Judge: Yolanda Orozco, Case: 21STCV40518, Date: 2023-03-01 Tentative Ruling

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Case Number: 21STCV40518    Hearing Date: March 1, 2023    Dept: 31

DEMURRER WITHOUT MOTION TO STRIKE 

TENTATIVE RULING 

Defendants’ demurrer to the First Amended Complaint is SUSTAINED WITH 30 DAYS LEAVE TO AMEND.

 BACKGROUND 

On November 03, 2021, Plaintiff Thompson Team Real Estate, Inc. filed a Complaint against Luis Gutierrez, Anatoly Ioda, and Does 1 to 50.

On July 06, 2022, the demurrer to Plaintiff’s Complaint was sustained as to all causes of action and Plaintiff was granted leave to amend.

The operative First Amended Complaint (FAC) alleges causes of action for:

1) Fraud,

2) Conversion;

3) Violation of Penal Code Section 496; and

4) Unjust Enrichment.

On September 19, 2022, Defendants filed a Demurrer to the FAC. 

Plaintiff filed opposing papers on February 15, 2023.

Defendants filed a reply on February 22, 2023. 

MEET AND CONFER 

Before filing a demurrer or motion to strike, the moving party must meet and confer in person or by telephone with the party who filed the pleading to attempt to reach an agreement that would resolve the objections to the pleading. (Code Civ. Proc., §§ 430.41, 435.5.) “Any determination by the court that the meet and confer process was insufficient shall not be grounds to overrule or sustain a demurrer.” (Code Civ. Proc., § 430.41, subd. (a)(4).)

The meet and confer requirement has been met. (Goldberg Decl. ¶¶ 3-5.) 

LEGAL STANDARD¿¿ 

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable.¿ (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)¿ “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.”¿ (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)¿ For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded.¿ (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)¿ A demurrer “does not admit contentions, deductions or conclusions of fact or law.”¿ (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿ 

¿ ¿¿ 

“Where the defect raised by a motion to strike or by demurrer is reasonably capable of cure, leave to amend is routinely and liberally granted to give the plaintiff a chance to cure the defect in question.” (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿¿  

DISCUSSION 

Allegations in FAC

Plaintiff Thompson Team Real Estate, Inc is a real estate broker that was hired by Defendants Luis Gutierrez and Anatoly Ioda to represent them in a real estate transaction involving two properties located on Prospect Avenue and Belmont Lane in Redondo Beach, CA. Plaintiff now seeks to recover the commission on the two properties.

The FAC alleges that it was a custom and practice of real estate brokers and developers to work together on development projects by having the brokers represent the developer on the purchase of a development property. (FAC ¶ 9.) The broker would convey or transfer its commission on the purchase to the developer in exchange for the developer committing to list the sale of the development with the broker upon completion of the development. (FAC ¶ 9.)

Plaintiff had represented the Defendants as their broker in the purchase of a property located at 2023 Ernes Avenue (hereinafter “Ernest Property”). (FAC ¶ 10.) Defendants stated an intent to subdivide the Ernest Property by developing two townhouses and represented to Plaintiff that if Plaintiff transferred, assigned, or conveyed its commission earned in the purchase of the Ernest Property to Defendants, Defendants would list the newly developed townhouses with Plaintiff for sale. (FAC ¶ 10.) Ultimately, Plaintiffs did transfer its commissions to Defendants who developed the two townhouses and listed them for sale through Plaintiff.

The Prospect Property

On September 18, 2019, Plaintiff and Defendants executed a Residential Purchase Agreement (RPA) wherein Defendant Gutierrez offered to purchase the Prospect Property and confirmed that Plaintiff was the Defendants’ broker for the transaction. (FAC ¶ 11, Ex. 1 [at ¶ 2].) The seller was to pay his broker the entire commission, which pursuant to the RPA would be split between the seller’s broker and Plaintiff. (Id. Ex. 1 [at p. 10].)

Plaintiff and Defendants also executed a Disclosure Regarding Real Estate Agency Relationship (“Disclosure”). (FAC ¶ 11, Ex. 2.) In the Disclosure, Defendant Gutierrez acknowledged that Plaintiff was his broker representing Defendant Gutierrez in his purchase of the Prospect Property. (Id.) Defendant Gutierrez purchased the Prospect Property for $1,875,000.00 and pursuant to the RPA, Plaintiff was entitled to a commission of $37,500.00. (FAC ¶ 12.)

Prior to the RPA, Defendants had represented that they intended to demolish existing structures on the Prospect Property and develop five townhomes and that if Plaintiff transferred, assigned, or conveyed its commission earned on the purchase of the property to Defendants, upon the completion of the development, Defendants would list the five townhomes for sale with Plaintiff. (FAC ¶ 13.) Plaintiff relied on Defendants’ representations given Plaintiff’s experience with the Ernest Property and its awareness that Defendants had entered into similar agreements with other South Bay realty brokers. (FAC ¶ 14.) Defendant Gutierrez purchased the Prospect Property, and Plaintiff transferred, assigned, or conveyed its commission of $37,500.00 to Defendants. (FAC ¶ 15.)

The Belmont Property

On February 26, 2020, Plaintiffs and Defendants executed another RPA, wherein Defendant Gutierrez offered to purchase 1705 Belmont Lane and Plaintiff was confirmed as the broker for the transaction. (FAC ¶ 16, Ex. 3 [at ¶ 2].) The RPA required the seller to pay his broker the entire commission, which pursuant to the RPA, would be split between the seller’s broker and Plaintiff. (Id. Ex. 3 [at p. 10].) Plaintiff and Defendant Gutierrez also executed a Disclosure Regarding Real Estate Agency Relationship (“Disclosure”), wherein Defendant Gutierrez acknowledged Plaintiff as his broker. (FAC ¶ 16, Ex.4.) On February 28, 20202, the seller and his broker executed an Additional Agent Acknowledgment. (FAC ¶ 16, Ex. 5.)

After the RPA was signed, Defendant Gutierrez and the seller came to an agreement for Gutierrez to purchase the Belmont Property for $1,225,000.00. (FAC ¶ 17.) Plaintiff asserts it was entitled to a commission of $ $30,625.00. (FAC ¶ 17.)

Before Defendant Gutierrez signed the agreement to purchase the Belmont Property, Defendants had represented to Plaintiff that they intended to demolish the two existing structures on the Belmont Property and develop two townhomes on that property. (FAC ¶ 18.) Defendants represented to Plaintiff that if it transferred, assigned, or conveyed its earned commission on the sale of the Belmont Property to Defendants, upon the completion of the development, Defendants would list the two townhomes for sale with Plaintiff. (FAC ¶ 18.) Plaintiff relied on Defendants’ representations and transferred the $30,635.00 commission for the Belmont Property to Defendants. (FAC ¶ 20.)

Plaintiff alleges that the Defendants’ representations regarding the development of the Prospect and Belmont Properties were false. (FAC ¶ 23, 24.) “The truth was that Defendants, and each of them, intended to keep the homes existing on Belmont and the townhomes constructed on Prospect for themselves and themselves alone, to rent out the homes for their own profit, and not sell the homes on the properties on the Belmont and Prospect properties as represented to Plaintiff.” (FAC ¶ 24.) Plaintiff alleges that Defendants knew their representations were false and intended for Plaintiff to rely on them and give its commissions on both properties to Defendants. (FAC ¶ 25.)

Plaintiff now seeks to recover $68,125.00 in damages plus interest. (FAC ¶ 27.) Plaintiff is now suing the Defendants for Fraud, Conversion, violation of Penal Code section 496, and Unjust Enrichment.

Demurrer to FAC

Defendants demurrer to Plaintiff’s FAC on the basis that Plaintiff fails to state sufficient facts to constitute a cause of action.

1st COA: Fraud

To plead a cause of action for fraud, Plaintiff must plead facts showing the following elements: (1) misrepresentation, (2) knowledge of falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damage. (Charnay v. Cobert (2006) 145 Cal. App.4th 170, 184.)

It is undisputed that a Residential Purchase Agreement (RPA) exists between Defendants/the buyers and the sellers of the Belmont and Prospect Properties, and that Plaintiff is listed as Defendants’/the buyers’ broker in each RPA. (FAC Ex. 1, 3.) The issue is that Plaintiff fails to show under the RPAs or the Disclosures, Plaintiff is entitled to a commission. Defendants assert that RPA between Defendants and the Sellers of the Prospect and Belmont Properties alone does not entitle Plaintiff to a commission pursuant to Paragraph 18 of the RPAs which states:

“Seller or Buyer, or both, as applicable, agree to pay compensation to Broker as specified in a separate written agreement between Broker and that Seller or Buyer. Compensation is payable upon Close of Escrow, or if escrow does not close, as otherwise specified, in the agreement between Broker and that Seller or Buyer.”

(FAC, Ex. 1, 3 at ¶ 18.)

Accordingly, Defendant asserts the RPAs are insufficient to show that Plaintiff is entitled to a commission absent the existence of a separate written agreement.

Plaintiff’s FAC alleges that evidence of its entitlement to a commission is on page ten of the RPAs. The applicable RPAs provisions state:

“REAL ESTATE BROKERS:

A. Real Estate Brokers are not parties to the Agreement between Buyer and Seller.

[ . . .]

D. COOPERATING (BUYER’S) BROKER COMPENSATION: Seller's Broker agrees to pay Buyer's Broker and Buyer's Broker agrees to accept, out of Seller's Broker's proceeds in escrow, the amount specified in the MLS, provided Buyer's Broker is a Participant of the MLS in which the Property is offered for sale or of a reciprocal MLS. If Seller's Broker and Buyer's Broker are not both Participants or the MLS, or a reciprocal MLS, in which the Property is offered for sale, then compensation must be specified In a separate written agreement (C.A.R. Form CBC). Declaration of License and Tax (C.A.R. Form DTL) may be used to document the tax reporting will be required or that an exemption exists.”

(FAC Ex. 1, 3 [at p. 10].)

“MLS” stands for “Multiple Listing Service” as represented in paragraph 24 of the RPA. However, Plaintiff fails to allege that Plaintiff is a Participant of the MLS in which the two properties were offered for sale or that Plaintiff is part of a reciprocal MLS with the seller’s broker. Therefore, Plaintiff cannot show that under the RPAs, the seller’s broker was to split its commission with Plaintiff. (FAC ¶¶ 11, 13.)  If Plaintiff was not a participant of the MLS or part of a reciprocal MLS in which the properties were offered for sale, then Plaintiff was required to execute a separate written agreement for compensation. (FAC Ex. 1, 3 [at p. 10.].) Plaintiff fails to allege the existence of a separate written agreement entitling Plaintiff to a commission on the two properties. Plaintiff also fails to point to any language in the Disclosures showing that Plaintiff was entitled to a commission on the two properties bought by Defendant. (FAC Ex. 2, 4.)

Accordingly, Plaintiff cannot show that it was entitled to a commission under the RPAs, or the Disclosers attached to the FAC.

Furthermore, Plaintiff cannot show that it is entitled to a commission by the mere fact that it is Defendants’ broker because any agreement for a commission is invalid if not in writing as required by the statute of frauds. (Civ. Code, § 1624, subd. (a)(4).

The statute of frauds, as specified in section 1624, provides, in part:

“(a) The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party's agent:

[ . . . ]

(4) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission.”

(Civ. Code, § 1624 subd. (a)(4).) 

Plaintiff’s cause of action for fraud has already been previously sustained because Plaintiff failed to plead around Philippe v. Shapell Indus. (1987) 43 Cal.3d 1247, in which the California Supreme Court held:

“A broker's real estate commission agreement is invalid under section 1624(d) unless the agreement ‘or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by the party's agent.’ The writing must unequivocally show on its face the fact of employment of the broker seeking to recover a real estate commission.”

(Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1258.) 

Here, the FAC fails to show on its face that a valid real estate commission agreement exists between the parties because Plaintiff fails to show how the RFAs for the Prospect and Belmont Properties entitled Plaintiff to a commission. (FAC ¶¶ 11, 16 Ex. 1, 3.) Without a valid written agreement, Plaintiff cannot show it was entitled to a commission. Without entitlement to a commission, Plaintiff cannot show that it relied on Defendants’ representations in assigning, conveying, or transferring commissions that Plaintiff was never entitled to receive. 

As explained in the previous demurrer to Plaintiff’s Complaint, Plaintiff’s fraud cause of action is also barred by Phillippe:

“Phillippe [the broker,] did not plead a cause of action for actual fraud. We believe it necessary, however, to explain how our present holding necessarily would affect an action by a licensed broker for actual fraud. To recover for fraud in any case the plaintiff must show that he reasonably relied on the defendant's misrepresentations. The plaintiff cannot recover if his reliance was not justified or reasonable. (Citations.) As discussed above, a broker's presumed knowledge of the statute of frauds precludes him from showing the reasonable reliance on an oral agreement that is necessary to assert equitable estoppel. (Citations.) Likewise, an oral promise by a broker's principal to execute the required writing at a later date will not give rise to estoppel. (Citation.) By parity of reasoning, a broker's reliance on an oral promise to pay a commission or an oral promise to execute the required writing at a later date cannot be sufficiently reasonable to support an action for fraud. A broker's reliance, however, on a representation that the necessary contract has in fact been executed may be reasonable and thus support an action for fraud or the assertion of equitable estoppel.”

(Philippe v. Shappell Indus., supra, 43 Cal.3d at 1270.)

Absent a written agreement entitling Plaintiff the commissions on the Prospect and Belmont properties, Plaintiff cannot allege fraud regarding Defendants’ representations since the representations and alleged damages involve said commissions. Furthermore, Plaintiff has not alleged fraud in the execution of the RPAs and Disclosures, such that Plaintiff relied on Defendants’ representations that the necessary contracts entitling Plaintiff to a commission had been executed. Therefore, the Court agrees that Plaintiff has failed to state sufficient facts to sustain a cause of action for fraud.

Moreover, fraud causes of action must be pled with specificity. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “The Lazar court explained that ‘[t]his particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation omitted.]” (Charnay v. Cobert (2006) 145 Cal. App.4th 170, 185, fn. 14.) Here, Plaintiff fails to plead the fraud cause of action with the required specificity.

Unless Plaintiff alleges it is entitled to a commission via its participation in the MLS or a reciprocal MLS, in which the two properties were offered for sale, or through a separate written agreement, Plaintiff’s fraud cause of action fails as a matter of law.

The demurrer to the first cause of action is SUSTAINED WITH LEAVE TO AMEND.

2nd COA: Conversion

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) “Money may be the subject of conversion if the claim involves a specific, identifiable sum . . . .” (WelcoElectronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 209.)

Plaintiff’s second cause of action fails because Plaintiff cannot show it had ownership or a right to the commissions on the Prospect and Belmont Properties.

The demurrer to the second cause of action is SUSTAINED WITH LEAVE TO AMEND.

3rd COA: Penal Code

Penal Code section 496, subdivision (c), provides a civil cause of action against anyone who is injured by a violation of subdivisions (a) or (b). the elements required to show a violation of section 496, subdivision (a), are simply that (i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property. (Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.) “[T]he issue of whether a wrongdoer's conduct in any manner constituted a “theft” is elucidated by other provisions of the Penal Code defining theft, such as Penal Code section 484. (Id. at 126.) To generally summarize, Section 484 describes how one may misappropriate the property of another by fraud.

Plaintiff’s third cause of action also fails because Plaintiff cannot show it was entitled to the commissions or that the Defendants committed fraud.

The demurrer is SUSTAINED WITH LEAVE TO AMEND.

4th COA: Unjust Enrichment

[T]here is no cause of action in California for unjust enrichment. The phrase ‘Unjust Enrichment’ does not describe a theory of recovery, but an effect: the result of a failure to make restitution under circumstances where it is equitable to do so. [Citation.] Unjust enrichment is ‘a general principle, underlying various legal doctrines and remedies,’ rather than a remedy itself. [Citation.]” (Melchior v. New Line Cinema (2003) 106 Cal.App.4th 779, 793 [internal citations omitted].)

Unjust enrichment is synonymous with restitution. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.) Restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but the express contract is void because it was procured by fraud or is unenforceable or ineffective for some reason. (Id.) “A claim for restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement.” (Id.)

The fourth cause of action fails because Plaintiff cannot show it was entitled to the commissions and that Defendants are in possession of ill-gotten gains. Moreover, Plaintiff cannot raise a cause of action for unjust enrichment to recover the commissions it believed it owed due to the sale of the Prospect and Belmont properties”

“Once the statute of frauds applies, its bar against relief is absolute and applies no matter how the unhappy broker styles his or her claim to recover compensation or a commission. (Citation). Were the bar not absolute, the bar would be easily evaded, and the ‘primary purpose’ for making such contracts subject to the statute of frauds—to serve as a ‘consumer protection’ mechanism  ‘to protect real estate sellers and purchasers from the assertion of false claims by brokers for commissions’—would go unserved. (Citations.)”

(Westside Estate Agency, Inc. v. Randall (2016) 6 Cal.App.5th 317, 324.)

Thus, Plaintiff fails to show that Defendants were unjustly enriched. The demurrer to the fourth cause of action is SUSTAINED WITH LEAVE TO AMNED. 

CONCLUSION 

Defendants’ demurrer to the First Amended Complaint is SUSTAINED WITH 30 DAYS LEAVE TO AMEND. 

Moving party to give notice.