CIV537867 KATHY AI GEN TONG VS. DAVID CHAN, ET AL.

KATHY AI GEN TONG STEVEN M. MORGER

DAVID CHAN GRANT H. BAKER

6. MOTION TO STRIKE (PUNITIVE DAMAGES)

· GRANTED IN PART; DENIED IN PART. Cross-Defendant Fidelity National Title Company’s Motion to Strike portions of David Chan’s and Suzanne Nagy-Chan’s 10-26-17 Third Amended Cross-Complaint (TACC) is GRANTED-IN-PART and DENIED-IN-PART.

· As to the TACC’s allegations relating to Ms. Hui’s alleged agreement to repay the Tong loan, Fidelity’s argument is more appropriately raised via a Demurrer (which Fidelity has done), rather than in a motion to strike, which is generally directed to “irrelevant, false, or improper matter” in a pleading. Code Civ. Proc. Sect. 436. The Tong loan was expressly referenced in the escrow instructions. While the Chans may not have a valid claim for damages relating to that loan, reference to it in the TACC does not appear improper.

· As to the TACC’s request for punitive damages, the motion is GRANTED in light of the Court’s sustaining Fidelity’s Demurrer to the tort claims of fraud and breach of fiduciary duty (see ruling on Demurrer, below)`, which serve as the basis for the TACC’s request for punitive damages. Absent a valid tort claim, the request for punitive damages is improper. Civ. Code Sect. 3294.

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If the Tentative Ruling is uncontested, it shall stand as the Court’s decision. Moving party’s Counsel is directed to prepare a written Order consistent with the Court’s ruling for the Court’s signature, pursuant to California Rules of Court, Rule 3.1312, and to provide notice thereof to the opposing party/counsel as required by law and the California Rules of Court. The Order is to be submitted directly to Judge Gerald J. Buchwald, Dept 10.

7. DEMURRER TO THIRD AMENDED CROSS-COMPLAINT

· SUSTAINED WITH LEAVE TO AMEND. As to all asserted claims, Cross-Defendant Fidelity National Title Company’s Demurrer to David Chan’s and Suzanne Nagy-Chan’s 10-26-17 Third Amended Cross-Complaint (TACC) is SUSTAINED WITH LEAVE TO AMEND, for the reasons stated below.

· The meet and confer was sufficient. The Court finds Fidelity complied with the meet and confer requirement of Code Civ. Proc. Sect. 430.41, despite the Chan’s contention that Fidelity’s counsel refused to discuss the subject matter of the Demurrer in good faith. (See 1-22-18 “Objection and Report to the Court on Failed Meet and Confer). The parties counsel appear to have spoken at length regarding the arguments to be raised in the Demurrer, and clearly were not able to agree. Under the circumstances, the Court finds this sufficient.

· David Chan’s alleged lack of standing. As to Fidelity’s contention that David Chan lacks standing to assert claims for negligence and breach of fiduciary duty against Fidelity because Fidelity purportedly owed him no duty as a “non-party” to the escrow, the Court cannot reach that conclusion on Demurrer.

· Fidelity cites Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711 for the general notion that escrow holders owe no duty of care, nor a fiduciary duty, to non-parties or “strangers” to an escrow. Fidelity argues David Chan did not own the property at the time of sale (title was held, and conveyed to Hui, by Madera Investments, LLC), and was not listed as the “Seller” on the escrow instructions, and thus was a non-party to the escrow.

· However, the Court in Summit began its discussion of “duty” by stating “An escrow involves the deposit of documents and/or money with [the escrow company] … An escrow holder is an agent and fiduciary of the parties to the escrow.” Id. at 711. Here, David Chan is alleged to have signed a grant deed and deposited it with Fidelity as part of the planned conveyance. Under the circumstances, it seems inaccurate to characterize him as a “stranger” to the escrow; he was clearly involved and interested in the transaction. Based on the discussion in Summit, the Court cannot conclude, on Demurrer, that David Chan necessarily lacks standing to allege tort claims against Fidelity.

· Nor can the Court conclude at the Demurrer stage that David Chan lacks standing to allege breach of contract. Fidelity argues the TACC’s allegations, together with the judicially noticed documents, demonstrate David Chan and Fidelity were not parties to any contract because Suzanne Nagy-Chan was identified as the “Seller,” and because there are no allegations suggesting David Chan was an intended third-party beneficiary of the escrow. The TACC alleges the property was a community property asset, that David Chan signed and deposited deeds in the escrow, and that David Chan “engaged Fidelity to have title to the property transferred [from the LLC to David Chan and Nagy-Chan, and then to Hui].” (Parag. 16). Given the foregoing, the Court cannot resolve this dispute on Demurrer.

· Fidelity’s statute of limitations argument as to the negligence claim. Fidelity’s contention the negligence claim is barred by a two-year statute of limitations (Code Civ. Proc. Sect. 335.1) cannot be resolved on Demurrer, because the running of the statute must appear “clearly and affirmatively” from the face of the complaint; it is not enough that the negligence claim might be time-barred. See Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.

· A professional negligence claim generally accrues when the plaintiff first suffers appreciable harm from the breach and discovers, or should discover, the negligence. Cyr v. McGovran (2012) 206 Cal.App.4th 645, 652. Fidelity argues that date was June 2, 2014, when Hui failed to make the first payment to Ms. Tong. The Chans argue the claim did not accrue until on or about June 23, 2015, when the 2007 Grant Deed was cancelled. The Chans further argue they reasonably assumed Fidelity would record the grant deed that they signed and would comply with the Seller’s escrow instructions, and that Fidelity concealed its negligence, which resulted in a delayed discovery, by sending a Closing Statement to Nagy-Chan showing Nagy-Chan as the “Seller.”

· Fidelity cites no authority holding that constructive notice provided by a recorded deed necessarily precludes a delayed discovery argument. Given the allegation of delayed discovery, the Court cannot resolve this dispute at the pleading stage.

· The Chans have not sufficiently alleged damage resulting from the alleged “forged/fraudulent” deed(s). The Chans allege damage as a result of Fidelity allegedly creating and recording “forged” deeds (i.e., by creating, in contradiction of the parties’ agreement and understanding, a forged grant deed that conveyed the property from the LLC to Ms. Hui rather than, as the Chans contemplated and requested, a series of grant deeds that would have conveyed the property first from the LLC to the Chans, and later from Nagy-Chan to Hui). (See the Chans’ 1-22-18 “Objection and Report to the Court on Failed Meet and Confer,” accusing Fidelity of forgery, fraud, and intentionally misleading the Court). The Chans claim damage from Fidelity’s alleged altered deeds, arguing the conveyance to Hui is now a nullity, and therefore the Chans may need to incur future attorney’s fees in unwinding the transaction. There is no allegation in the pleadings or the attached documents, nor any suggestion, that Ms. Hui or anyone else has sought to unwind the sale (indeed, the Chans, without explanation, have apparently dropped Hui from their Cross-Complaint). The possibility of the Chans incurring future legal fees in the event someone seeks to unwind the sale to Hui is speculative and insufficient to constitute damage.

· The escrow instructions released Fidelity from liability relating to the Tong loan. The Chans also claim damage from the fact that Fidelity, in violation of Parag. 13 of the “General Provisions” of the escrow instructions, closed escrow despite receiving conflicting escrow instructions from the Buyer and Seller—specifically, despite Ms. Hui deleting the sentence in the instructions stating “Buyer has agreed to pay the loan secured thereby as the installments fall due.” (Buyer’s Escrow Instructions). Both the Buyer’s and Seller’s escrow instructions, however, included an “Indemnity” clause stating in part:

· “BOTH BUYER AND SELLER … RELIEVE YOU [FIDELITY] OF ANY LIABILITY REGARDING SAID DEED OF TRUST AND THE NOTE SECURED THEREBY, INCLUDING BUT NOT LIMITED TO … ANY OF THE TERMS THEREOF … AND JOINTLY AND SEVERALLY DO, AND AGREE TO, HOLD YOU HARMLESS FOR AND INDEMNIFY YOU AGAINST, AND AGREE TO DEFEND YOU AGAINST ANY CLAIMS WHATSOEVER ARISING THEREFROM …”

· The foregoing constitutes an express release of any claims against Fidelity regarding the Tong Note and related Deed of Trust. Accordingly, the Chans are precluded from alleging damage arising from the non-payment of that loan.

· Leave to amend. While the Chans have already filed multiple versions of their Cross-Complaint against Fidelity, given the Court’s liberal policy with respect to amendments, the Court grants the Chans leave to amend to attempt to state a proper cause of action against Fidelity. Any further amended Cross-Complaint shall be filed within 20 days of this Order.

· Judicial notice. Fidelity’s Request for Judicial Notice filed in support of the Demurrer is GRANTED as to Exhibits A-C (recorded Grant Deeds and Deed of Trust) (Evid. Code Sect. 452(c)), and GRANTED as to Exhibits D-E (documents filed with the Court). Evid. Code Sect. 452(d). As to each of the foregoing documents, judicial notice is granted only as to the documents’ existence and recording/filing dates—not as to the truth of any allegations therein.