Judge: Richard Y. Lee, Case: 30-2020-01146587, Date: 2023-08-03 Tentative Ruling
Defendants Berkadia Real Estate Advisors, Inc. (“Berkadia”) and Joe Leon (collectively, “Defendants”) move for summary judgment against the complaint of Plaintiff Idyllwillow LP (“Plaintiff”). Alternatively, Defendants seek summary adjudication of each of Plaintiff’s five causes of action.
“A party may move for summary judgment in an action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding.” (Code Civ. Proc., § 437c(a)(1).) “The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. In determining if the papers show that there is no triable issue as to any material fact, the court shall consider all of the evidence set forth in the papers, except the evidence to which objections have been made and sustained by the court, and all inferences reasonably deducible from the evidence, . . . .” (Id., § 437c(c).)
Evidentiary Objections
Plaintiff’s Objections to Declaration of Joe Leon
Objection Nos. 1-31, and Nos. 1-4 to the supplementary declaration are OVERRULED.
Defendants’ 38 evidentiary objections are OVERRULED.
Request for Judicial Notice
Defendants’ Request for Judicial Notice of the First Amended Complaint filed by Plaintiff is GRANTED. (Evid. Code, § 452(d).)
This action arises out of Plaintiff’s purchase of a leasehold interest from FPA4 Promenade, LLC (“Fowler”). Plaintiff alleges that Defendants acted as the dual agent and real estate broker for Plaintiff, on the one hand, and Fowler, on the other hand, during the transaction. Plaintiff further alleges that Defendants misrepresented the current financial metrics on the property and the leasehold interest, misrepresented the methodology for how real estate taxes were assessed on the leasehold interest, and concealed that other prospective buyers were questioning Defendants’ representations regarding how the real estate taxes were assessed. Plaintiff asserts that it was induced by Defendants’ conduct to pay millions of dollars more for the leasehold interest than what it was worth.
Agency
First, Defendants argue they are entitled to summary judgment or summary adjudication because the undisputed facts establish that they never acted as Plaintiff’s agent in the transaction
The existence of an agency relationship is typically a question of fact. (Troost v. Estate of DeBoer (1984) 155 Cal.App.3d 289, 299.) A written agreement is not required for the creation of an agency relationship—the relationship may be express or implied. (Montoya v. McLeod (1985) 176 Cal.App.3d 57, 62-65.) Further, the lack of compensation is not determinative of an agency relationship. (Frances T. v. Village Green Owners Assn (1986) 42 Cal.3d 490, 504, fn. 11.)
Leon had represented Alan Dauger, manager of the general partner of Plaintiff, in two prior commercial real estate transactions. In one of those transactions, Leon served as a dual broker for the seller and Dauger as the buyer. (Declaration of Alan Dauger, ¶ 3.) Leon contacted Dauger on July 17, 2018 about the opportunity to purchase the subject leasehold interest. (Ibid.) During the negotiations for the transaction, Leon sent Dauger two calendar invitations, one on September 14, 2018 email and one on October 8, 2018, in which Leon is listed as the “Broker meeting client” and Dauger is listed as the “Investor” or “Investor Firm.” (Plaintiff’s Exs. 5, 11.) On November 2, 2018, in an email from Leon to third parties, Leon referred to Dauger as “our buyer.” (Id., Ex. 17, p. 201.) On November 8, 2018, Leon told Dauger that he had a private individual buyer on another property and was “trying to help coach and guide them the same way that I did with you[.]” (Id., Ex. 18, p. 204.) Leon also referred to Dauger as “my client” in a November 15, 2018 email to Fowler and others and stated in a November 30, 2018 email that “we are representing Alan in this sale transaction.” (Id., Exs. 19, p. 206 and 20, p. 211.) On February 17, 2019, Leon emailed Dauger stating “[w]e could not ask to serve and represent a better client.” (Id., Ex. 22, p. 220.) Press releases indicated that Berkadia worked on behalf of both the buyer and the seller. (Id., Exs. 37-38.)
In addition to referring to Dauger as their client, Defendants provided Dauger with several pro formas to assist him in analyzing the property’s financial performance. (Dauger Decl., ¶ 7.) Leon offered the services of Ali Shamari, a fellow Berkadia employee, to answer any questions Dauger had about the financial metrics of the leasehold interest. (Id. ¶ 8.) Leon also helped Dauger in forming a strategy for the offer to purchase the interest. (Id. ¶¶ 11-13, 16.)
Here, the fact that there was no written agreement expressly creating an agency relationship between Plaintiff and Defendants is not dispositive. Nor is the fact that Defendants received no compensation from Plaintiff as a result of the transaction.
There is evidence that Defendants held themselves out as agents of Plaintiff and worked closely with Plaintiff and Dauger in negotiating and closing the deal. Defendants never obtained an acknowledgment from Dauger that they were not acting as his broker during the transaction and Dauger believed based upon their interactions that Defendants were acting as his and Plaintiff’s broker in the transaction. (Dauger Decl., ¶¶ 5, 25.) This belief was based in part on Dauger’s previous interactions with Leon. (Id. ¶ 5.) The Court finds that this is sufficient evidence to raise a triable issue of material fact as to whether there was an agency relationship between Defendants and Plaintiff.
In light of the above, Defendants’ Motion on the ground that there was no agency relationship is DENIED.
Duty
Next, Defendants argue that they are entitled to summary judgment because Plaintiff’s action is based on the assertion that Defendants gave incorrect tax advice but they had no duty to provide Plaintiff with tax advice and Plaintiff was advised to do its own due diligence and independent investigation.
Plaintiff contends this argument fails because it does not allege that Berkadia owed a duty to provide tax advice but that Defendants misrepresented and concealed information regarding the past and current methodology for how real estate taxes were calculated on the leasehold interest and financial metrics.
As discussed above, Plaintiff alleges here that Defendants misrepresented the current financial metrics on the property and the leasehold interest, misrepresented the methodology for how real estate taxes were assessed on the leasehold interest, and concealed that other prospective buyers were questioning Defendants’ representations regarding how the real estate taxes were assessed. These allegations rest upon intentional or negligent misrepresentations, rather than the failure to provide proper tax advice. One of the allegations against Defendants is that it received questions from other potential buyers into the tax calculations and acknowledged that the total taxable assessed value included the purchase price plus the taxable possessory interest (“TPI”) but failed to disclose this to Plaintiff. (FAC ¶ 21.) Instead, Defendants repeatedly represented to Plaintiff that the real estate taxes owed did not include the TPI and were instead based only on the purchase price. (FAC ¶ 23.)
Defendants’ portrayal of Plaintiff’s claim as one based on the provision of negligent tax advice is disingenuous. Plaintiff’s pleading makes it clear that the claims are based on more. Thus, the Motion on the ground that Defendants owed Plaintiff no duty to provide tax advice is DENIED.
Justifiable Reliance
Defendants argue that Plaintiff, a sophisticated real estate investor, cannot now complain that it was not responsible for doing its own due diligence and none of the purported misrepresentations pertained to any past or existing material fact. Defendants argue that Plaintiff’s claims fail because statements or predictions regarding future events are mere opinions and not actionable.
Defendants’ argument that reasonable minds can come to only one conclusion as to justifiable reliance rests upon their argument that there was no agency relationship with Plaintiff. Essentially, Defendants are arguing that Plaintiff was cautioned to do its own due diligence and any reliance by Plaintiff on the materials or statements provided by Defendants would be unreasonable because Defendants did not act on Plaintiff’s behalf. However, because there is a triable issue of material fact as to whether an agency relationship existed, whether Plaintiff justifiably relied on the information provided by Defendants is also a triable issue. (See Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1194 [“Generally, the question of whether reliance is justifiable is one of fact . . . [b]ut the issue ‘may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts.’”].)
As to Defendants’ argument that any purported representations were based on future events and are not actionable, Defendants again fail to properly portray Plaintiff’s claims. Plaintiff’s alleged damages are not based on claims that Defendants’ projections of future tax burdens did not pan out or any similar claims of future events. Instead, Plaintiff alleges that Defendants misrepresented the proper tax calculations before the transaction was commenced, facts which were then in place and existing. Thus, the Court rejects this argument.
Defendants’ Motion on the ground that Plaintiff cannot show justifiable reliance is DENIED.
Release of Liability
Lastly, Defendants argue that Plaintiff released them from any liability arising from tax-related or economic issues.
Plaintiff contends Defendants are not entitled to invoke the release language in its contract with Fowler because Defendants were not intended to be third-party beneficiaries.
Section 10c of the Purchase and Sale Agreement reads, in relevant part: “Purchaser, for itself and its agents, affiliates, successors and assigns, hereby releases, forever discharges, holds harmless and indemnifies Seller, its agents, partners, affiliates, successors and assigns from any and all rights, claims and demands at law or in equity, whether past, present or future, and whether known or unknown at the time of this Agreement, arising out of the physical, environmental, or economic or legal condition of the Property.” (Undisputed Material Fact No. 30.)
Defendants are not parties to the PSA and may therefore benefit from the release only of they were intended third-party beneficiaries. (Vahle v. Barwick (2001) 93 Cal.App.4th 1323, 1328.) The burden is on Defendants to prove Plaintiff and Fowler intended to benefit them. (Ibid.) Defendants have made no such showing.
Thus, Defendants’ Motion on the ground that Plaintiff released them from all liability is DENIED.
Defendants to give notice.