Judge of the Superior Court

TENTATIVE RULING - NO. 2

DEPARTMENT	207
HEARING DATE	November 21, 2024
CASE NUMBER	24SMCV02809
MOTION	Demurrer to First Amended Complaint
MOVING PARTY	Defendant First American Title Company
OPPOSING PARTY	Plaintiff 27715 PCH LLC

MOTION

First American now demurs to the fourth cause of action for failure to state facts sufficient to constitute a cause of action and uncertainty pursuant to Code of Civil Procedure section 430.10, subdivisions (e) and (f), respectively. Plaintiff opposes the demurrer and First American replies.

ANALYSIS

1. DEMURRER

A. UNCERTAINTY

“[D]emurrers for uncertainty are disfavored.” (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.) A demurrer for uncertainty will be sustained only where the pleading is so bad that the responding party cannot reasonably respond - i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what claims are directed against him or her. (Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.) Where a demurrer is made upon the ground of uncertainty, the demurrer must distinctly specify exactly how or why the pleading is uncertain, and where such uncertainty appears by reference to page and line numbers. (See Fenton v. Groveland Comm. Services Dist. (1982) 135 Cal.App.3d 797, 809.)

Here, the FAC generally alleges: