Case Name: Terry Sullivan v. Cynthia Lee Holiday, et al.

Case No.: 18CV336064

Defendant Steven Orensteen’s Demurrer to Complaint

Plaintiff Terry Sullivan (“Sullivan”) alleges that on or about January 26, 2009, he and defendant Cynthia Lee Holiday (“Holiday”) entered into a written agreement entitled, “Promissory Note Secured by Deed of Trust and on Transfer or Encumbrance Clause.” (Complaint, ¶BC-1 and Exh. A.) On or about July 10, 2018, defendant Holiday breached the agreement by failing and refusing to pay the balance due after having been given 30 days prior written notice of a demand to pay the balance due. (Complaint, ¶BC-2.) Defendant Steven Wayne Orensteen (“Orensteen”), a licensed real estate broker, solicited plaintiff Sullivan for or negotiated the loan for compensation or in expectation of compensation. (Complaint, ¶BC-6.)

On January 26, 2009, defendant Orensteen represented to plaintiff Sullivan that there was an opportunity to loan $87,500 bearing a large amount of interest (12% per annum plus 10 points) to a qualified borrower for six months and that the loan would be fully secured by a Deed of Trust that defendant Orensteen would prepare and record. (Complaint, ¶FR-2.) Defendant Orensteen knew but concealed the fact that defendant Holiday did not earn enough commissions as a real estate sales person to be sufficient to timely repay the $87,500 loan. (Complaint, ¶¶FR-2 to FR-3 and Attachment FIR-7.) One purpose of the loan proceeds was for defendant Holiday to pay $42,000 to Terra West Real Estate Group, an entity owned and/or controlled by defendant Orensteen. (Complaint, ¶FR-2.)

Defendant Orensteen did not disclose to plaintiff Sullivan that he had not verified defendant Holiday’s income or whether there was sufficient equity in the real property owned by defendant Holiday to provide adequate security for the loan in the event of default. (Complaint, Attachment FIR-7.) From July 26, 2009 to May 2, 2018, defendant Orensteen told plaintiff Sullivan that it was a good thing the loan hadn’t been repaid because of all the interest adding up. (Id.) Subsequent to the July 26, 2009 due date of the loan, defendant Orensteen gave money to defendant Holiday to pay to plaintiff Sullivan so as to lull plaintiff Sullivan into continuing to believe the loan would be repaid. (Id.) Relying on defendant Orensteen’s representations, plaintiff Sullivan did not believe he needed to demand defendant Holiday pay the principal and accrued interest. (Id.) It was not until May 2, 2018 that plaintiff Sullivan learned defendant Orensteen had defrauded him. (Id.)

On October 5, 2018, plaintiff Sullivan filed a Judicial Council form complaint against defendants Holiday and Orensteen asserting causes of action for:

(1) Breach of Contract [versus Holiday]
(2) Common Counts [versus Holiday]
(3) Fraud [versus Holiday]
(4) Fraud [versus Orensteen]
(5) Negligence [versus Orensteen]
(6) Breach of Fiduciary Duty [versus Orensteen]

On March 25, 2019, defendant Orensteen filed the instant demurrer.

II. Defendant Orensteen’s demurrer to the complaint.

A. Defendant Orensteen’s demurrer to the complaint on the ground that there is no allegation of a broker-principal relationship is OVERRULED.

Plaintiff Sullivan’s fourth cause of action alleges, in part, fraudulent concealment. “‘[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.’ [Citation.]” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.)

The fifth and sixth causes of action allege negligence and breach of fiduciary duty and appear to be premised upon the allegation that defendant Orensteen, “a Licensed Real Estate Broker at the time he solicited and arranged for the $87,5000 [sic] loan to be secured by a Deed of Trust (Exhibit ‘A’ to Complaint) represented Plaintiff in this loan transaction and as such owed a fiduciary duty to Plaintiff to act with the utmost good faith in the best interest of Plaintiff.” (Complaint, Attachment FIR-7.)

Defendant Orensteen demurs to all three of the causes of action by arguing, apparently, that in order for defendant Orensteen to owe any duty to plaintiff Sullivan, there must first be an allegation of a relationship which gives rise to such a duty. According to defendant Orensteen, plaintiff Sullivan has not adequately alleged the existence of any such relationship. Defendant Orensteen demurs, initially, on the ground that “In an action founded upon a contract, it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct.” (Code Civ. Proc., §430.10, subd. (g).) Defendant Orensteen’s reliance on Code of Civil Procedure section 430.10 subdivision (g) is misplaced as the claims asserted against him are not “founded upon a contract.”

Defendant Orensteen next cites Business and Professions Code section 10131, subdivision (d) which states, in relevant part, “A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: … Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.” Defendant Orensteen contends it is not enough for plaintiff Sullivan to allege that defendant Orensteen “represented” plaintiff, but must also allege the highlighted language above. Defendant Orensteen asserts plaintiff Sullivan has not made any such allegations in the complaint, but such allegations can be found at paragraph BC-6.

Consequently, defendant Orensteen’s demurrer to the fourth through sixth causes of action in plaintiff Sullivan’s complaint on the ground that it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct [Code Civ. Proc., §430.10, subd. (g)] and on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] is OVERRULED.

B. Defendant Orensteen’s demurrer to the fourth through sixth causes of action on the ground that the claims are barred by the statute of limitations is OVERRULED.

As a general matter, a court may sustain a demurrer on the ground of failure to state sufficient facts if “the complaint shows on its face the statute [of limitations] bars the action.” (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315.) A demurrer is not sustainable on statute of limitations grounds if there is only a possibility that the cause of action is time-barred; the defense must be clearly and affirmatively apparent from the allegations of the pleading. (Id., at pp. 1315-1316.) When evaluating whether a claim is time-barred, the court must determine: (1) which statute of limitations applies, and (2) when the claim accrued. (Id., at p. 1316.)

Plaintiff’s fourth cause of action asserts a claim for fraud. The limitations period for a claim predicated on fraud is three years from the date of “the discovery, by the aggrieved party, of the facts constituting the fraud.” (Code Civ. Proc., § 338, subd. (d); see Britton v. Girardi (2015) 235 Cal.App.4th 721, 734.)

According to defendant Orensteen, any alleged fraud would have accrued no later than the date the promissory note became due, July 26, 2009. Defendant Orensteen contends plaintiff Sullivan’s allegations of delayed discovery are insufficient.

In order to rely on the discovery rule for delayed accrual of a cause of action, “[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160, 86 Cal.Rptr.2d 645.) In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to “show diligence”; “conclusory allegations will not withstand demurrer.” (Ibid.)
Simply put, in order to employ the discovery rule to delay accrual of a cause of action, a potential plaintiff who suspects that an injury has been wrongfully caused must conduct a reasonable investigation of all potential causes of that injury. If such an investigation would have disclosed a factual basis for a cause of action, the statute of limitations begins to run on that cause of action when the investigation would have brought such information to light. In order to adequately allege facts supporting a theory of delayed discovery, the plaintiff must plead that, despite diligent investigation of the circumstances of the injury, he or she could not have reasonably discovered facts supporting the cause of action within the applicable statute of limitations period.

(Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808–809.)

According to defendant Orensteen, plaintiff Sullivan has not and cannot plead that he engaged in a reasonable and diligent investigation of the circumstances. Defendant Orensteen’s argument misunderstands the allegation in the complaint that, “During the period of time between July 26, 2009 and May 2, 2018 Defendant, Steven Wayne Orensteen, made numerous representations to Plaintiff and to others on numerous occasions at a restaurant named Goodies that it was a good thing the loan hadn’t been repaid because all the interest that was adding up.” Defendant Orensteen’s argument, in addition, overlooks the allegation in the complaint that, “Plaintiff is informed and believes during the many years subsequent to the due date of the $87,500 loan Defendant Orensteen gave money to Defendant, Cynthia Lee Holiday, to pay to Plaintiff which she in fact did pay to Plaintiff so as to lull Plaintiff into continuing to believe the loan was going to be repaid.” (Complaint, Attachment FR-7.)

These allegations sufficiently raise the doctrine of equitable estoppel which is distinct from delayed discovery. “Equitable estoppel … is not concerned with the running and suspension of the limitations period, but rather comes into play only after the limitations period has run and addresses itself to the circumstances in which a party will be estopped from asserting the statute of limitations as a defense to an admittedly untimely action because his conduct has induced another into forbearing suit within the applicable limitations period. Its application is wholly independent of the limitations period itself and takes its life, not from the language of the statute, but from the equitable principle that no man will be permitted to profit from his own wrongdoing in a court of justice. Thus, because equitable estoppel operates directly on the defendant without abrogating the running of the limitations period as provided by the statute, it might apply no matter how unequivocally the applicable limitations period is expressed.” (Battuello v. Battuello (1998) 64 Cal.App.4th 842, 847 – 848.)

In Shaffer v. Debbas (1993) 17 Cal.App.4th 33, 43, the court wrote, “A defendant will be estopped to invoke the statute of limitations where there has been ‘some conduct by the defendant, relied on by the plaintiff, which induces the belated filing of the action.’ It is not necessary that the defendant acted in bad faith or intended to mislead the plaintiff. It is sufficient that the defendant’s conduct in fact induced the plaintiff to refrain from instituting legal proceedings. ‘Whether an estoppel exists—whether the acts, representations or conduct lulled a party into a sense of security preventing him from instituting proceedings before the running of the statute, and whether the party relied thereon to his prejudice—is a question of fact and not of law.’” (Emphasis added.)

Defendant Orensteen demurs to the fifth cause of action for negligence and sixth cause of action for breach of fiduciary duty by making the same statute of limitations argument. Since the complaint sufficiently raises the doctrine of equitable estoppel and since the determination of whether an estoppel exists is a question of fact, defendant Orensteen’s demurrer to the fourth through sixth causes of action in plaintiff Sullivan’s complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)], i.e., the claims are barred by the applicable statute of limitations, is OVERRULED.