Judge: Walter P. Schwarm, Case: 30-2022-01255971OrangeCoastTitleCompanyofSouthernCaliforniav.GlenOaksEscrow, Date: 2022-10-11 Tentative Ruling
Defendant’s (Glen Oaks Escrow) Demurrer to Complaint of Plaintiff Orange Coast Title Company of Southern California (Demurrer), filed on 8-4-22 under ROA No. 13, is SUSTAINED.
“A demurrer tests the pleading alone, and not the evidence or the facts alleged. . . . To the extent there are factual issues in dispute, however, this court must assume the truth not only of all facts properly pled, but also of those facts that may be implied or inferred from those expressly alleged in the complaint. [Citations.]” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) Code of Civil Procedure section 452, states, “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” Perez v. Golden Empire Transportation Transit District (2012) 209 Cal.App.4th 1228, 1238, provides, “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant. [Citations.]” C.A. v. William S. Hart Union High School District (2012) 53 Cal.4th 861, 872 (C.A.), provides, “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged. [Citation.]”
The Demurrer challenges the third, fourth, fifth, sixth, and seventh causes of action in Plaintiff’s (Orange Coast Title Company of Southern California) Complaint, filed on 4-21-22 under ROA No. 2, pursuant to Code of Civil Procedure section 430.10, subdivision (e). (Notice of Demurrer; 1:1-21.)
Third Cause of Action (Negligence):
Lueras v. BAS Home Loan Servicing, LP (2013) 221 Cal.App.4th 49, 62 (Lueras), states, “To state a cause of action for negligence, a plaintiff must allege (1) the defendant owed the plaintiff a duty of care, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff's damages or injuries. [Citation.] Whether a duty of care exists is a question of law to be determined on a case-by-case basis. [Citation.]”
Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711 (Summit ), states, “ ‘An escrow involves the deposit of documents and/or money with a third party to be delivered on the occurrence of some condition.’ [Citation.] An escrow holder is an agent and fiduciary of the parties to the escrow. [Citation.] The agency created by the escrow is limited—limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow. [Citations.] If the escrow holder fails to carry out an instruction it has contracted to perform, the injured party has a cause of action for breach of contract. [Citation.] [¶] In delimiting the scope of an escrow holder's fiduciary duties, then, we start from the principle that ‘[a]n escrow holder must comply strictly with the instructions of the parties. [Citations.]’ [Citation.] On the other hand, an escrow holder ‘has no general duty to police the affairs of its depositors’; rather, an escrow holder's obligations are ‘limited to faithful compliance with [the depositors’] instructions.’ [Citations.] Absent clear evidence of fraud, an escrow holder's obligations are limited to compliance with the parties’ instructions. [Citation.] Here, even though the escrow holder, CLTC, was aware of the assignment from Talbert to Summit, there is no evidence CLTC was aware of any collusion or fraud in the fund disbursement that would have adversely affected any party to the escrow. [¶] However, because CLTC knew Talbert had assigned its rights in the note and deed of trust to Summit, Summit contends CLTC breached both a fiduciary duty and a tort duty to Summit by paying Talbert. We conclude neither contention has merit.” (Italics in Summit.)”
The Complaint makes the following allegations: (1) In or around January 2022, Defendant Glen Oaks was engaged to provide escrow services for a sale transaction involving real property commonly known as 340 W. Meacham Street, Glendora, CA 91740 (the ‘Property’), owned by a seller (‘Seller’), to be sold to a buyer (‘Buyer’). (Complaint, ¶ 8.); (2) “Glen Oaks then entered into a sub-escrow agreement with Plaintiff OCTCSC, wherein OCTCSC would provide sub-escrow services for the purchase transaction.” (Complaint, ¶ 9.); (3) “OCTCSC’s sub-escrow services included receiving loan proceeds from the escrow company and/or lender(s), and using those funds to pay off pre-existing liens and encumbrances pursuant to the escrow instructions. OCTCSC’s sub-escrow services did not include generating the escrow instructions, or soliciting payoff information from the existing lienholders and encumbrancers.” (Complaint, ¶ 10.); (4) “On or before January 26, 2022, Glen Oaks received a subsequent, bogus payoff statement for the Loan dated January 25, 2022, purporting to come from Mega Capital, a copy of which is attached hereto as Exhibit 2 (the ‘Bogus Payoff Statement’).” (Complaint, ¶ 14; Emphasis in Complaint.); (5) “On January 26, 2022, Glen Oaks forwarded the Bogus Payoff Statement to OCTCSC, with instructions to pay off the amounts demanded therein.” (Complaint, ¶ 17.); (6) “Glen Oaks also sent OCTCSC copies of the Lender’s Escrow Instructions from the Buyer’s new lender, and the new lender’s trust deed.” (Complaint, ¶ 18.); (7) “On or about January 27, 2022, OCTCSC received an incoming wire in the amount of $383,407.65 from the Buyer’s new lender.” (Complaint, ¶ 19.); (8) “On or about January 28, 2022, in reliance on the documents provided by Glen Oaks—including the escrow instructions and the Bogus Payoff Statement—OCTCSC wired $251,292.03 from OCTCSC’s sub-escrow account to the JPMorgan Chase Bank account specified in the Bogus Payoff Statement.” (Complaint, ¶ 20.); (9) “OCTCSC was instructed to pay off the Mega Capital Loan and to place the Borrower’s new lender into first lien priority position. The mis-delivery of payoff funds arguably exposes OCTCSC to claims for negligence and/or breach of the sub-escrow instructions—although OCTCSC is not culpable for any such negligence or breach, and should not be held liable for any resulting harms, for the reasons set forth above and below.” (Complaint, ¶ 23.); (10) “As the escrow agent for the transaction, Glen Oaks has a duty to strictly comply with the escrow instructions and the duty to exercise reasonable skill and ordinary diligence in the duties being assumed.” (Complaint, ¶ 35.); and (11) “OCTCSC was harmed by Glen Oaks’s conduct in that OCTCSC took money from its own sub-escrow account and remitted it to the fraudster Defendants’ JPMorgan Chase Bank account, thereby leaving OCTCSC exposed to potential claims for negligence and breach of the escrow instructions—although OCTCSC is not culpable for any such negligence or breach, and should not be held liable for any resulting harms, for the reasons set forth above and below.” (Complaint, ¶ 43.)
Paragraph 35 of the Complaint bases Defendant’s duty on the escrow agreement between the Buyer and Seller. The Complaint does not plead that Plaintiff is a party to the escrow agreement. Pursuant to Summit, Defendant only owes duties to the Buyer and the Seller who are the parties to the escrow agreement. Defendant only has a duty to comply with the escrow instructions. The Complaint fails to allege that Defendant owed Plaintiff a duty of care arising from some other legal source. In fact, the Complaint admits that Plaintiff is “arguably exposed” to claims for negligence but has not yet suffered actual loss or exposure. Further, the Complaint fails to allege that Plaintiff incurred any damages because it alleges that Plaintiff is “arguably exposed” to “potential claims for negligence.” Therefore, the court SUSTAINS the Demurrer to the third cause of action.
Fourth Cause of Action (Breach of the Implied Covenant of Good Faith and Fair Dealing):
Careau & Co v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394-1395 (Careau), provides, “A ' “breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself” and it has been held that “[b]ad faith implies unfair dealing rather than mistaken judgment . . . . [Citation.]” [Citation.]’ [Citation.] For example, in the context of the insurance contract, it has been held that the insurer's responsibility to act fairly and in good faith with respect to the handling of the insured's claim ' “is not the requirement mandated by the terms of the policy itself—to defend, settle, or pay. It is the obligation ... under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.” [Citation.]’ (Italics in original.) [Citations.] [¶] Thus, allegations which assert such a claim must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. Just what conduct will meet these criteria must be determined on a case by case basis and will depend on the contractual purposes and reasonably justified expectations of the parties.” (Footnote 17 omitted.)
“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made. [Citation.]” (Guz v. Bechtel (2000) 24 Cal.4th 317, 349 (Guz) (Italics in Guz); See also CACI No. 325.)
The Complaint alleges as follows: (1) “Glen Oaks and OCTCSC entered into a sub-escrow agreement, in which Glen Oaks agreed to provide escrow services, and OCTCSC agreed to provide sub-escrow services, for the subject refinance transaction.” (Complaint, ¶ 40.); (2) “Glen Oaks unfairly interfered with and frustrated OCTCSC right to receive the benefit of the sub-escrow agreement by (1) failing to disclose that Glen Oaks has received two payoff statements with conflicting remittance information; (2) failing to investigate the discrepancies between those two conflicting payoff statements; and (3) instructing OCTCSC to remit the payoff funds per the latter Bogus Payoff Statement.” (Complaint, ¶ 42.); and (3) “OCTCSC was harmed by Glen Oaks’s conduct in that OCTCSC took money from its own sub-escrow account and remitted it to the fraudster Defendants’ JPMorgan Chase Bank account, thereby leaving OCTCSC exposed to potential claims for negligence and breach of the escrow instructions—although OCTCSC is not culpable for any such negligence or breach, and should not be held liable for any resulting harms, for the reasons set forth above and below.” (Complaint, ¶ 43.)
The Complaint does not sufficiently plead that Defendant committed a deliberate, wrongful act that interfered with the purpose of the sub-escrow agreement. The Complaint does not sufficiently identify the terms of the sub-escrow agreement in order to determine its purpose. It is not clear as to the obligations Defendant and Plaintiff owed to each other under the sub-escrow agreement. Therefore, the court SUSTAINS the Demurer to the fourth cause of action.
Fifth Cause of Action (Indemnity):
C.W. Howe Partners Inc. v. Mooradian (2019) 43 Cal.App.5th 688, 700 (C.W.), states, “Equitable indemnity, which ‘requires no contractual relationship,’ ‘ “is premised on a joint legal obligation to another for damages” ’; it is “subject to allocation of fault principles and comparative equitable apportionment of loss.’ [Citation.] ‘ “The elements of a cause of action for [equitable] indemnity are (1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is . . . equitably responsible.” ’ [Citation.]”
Superior Gunite v. Ralph Mitzel, Inc. (2004) 117 Cal.App.4th 301, 312-313 (Superior Gunite), states, “One might argue if the requirement to pay is a probability, that liability might be included in damages. Yet, our Supreme Court has noted, in the context of indemnity, that an indemnitor is not obligated for a claim made against an indemnitee until the indemnitee has incurred an actual loss by having paid the claim. (Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100, 110, 32 Cal.Rptr.2d 263, 876 P.2d 1062 [‘ “a fundamental prerequisite to an action for partial or total equitable indemnity is an actual monetary loss through payment of a judgment or settlement” ’]; E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506, 146 Cal.Rptr. 614, 579 P.2d 505 [‘cause of action for implied indemnity does not accrue or come into existence until the indemnitee has suffered actual loss through payment’]; Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434, 447, 91 Cal.Rptr. 6, 476 P.2d 406 [‘an indemnitor is not liable for a claim made against the indemnitee until the indemnitee suffers actual loss by being compelled to pay the claim’].)”
Fidelity Mortgage Trustee Service, Inc. v. Ridgegate East Homeowners Association (1994) 27 Cal.App.4th 503, 510 (Fidelity), states, “The comment to section 438 explains that instances in which the principal has a duty to indemnify its agent include “those [situations] in which the agent has suffered a loss which may not have benefited the principal but in which liability depends upon a conception that because the agent was performing the principal's business it is fair that the principal should bear the incidental losses, such as the rule that the principal should indemnify the agent for the expenses of defending an action against [her or] him because [she or] he acted for the principal, the action being ultimately unsuccessful.”
Here, the Complaint does not sufficiently allege that Plaintiff has suffered any losses. The Complaint pleads only that Plaintiff may be exposed to liability for negligence. (For example, see Complaint at ¶¶ 23 and 43.) As to an agency theory, Fidelity also support that the agent must incur liability before seeking indemnity from the agent’s principal. Since the Complaint does not plead that Plaintiff has suffered an actual loss, the court SUSTAINS the Demurrer to the fifth cause of action.
Sixth Cause of Action (Contribution):
Code of Civil Procedure section 875 states in part, “(a) Where a money judgment has been rendered jointly against two or more defendants in a tort action there shall be a right of contribution among them as hereinafter provided. [¶] (b) Such right of contribution shall be administered in accordance with the principles of equity. [¶] (c) Such right of contribution may be enforced only after one tortfeasor has, by payment, discharged the joint judgment or has paid more than his pro rata share thereof. It shall be limited to the excess so paid over the pro rata share of the person so paying and in no event shall any tortfeasor be compelled to make contribution beyond his own pro rata share of the entire judgment. . . .”
The court SUSTAINS the Demurrer to the sixth cause of action for the same reasons as stated for the fifth cause of action.
Seventh Cause of Action (Declaratory Relief):
Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 605 (Ludgate), states, “The existence of an ‘actual controversy relating to the legal rights and duties of the respective parties,’ suffices to maintain an action for declaratory relief. (Code Civ. Proc., § 1060.) Code of Civil Procedure section 1060 is clear: ‘Any person interested under a written instrument, . . . or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court ... for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.’ ”
“ ‘The fundamental basis of declaratory relief is the existence of an actual, present controversy over a proper subject.’ [Citation.]” (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79; Italics in original.) “ ‘To qualify for declaratory relief, [a party] would have to demonstrate its action presented two essential elements: “(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [the party’s] rights or obligations.” ’ [Citation.] (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.)
Paragraph 51 of the Complaint alleges, “A dispute has arisen and an actual controversy now exists between OCTCSC and Glen Oaks, and each of them, concerning their respective rights and duties, in that OCTCSC contends that OCTCSC is entitled to indemnity from Glen Oaks by virtue of the theories of equitable indemnity and contribution. OCTCSC is informed and believes, and based thereon alleges, that Glen Oaks opposes and denies the above contentions and contends that OCTCSC is not entitled to indemnity and contribution from Glen Oaks.”
Rather than basing the controversy as to the parties rights and obligations under a written agreement, the Complaint alleges a dispute between the parties regarding the application of equitable indemnity and contribution. Therefore, the court SUSTAINS the Demurrer to the seventh cause of action.
Based on the above, the court SUSTAINS Defendant’s (Glen Oaks Escrow) Demurrer to Complaint of Plaintiff Orange Coast Title Company of Southern California, filed on 8-4-22 under ROA No. 13, with 14 days leave to amend from the date of service of the notice of the court’s decision. (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747.)
Defendant is to give notice.