Judge Michelle Williams Court, Case 22STCV15772 2022-08-10 Tentative Ruling

Judge: Michelle Williams Court, Case: 22STCV15772, Date: 2022-08-10 Tentative Ruling

TENTATIVE RULINGS: The Demurrer to Complaint is SUSTAINED WITH LEAVE TO AMEND. The Motion to Strike Portions of Complaint is MOOT. While it is not clear how Plaintiff can adequately state any of the causes of action at issue against Defendant First American Title Insurance Company, plaintiff may file a first amended complaint within 20 days as this is the first pleading challenge.

On May 12, 2022, Plaintiff California Loan Servicing, LLC filed this action against Defendants Sideways Properties, LLC, Bowery Fort Myers, LLC, First American Title Company, Daniel Neary, Thomas Neary, Pogback Real Estate, LLC, and So You’re Telling Me There’s a Chance, LLC (“SYTMTAC”). The Complaint asserts causes of action for: (1) breach of contract; (2) money had and received; (3) open book account; (4) conversion; (5) negligence; (6) negligent misrepresentation; (7) intentional misrepresentation; (8) civil conspiracy; and (9) declaratory relief. The complaint alleges Plaintiff entered into a Financial Advisory Services agreement whereby Plaintiff would act as the exclusive agent for Pogback and SYTMTAC to obtain financing for real property in Colorado. Plaintiff entered a similar agreement with Sideways Properties in connection with a Top Golf facility in Fort Myers, Florida and escrow for the financing transaction was through First American.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A complaint need not allege evidentiary facts noting plaintiff’s proof. (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732.)

A special demurrer to a complaint is appropriate when the grounds of the pleading are uncertain, ambiguous, or unintelligible. (Code Civ. Proc. § 430.10(f); Beresford Neighborhood Assn. v. City of San Mateo (1989) 207 Cal.App.3d 1180, 1191.) Courts typically disfavor demurrers based on uncertainty, which the court strictly construes even when the pleading is uncertain in some respects. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

If the demurrer is sustained, plaintiff must prove the possibility of cure by amendment. (Czajkowski v. Haskell & White, LLP (2012) 208 Cal.App.4th 166, 173 (citing Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 78-79).) Leave to amend must be allowed where there is a reasonable possibility of successfully stating a cause of action. (Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, 92.)

“The elements of a conversion cause of action are (1) plaintiffs' ownership or right to possession of the property at the time of the conversion; (2) defendants' conversion by a wrongful act or disposition of plaintiffs' property rights; and (3) damages.” (Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329.) “Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment.” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.)

Plaintiff alleges it was entitled to a $275,197.00 commission pursuant to its agreement with Sideways Property in connection with the financing of the Fort Myers property, which remains unpaid. (Compl. ¶¶ 20, 21, 31.) Plaintiff alleges it had a right to possess the commission funds at the close of escrow and Defendant failed to distribute the commission to Plaintiff. (Compl. ¶¶ 48-49.)

The Court agrees with Defendant that Plaintiff cannot state a claim for conversion. Nothing in Plaintiff’s agreement establishes an affirmative right to be paid from the escrow funds. (Compl. Ex. B.) “A mere contractual right of payment, without more, will not suffice to support a claim for conversion.” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 233.) The allegations and documents attached to the complaint establish that Plaintiff merely had a contractual right to payment from Defendant Sideways Property. Plaintiff relies upon Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, which supports Defendant, not Plaintiff. The court in Farmers noted a party does not have an immediate right to possession based solely upon a contractual right of payment. (Id. at 452 (“A party need only allege it is entitled to immediate possession at the time of conversion. However, a mere contractual right of payment, without more, will not suffice.”) (citations omitted).) That Plaintiff chose to sue Defendant as a third party agent is immaterial to whether Plaintiff has a right to immediate possession sufficient to support a claim.

In Weiss v. Marcus, supra, 51 Cal.App.3d 590, . . . Weiss was given an express lien on all amounts recovered to secure payment of his fees. . . . In McCafferty v. Gilbank (1967) 249 Cal.App.2d 569 . . . The Court of Appeal concluded the agreement between McCafferty and her former husband created an equitable lien in favor of McCafferty on the third party recovery and Gilbank's payment of the proceeds to his client was an act of conversion.

(Farmers, supra, 53 Cal.App.4th at 452-453.) Plaintiff does not allege the existence of an equitable lien on the escrow funds, and would not have one even if Sideways Property agreed to pay Plaintiff out of the loan proceeds.. (Id. at 454 (“A promise to pay a debt out of a particular fund, without more, will not create an equitable lien on that fund.”).)

Defendant contends it did not owe a duty to Plaintiff in connection with the escrow. (Dem. at 16:1-18:25.) “[A]n escrow holder must comply strictly with the instructions of the parties. On the other hand, 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 Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 710 (citations and quotations omitted).) Thus, “it is generally held that no liability attaches to the escrow holder for his failure to do something not required by the terms of the escrow or for a loss incurred while obediently following his escrow instructions.” (Lee v. Title Ins. & Trust Co. (1968) 264 Cal.App.2d 160, 163.)

The complaint does not allege Plaintiff was a party to the escrow or that the escrow instructions required Defendant to pay Plaintiff. Rather, Plaintiff alleges it had a contract with Defendant Sideways Properties to be paid a percentage of the amount financed. The Court agrees that Defendant does not owe a tort duty to Plaintiff, a non-party to the escrow, based upon the allegations in the complaint. Plaintiff cites the general duty of care statute, Civil Code section 1714, and Valdez v. Taylor Auto. Co. (1954) 129 Cal.App.2d 810, a case involving the procurement of automobile insurance. (Opp. at 14:9-26.) Considering the specific authority involving the scope of the duty of an escrow holder, the Court does not find Plaintiff’s authority persuasive.

Plaintiff also relies upon case authority involving assignments. “In Builders' Control Service [of Northern Cal., Inc. v. North Am. Title Guaranty Co. (1962) 205 Cal.App.2d 68, 70] then, the question was whether the defendant title company, acting in its capacity as an escrow holder and knowing that its principal had assigned the sales proceeds held by it, was liable to the plaintiff fund control agent for violating the terms of the assignment.” (Summit, supra, 27 Cal.4th at 713.) In discussing the assignment and holding of Builders, the California Supreme Court noted “the agent’s receipt of notice of the assignment could be deemed the equivalent of a new instruction regarding the party to be paid because the assignment was made by the owner-builder, a party to the escrow entitled to give instructions to the escrow holder.” (Id. at 714.) Plaintiff does not allege a party to the escrow assigned any right to payment to Plaintiff. (See generally Contemporary Investments, Inc. v. Safeco Title Ins. Co. (1983) 145 Cal.App.3d 999, 1004 (“The contract does not provide that the broker has a lien on the proceeds of sale or is the assignee of those funds. Its commission could have been paid outside of escrow, with other funds of the sellers.”).)

Summit involved two non-parties to the escrow: “[t]he question presented by this case is whether an escrow holder owes a duty of care to a nonparty to the escrow based on an assignment to that nonparty by another nonparty to the escrow. We answer this question in the negative.” (Id. at 707–708.) However, its discussion that there should be no duty applies equally to the facts alleged by Plaintiff. The escrow transaction at issue was for Defendant Sideways Properties to obtain financing from lender Stearns Bank National Association, (Compl. ¶¶ 18-20), and therefore “was not intended to affect or benefit” Plaintiff. (Summit, supra, 27 Cal.4th at 715.) Defendant First American “was engaged by [Sideways Properties] and [Stearns] to assist them in closing a loan transaction between [Sideways Properties] and [Stearns], and any impact that transaction may have had on [Plaintiff] was collateral to the primary purpose of the escrow.” (Ibid.) “[T]he foreseeability of harm element does not support a duty because there is no suggestion [First American] could have foreseen that [Sideways Properties] would not disburse the funds to [Plaintiff].” (Id. at 715–716.) There are no allegations that First American failed to comply with the escrow instructions, which “militates against concluding the company had a tort duty in this case.” (Id. at 716.) Finally, Plaintiff’s alleged “injury was caused by [Sideways Properties’] breach of its contractual obligation to” Plaintiff. (Ibid.) Plaintiff seeks to impose a rule that “would, by subjecting an escrow holder to conflicting obligations, undermine a valuable business procedure.” (Ibid.)

The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage. (Lazar v. Sup. Ct. (1996) 12 Cal.4th 631, 638.) “The same elements comprise a cause of action for negligent misrepresentation, except there is no requirement of intent to induce reliance.” (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) “Each element in a cause of action for fraud or negligent misrepresentation must be factually and specifically alleged.” (Id.) “To be actionable, a negligent misrepresentation must ordinarily be as to past or existing material facts. Predictions as to future events, or statements as to future action by some third party, are deemed opinions, and not actionable fraud.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158. See Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243 (“a positive assertion is required; an omission or an implied assertion or representation is not sufficient.”); Lopez v. Nissan North America, Inc. (2011) 201 Cal.App.4th 572, 596 (“A negligent misrepresentation claim requires a positive assertion, not merely an omission.).)

The complaint alleges Defendant “represent[ed] to CLS that certain facts were true. Namely, that CLS would be receiving its Commission as per the December 1, 2021 Agreement at the close of Escrow, as expressly granted in the December 1, 2021 Agreement as well as the last version of the ‘Settlement Statement’ for the close of Escrow provided in the afternoon of March 30, 2022 by First American. That is, CLS would be receiving its Commission, in full, as paid directly from Escrow.” (Compl. ¶ 60.)

Defendant argues these allegations of future payment cannot support a claim for negligent misrepresentation. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158 (“the gist of both Tarmann’s fraud and negligent misrepresentation claims is that State Farm said it would pay for her repairs immediately upon their completion, it failed to do so, Tarmann could not complete the repairs or redeem her vehicle, and she lost the use of it until State Farm settled the case. The critical alleged misrepresentation as to immediate payment upon completion did not involve a past or existing material fact.”); Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 458 (“Alliance's representation that it would obtain a release of the notice of abatement action prior to the close of escrow likewise was a promise of future performance, and thus cannot be the basis for a negligent misrepresentation cause of action.”).)

As noted by Plaintiff, there are exceptions to this rule. (See e.g. Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 408 (“Under certain circumstances, expressions of professional opinion are treated as representations of fact. When a statement, although in the form of an opinion, is ‘not a casual expression of belief’ but ‘a deliberate affirmation of the matters stated,’ it may be regarded as a positive assertion of fact. [Citation]. Moreover, when a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information, or expertise, the defendant's representation may be treated as one of material fact.”).)

The Court agrees with Defendant in reply that the complaint lacks sufficient facts to demonstrate any applicable exception to the rule. (Reply at 7:17-10:2.) There is no basis to conclude Defendant had seepier knowledge, special information, or expertise regarding Plaintiff’s own contract rights. As noted above, there are insufficient allegations to establish Defendant was required to distribute funds to Plaintiff. Representations that Plaintiff “would” be paid are not actionable as negligent misrepresentations.

Additionally, Plaintiff fails to plead any specific facts demonstrating how its generally alleged reliance upon the representation that it would be paid in escrow caused any specifically identifiable reliance damages. “A plaintiff asserting fraud by misrepresentation is obliged to establish a complete causal relationship between the alleged misrepresentations and the harm claimed to have resulted therefrom. This requires a plaintiff to allege specific facts not only showing he or she actually and justifiably relied on the defendant’s misrepresentations, but also how the actions he or she took in reliance on the defendant's misrepresentations caused the alleged damages.” (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1499 (citations and quotations omitted).) Plaintiff does not allege any change in its conduct or any forbearance in reliance upon the alleged future payment from escrow.