VALENTINO CASTELLANOS, ET AL. v. SUN 1031 EXCHANGE LLC, ET AL.
Case No.: 1-13-CV-249411
DATE: Aug. 12, 2014
TIME: 9:00 a.m.
DEPT.: 3
“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” Blank v. Kirwan (1985) 39 Cal.3d 311, 318. Allegations are not accepted as true on demurrer if they contradict or are inconsistent with facts judicially noticed. Similarly, facts appearing in exhibits attached to the complaint (part of the “face of the pleading”) are given precedence over inconsistent allegations in the complaint. See Holland v. Morse Diesel Int’l, Inc. (2001) 86 Cal App 4th 1443, 1447. See also Witkin, California Evidence (4th Ed., 2000) 1 Judicial Notice §3(3) (“It has long been established in California that allegations in a pleading contrary to judicially noticed facts will be ineffectual; i.e., judicial notice operates against the pleader.”)
The Request for Judicial Notice (“RJN”) by Defendant Matthew Vredevoogd (“MV”) is GRANTED as to all five documents (exhibits A-E) pursuant to Evid. Code §452(d).
The Request for Judicial Notice by Defendants Neel Bhatia, Cassidy Turley Northern California, Inc. and Cassidy Turley Commercial Real Estate Services, Inc. (“Cassidy Defendants”) is GRANTED as to both documents submitted (exhibits A & B) pursuant to Evid. Code §452(d).
Only the prior orders of the Court (Hon. McKenney and Hon. Folan), attached as exhibits A and B to both requests, can be noticed as to the truth of their contents. The contents of the verified prior pleadings, the Second Amended Complaint (“SAC,” exhibit C to MV’s Request) and First Amended Complaint (“FAC,” exhibit D to MV’s Request), are noticed for purposes of comparison with the operative Third Amended Complaint (“TAC”). Plaintiffs remain bound by their prior allegations that the alleged wrongdoing on which all causes of action are based is the sale of securities by the Sun Defendants to the “Castellanos Plaintiffs” in October 2008 and to the “Tyler Plaintiffs” in December 2008. See SAC at 22 and 29, FAC at 22 and 29. As the original complaint was filed more than four years later on July 12, 2013, all Plaintiffs’ claims may be time barred unless Plaintiffs satisfy the requirements of the delayed discovery rule.
“A plaintiff has reason to discover a cause of action when he or she ‘has reason at least to suspect a factual basis for its elements.’ Under the discovery rule, suspicion of one or more of the elements of a cause of action, coupled with knowledge of any remaining elements, will generally trigger the statute of limitations period. Norgart explained that by discussing the discovery rule in terms of a plaintiff’s suspicion of ‘elements’ of a cause of action, it was referring to the ‘generic’ elements of wrongdoing, causation, and harm. In so using the term ‘elements,’ we do not take a hypertechnical approach to the application of the discovery rule. Rather than examining whether the plaintiffs suspect facts supporting each specific legal element of a particular cause of action, we look to whether the plaintiffs have reason to at least suspect that a type of wrongdoing has injured them.” Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807, internal citations omitted. “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.’ 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.’” Id.at 808, internal citations omitted. See also E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal App 4th 1308, 1319, 1324-1325 (To be entitled to the benefit of the delayed discovery rule a plaintiff must specifically plead the time and manner of discovery and show the following: 1) Plaintiff had an excuse for late discovery; 2) Plaintiff was not at fault in discovering facts late; 3) Plaintiff did not have actual or presumptive knowledge to be put on inquiry; 4) Plaintiff was unable to make earlier discovery despite reasonable diligence.)
A plaintiff cannot avoid the specific pleading requirements of the delayed discovery rule by making general allegations of a fiduciary relationship with defendants. As with duties of care generally, the existence and scope of an alleged fiduciary duty is a question of law for the Court. See Kirschner Brothers Oil, Inc. v. Natomas Co. (1986) 185 Cal.App.3d 784, 790. As the Order of the Court (Hon. Folan) on the last round of demurrers explained, “Plaintiffs must specifically plead the time and manner of their eventual discovery of the facts giving rise to their claims (regardless of any other arguments) and must allege—as to each defendant alleged to owe a fiduciary duty to each group of Plaintiffs—when and how the relationship including such a duty arose, how long it lasted and how the scope of that duty explains the failure to allege claims arising out of the sales of securities in October and December of 2008 any earlier than July of 2013.” See Ex. B to both RJNs at 8:3-10.
Vredevoogd Demurrer and Motion to Strike
Defendant MV’s Motion to Strike Para. 8 (including footnotes 1 and 2) from the TAC is GRANTED pursuant to CCP §435(a) and (b). The inclusion of this allegation in the TAC, which attempts to include Defendant MV in the definitions relating to the Sun entity Defendants, is an evasion and misrepresentation of the prior May 14, 2014 order of the Court (Hon. Nolan) finding that the attempt to group MV with the Sun Defendants for the first time in the SAC was a sham pleading and was disregarded. The Court clearly did not find that the failure to link MV with the Sun Defendants during the previous five years was inadvertent and did not grant Plaintiffs leave to amend such allegations. Leave to amend now is DENIED. Accordingly the various allegations in the TAC against the Sun Defendants, Sun Individual Defendants, or either Sun entity are deemed not to refer to or include MV. As the Court previously ruled, “the Tyler Plaintiffs and Castellanos Plaintiffs remain bound by the prior admission in the verified FAC at 7 (excluding MV from the definition of the ‘Sun Defendants’) and the admission at 22 that ‘[t]he Securities were offered and sold by the Sun Defendants to Plaintiffs in California . . .’)”
Defendant MV’s demurrer to the 2nd cause of action (“Material Misrepresentations in the Offer & Sales of Securities,” in violation of Corp. Code §§25401, 25501 and 25504) on the ground that it fails to state sufficient facts against him is SUSTAINED WITHOUT LEAVE TO AMEND. As stated above the attempt to allege that MV was part of the Sun Defendants has already been disregarded by the Court as a sham pleading and Plaintiffs remain bound by their prior verified allegations in the FAC and SAC that the securities were sold to them by the Sun Defendants. There is therefore no contractual privity between MV and Plaintiffs, which is required for liability under these code sections, as was pointed out in the prior order. The demurrer to this claim on statute of limitations grounds is moot.
Defendant MV’s Motion to Strike paragraphs 72-85 (the 2nd cause of action) from the TAC is DENIED as moot in light of the above ruling on the demurrer to that cause of action as alleged against him.
Defendant MV’s demurrer to the 5th, 9th, 11th, 15th, 18th and 21st causes of action on the ground that they are each time-barred as alleged against him under the relevant statutes of limitation (Notice of Demurrer at 2:3-4) and therefore fail to state sufficient facts is OVERRULED in part and SUSTAINED in part as follows.
The demurrer to the 5th cause of action, “Materially Assisting Persons,” in violation of Corp. Code §§25504 and 25504.1 on statute of limitations grounds is OVERRULED. Violations of §§25504 and 25504.1 are governed by the limitations period set forth in Corp. Code §25506(b) which states in pertinent part that actions must be brought “before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.” Despite Plaintiffs’ unwillingness or inability to comply with the pleading standards for delayed discovery, the limitations period potentially did not run on this claim until Dec. 2013, five years after the Tyler Plaintiffs’ purchase of securities in Dec. 2008, and after the filing of the original complaint on July 12, 2013. Therefore it is not apparent from the face of the TAC that the claim is time barred.
The demurrer to the 9th (“Fraud & Deceit”) 11th (The Court assumes here that MV meant to refer to the 12th cause of action for “Negligent Misrepresentation,” as the 11th stating the same claim against different defendants is not alleged against MV) 15th (“Negligence”), 18th (“Breach of Fiduciary Duty”), and 21st (“Financial Elder Abuse”) causes of action on statute of limitations grounds is SUSTAINED with 10 days’ leave to amend. All of these claims arise from the Tyler Plaintiffs’ purchase of securities in Dec. 2008 and Plaintiffs have not complied with the delayed discovery rule. “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.’” Fox, supra,at 808, internal citations omitted. See also E-Fab, Inc., supra.
Sun Defendants’ Demurrer
Defendants Sun 1031, LLC, Sun Capitol, LLC and Shawn Coleman (“Sun Defendants”) demurrer to several causes of action on the grounds that they are uncertain and/or time barred. See Notice of Demurrer at 1:10-16.
The Sun Defendants’ demurrer to the 1st, 3rd, 7th, 10th, 13th, 16th, 20th and 22nd causes of action on uncertainty grounds is OVERRULED. Uncertainty is a disfavored ground for demurrer and is typically sustained only where the pleading is so bad the responding party cannot reasonably respond. See Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal App 4th 612, 616 (“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”) While the TAC is clearly “in some respects uncertain” it is apparent that the Sun Defendants understand what each of these claims at least attempts to allege sufficiently to respond to them and therefore there is no true uncertainty.
The Sun Defendants’ demurrer to the TAC’s 1st cause of action (“Material Misrepresentation in Offer & Sale of Securities,” in violation of Corp. Code §§25401, 25501 and 25504), 3rd cause of action (“Materially Assisting Persons,” in violation of Corp. Code §§25504 and 25504.1), and 6th cause of action (“Control Persons,” alleging a violation of Corp. Code §§25504 and 25504.1 against individual defendants Knight, Coleman and Herzog only) on the ground that they each are time barred is OVERRULED. As stated above in relation to Defendant MV’s demurrer to the TAC’s 5th cause of action, the claims are governed by the limitations period set forth in Corp. Code §25506(b) and it is not apparent from the face of the TAC that they are time barred under that section based on when Plaintiffs purchased securities and when their original complaint was filed.
The Sun Defendants’ demurrer to the TAC’s 7th cause of action (“Fraud & Deceit”), 10th cause of action (“Negligent Misrepresentation”), 13th cause of action (“Negligence”), 16th cause of action (“Conversion,” subject to the three-year statute of limitations in CCP §338(c)), 20th cause of action (“Financial Elder Abuse”) and 22nd cause of action (“Probate Code §859”) on the ground that they are each time barred is SUSTAINED with 10 days’ leave to amend. Plaintiffs have not satisfied the requirements of the delayed discovery rule.
Cassidy Defendants Demurrer and Motion to Strike
The Cassidy Defendants demurrer to the TAC’s 4th, 8th, 11th, 14th, 17th, 19th and 23rd causes of action.
The Cassidy Defendants’ demurrer to the 4th cause of action (“Materially Assisting Persons,” in violation of Corp. Code §§25504 and 255401.1) on the ground that it fails to state sufficient facts against them is SUSTAINED. Statutory clams must be pled with particularity. See Lopez v. Southern California Rapid Transit District (1985) 40 Cal.3d 780, 795; Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790. As has been stated in prior orders in this case, “[t]he plain language of section 25504.1 makes clear that a person must have materially assisted in the securities law violation. Therefore, for purposes of section 25504.1, it is not enough that a person provided material assistance in a larger scheme to defraud if that person had no role or involvement in the part of the scheme that constituted a violation of the securities laws.” AREI II Cases (2013) 216 Cal App 4th 1004, 1014, emphasis in original. Plaintiffs continue to simply allege that the Cassidy Defendants provided material assistance in the Sun Defendants’ (alleged) scheme to defraud. Despite prior leave to amend there are no allegations specifying that the Cassidy Defendants’ participated in a violation of particular securities laws. Further leave to amend is DENIED. See Medina v. Safe-Guard Products (2008) 164 Cal App 4th 105, 112 fn. 8 (“As the Rutter practice guide states: ‘It is not up to the judge to figure out how the complaint can be amended to state a cause of action. Rather, the burden is on the plaintiff to show in what manner he or she can amend the complaint, and how that amendment will change the legal effect of the pleading.’”)
The Cassidy Defendants’ demurrer to the 8th cause of action (“Fraud & Deceit”) and 11th cause of action (“Negligent Misrepresentation”) on the grounds that both claims are time-barred and fail to allege fraud with sufficient specificity are SUSTAINED with 10 days’ leave to amend.
The essential elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage. Anderson v. Deloitte & Touche (1997) 56 Cal.App.4th 1468, 1474. Fraud must be pleaded with specificity; facts which “show how, when, where, to whom, and by what means the representations were tendered.” Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. Moreover, to assert a fraud action against a corporation, Plaintiffs must allege the names of the person(s) who allegedly made the fraudulent representation, their authority to speak, to whom they spoke, and what they said or wrote, and when it was said or written. Tarmann v. State Farm Mutual Auto Ins. Co. (1991) 2 Cal.App.4th 153, 157. Furthermore, “[t]he law is well established that actionable misrepresentations must pertain to past or existing material facts. Statements or predictions regarding future events are deemed to be mere opinions which are not actionable.” Cansino v. Bank of America (2014) 224 Cal App 4th 1462, 1469, internal citations omitted. Nor can fraud claims be based on the Cassidy Defendants allegedly passing along written materials prepared by the Sun Defendants unless it is clearly alleged that they knew the contents of those materials were false. The 8th and 11th causes of action both arise out of the sale of securities to the Castellanos Plaintiffs by the Sun Defendants in Oct. 2008 and are thus time barred unless and until Plaintiffs satisfy the requirements of the delayed discovery rule. See Fox, supra, and E-Fab, Inc., supra. The 8th and 11th causes of action also fail to allege fraud with sufficient particularity, both as to the corporate entity defendants and as to individual defendant Bhatia.
The Cassidy Defendants’ demurrer to the 14th cause of action (“Negligence”) and 17th cause of action (“Breach of Fiduciary Duty”) on the grounds that both are barred by the statute of limitations and fail to state sufficient facts is SUSTAINED with 10 days’ leave to amend. As with the fraud claims these causes of action arise out of the Oct. 2008 sale of securities to the Castellanos Plaintiffs and are clearly time barred unless and until Plaintiffs satisfy the requirements of the delayed discovery rule. As to allegations supporting the existence and scope of the alleged fiduciary duty, Plaintiffs appear to have made no effort to comply with the prior order of the Court (Hon. Folan).
The Cassidy Defendants’ demurrer to the 19th cause of action (“Respondeat Superior”) on the ground that it is barred by the statute of limitation and fails state sufficient facts is SUSTAINED with 10 days’ leave to amend. All of the potential underlying claims alleged against individual defendant Bhatia are currently time barred and/or fail to state sufficient facts.
The Cassidy Defendants’ demurrer to the 23rd cause of action (“Probate Code §859”) on the ground that it fails to state sufficient facts is SUSTAINED with 10 days’ leave to amend. There is nothing in the TAC to support this heightened remedy against these defendants. Financial Elder Abuse is not alleged against the Cassidy Defendants and there are no allegations against them of undue influence in bad faith. The fact that one of the Castellanos Plaintiffs is a trust does not change the fact that all of the potential underlying claims that might support an assertion of wrongful disposal of trust property are inadequately pled.
The Cassidy Defendants’ motion paragraph 164 of the TAC (part of the 8th cause of action), paragraph 209 (11th cause of action), paragraph 266 (17th cause of action), paragraph 280 (19th cause of action), and paragraph 5 of the TAC’s Prayer is DENIED as MOOT in light of the above rulings on their demurrer.
Defendant MV’s attempted Joinder to the Sun Defendants’ Demurrer and the Cassidy Defendants’ Demurrer and Motion to Strike is DENIED. MV cannot join demurrers to causes of action not alleged against him.
Plaintiffs are reminded that when a demurrer is sustained with leave to amend, the leave must only be construed as permission to the pleader to amend the causes of action to which the demurrer has been sustained. See Harris v. Wachovia Mortg., FSB (2010) 185 Cal App 4th 1018, 1023 (“Following an order sustaining a demurrer or a motion for judgment on the pleadings with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court’s order. The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.”)
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