Judge: Shirley K. Watkins, Case: 22VECV01177, Date: 2023-04-04 Tentative Ruling

Case Number: 22VECV01177    Hearing Date: April 4, 2023    Dept: T

22VECV01177 CONSOLIDATED ELECTRICAL DIS... vs JOHN R. MAHONEY

[TENTATIVE] ORDER:  Cross-Defendant Sunlight Financial’s Demurrer to the Cross-Complaint is SUSTAINED WITH LEAVE 20 DAYS LEAVE TO AMEND as to the second through fourth causes of action; and SUSTAINED WITHOUT LEAVE TO AMEND as to the fifth cause of action.

Introduction

            Cross-Defendant Sunlight Financial (Cross-Defendant) demurred to Cross-Complainant John R. Mahoney’s (Cross-Complainant) Cross-Complaint (XC.)  Cross-Defendant’s demurrer placed into issue the second cause of action (COA) for negligence, the third COA for fraud, the fourth COA for indemnity, and the fifth COA for estoppel.

            Discussion 

            Cross-Complainant’s second COA for negligence alleged that Cross-Defendant had a duty to “disburse loan proceeds to ENTRON only as consistent with the progress of the completion of the system.”  (XC par. 17.) Cross-Defendant first argued that any duties between Cross-Complainant and Cross-Defendant came from the Loan Agreement.  The allegations made in the Cross-Complaint related to the Loan Agreement is that the Loan Agreement terms was 20 years with a 2.99% interest rate and monthly payment of $219.15.  Repayment of the loan would commence “upon completion of the installation of the functioning system which was represented and intended to be complete by May 2022.”  (XC pars. 5 & 6.)  Cross-Complainant further alleged that he received an extension of the commencement date of the loan until after the system was complete and operation.  (XC par. 10.)  However, the full amount of loan proceeds were release to Co-Cross-Defendant Entron Holding Inc. in April or May 2022 before the system was completely installed and operating.  (XC par. 13.)  The Loan Agreement was not attached to the Cross-Complaint, however, for demurrer purposes, the allegations in the Cross-Complaint are deemed true.  The allegations as to the terms of the Loan Agreement show, at minimum, a contractual duty to disburse the loan proceeds upon progress or completion of the solar system.  However, common law tort damages in contract cases when the duty is independent of the contract or arises from conduct which is intentional and intended to harm.  Based upon the allegations related to the Loan Agreement, Cross-Complainant’s allegation of duty is seen to be the same as the contractual duty.  There are insufficient facts to allege that the duty is independent from the Loan Agreement. 

Cross-Complainant argued that the duty of care derived from a fiduciary relationship.  However, the relationship between a lender and a borrower is not a fiduciary relationship.  The relationship is an arms-length transaction and no duty is owed when the lender’s involvement in the transaction did not exceed its conventional role as a money lender.  (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 927 (Sheen.))  Although Sheen involved a lender-borrower relationship in the mortgage industry, the rule regarding the relationship between a lender and borrower is applicable here since lender-borrower relationships all involve money lending activities whether it be for the purchase of a house, vehicle, or other personal property like solar panels. 

Cross-Complainant argued that Cross-Defendant acted outside the scope of a money-lender by participating in the sale of the solar panels and controlled the loan proceeds and paid them directly to Co-Cross-Defendant Entron Holding Inc. (Entron.)  Preliminarily, there are no facts alleged in the Cross-Complaint to plead that Cross-Defendant participated in the sale of the solar panels.  The alleged sales representative was Nathan Chung, who Cross-Complainant alleged worked for Entron.  (XC pars. 2, 4, 5, 7.)  There are no allegations showing that any representative from Cross-Defendant participated in the sales transaction. 

Even if Cross-Complainant could plead facts showing that Chung represented Cross-Defendant, Cross-Complainant’s reliance upon the rule related to special relationships as seen in  Connor v. Great Western Savings and Loan (1968) 69 Cal.2d 850, 864 (Connor) is misplaced.  The potential allegation that Nathan Chung may have represented Cross-Defendant during the sales pitch would be insufficient to allege Cross-Defendant’s “active participation” in the solar panel enterprise.  In Connor, Great Western was found liable for the defective construction of homes by the contractor because the allegations showed that Great Western went beyond the role as a money lender and Great Western became an “active participant” in the home construction enterprise.  (Id.)  Great Western was alleged to have “warehoused” the land upon which the homes would be built; had rights to exercise repurchase options, and had the contractor channel buyers of homes to Great Western.  The allegation that Chung made the sales pitch as Cross-Defendant’s representative is not on par with Great Western’s alleged participation in the home construction enterprise.  Further, Connor was subsequently abrogated by statute so that lender’s financing home construction cannot be liable to third persons for construction defect.  (See Civ. Code sec. 3434.)  Cross-Complainant’s reliance upon Connor is not persuasive to support the allegation that the duty existed here.  Cross-Complainant has not sufficiently alleged facts to plead a duty of care. 

The Demurrer to the second COA is SUSTAINED WITH LEAVE TO AMEND.    

            Cross-Defendant argued that the third COA for fraud failed to allege specific facts against a corporate entity – who made the representation, authority to speak, how it was made, to whom it was made, what was said or written, or when the misrepresentation occurred.  Cross-Complainant did not dispute this argument.  The argument is persuasive.

            The Demurrer to the third COA is SUSTAINED WITH LEAVE TO AMEND.

            Cross-Defendant argued that the indemnity COA failed to plead facts to show grounds for express, implied, or equitable indemnity.  Cross-Complainant failed to plead sufficient facts to support any of the three types of indemnities.  Cross-Complainant failed to present opposing arguments against the demurrer to the fourth COA.

            The Demurrer to the fourth COA is SUSTAINED WITH LEAVE TO AMEND.

            As to the estoppel COA, Cross-Defendant argued that the claim is not recognized COA in California.  The Court agrees with Cross-Defendant and Cross-Complainant did not present opposing argument.

            The Demurrer to the fifth COA is SUSTAINED WITHOUT LEAVE TO AMEND. 

            Cross-Defendant asserted arguments as to a defect in the service of the Cross-Complaint (i.e., Cross-Complainant failed to serve the Complaint with the Cross-Complaint.)  However, a demurrer only attacks deficiencies in the pleading.  Service defects are not proper for a demurrer.  The argument is not considered within this demurrer. 

            IT IS SO ORDERED, CLERK TO GIVE NOTICE.