Judge: Virginia Keeny, Case: 22VECV00637, Date: 2023-01-12 Tentative Ruling
Case Number: 22VECV00637 Hearing Date: January 12, 2023 Dept: W
HANNAH BEATON v. DONALD E KARPEL, et al.
demurrer to the first amended complaint
Date of Hearing: January 12, 2023 Trial Date: None set.
Department: W Case
No.: 22VECV00637
Moving
Party: Defendant Donald E.
Karpel and Barry S. Zelner
Responding
Party: Plaintiff Hannah Beaton
Meet
and Confer: Yes. (Yee Decl. ¶¶4-5.)
BACKGROUND
In 2019, Plaintiff Hannah Beaton (also known as Dang Thu) was
trying to open a business and get financing to invest in real property. A
friend referred her to defendant Donald Karpel (“Karpel”), an attorney.
Plaintiff alleges that Karpel advised Plaintiff to get a line of
credit and that Defendant Ray Bailey (“Bailey”) could assist her to obtain a $20,000,000
line of credit. Bailey told Plaintiff he could get that amount of credit within
a month, Plaintiff was to receive $2,500,000 for free, and Bailey and Karpel
would take the rest, $17,500,000, for themselves.
Karpel and Bailey asked Plaintiff to pay $200,000 in advance as
prepaid fees. The $200,000 was to stay in the “Karpel Client Trust account”
until the line of credit was approved and given to Plaintiff. Karpel assured Plaintiff that there was no
risk involved and that he would return Plaintiff’s money if the defendants
failed to extend a line of credit to Plaintiff.
Karpel prepared a contract and gave it to Plaintiff, a copy of
which is attached to the Complaint as Exhibit 1. Under the agreement, Karpel
was to pay back Plaintiff’s $200,000 within 30 days if the credit was not
approved. Plaintiff waited for 30 days, but nobody contacted her. Karpel told
her to wait because they were working on getting the line of credit. However,
almost three years have passed, and Plaintiff has not received a line of credit
nor been refunded her $200,000 by Karpel and defendant Barry Zelner (another
attorney and Karpel’s partner at the law firm).
On September 26, 2022, Plaintiff filed a first amended complaint
against Defendants, asserting causes of action for breach of contract, conversion,
breach of fiduciary duty, violation to Financial Code section 17200 et. seq., constructive
fraud, fraud and misrepresentation, constructive trust, breach of the covenant of
good faith and fair dealing, alter ego allegations, unjust enrichment, and declaratory
relief.
Defendants Karpel and Zelner now demur the first amended
complaint.
[Tentative] Ruling
Defendants Karpel and Zelner Demurrer is SUSTAINED, in part.
REQUEST
FOR JUDICIAL NOTICE
Defendants request this court take
judicial notice of certain documents and facts regarding Defendant Karpel’s
bankruptcy case. (RJN, A-H.) “’ “A court may take judicial notice of the
[e]xistence of each document in a court file, but can only take judicial notice
of the truth of facts asserted in documents such as orders, findings of fact
and conclusions of law, and judgments.”’ (Day v. Sharp (1975) 50
Cal.App.3d 904, 914, 123 Cal.Rptr. 918, italics omitted; see Evid.Code § 452,
subd. (d) [‘Records of ... any court of this state’ are among the matters that
may be judicially noticed].)” (People v. Franklin (2016) 63 Cal.4th 261,
280.) Defendant’s request for judicial notice is GRANTED.
In opposition, Plaintiff requests this
court take judicial notice of Defendant Karpel’s Profile on the California
State Bar. (Exh. A). Plaintiff’s request for judicial notice is GRANTED.
DISCUSSION
Defendants Donald E. Karpel and Barry Zelner demur to the first
amended complaint. Defendants demur to the complaint on the grounds Plaintiff
cannot assert any of the stated causes of action as against Defendant Donald E.
Karpel due to bankruptcy discharge and the complaint does not state facts sufficient
to constitute a cause of action against both Defendants. Defendants also
contend the complaint is uncertain and unintelligible in its entirety.
Defendant Karpel’s Bankruptcy Discharge
Defendant Karpel argues his liability was extinguished by bankruptcy
discharge. Defendant contends a discharge order under the Bankruptcy Code
extinguishes the debtor’s personal liability with respect to his creditor’s
claims and in the instant matter, Plaintiff’s claims were included in Defendant
Karpel’s bankruptcy petition.
“A discharge order under the Bankruptcy Code: extinguishes the
debtor's personal liability with respect to his creditor's claims; voids any
judgment to the extent of the debtor's personal liability for a discharged
debt; and enjoins the commencement or continuation of civil suits against the
debtor personally to recover any discharged debt.” (Hurley v. Bredehorn
(1996) 44 Cal.App.4th 1700, 1703.)
Defendant presents judicially noticed documents and facts that
Defendant Karpel filed Chapter 7 bankruptcy on December 16, 2020. (RJN A, E.)
The bankruptcy petition included Plaintiff’s claim on the bankruptcy schedules
and address list. (RJN, A.) Defendant Karpel received a discharge in bankruptcy
on April 5, 2021, and the case was closed on October 29, 2021. (RJN H, D.) As
such, the discharge order should have extinguished any of Karpel’s liability
with respect to Plaintiff’s claim. Plaintiff, however, argues there is no
discharge of claims under 11 U.S.C. § 523(a)(2), (4), and (6). Moreover, the
alleged money deposited into Defendant’s Karpel Trust account was not a loan
and therefore, Defendant Karpel’s liability to return it cannot be discharged
in bankruptcy proceeding. Plaintiff further argues this court has concurrent
jurisdiction pursuant to 28 U.S. Code § 1334.
The court finds the alleged Karpel debt is the exclusive
jurisdiction of the bankruptcy court. First, whether the money deposited was actually
a loan and whether Plaintiff’s address on the schedule was incorrect will be
heard in the pending adversary proceeding. Adversary proceedings to block the
discharge of debts in bankruptcy is within the exclusive jurisdiction of the
federal courts. (Idell v. Goodman (1990) 224 Cal.App.3d 262, 271.) Moreover,
while state and federal courts generally have concurrent jurisdiction to decide
whether a claim within a discharge order is a discharged debt, Bankruptcy
courts have exclusive jurisdiction over nondischargeability actions brought
pursuant to 11 U.S.C. § 523(a)(2), (4), (6). (Rein v. Providian Financial
Corp. (9th Cir. 2001) 270 F.3d 895, 904; see also In re Eber (9th
Cir. 2012) 687 F.3d 1123, 1128.) As a result, Plaintiff’s reliance on In re
Franklin (Bankr. E.D. Cal. 1995) 179 B.R. 913, is inapplicable. Plaintiff
is explicitly seeking to determine the dischargeability of the alleged debt
pursuant 11 U.S.C. § 523(a)(2), (4), (6). Franklin discussed concurrent
jurisdiction pursuant to 11 U.S.C. §523(a)(3).
Therefore, the court sustains the demurer to all claims against
Karpel, with leave to amend based on the ruling by the bankruptcy court. Because it is unknown when that claim will be
resolved, the court stays the claims against Karpel until 30 days after the
determination of the dischargeability issue.
Based on the ruling by the bankruptcy court, plaintiff may file and serve an amended
complaint no more than 30 days after such ruling.
Causes of Action Against Zelner
Defendant
Zelner demurs to the first amended complaint on the grounds the Escrow
Agreement – which is the basis for Plaintiff’s claims and allegations – identifies
only the “Law Office of Donald E. Karpel” and Karpel’s Client Trust account,
with no reference to Zelner or Zelner & Karpel.
Defendant
Zelner contends because there simply are no allegations that Defendant Zelner
had any knowledge of Plaintiff, the [Escrow] Agreement or that Zelner engaged
in any conduct related to the Agreement, the second, third, fourth, eighth,
ninth, eleventh, and twelfth causes of action against Zelner fail to state
facts sufficient to constitute a claim against Defendant.
As is well known, in a demurrer, all facts alleged in the
Complaint are assumed to be true. However, courts may “look to exhibits
attached to the complaint for operative facts.” (Nealy v. County of Orange
(2020) 54 Cal.App.5th 594, 596-97.) While Plaintiff alleges on May 31, 2019,
Plaintiff wired $200,000.00 into Karpel and Zelner Attorney-client trust account,
the Escrow Agreement provides that the $200,000.00 would be deposited into the
Law Offices of Donald E. Karpel’s designated IOLTA, Trust Account. The
complaint is devoid of any allegations of Zelner’s direct involvement in
advising and harming Plaintiff. Plaintiff simply alleges Zelner is a partner in
the Law Office of Zelner and Karpel, Karpel prepared the contract as the Law
Office of Zelner and Karpel, and she believed the two partners were on the
contract. (FAC ¶¶3, 31, 33.) Even including the escrow agreement being entered
on the Law Offices of Zelner & Karpel, Plaintiff has not alleged facts
sufficient to support a claim. The allegations do not include any direct
involvement by Zelner or fiduciary duty owed by Zelner.
Accordingly, the court sustains the demurrer as to Defendant
Zelner. Plaintiff is given one more opportunity to allege facts sufficient to
state a cause of action against Zelner.
Fifth Cause of Action
Defendants demur to the fifth cause of action on the grounds Violation
of Financial Code section 17200 does not create a private right of action and a
statutory exception to the Escrow Law and licensing applies.
It is well-established that the violation of a statute does not
give rise to a private right of action unless the Legislature expressly or
impliedly created such a right. (Moradi-Shalal v. Firemen's Fund Ins. Cos.
(1988) 46 Cal.3d 287, 304-305.) Plaintiff has not demonstrated an express
intent to provide private rights of action under Financial Code section 17700 –
17703. The text of these statutes does not create private rights of
enforcement. The only mention of a civil action is one that may be brought in
the name of the people of the State of California by the commissioner in any
court of competent jurisdiction. (Fin. Code §17701.) Even if Plaintiff had a
private right of action, an exemption for attorneys exists. The Escrow Law
requirement that persons who conduct escrow transactions be licensed and
incorporated does not apply to an attorney who has a bona fide client
relationship with a principal in a real estate or personal property transaction
and who is not actively engaged in business as an escrow holder. The demurrer to the Fifth Cause of Action is
sustained without leave to amend.
Fraud or Misrepresentation
Defendants demur to the sixth (constructive fraud), seventh (fraud
and misrepresentation), and eighth (constructive trust) causes of action on the
grounds neither defendant is specifically identified in the various fraud-based
causes of action in the first amended complaint. Moreover, Zelner is not
identified as making any representation or undertaking any conduct.
To state a claim for fraud, a plaintiff must allege (1) a
“misrepresentation, which includes a concealment or nondisclosure;” (2)
“knowledge of the falsity of the misrepresentations;” (2) “intent to induce
reliance on the misrepresentation;” (4) “justifiable reliance;” (5) and
damages. (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513,
519.) Specifically, “[t]he essential elements of a count for intentional
misrepresentation are (1) a misrepresentation, (2) knowledge of the falsity,
(3) intent to induce reliance, (4) actual and justifiable reliance, and (5)
resulting damage.” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217,
230-31.) The elements must be alleged with specificity, and the plaintiff must
plead facts showing “how, when, where, to whom, and by what means the
representations were tendered.” (Small v. Fritz Companies, Inc. (2003)
30 Cal.4th 167, 184.)
A constructive trust is an equitable remedy, not a
substantive claim for relief. (PCO, Inc. v. Christensen, Miller, Fink,
Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384,
398.) A constructive trust is an involuntary equitable trust
created by operation of law as a remedy to compel the transfer of property from
the person wrongfully holding it to the rightful owner. (Communist Party v.
522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990.) The essence of
the theory of constructive trust is to prevent unjust enrichment and to prevent
a person from taking advantage of his or her own wrongdoing. (Id.)
The courts Plaintiff has sufficiently alleged their fraud and
constructive trust claims against Defendant Karpel. Plaintiff alleges when he
made the representations, where he made the representations, to whom, and by
what means. However, as stated above, Plaintiff has not alleged facts
sufficient to support a claim against Zelner. Plaintiff alleges in a conclusory
fashion that Zelner concealed essential facts.
In light of the ruling
above re the discharge of claims against Karpel, the court overrules the
demurrer as to the fraud and misrepresentation claims against Karpel, but such
ruling is moot given that the entire action against Karpel is stayed until the
bankruptcy court determination. If
plaintiff ultimately can bring an amended complaint against Karpel, plaintiff
may proceed under fraud and misrepresentation theories.
As for Zelner, the court sustains the demurrer to the fraud and
misrepresentation claims with leave to amend.
Uncertainty
Defendants demur to the complaint on the grounds the first amended
complaint is a mish-mash of contradictions, vagueness and uncertainty which
does not afford defendants notice of the facts and causes of action pleaded
against them, particularly given the Escrow Agreement attached to the
complaint.
The court overrules Defendants’ demurrer for uncertainty. Demurrers
for uncertainty are disfavored and should only be sustained where the complaint
is so uncertain that the demurring defendant cannot reasonably respond thereto
(see, e.g., Khoury v. Maly's of Calif., Inc. (1993) 14 Cal.App.4th 612,
616). Here, Plaintiff's complaint is not so uncertain that Defendants cannot
reasonably respond thereto. Moreover,
even if the pleading is somewhat vague, “ambiguities can be clarified under
modern discovery procedures.” (Id.)