Judge William A. Crowfoot, Case Number: 23AHCV00408, Date: 2023-08-11 Tentative Ruling

Judge: William A. Crowfoot, Case: 23AHCV00408, Date: 2023-08-11 Tentative Ruling

On February 23, 2023, plaintiff Chao Xu (“Plaintiff”) filed this action against Shengli Ge (“Ge”), Peng Liang Gong (“Gong”, erroneously sued as “Liang Peng Gong”), and CTC Investment Properties, Inc. dba Re/Max Advanced Realty (“CTC”). On April 21, 2023, Plaintiff filed the First Amended Complaint. On July 31, 2023, Plaintiff’s request to dismiss Gong from the action without prejudice was entered.

On August 11, 2023, the Court sustained Ge and CTC’s (collectively, “Defendants”) demurrer to Plaintiff’s cause of action for professional negligence with leave to amend. On September 1, 2023, Plaintiff filed the Second Amended Complaint (“SAC”). On October 3, Defendants filed a demurrer directed towards Plaintiff’s First Cause of Action for Professional Negligence

Plaintiff alleges that he owns real property located at 4918 Lone Acres Ct in Rancho Cucamonga (the “Property”) and that he signed an exclusive right to lease contract with Ge and CTC, wherein Defendants would provide leasing, tenant search and screening, and property management services. (SAC, ¶ 11.) Around September 2019, Ge informed Plaintiff that he found a tenant to rent his Property. (SAC, ¶ 14.) This tenant, Grayson Bosworth, would occupy the property with his three children, Tina, Paul, and Gary. (SAC, ¶ 15.) Plaintiff alleges that on or about March 2020, he stopped receiving any rent payment when the tenant was no longer paying rent and was unable to collect rent between March 27, 2020, and October 2022. (SAC, ¶¶ 22-26.) Plaintiff claims that he learned sometime around October 2022 that the tenant living at the property was not “Grayson Bosworth” and the tenant refused to apply for rent relief. (SAC, ¶¶ 30-34.) Plaintiff claims that CTC and Ge are liable because they were his agents and failed to conduct a background investigation or credit check on the tenant. (SAC, ¶ 35-37.)

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).)

As before, Defendants claim that Plaintiff’s cause of action for professional negligence is barred by the economic loss rule because it is simply a restatement of his contract claims and does not violate an independent duty arising from tort law. (Demurrer, p. 4.) Defendants argue that Plaintiff cannot escape the economic loss rule by identifying damage to his Property, as he does in the SAC, allegedly caused by Defendants’ alleged failure to conduct background checks on Bosworth.

In opposition, Plaintiff argues that the property damage caused by Bosworth was a result of Defendants’ failure to conduct a background check and is sufficient to overcome the economic loss rule.

On reply, Defendants point to a contract provision which provides that Plaintiff will:

[i]ndemnify, defend and hold harmless Property Manager, and all persons in Property Manager's firm, as permitted by law, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury or death of any person, or damage to any real or personal property of any person, including Owner, (i) for any repairs performed by Owner or by others hired directly by Owner; (ii) for those acts relating to the management, leasing, rental, security deposits, or operation of the Property by Property Manager, or any person in Property Manager's firm, or the performance or exercise of any of the duties, powers or authorities granted to Property Manager; or (iii) from any incorrect or incomplete information supplied by Owner, or from any material facts that Owner knows but fails to disclose including dangerous or hidden conditions on the Premises.

Based on this language, it appears that the contract between Plaintiff and Defendants exculpates Defendants from liability for damage to real property as well as for Defendants’ own negligence. However, Under Tunkl v. Regents of University of Cal. (1963) 60 Cal.2d 92, 101, exculpatory provisions allowing a party to escape its own negligence are unenforceable if they affect the public interest. In placing particular contracts within or without the category of those affected with a public interest, courts consider whether the contract concerns a business of a type generally thought suitable for public regulation, including whether the party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. Courts also look to whether the party seeking to be exculpated holds himself out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. Also, a court considers whether, as a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services.” “In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against negligence.” Additionally, the person or property of one contracting party is placed under the control of the other, subject to the risk of carelessness by the other or its agents.

Based on an analysis of these factors expressed in Tunkl, it appears that the provision on which Defendants rely to evade tort liability for their own negligence is unenforceable. Accordingly, because Plaintiff has amended the complaint to add allegations of property damage, Defendants’ demurrer to the SAC based on the economic loss rule is OVERRULED.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.