Judge: Theresa M. Traber, Case: 22STCV29957, Date: 2023-01-09 Tentative Ruling
Case Number: 22STCV29957 Hearing Date: January 9, 2023 Dept: 47
DEMURRER
TO FIRST AMENDED COMPLAINT
MOVING PARTY: Defendants Colorado Capital Calabasas LLC dba Realty
Bancorp Equities and Norman J. Kravetz
RESPONDING PARTY(S): Plaintiffs Jeffrey
Allen Tabor and Tenant Advisory Services, Inc. dba Jeff Tabor Group
STATEMENT
OF MATERIAL FACTS AND/OR PROCEEDINGS:
This is an action for fraud and breach of contract arising from a lease
of real property that was filed on September 14, 2022. In their First Amended Complaint, filed on
November 22, 2022, Plaintiffs allege that they were hired to broker a lease
agreement with their client and Defendants, who own the property. Plaintiffs
allege that they are entitled to a commission on the lease agreement which was
improperly withheld.
Defendants demur to the First
Amended Complaint in its entirety.
TENTATIVE RULING:
Defendants’
demurrer to the First Amended Complaint is SUSTAINED without
leave to amend as to the fifth cause of action and otherwise OVERRULED.
DISCUSSION:
Defendants demur to the First
Amended Complaint in its entirety.
Legal Standard
A demurrer 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. (Taylor v. City of Los Angeles Dept. of Water and
Power (2006) 144 Cal.App.4th 1216, 1228.) 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.” (SKF Farms v. Superior Court
(1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing
is whether the complaint, as it stands, unconnected with extraneous matters,
states a cause of action.” (Hahn, supra, 147 Cal.App.4th at p. 747.) The
ultimate facts alleged in the complaint must be deemed true, as well as all
facts that may be implied or inferred from those expressly alleged. (Marshall
v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403; see also Shields
v. County of San Diego (1984) 155 Cal.App.3d 103, 133 [stating, “[o]n
demurrer, pleadings are read liberally and allegations contained therein are
assumed to be true”].) “This rule of liberal construction means that the
reviewing court draws inferences favorable to the plaintiff, not the
defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th
1228, 1238.)
Meet and Confer
Before filing a demurrer, the
demurring party shall meet and confer in person or by telephone with the party
who has filed the pleading subject to the demurrer and file a declaration
detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a).)
However, an insufficient meet and confer process is not grounds
to overrule or sustain a demurrer. (Code Civ. Proc., §
430.41(a)(4).)
The Declaration of Jill David,
counsel for Defendants, states that she sent a meet-and-confer email to
Plaintiffs’ counsel on December 7, 2022, but received no response. (Declaration
of Jill S. David ISO Demurrer ¶ 4, Exh. 1.) The Court therefore finds that
Defendants have satisfied the statutory meet and confer requirements.
Ripeness
Defendants first argue that the
Court has no jurisdiction over this matter and the Plaintiffs do not have
standing to sue, because the action is not ripe. A controversy is “ripe” when
it has reached, but has not passed the point that the facts have sufficiently
congealed to permit an intelligent and useful decision to be made. (Pacific
Legal Foundation v. California Coastal Com’n (1982) 33 Cal.3d 158, 170.)
Defendants assert that this case is not ripe because, for the Court to
adjudicate the primary issue of whether Plaintiffs are entitled to a fee for
brokering a lease of the subject property, the Court “would have to speculate
on the material terms of the lease,” because the First Amended Complaint does
not allege execution of a commission contract or the terms of a lease. In the
Court’s view, Defendants appear to confuse ripeness with a failure to set forth
sufficient facts to support a cause of action. Even so, construing the
allegations in the light most favorable to Plaintiffs, the First Amended
Complaint alleges the execution of a commercial lease which, arguably, was
intended by the parties to that contract to provide a commission to Plaintiffs.
(See FAC ¶¶ 35, 39.) For the purpose of an evaluation of ripeness, these
allegations are sufficient to establish a justiciable controversy.
Fourth Cause of Action: Breach of Contract
Defendants demur to the Fourth
Cause of Action for Breach of Contract on the grounds that Plaintiffs have
failed to state facts sufficient to constitute a cause of action.
To state a cause of action for
breach of contract, a plaintiff must plead the contract, the plaintiff’s
performance of the contract or excuse for nonperformance, Defendant’s breach,
and finally the resulting damage. (Otworth v. Southern Pac. Transportation
Co. (1985) 166 Cal.App.3d 452, 458.) Further, the complaint must indicate
whether the contract is written, oral, or implied by conduct. (Code Civ.Proc. §
430.10(g).) General allegations stating that defendants violated a contract are
insufficient, and plaintiffs must state facts showing a breach. (Levy v.
State Farm Mutual Automobile Ins. Co. (2007) 150 Cal.App.4th 1, 5-6.) For
breach of a written contract, the essential terms must generally be set out
verbatim in the body of the complaint or a copy of the written instrument must
be attached and incorporated by reference. (Otworth v. Southern Pac.
Transportation Co., supra, 166 Cal.App.3d at 459.) However, a plaintiff may
plead the legal effect of the contract rather than its precise language. (Construction
Protective Services, Inc. v. Tig Specialty Insurance (2002) 29 Cal.4th 189,
198-99.)
Defendants first contend that this
cause of action fails under the sham pleading doctrine. Under the sham pleading
doctrine, “[a] plaintiff may not avoid a demurrer by pleading facts or
positions in an amended complaint that contradicts facts pleaded in the
original complaint, or by suppressing facts which prove the pleaded facts
false.” (Cantu v. Resolution Trust Corporation (1992) 4 Cal.App.4th 857,
877-878.) Defendants specifically argue that the First Amended Complaint
constitutes a sham pleading because it alleges, on information and belief, that
Defendants and Plaintiffs’ client executed a lease agreement sometime in August
2022, when no such allegation was in the original Complaint. (See FAC ¶ 39; see
generally Complaint.) Defendants’ argument is not well-taken. Construing the original
Complaint in the light most favorable to the Plaintiffs, nothing in it contradicts
the allegation that, on information and belief, the lease was executed in
August 2022.
In their reply brief, Defendants
also argue that the allegation “on information and belief” is insufficient
because the First Amended Complaint does not set forth any facts upon which the
belief is founded. (See Doe v. City of Los Angeles (2007) 42 Cal.4th
531, 550 fn. 5.) The First Amended Complaint does provide a foundation for
Plaintiffs’ knowledge, however, alleging that Plaintiffs were hired by the
prospective tenant to broker the lease agreement at issue and then participated
in the negotiations. (FAC ¶¶ 27-36.) Construing the allegations in the light
most favorable to Plaintiffs, as required on demurrer, those supporting facts
are sufficient to provide a basis for Plaintiffs to allege on information and
belief that the contract was executed.
Defendants next assert that the
fourth cause of action fails because Plaintiffs do not adequately set forth the
terms of the contract. Defendants incorrectly argue that Plaintiffs are
required to attach a copy of the contract or set forth its terms verbatim.
Under current California Supreme Court precedent, a party may plead the legal
effect of a written contract, rather than its exact terms. (Construction
Protective Services, Inc. v. Tig Specialty Insurance (2002) 29 Cal.4th 189,
198-99.) In opposition, Plaintiffs contend that they have done exactly that,
and that the First Amended Complaint adequately alleges the elements of a
breach of contract claim. (FAC ¶¶ 65-69.) The First Amended Complaint alleges
the commission structure dictating what Plaintiffs were to receive, and
therefore could plausibly be construed to allege the contract price (see FAC ¶
67). Further, as Plaintiffs allege that the agreement adopted the industry
standard 4%/2% split for commissions for a 10-year lease term (see FAC ¶¶ 26,
31), the interpretation most favorable to Plaintiffs—which must be adopted on a
demurrer—is that the First Amended Complaint alleges that the lease was for 10
years. Construing the allegations in the
light most favorable to Plaintiffs, the Court finds that these allegations are
sufficient to satisfy the obligation to plead the terms of the contract.
Defendants’ next contention is that
this cause of action does not adequately plead the fulfillment of any
conditions precedent. Defendants argue that, although the First Amended
Complaint states that, when a property is sold, the owner is expected to
pay all commissions on closing, it does not state when payment should be made
when a lease is executed. Construing the allegations in the light most
favorable to Plaintiffs, however, the Court concludes that this industry
standard applies equally to a lease agreement, and therefore payment must be
made on a lease agreement on closing. Plaintiffs allege that the lease closed
in August 2022, and therefore that the obligation to pay arose at that time.
(FAC ¶ 39.) Plaintiffs have therefore adequately alleged the fulfillment of all
conditions precedent. Additionally, the Court notes that, in any event,
Defendants’ contention that the failure to attach the lease somehow cures any
failure to pay the requisite commission is nonsensical. Failing to attach a
lease to the complaint has no bearing on a party’s obligations to comply with
the terms of the agreement.
Finally, Defendants contend that
this cause of action falls under the statute of frauds and is barred because
Plaintiffs do not allege the existence of a written agreement. The statute of
frauds requires that any real estate contract must be in writing and signed by
the party to be charged, including an agreement for payment of a commission to
a broker for a lease term greater than one year. (Civ. Code § 1624(a)(4).)
However, the Court cannot say, construing the allegations in the light most
favorable to Plaintiffs, that Plaintiffs have not alleged that a written
contract was executed. Plaintiffs allege multiple written drafts of a proposed
lease agreement (FAC ¶¶ 34-35), and then allege that the agreement was executed
in August 2022. (FAC ¶ 39.) The Court construes these allegations, as required
on demurrer, as alleging that a written agreement to lease the property was ultimately
executed in August 2022.
Defendants have therefore not
established that Plaintiffs’ failure to state facts sufficient to constitute a
cause of action for breach of contract.
Accordingly, Defendants’ Demurrer
to the Fourth Cause of Action is OVERRULED.
Fifth Cause of Action: Quantum Meruit
Defendants demur to the fifth cause
of action for quantum meruit for failure to state facts sufficient to
constitute a cause of action.
“[W]here services have been
rendered under a contract which is unenforceable because not in writing, an
action generally will lie upon a common count for quantum meruit.” (Iverson,
Yoakum, Papiano & Hatch v. Berwald (1999) 76 Cal.App.4th 990, 996.) “To
recover on a claim for the reasonable value of services under a quantum meruit
theory, a plaintiff must establish both that he or she was acting pursuant to
either an express or implied request for services from the defendant and that
the services rendered were intended to and did benefit the defendant.” (Ochs
v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794.) However, a
real estate agent or broker may not assert a claim for quantum meruit for
commissions alleged to be owed to the agent or broker. (Phillippe v.
Shappell Industries (1987) 43 Cal.3d 1248, 1263-64.)
Defendants first argue that
Plaintiffs cannot prevail on this cause of action because claims for quantum
meruit for a commission owed to a broker are barred as a matter of law, as
stated in Phillippe v. Shappell Industries. (Id.) In opposition,
Plaintiffs contend that Defendants misstate the holding of Phillippe, and
that a claim for quantum meruit may be maintained when there is a showing of
actual fraud by the party to be charged. Plaintiffs’ characterization is
inaccurate. The Phillippe court held that a broker cannot assert
equitable estoppel against a statute of frauds defense unless there is a
showing of actual fraud. (Id. at 1264.) In reaching that conclusion, the
Phillippe court stated that recovery by a real estate broker in quantum
meruit is absolutely barred, and that recovery by a real estate broker in
quantum meruit would frustrate the purpose of the statute of frauds. (Id; see
Civ. Code § 1624(a)(4).) Plaintiffs’ position that a showing of actual fraud
would permit recovery on a theory of quantum meruit under Phillippe is
not supported by the text of the opinion. Plaintiffs’ claim for quantum meruit
is therefore barred as a matter of law.
Accordingly, Defendants’ demurrer
to the fifth cause of action is SUSTAINED.
First Cause of Action: Promissory Fraud
Defendants
demur to the first cause of action for promissory fraud for failure to state
facts sufficient to constitute a cause of action.
The elements of promissory fraud, meaning fraud based on a
promise made without any intention of performing, are: (1) a promise made
regarding a material fact without any intention of performing it; (2) the
existence of the intent not to perform at the time the promise was made; (3)
intent to deceive or induce the promisee to enter into a transaction; (4)
reasonable reliance by the promisee; (5) nonperformance by the party making the
promise; and (6) resulting damage to the promise. (Muraoka v. Budget
Rent-A-Car (1984) 160 Cal.App.3d 107, 119.) Every element of the cause of
action for fraud must be alleged in the proper manner and the facts
constituting the fraud must be alleged with sufficient specificity to allow
defendant[s] to understand fully the nature of the charge made. (Stansfield
v. Starkey (1990) 220 Cal.App.3d 59, 73.) “This particularity requirement
necessitates pleading facts which show how, when, where, to whom, and by what
means the representations were tendered.” (Ibid.) “[G]eneral and
conclusory allegations do not suffice.” (Lazar v. Superior Court (1996)
12 Cal.4th 631, 645.)
Defendants contend that the allegations in the first cause
of action are deficient because they do not set forth any misrepresentations
with sufficient specificity. In opposition, Plaintiffs argue that the
allegations are pled with adequate specificity because the First Amended
Complaint alleges that Defendants “made a promise to Plaintiffs that it would
receive compensation consistent with the industry standard.” (FAC ¶ 47.) This
allegation is not remotely sufficient under the heightened pleading standard
for fraud. However, the First Amended Complaint also alleges multiple specific
representations by Defendants elsewhere. Plaintiffs allege that Defendant
Kravetz stated in a meeting on December 29, 2021 that Plaintiffs were entitled
to broker commissions and that Defendants had an obligation to pay that
commission. (FAC ¶ 34.) Plaintiffs also allege that Defendants sent Plaintiffs
a proposed draft of the lease agreement which acknowledged Plaintiffs’
entitlement to the commission in writing on January 10, 2022. (FAC ¶ 35.) In
their reply brief, Defendants argue that allegations on information and belief
are not sufficient to sustain a fraud cause of action. These allegations are
not made on information and belief, however, so Defendants’ argument is
misplaced. These allegations state who, where, when, how, and by what means
specific representations were tendered. In the Court’s view, these allegations
are sufficient to satisfy the heightened pleading requirements for a fraud
claim.
Defendants also argue that Plaintiffs have not adequately
pled reasonable reliance on the representations. Defendants contend that
Plaintiffs cannot plead reasonable reliance because they have not pled the
existence of a written contract. Defendants are correct that a broker cannot
claim reasonable reliance on an oral contract because a broker is presumed to
have knowledge of the statute of frauds. (Phillippe, supra, 43 Cal.3d at
1270.) However, as stated above in connection with the fourth cause of action,
the Court cannot say, construing the allegations in the light most favorable to
Plaintiffs, that Plaintiffs have not alleged that a written contract was
executed. Plaintiffs allege multiple written drafts of a proposed lease
agreement (FAC ¶¶ 34-35), and then allege that the agreement was executed in
August 2022. (FAC ¶ 39.) The Court construes these allegations, as required on
demurrer, as alleging that a written agreement to lease the property was
executed in August 2022. As a result, Defendants’ argument that Plaintiffs
cannot plead reasonable reliance necessarily fails because Plaintiffs are not pleading
reliance on an oral contract.
Accordingly, Defendants’ Demurrer to the First Cause of
Action is OVERRULED.
Second Cause of Action: Conversion
Defendants demur to the second
cause of action for conversion for failure to state facts sufficient to
constitute a cause of action.
“Conversion
is the wrongful exercise of dominion over the property of another. The elements
of a conversion claim are: (1) the plaintiff’s ownership or right to possession
of the property; (2) the defendant’s conversion by a wrongful act or
disposition of property rights; and (3) damages.” (Lee v. Hanley (2015)
61Cal.4th 1225, 1240.) “‘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.’ A ‘generalized claim for money [is] not actionable as conversion.’” (PCO,
Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
(2007) 150 Cal.App.4th 384, 395 [internal citations omitted].)
Defendants
contend that Plaintiffs have not adequately alleged the elements of this cause
of action because they have not alleged a right to ownership of any particular
sum of money and have not identified a specific, identifiable sum that was
obtained by Defendants. In opposition, Plaintiffs assert that this cause of
action states the elements of conversion on the basis that the First Amended
Complaint alleges that Defendants misappropriated the sum of money owed to
Plaintiff pursuant to the alleged lease agreement. (FAC ¶¶ 50-52.) Construing
the allegations in the light most favorable to Plaintiffs, the First Amended
Complaint alleges that Plaintiffs’ client conveyed a quantity of money,
including the $128,025.37 alleged in the First Amended Complaint, to Defendants
as part of a contract for a lease of real property, that the $128,025.37
conveyed to Defendants was then to be conveyed to Plaintiffs, and that
Defendants instead withheld that money. In the Court’s view, under this
construction, these allegations are sufficient to maintain a cause of action
for conversion.
Accordingly,
Defendants’ Demurrer to the second cause of action is OVERRULED.
Third Cause of Action: Theft
Defendants
demur to the third cause of action for theft under Penal Code section 496(c)
for failure to state facts sufficient to constitute a cause of action.
Penal Code section 496 states, in
relevant part:
(a) Every person who buys or
receives any property that has been stolen or that has been obtained in any
manner constituting theft or extortion, knowing the property to be so stolen or
obtained, or who conceals, sells, withholds, or aids in concealing, selling, or
withholding any property from the owner, knowing the property to be so stolen
or obtained, shall be punished by imprisonment
(c) Any person who has been
injured by a violation of subdivision (a) . . . may bring an action for three
times the amount of actual damages, if any, sustained by the plaintiff, costs
of suit, and reasonable attorney’s fees.
(Penal
Code § 496 (a), (c).) A cause of action for theft under this statute lies where
a business partner obtains money intended for the plaintiff by false pretenses.
(Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.)
Defendants contend
that Plaintiffs’ third cause of action is vague and ambiguous because it cites
multiple statutes. Defendants cite no law nor precedent standing for the
proposition that a cause of action is vague and ambiguous because it cites to
multiple statutes while stating the relevant legal effects of those statutes.
Further, Defendants’ conclusory assertion that the third cause of action does
not plead any of the elements of the claim is belied by a review of the cause
of action, which sets forth the elements of the claim (FAC ¶¶ 58-59), alleges
that Defendants executed a contract for leasing real property(FAC ¶ 39), and
that one of the terms of that agreement was that Defendants would pay
Plaintiffs a commission on the executed contract, or, put differently, that
Defendants would receive a sum from the tenant intended for Plaintiffs. (See
FAC ¶ 38.) Plaintiffs then allege that Defendants have not conveyed that money
to Plaintiffs. (FAC ¶ 40.) In the Court’s view, these allegations are
sufficient, under Switzer, to
establish a cause of action under Penal Code 496(c) where, as here, Plaintiffs
have also alleged fraud by Defendants, as in the first cause of action. (See
FAC ¶¶ 42-48.)
Accordingly, Defendants’ demurrer to
the third cause of action is OVERRULED.
Sixth Cause of Action: Unfair Competition
Defendants
demur to the sixth cause of action for unfair competition on the grounds that
Plaintiffs have not stated facts sufficient to constitute a cause of action.
Defendants argue that this cause of action fails because Plaintiffs have not
alleged that they were entitled to any commission. However, as the Court has
rejected that argument by concluding that Plaintiffs have adequately stated a
cause of action for breach of contract, this argument necessarily fails.
Uncertainty
Defendants
demur to the First Amended Complaint in its entirety as uncertain. However,
Defendants make no effort to support this contention in the body of the
demurrer. Defendants have therefore failed to establish that the First Amended
Complaint is uncertain in any respect.
Leave to Amend
When a demurrer is sustained, the
Court determines whether there is a reasonable possibility that the defect can
be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311,
318). When a plaintiff “has pleaded the general set of facts upon
which his cause of action is based,” the court should give the plaintiff an
opportunity to amend his complaint, since plaintiff should not “be deprived of
his right to maintain his action on the ground that his pleadings were
defective for lack of particulars.” (Reed v. Norman (1957) 152
Cal.App.2d 892, 900.) Accordingly, California law imposes the burden on
the plaintiffs to demonstrate the manner in which they can amend their
pleadings to state their claims against a defendant. (Goodman v.
Kennedy (1976) 18 Cal.3d 335, 349.) “Denial of leave to amend constitutes
an abuse of discretion unless the complaint shows on its face it is incapable
of amendment. [Citation.] Liberality in permitting amendment is the
rule, if a fair opportunity to correct any defect has not been given."
(Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.)
Here, Plaintiffs have not shown how
the complaint could be amended to cure the fifth cause of action for quantum
meruit. Further, as the Court has concluded that claims by a broker for a
commission on a real estate transaction are barred from recovery under a theory
of quantum meruit as a matter of law, the defects in the fifth cause of action
cannot be cured by amendment. The Court therefore cannot grant leave to amend
as to the fifth cause of action.
CONCLUSION:
Accordingly,
Defendants’ demurrer to the First Amended Complaint is SUSTAINED without
leave to amend as to the fifth cause of action and otherwise OVERRULED.
Moving
Parties to give notice.
IT IS SO ORDERED.
Dated: January 9,
2023 ___________________________________
Theresa
M. Traber
Judge
of the Superior Court
Any party may submit on the
tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day
before the hearing. All interested parties must be copied on the email. It
should be noted that if you submit on a tentative ruling the court will still
conduct a hearing if any party appears. By submitting on the tentative you
have, in essence, waived your right to be present at the hearing, and you
should be aware that the court may not adopt the tentative, and may issue an
order which modifies the tentative ruling in whole or in part.