Judge Robert S. Draper, Case 22STCV24782 2023-05-18 Tentative Ruling

Plaintiff Daniel Chu (“Plaintiff”) purchased a home (the “Subject Property”) from Defendant GRCA2 (“GRCA2”) in 2014 pursuant to a Residential Purchase Agreement (“RPA”). (Compl. ¶ 9.) GRCA2 and Defendant Gerry Wiener (“Wiener” and together with GRCA2, “Movants”) assured Plaintiff that the work done on the home by Defendant CAA Contractor (“CAA”) prior to Plaintiff’s purchase was fully to code, and all permits and approvals had been obtained. (Compl. ¶ 12.)

Shortly thereafter, Plaintiff and GRCA2 entered into an addendum (“Addendum 1”) to the RPA stating that there were “outstanding permits that ha[d] not been finalized. Seller to provide buyer FINAL Building and Safety approval/permits for the recent construction at the site.” (Compl. ¶ 13.) GRCA2’s duty to provide all necessary permits to Plaintiff was affirmed in another addendum (“Addendum 3”) prior to purchase. (Compl. ¶ 16.)

In 2016, Plaintiff discovered material defects in the renovations to the Subject Property. (Compl. ¶ 18.) In May 2016, Plaintiff sent a demand letter to GRCA2 explaining these defects. (Ibid.) In December 2016, the parties settled the dispute pursuant to a Settlement Agreement and Mutual Release (the “Settlement Agreement”). (Compl. ¶ 19.) In the Settlement Agreement, GRCA2 represented to Chu that GRCA2 had repaired or addressed all the matters and defects set forth in the Addenda. (Compl. ¶ 20.)

In August 2021, Chu attempted to sell the Subject Property to a third party. (Compl. ¶ 21.) As a result of this attempted sale, Chu discovered that GRCA2 had failed to obtain necessary permits and that no certificate of occupancy was ever obtained. (Compl. ¶ 22.) Additionally, Chu discovered evidence that GRCA2 and CAA Contractor had intentionally concealed the defective renovations. (Compl. ¶ 23.)

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)

Evidence Code Section 452 provides that judicial notice may be taken for facts and propositions that are “not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Cal. Evid. Code § 452(h).) Further, “a court may take judicial notice of [recorded documents and] 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.” (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 745-755.)

Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning. (Fremont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-14 (citations and internal quotations omitted).) In addition, judges “consider matters shown in exhibits attached to the complaint and incorporated by reference.” (Performance Plastering v. Richmond American Homes of California, Inc. (2007) 153 Cal.App.4th 659, 665.) However, “[w]hen judicial notice is taken of a document . . . the truthfulness and proper interpretation of the document are disputable.” (Aquila, Inc. v. Sup. Ct. (2007) 148 Cal.App.4th 556, 569 (quoting StorMedia Inc. v. Sup. Ct. (1999) 20 Cal.4th 449, 457 n. 9).)

The party requesting judicial notice must (a) give each adverse party sufficient notice of the request to enable the adverse party to prepare to meet the request and (b) provide the court with sufficient information to enable it to take judicial notice of the matter. (Cal. Evid. Code § 453.)

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) As is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“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. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … 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.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

Movants’ argument is unavailing. Movants cite Otoworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452 to support their contention. While Otoworth does state that if the agreement is made in writing, the terms “must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference (Otoworth at pp. 458-59), the California Supreme Court has subsequently held that “[i]n an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Insurance Co. (2002) 29 Cal.4th 189, 198-99.)

Here, the Complaint alleges that in the Settlement Agreement, GRCA2 represented that it “had repaired and/or addressed all of the matters and defects set forth in the Addenda to the RPA executed by GRCA2 and Chu, including GRCA2’s agreement to provide all required permits for the Renovations and obtain all required unapproved permits in post-closing.” (Compl. ¶ 34.) Next, the Complaint alleges that “GRCA2 breached the 2016 Settlement Agreement because, at the time it made this representation, GRCA2 had not obtained any such permits, nor did it have any intention to seek or obtain any further permits for the Renovations.” (Compl. ¶ 5.) Accordingly, the Complaint successfully alleges the legal effect of the Settlement Agreement.

As to the Fifth Cause of Action, which is pled in alternative to the Second Cause of Action, Plaintiff alleges that “GRCA2 agreed in the Addenda to the RPA, including Addendum 1 and Addendum 3, that it would provide all required permits for the Renovations, and obtain any required unapproved permits in post-closing, as set forth in the Permit Disclosure and Permit Representations.” (Compl. ¶ 58.) The Complaint then alleges that “GRCA2 breached these Addenda by failing, and despite demand refusing, to provide and obtain the Missing Permits, and failing to disclose or repair the Noncompliant Renovations.” (Compl. ¶ 59.) Accordingly, the Complaint successfully alleges the legal effect of the Addenda.

For a statute of limitations to bar a claim on demurrer, “the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42, internal quotation marks omitted.) In general, a statute of limitations begins to run “when the cause of action is complete with all of its elements,” namely, wrongdoing, causation, and resulting harm. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397 (Norgart).)

An action upon a contract, obligation or liability founded upon a writing is subject to a four-year statute of limitations. (Code Civ. Proc., § 337, subd. (a).) A cause of action for fraudulent misrepresentation is subject to a three-year statute of limitations. (Code Civ. Proc., § 338, subd. (d).)

“The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 (Fox); Nelson v. Indevus Pharms, Inc. (2006) 142 Cal.App.4th 1202, 1206 (Nelson).) “A plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer.” (McKelvey v. Boeing N. Am. (1999) 74 Cal.App.4th 151, 160 (McKelvey), superseded by statute on unrelated grounds as stated in Grisham v. Philip Morris U.S.A., Inc. (2007) 40 Cal.4th 623, 637 (Grisham).)

Here, Plaintiff alleges that in the 2016 Settlement Agreement, GRCA2 stated that it “had repaired and/or addressed all of the matters and defects set forth in the Addenda to the RPA executed by GRCA2 and Chu, including GRCA2’s agreement to provide all required permits for the Renovations and obtain all required unapproved permits in post-closing.” (Compl. ¶ 34.) Next, Plaintiff alleges that he “had not known of the Missing Permits and could not have reasonably discovered than the time of the 2021 Sale Agreement, due to their concealed nature.” (Compl. ¶ 22.) Plaintiff alleges that this is due to the fact that “Defendants had intentionally concealed the Noncompliant Renovations from Chu, or any potential buyer, by constructing them in violation of applicable law while failing to comply with the normal permitting process. [Plaintiff] is informed and believes that GRCA2 and Wiener did so because seeking the necessary permits would have otherwise exposed the problems with these Noncompliant Renovations to prospective buyers.” (Compl. ¶ 23.)

While Movants contend that Plaintiff should have known of the noncompliant renovations as they are publicly available on the Los Angeles Department of Building and Public Safety website (RFJN 1), whether this constitutes a failure to exercise reasonable diligence is a question of fact improperly decided at the pleading stage.

A claim for fraud must plead all of the following elements: (1) misrepresentation; (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1332.)

Allegations of fraud “must be pled with more detail than other causes of action.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226.) “Every element of the cause of action for fraud must be alleged . . . factually and specifically[,] and the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any material respect. [Citations.]” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) Accordingly, a plaintiff pleading fraud must plead facts showing “how, when, where, to whom, and by what means” the allegedly fraudulent representations were tendered. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Here, Plaintiff alleges that 1) “on or about November 14, 2014, GRCA2 and Wiener executed a disclosure statement and delivered it to [Plaintiff] representing that, within their knowledge, none of the Renovations were performed without a required permit”; 2) GRCA2 and Wiener specifically discussed the issues of permits with [Plaintiff], and both GRCA2 and Wiener knew and were aware that [Plaintiff] was relying upon their knowledge, as seller and developer, with respect to the Renovations compliance with the law; 3) The Permit Disclosure was false, when made, and both GRCA2 and Wiener knew or reasonably should have known, of the falsity of the disclosure and representation at the time it was made”, and GRCA and Wiener made more false Permit statements in the Addenda and the Settlement Agreement; 5) GRCA2 and Wiener made the aforementioned false representations. . . with the intent to mislead [Plaintiff] and to induce him to rely on this misinformation to purchase the Property for the agreed purchase price; and, 6) In reliance upon the foregoing, [Plaintiff] purchased the Property for the purchase price agreed upon in the RPA, and later entered into the 2016 Settlement Agreement. (Compl. ¶¶ 40-45.)

The economic loss rule provides that where a purchaser’s expectations in a sale are frustrated because the product they bought is not working properly, their remedy is in contract alone, for they have suffered only “economic losses.” (Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1130.) On a theoretical level, the economic loss rule prevents the law of contract and the law of tort from dissolving into one another. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) However, there are several exceptions, one of which is that tort damages may be available in contract cases where the contract was fraudulently induced. (See Erlich v. Menezes (1999) 21 Cal.4th 543, 552.)