Judge Ralph C. Hofer, Case 21GDCV01392 2022-10-28 Tentative Ruling

Plaintiff Filaip Patatanian alleges that since 2001, plaintiff has owned a unit of real property on Liberty Avenue in Glendale. Plaintiff alleges that in 2018, defendants Athas Capital Group, Armine Kalogeras, Crown Escrow Corporation, Rosalina Cisneros and certain Doe defendants took part in a mortgage transaction involving the subject property. The SAC alleges that the mortgagee, whose true identity is currently unknown (the “Culprit”), stole the identity of plaintiff, and forged plaintiff’s signature on the documents in the transaction, including the property deed and mortgage contract documents.

The SAC alleges that as a result of the transaction, the property became burdened with a lien. The Culprit made very few or no monthly payments toward the balance of the mortgage loan, the mortgage loan went into default and the default precipitated a foreclosure sale. Plaintiff alleges that plaintiff first became aware of the transaction in mid-December 2021, when a notice of foreclosure sale was placed on the front door of the property. Plaintiff alleges that he never consented to the transaction, never had notice of the transaction, and only recently learned that his identity had been stolen.

On August 12, 2022, the court heard a motion by plaintiff for leave to file a Second Amended Complaint, which was granted, and the Second Amended Complaint was filed, and deemed served that date. Defendant Athas challenges the sufficiency of the Second Amended Complaint.

Under CCP §436, the court may “upon motion made pursuant to Section 435, or at any time in its discretion” strike out “all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule or an order of the court.”

“A signed version of the Second Amended Complaint is ordered to be filed on eCourt no later than close of business this date, and the Second Amended Complaint will be deemed served on the current defendants upon the e-filing of the Second Amended Complaint.”

The Second Amended Complaint was filed on August 12, 2022 pursuant to the court’s order. The SAC was accordingly deemed served on moving defendant Athas, a current defendant at the time, on August 12, 2022. Thirty days from this date was September 11, 2022, a Sunday, so the demurrer and motion to strike were due no later than September 12, 2022. The demurrer and motion to strike were filed and served on September 16, 2022, four days late.

This pleading is not the initial complaint in this matter, so that the parties were not entitled to stipulate to extend the time to respond to the pleading. The demurrer and motion could be denied on the ground they are untimely, but the court elects not to do so.

In California, to establish a claim for fraud based on intentional misrepresentation, a plaintiff must establish five elements, (1) a misrepresentation; (2) the knowledge the misrepresentation is false; (3) the intent to induce another’s reliance on the misrepresentation; (4) justifiable reliance; and (5) damages. Cohen v. Kabbalah Centre International, Inc. (2019, 2nd Dist.) 35 Cal.App.5th 13, 20, citing Conroy v. Regents of Univ. of California (2009) 45 Cal.4th 1244, 1255.

Generally, in a fraud cause of action, a plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation. Stansfield v. Starkey (1990, 2nd Dist.) 220 Cal.App.3d 59, 73, citation omitted. When such a claim is made against a corporation, the level of specificity required is even higher. Under Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, in fraud complaints against a corporation, a plaintiff must allege all of the following:

Defendant argues that plaintiff has not, and cannot, allege the essential elements of this cause of action, because there was no representation made by defendant to plaintiff—the pleading concedes that plaintiff knew nothing about the transaction until long after it had occurred.

The pleading alleges that the Culprit knew that the Culprit had no interest in the property, and the other defendants knew the Culprit had no interest in the property, but facilitated the Culprit’s fraud by accepting counterfeit documents, and accepting forged signatures, and processing the transaction to completion. [SAC, para. 23]. There is no allegation that any representation was made to plaintiff. The SAC alleges that defendants intended that the misrepresentations be relied on, and that the misrepresentations were reasonably relied upon. [SAC, para. 25]. There are no facts alleged indicating how plaintiff relied on any misrepresentation, and the facts in fact suggest that no change in position in reasonable reliance on a misrepresentation was undertaken by plaintiff, as plaintiff had no awareness of any of the alleged fraudulent acts, so failed to do anything at all, as he was unaware of the transaction, alleging that plaintiff “never had notice of the Transaction until mid-December 2021.” [SAC, para. 16]. Plaintiff accordingly has failed to allege the essential elements of a fraud cause of action based on affirmative misrepresentation on the part of the moving defendant.

In addition, since no representation is alleged at all, plaintiff has also failed to allege such a misrepresentation with the required specificity. It is not alleged what was said to plaintiff, who said it, by what means (written or oral), or when and where the representation was made. It is also not alleged in connection with the corporate defendant the names of the persons who made the misrepresentation, or their authority to speak for the corporation.

The opposition does not clearly address this cause of action separately, or the specific requirements for a claim based on an affirmative representation which are not satisfied here, focusing instead on the alleged concealment of the transaction from plaintiff. The opposition does not point to any allegation in the SAC which would constitute a basis for a fraud cause of action on this theory. The opposition argues that the requirement of specificity is relaxed when the facts are more within the knowledge of the other side but does not explain how the details concerning any express affirmative representation made to plaintiff would not be within the personal knowledge of plaintiff, and capable of being specifically alleged.

The demurrer to this cause of action accordingly is sustained. The court will hear argument with respect to whether the demurrer will be sustained without leave to amend, given the unique circumstances, particularly plaintiff’s concession that plaintiff did not learn of any alleged fraud until well after it allegedly occurred, undermining any allegation that defendant made a false representation to plaintiff on which plaintiff relied to his detriment.

To state a cause of action for fraud based on a theory of concealment, plaintiff must plead the following elements: Concealment of a matter-of-fact material to the transaction which defendant had a duty to disclose; defendant’s knowledge of the falsity; defendant’s intent to induce another into relying on the representation; plaintiff’s justifiable reliance thereon; and resulting damage to plaintiff. Pearson v. Norton (1964) 230 Cal.App.2d 1, 7-12.

The SAC alleges that defendants concealed the transaction from plaintiff as the true owner of the property, concealed the use of counterfeit documents, and concealed the true identity of the Culprit. [SAC, para. 29]. The elements based on concealment all appear to be sufficiently alleged. Defendant argues that the allegations are merely a restatement of the legal elements of the cause of action but include no factual allegations as to Athas specifically. This appears to be a concession that the elements are in fact alleged, and Athas goes on to argue that the facts are not alleged with greater specificity because plaintiff knows that these allegations are not true. However, the SAC alleges that Athas engaged in this transaction knowing that the Culprit was not the owner of the property and intended to deceive plaintiff regarding the true facts. [SAC paras. 19, 32]. These allegations must be accepted as true for purposes of demurrer. See Serrano v. Priest (1971) 5 Cal.3d 584, 591; Del E. Webb Corp. v. Structural Materials Co. (1981, 2nd Dist.) 123 Cal.App.3d 593, 604 (“As a general rule in testing a pleading against a demurrer the facts alleged in the pleading are deemed to be true, however improbable they may be.”)

To the extent defendant again argues that the allegations are not sufficiently specific, and not specifically alleged as against the corporate defendant, this is a fraudulent concealment cause of action, which by its nature is clandestine, and the facts plaintiff did not know would not have been known to him in specific detail. The failure to disclose a material defect within the exclusive knowledge of a party can provide a basis for a concealment claim. See Shapiro v. Sutherland (2nd Dist. 1998) 64 Cal.App.4th 1534, 1544.

The pleading here alleges each element of a fraudulent concealment claim, and facts concerning the transaction, and the specifics do appear to be of the nature where plaintiff would not be expected to personally know such details, while defendant Athas would be in a better position to know the specifics.

“As restated by Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 993 [22 Cal. Rptr. 3d 352, 102 P.3d 268], “‘[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] “Thus ‘“the policy of liberal construction of the plead- ings … will not ordinarily be invoked to sustain a pleading defective in any material respect.”’ [Citation.] [¶] This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ ” ’ ” (Cf. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th 858, 878.)

This statement of the rule reveals that it is intended to apply to affirmative misrepresentations. If the duty to disclose arises from the making of representations that were misleading or false, then those allegations should be described. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th 858, 877–878.) However, as noted above (see fn. 18, ante, at p. 1381), plaintiffs have apparently abandoned their earlier claims of intentional and negligent misrepresentations. As plaintiffs accurately respond, it is harder to apply this rule to a case of simple nondisclosure. “How does one show ‘how’ and ‘by what means’ something didn't happen, or ‘when’ it never happened, or ‘where’ it never happened?”

As argued in the opposition, there is also case law under which in alleging fraud against a corporation, less specificity is required when the facts lie more in the knowledge of the opposite corporate party, as is the case here, and that the failure to identify the names of the people who spoke or their authority to speak may be excused when falling within “the realm of information that lies more in the possession of defendants.” Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 403.

Plaintiff argues that because a deed of trust conveys legal title to the lender/beneficiary and carries with it a power of sale in the property owned by plaintiff, defendant owed a duty to use ordinary care to prevent injury to plaintiff and to refrain from participating in identity theft, and allowing false, incomplete, and misleading documents to form the basis for the transaction, all while knowing that the Culprit did not own the property.

“37. Kalogeras, Athas, Crown Escrow, Cisneros, the Culprit and the DOE Defendants, and each of them had a duty to act with reasonable care and diligence in pursuing the interests of its clients and property owners like the Plaintiff whose Property was the subject of the Transaction.

38. At a bare minimum, Kalogeras, Athas, Crown Escrow, Cisneros, the Culprit and certain of the DOE Defendants failed to act with reasonable care and were thus negligent by not conducting requisite due diligence as part of the Transaction. Had they exercised reasonable care, the Transaction would never have been completed. Kalogeras even testified at deposition she could have ceased processing the Transaction if certain “red flags” had appeared and all of the red flags she described were presented to her in the Transaction. Those same red flags were presented to Athas and its underwriters, yet they allowed the Transaction to proceed because Athas had always intended to quickly sell the rights in the mortgage loan for a profit.”

The SAC alleges that the Culprit used a counterfeit driver’s license and a social security card with a number which is not the social security number of plaintiff. [SAC, para. 13]. The SAC also alleges that Athas created counterfeit documents, counseled the Culprit about the steps he needed to take to perpetrate and conceal the fraudulent transaction, and submitted transaction documents “known to be false and/or incomplete and/or materially misleading.” [SAC, para. 19].

Defendant relies on Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472, in which the court of appeal affirmed the trial court’s order dismissing an action after sustaining demurrers of defendants banks and brokerage firms to a complaint by investors alleging, among other theories, negligence in the handling of an investment portfolio, where plaintiffs’ financial consultant, whom the court of appeal characterized as the “real culprit,” liquidated the assets with the help of his sister through a scheme involving a series of fictitious accounts.

The court of appeal noted that plaintiffs in that case were not the banks’ customers, that the account holder was the sister, and that “absent extraordinary and specific facts, a bank does not owe a duty of care to a noncustomer.” Software Design, at 479.

Plaintiff argues that Software Design stands for the proposition that a bank does not owe a duty of care to a non-customer, but defendant is not alleged to be a bank, and Software Design did not involve a mortgage transaction that placed a lien on an individual’s unique real property. Plaintiff argues that while the parties in Software Design were “strangers to the contractual relationship between respondents and the thieves,” in this case, defendant recorded a deed of trust on the property to which plaintiff held legal title, conveying to itself the power of sale. Software Design, at 478-479. Plaintiff argues that Software Design also holds that banks may not ignore danger signals, and that defendant in that case would have owed a duty of care to plaintiff if there had been “red flags that should have alerted the securities brokers to potential fraud.” Software Design, at 483.

As noted above, the SAC here alleges the existence of such red flags, as well as knowing participation in the scheme. Overall, the SAC sufficiently alleges that defendant owed a duty to the property owner in the transaction and ignored the type of red flags alluded to in Software Design. The demurrer to the cause of action accordingly is overruled.

Defendant argues that the cause of action fails because to maintain such a cause of action plaintiff must allege that Athas has an adverse claim to title of the property, and Athas does not have such an interest because it recorded an assignment of the deed of trust secured by the property on June 19, 2018, so that as a matter of law defendant has no interest in the property that can be quieted.

The SAC repeatedly alleges that as a result of the transaction, the property became burdened with a lien in favor of Athas. [SAC, paras. 15, 38, 42, 43]. There is nothing in the SAC which would suggest that Athas no longer has the right to enforce that lien as against plaintiff’s property. Defendant requests judicial notice of a recorded Assignment of Deed of Trust, which defendant indicates shows that the subject lien has been assigned, so that defendant has no interest in title to the property or the assigned deed of trust creating the lien. However, the court cannot take judicial notice that the assignment relieves defendant of all interest in the property or lien, or that there was or is no interest in the property to be quieted as to moving defendant.

Evidence Code § 452 (c) provides that judicial notice may be taken of “Official acts…of any state of the United States” and of “Facts and propositions that are not reasonable subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” Evidence Code section 452(c) and (h). “Pursuant to these provisions, courts have taken judicial notice of the existence and recordation of real property records, including deeds of trust, when the authenticity of the documents is not challenged.” Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal. App.4th 256, 264.

However, the court’s ability to judicial notice facts allegedly reflected in such documents is limited. In Fontenot, the court of appeal conducted a detailed review of the issue with respect to recorded real property documents offered in support of a demurrer to a complaint in which it was alleged that MERS was not a beneficiary entitled to foreclose on the subject real property. The court of appeal found that the trial court had not erred in taking judicial notice of certain facts established by the recorded real property records, and their legal effect, concluding:

“Taken together, the decisions discussed above establish that a court may take judicial notice of the fact of a document's recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document's legally operative language, assuming there is no genuine dispute regarding the document's authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.”

The effect of the recorded document as extinguishing any interest in the property is not clear on its face from this document alone. The opposition argues that the quiet title cause of action is recognized as a means to obtain a final adjudication of rights or claims in the property which may be asserted, which is necessary here, given the concession that defendant did (and may continue to) have a lien on the property. See Weeden v. Hoffman (2021) 70 Cal.App.5th 269, 291. The cause of action for quiet title accordingly remains sufficiently stated, and the demurrer is overruled.

CCP § 1060 provides that a person “who desires a declaration of his or her rights or duties with respect to another, or in respect to another, or in respect to or over or upon property... , may, in cases of actual controversy relating to the legal rights and duties of the respective parties...bring an...action...for a declaration of his or her rights or duties.”

“A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the parties under a written instrument or with respect to property and requests that the rights and duties of the parties be adjudged by the court. (Code Civ. Proc., § 1060; Maguire v. Hibernia Sav. and Loan Soc. (1944) 23 Cal.2d 719.”

Here, the SAC alleges that an actual controversy has arisen and now exists between plaintiff and defendants with respect to plaintiff’s ownership of the property, sets forth that plaintiff claims he owns the property free and clear, but defendants claim it is subject to a right to foreclose based on the mortgage, and requests a judicial determination regarding the parties’ respective rights and obligations. [SAC, para. 48-50].

As plaintiff argues in opposition, defendant misconstrues this issue and the quiet title action to include only ownership of the property, when the causes of action address not only ownership, but the validity of the fraudulent mortgage that defendant underwrote and originated, the right to foreclose, and defendant’s rights, interests and obligations related to the property. In addition, as discussed above, the court can only judicially notice limited material, and defendant’s showing does not defeat the sufficiency of the allegations. The demurrer to this cause of action is overruled.

Attorney’s fees are sought here in connection with the fraud causes of action and the negligence cause of action, as the SAC alleges some variety of, “Plaintiff has also been harmed by incurring substantial attorney fees and costs to remove the lien created by negligent acts of Kalogeras, Athas, Crown Escrow, Cisneros, the Culprit and the DOE Defendants.” [SAC, paras. 26, 33, 39].

Defendant argues that the court should strike the claims for attorney’s fees here, as they are sought not pursuant to contract or statute, but under a theory that plaintiff is entitled to the fees to remedy the harm for the tort of another, which does not apply to the facts in this matter.

Defendant first argues that it owes no tort duty to plaintiff as a matter of law. As discussed above, the allegations of the SAC and the circumstances of this matter are sufficient to withstand demurrer on this ground and also survives the motion to strike.

“The rule of Prentice was not intended to apply to one of several joint tortfeasors in order to justify additional attorney's fee damages. If that were the rule there is no reason why it could not be applied in every multiple tortfeasor case with the plaintiff simply choosing the one with the deepest pocket as the ‘Prentice‘target. Such a result would be a total emasculation of Code of Civil Procedure section 1021 in tort cases.”

Vacco Industries, Inc. v. Van Den Berg (1992) 5 Cal.App.4th 34, 57; see also Gorman v. Tassajara Development Corp. (2009) 178 Cal.App.4th 44, 80, quoting Vacco Industries, above, and holding, “the tort of another doctrine does not apply to the situation where a plaintiff has been damaged by the joint negligence of codefendants.”

It is held that a well pleaded claim for fraud will itself support recovery of punitive damages; no showing of malice or intent to injure are required. Stevens v. Superior Court (1986, 2nd Dist.) 180 Cal.App.3d 605, 610-611; see also Perkins v. Superior Court (1981, 2nd Dist.) 117 Cal.App.3d 1, 3-4.

In Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1239, the Second District, in affirming a judgment based on a jury verdict awarding punitive damages in a commercial fraud case, expressly held, “The words ‘oppression, fraud, or malice’ in Civil Code section 3294 being in the disjunctive, fraud alone is an adequate basis for awarding punitive damages.” Las Palmas, at 1239, quoting Glendale Fed Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App. 3d 1010, 135.

As discussed above, the complaint sufficiently alleges that defendant engaged in fraudulent concealment and alleges the claim with sufficient specificity against the corporate defendant under the circumstances. The motion to strike accordingly is denied with respect to punitive damages.

The Court notes that the demurrer and motion to strike are untimely, filed and served four days late. Counsel for defendant is cautioned that in the future the Court may refuse to consider pleadings not filed in conformity with the statutes, rules and procedures governing this litigation.

Request in the Opposition for leave to amend to claim new remedies and causes of action is DENIED, as improperly seeking affirmative relief without bringing a noticed motion. Request is DENIED WITHOUT PREJUDICE to plaintiff obtaining a stipulation for leave to amend or seeking such relief in a noticed motion.

UNOPPOSED Request for Judicial Notice in Support of Defendant’s Demurrer and Motion to Strike is GRANTED in part. As to recorded documents, the Court has taken notice only of the fact of each document’s recording, the date each document was recorded and executed, the parties to the transaction reflected in the recorded document, the document’s legally operative language, and any legal effect of the document which is clear from its face. See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal. App.4th 256, 265. As to documents submitted as court records, the notice is taken to the extent permitted by Day v. Sharp (1975) 50 Cal.App.3d 904, 914 (e.g., the court takes judicial notice of the existence of court records, but not the truth of hearsay allegations contained therein, except in connection with certain exceptions enumerated in that case.).

Plaintiff’s UNOPPOSED Request for Judicial Notice is GRANTED in part. The Court has taken notice only of the fact of the recording of the Deed of Trust and Riders, the date it was recorded and executed, the parties to the transaction reflected in the document, the document’s legally operative language, and any legal effect of the document which is clear from its face. See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal. App.4th 256, 265.

Motion to strike allegations seeking attorney’s fees is GRANTED WITH LEAVE TO AMEND. See Vacco Industries, Inc. v. Van Den Berg (1992, 2nd Dist.) 5 Cal.App.4th 34, 57 (“The rule of Prentice was not intended to apply to one of several joint tortfeasors in order to justify additional attorney's fee damages.) See also Tassajara Development Corp. (2009) 178 Cal.App.4th 44, 80, (“the tort of another doctrine does not apply to the situation where a plaintiff has been damaged by the joint negligence of codefendants.”)

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