2010-00073633-CU-OR

Mark Montgomery vs. JTS Communities Inc

Nature of Proceeding: Hearing on Demurrer

Filed By: Jones, Shannon B.

If any party requests oral argument, then the hearing will take place on Tuesday, June
10, 2014, at 9:00AM in this department. Any party seeking oral argument must still
make a telephonic request pursuant to Local Rule 1.06(B).

**If any party requests oral argument, then at the time the request is made, the
requesting party must inform the court and opposing counsel of the specific
issues on which oral argument is sought.**

The demurrer of Defendants The Advantage Group, New Home Marketing, Inc.
(“Advantage”); Laura Fender (“Fender”); Steve Gordon (“Gordon”); and Ray Melville (“Melville”) (collectively the “Advantage Defendants”) to the fourth amended complaint
(“4AC”) of Plaintiffs Willie Haidari, Francis Holleran and Josh and Darcie Magdaleno
(the “Indirect Purchasers”) (“4AC”) is OVERRULED in part, SUSTAINED in part and
DROPPED in part as follows:

Background Facts/Procedure

Plaintiffs are homeowners and a homeowners’ association (“HOA”) in the residential
development known as The Ranch. Non-demurring Defendant JTS Communities, Inc.
(“JTS”) allegedly developed the community and, beginning in 2003, sold homes there
with the assistance of various other persons and entities. This case arises from JTS’
and its agents’ alleged misrepresentations that The Ranch would have a 400-acre
common, open-space area exclusively available to prospective homeowners. The
Ranch was to receive the common area from JTS once JTS sold all the homes at the
Ranch.

Plaintiffs allege that Advantage served as JTS’ real estate brokerage, that Melville was
an Advantage owner/broker, and that Fender and Gordon were two of Advantage’s
real estate agents. Plaintiffs further allege that Advantage was marketed as a part of
JTS and that Advantage was the alter ego/partner/joint venturer of all the other
defendants in the case.

According to Plaintiffs, each of the Advantage Defendants misrepresented the
availability of the common area at The Ranch. Homeowners at The Ranch allegedly
used and maintained the common area for several years after they purchased their
homes. Nonetheless, while JTS controlled the HOA, is secretly caused the HOA to
facilitate JTS’ retention and sale of the common area subject only to The Ranch’s
easement thereon. Plaintiffs further allege that JTS used non-payment of property
taxes as a fabricated justification for withholding the common area. Based on these
allegations, Plaintiffs have pleaded against the Advantage Defendants causes of
action for declaratory relief, intentional misrepresentation, negligent misrepresentation,
violation of B&P Code §§ 17200 et seq., and violation of B&P Code §§ 17500 et seq.

On July 12, 2013, Fender, Gordon and Melville unsuccessfully demurred to Plaintiffs’
third amended complaint (“TAC”). On April 18, 2014, however, the court granted (with
leave to amend) the Advantage Defendants’ motion for judgment on the pleadings as
to causes of action brought by a subset of Plaintiffs who did not purchase their homes
directly from JTS or its agents immediately after construction; these defendants
purchased properties sold on the resale market. In granting the motion, the court
agreed with the Advantage Defendants that the allegations in the TAC did not
establish any relationship between the Indirect purchasers and the Advantage
Defendants that could support the Indirect Purchasers’ causes of action.

On April 21, 2014, Plaintiffs filed the 4AC. The Advantage Defendants now demur on
grounds that the Indirect Purchasers have not alleged facts sufficient to state any valid
cause of action. The instant demurrer is not directed at causes of action brought by
the HOA or any direct purchasers.

Discussion

The Demurrer to the Indirect Purchasers’ Second Cause of Action for Breach of
Fiduciary Duty
The demurrer is DROPPED.

The second cause of action is not directed at the Advantage Defendants and,
therefore, is not the proper subject of the Advantage Defendants’ demurrer.

The First and Fourth Causes of Action for Declaratory Relief and Negligent
Misrepresentation

The demurrers are SUSTAINED without leave to amend.

The Indirect Purchasers have abandoned these causes of action.

The Third cause of Action for Intentional Misrepresentation

The demurrers of Advantage and Gordon are OVERRULED.

The demurrers of Fender and Melville are SUSTAINED without leave to amend.

All The Advantage Defendants demur to the third cause of action on multiple grounds.
First, they argue that the demurrers should be sustained because, as a matter of law,
real estate brokers and agents do not owe any legal duties to non-clients such as the
Indirect Purchasers. With respect to non-clients, real estate brokers may be liable for
fraud where they supply information with the intent to influence a particular transaction.
(See Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 408-409; Coldwell Banker
th
Residential Mortgage Co., Inc. v. Superior Court (2004) 117 Cal.App.4 158. 166.) In
the 4AC, the Indirect Purchasers specifically allege that they asked Gordon about the
common area and that he responded, as agent for JTS and Advantage, that the
common area would exclusively benefit homeowners at The Ranch. (See 4AC, ¶¶ 39-
40.) Liberally construed, these allegations can be read to establish Gordon’s intent to
influence the Indirect Purchasers’ decisions to invest in The Ranch. Consequently, the
court rejects the no-duty argument as to Gordon and one of his principals, Advantage.

With respect to Fender and Melville, however, the court reaches the opposite
conclusion. The Indirect Purchasers do not specifically allege that these defendants
spoke with them or otherwise made any misrepresentations to them. In fact, they
allege the opposite. (See 4AC, ¶ 39 [the Indirect Purchasers did not purchase directly
from Advantage].) The allegations thus cannot be read to establish that Fender or
Melville somehow intended to influence the real estate decisions of the non-client
Indirect Purchasers.

The court further concludes that the Indirect Purchasers have failed to allege the
requisite reasonable reliance as to Fender and Melville. Although Plaintiffs generally
allege that Fender and Melville made misrepresentations about the common area, they
do not allege specific facts establishing that that these two defendants made
misrepresentations that the Indirect Purchasers could have reasonably relied upon.
Because this is the Indirect Purchasers’ second unsuccessful attempt to state
intentional misrepresentation against Melville and Fender, and because the Indirect
Purchasers have failed to demonstrate that they will be able to remedy their pleading
defects through further amendment, the court sustains the demurrers of Fender and
Melville without leave to amend. Again, however, the court reaches the opposite conclusion as to Advantage and
Gordon. Because the Indirect Purchasers allege that Gordon made
misrepresentations about the common area while the Indirect Purchasers were on site
at JTS and contemplating purchases there, whether the non-client Indirect Purchasers
reasonably relied on Gordon’s misrepresentations presents a factual issue that this
court may not resolve at this juncture.

In overruling the demurrers of Gordon and Advantage to the third cause of action, the
court concludes that the Indirect Purchasers’ allegations against them are sufficiently
specific to satisfy the heightened pleading requirements governing fraud.

The court disregards the Advantage Defendants’ citation to the CC&Rs attached to
their request for judicial notice as Exhibit A. The Advantage Defendants cite the
CC&Rs to support their argument that the Indirect Purchasers could not have
reasonably relied on their alleged misrepresentations that the common area would be
transferred to The Ranch for homeowners’ exclusive use. In citing the CC&Rs,
however, the Advantage Defendants fail to point the court to the appropriate portions
by page and line. There are 113 pages in the CC&Rs. Because the court declines to
pore over the CC&Rs to find the relevant portions, it will not resolve the demurrer
based upon that document.

Finally, the court rejects the Advantage Defendants’ argument that the demurrer
should be sustained because the allegations do not establish the element of causation.
Whether the allege misrepresentations played a substantial causal role in the Indirect
Purchasers’ decisions to purchase homes at the Ranch presents a factual issue that
this court may not resolve at this juncture.

The Fifth and Sixth Causes of Action for Violations of B&P Code §§ 17200 et
seq. and 17500 et seq.

The demurrers of Advantage and Gordon are OVERRULED.

The demurrers of Fender and Melville are SUSTAINED without leave to amend.

As noted above, the Indirect Purchasers have failed to allege that Fender or Melville
engaged in any conduct that caused harm. As a result, the Indirect Purchasers’ sixth
and seventh causes of action against these Defendants fail to state a cause of action.
Because the Indirect Purchasers have failed to demonstrate a reasonable likelihood of
remedying the pleading defects as to Fender and Melville, the court denies leave to
amend as to these defendants.

The Indirect Purchasers’ allegations against Gordon and Advantage, however, suffice.
For reasons stated above, the court rejects Gordon’s and Advantage’s argument that
the allegations fail to establish causation. In addition, the court rejects the argument
that the demurrers should be sustained because the predicate statutes do not afford
any remedy. In this regard, Gordon and Advantage make a cursory argument that the
Indirect Purchase cannot obtain injunctive relief because there is no “ongoing”
misconduct to enjoin. Absent an authority for this position, the court rejects it.

Judicial Notice

The Indirect Purchasers’ Request of Judicial Notice is DENIED as irrelevant. To the
extent the Indirect Purchasers request judicial notice of the CC&Rs, the court also
denies the request due to the Indirect Purchasers’ failure to cite to the CC&Rs
appropriately.

Conclusion

The demurrer to the second cause of action is DROPPED.

The demurrers to the first and fourth causes of action are SUSTAINED without leave
to amend.

The demurrers of Fender and Melville to the third, sixth and seventh causes of action
are SUSTAINED without leave to amend.

The demurrers of Gordon and Advantage to the third, sixth and seventh causes of
action are OVERRULED.

If they have not already done so, Gordon and Advantage shall file and serve their
answer(s) to the 4AC no later than June 20, 2014.

Pursuant to CRC 3.1312, The Advantage Defendants shall lodge for the court’s
signature a formal order, and a proposed judgment of dismissal in favor of Fender and
Melville against the Indirect Purchasers.

Item 3 2010-00073633-CU-OR

Mark Montgomery vs. JTS Communities Inc

Nature of Proceeding: Motion to Strike

Filed By: Shafsky, Hannah M.

If any party requests oral argument, then the hearing will take place on Tuesday, June
10, 2014, at 9:00AM in this department. Any party seeking oral argument must still
make a telephonic request pursuant to Local Rule 1.06(B).

The motion of Defendants The Advantage Group, New Home Marketing, Inc.
(“Advantage”); Laura Fender (“Fender”); Steve Gordon (“Gordon”); and Ray Melville
(“Melville”) (collectively the “Advantage Defendants”) to strike portions of the fourth
amended complaint (“4AC”) of Plaintiffs Willie Haidari, Francis Holleran and Josh and
Darcie Magdaleno (the “Indirect Purchasers”) (“4AC”) is GRANTED in part without
leave to amend and DROPPED in part as moot.

Background Facts/Procedure

Plaintiffs are homeowners and a homeowners’ association (“HOA”) in the residential
development known as The Ranch. Non-demurring Defendant JTS Communities, Inc.
(“JTS”) allegedly developed the community and, beginning in 2003, sold homes there
with the assistance of various other persons and entities. This case arises from JTS’
and its agents’ alleged misrepresentations that The Ranch would have a 400-acre
common, open-space area exclusively available to prospective homeowners. The
Ranch was to receive the common area from JTS once JTS sold all the homes at the
Ranch.

Plaintiffs allege that Advantage served as JTS’ real estate brokerage, that Melville was
an Advantage owner/broker, and that Fender and Gordon were two of Advantage’s
real estate agents. Plaintiffs further allege that Advantage was marketed as a part of
JTS and that Advantage was the alter ego/partner/joint venturer of all the other
defendants in the case.

According to Plaintiffs, each of the Advantage Defendants misrepresented the
availability of the common area at The Ranch. Homeowners at The Ranch allegedly
used and maintained the common area for several years after they purchased their
homes. Nonetheless, while JTS controlled the HOA, is secretly caused the HOA to
facilitate JTS’ retention and sale of the common area subject only to The Ranch’s
easement thereon. Plaintiffs further allege that JTS used non-payment of property
taxes as a fabricated justification for withholding the common area. Based on these
allegations, Plaintiffs have pleaded against the Advantage Defendants causes of
action for declaratory relief, intentional misrepresentation, negligent misrepresentation,
violation of B&P Code §§ 17200 et seq., and violation of B&P Code §§ 17500 et seq.

By the instant motion, the Advantage Defendants seek an order striking all the
Plaintiffs’ claims for rescission as well as the Indirect Purchasers’ claims for restitution.

Discussion

Rescission

The request to strike is GRANTED without leave to amend.

Plaintiffs have voluntarily withdrawn their rescission claims against the Advantage
Defendants. (See Opp. at 3:1-2.)

Restitution

The request to strike is GRANTED in part without leave to amend and DROPPED in
part as moot.

The Advantage Defendants move to strike the Indirect Purchasers’ claims for
restitution under the sixth and seventh causes of action for violations of B&P Code §§
17200 et seq. and 17500 et seq. To the extent Melville and Fender make the a
motion, the matter is dropped as moot in light of the court’s concurrent order sustaining
these defendants’ demurrers to the Indirect Purchasers’ causes of action without leave
to amend.

With respect to Gordon and Advantage, the motion to strike the Indirect Purchasers’
restitution claims under the fifth and sixth causes of action is granted. The theory that
Gordon and Advantage is simple: the Indirect Purchasers did not purchase anything
from them, or pay them in conjunction with any purchase, and therefore there is no
restitution to make.

The Indirect Purchasers do not dispute the contention that the Advantage Defendants
were not directly involved in their purchases of homes at The Ranch. Said purchases
were made on the resale market without the direct participation of The Advantage
Defendants. Nonetheless, the Indirect Purchasers oppose the request to strike their
restitution claims against the Advantage Defendants. The Indirect Purchasers argue
that restitution can be available even absent a direct purchase from a defendant. In
support of this argument, the Indirect Purchasers cite primarily federal cases for the
proposition that the availability of restitution in such circumstances depends on
whether the plaintiff “conferred a benefit” on the defendant, not whether there was a
direct exchange of money or property. (See Opp. at 11-24.)

The court agrees with the Advantage Defendants. Because Gordon and Advantage
did not receive anything from the Indirect Purchasers , there is nothing of value for
Gordon and Advantage to restore. (See Shersher v. Superior Court (2007) 154
Cal.App.4th 1491, 1494, [although a UCL plaintiff who purchased a product from a
retailer may pursue restitution from the manufacturer on an indirect-purchaser theory,
the plaintiff may only do so as to money or property in which (s)he had an ownership
interest]; Inline, Inc. v. Apace Moving Sys., Inc. (2005) 125 Cal.App.4th 895, 903-905
[the UCL is limited to restoration of money or property to a private plaintiff]; see also
Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1020
[“nonrestitutionary disgorgement is not available to a private plaintiff [under the UCL
statutes]”] [brackets added].) Here, the Indirect Purchasers admit that they never paid
anything to Gordon or Advantage. That these defendants allegedly received a
“benefit” from someone other than the Indirect Purchasers does not entitle the Indirect
Purchasers to restitution. (See Madrid v. Perot Sys. Corp. (2005) 130 Cal.App.4th
440, 455 [restitution under the UCL is aimed at restoring the plaintiff’s property, not
stripping the defendant of ill-gotten gains].)

Because the Indirect Defendants have failed to demonstrate a reasonable likelihood
that they will be able allege facts supporting claims for restitution against Gordon and
Advantage, the court denies leave to amend.

Conclusion

Plaintiffs’ rescission claims against The Advantage Defendants are STRICKEN from
the 4AC without leave to amend.

The Indirect Purchasers restitution claims against Gordon and Advantage are
STRICKEN from the 4AC without leave to amend.

The balance of the motion is DROPPED as moot.

The minute order is effective immediately. No formal order pursuant to CRC 3.1312 or
further notice is required.