2015-00186631-CU-PN

Angelica Lynn vs. Steve George

Nature of Proceeding: Hearing on Demurrer to 1st Amended Cross-Complaint

Filed By: Case, Anthony T.

Cross-Defendants West Coast Mortgage Group Realty Company and Robert Vellanoweth’s (collectively, “West Coast”) demurrer to the First Amended Cross-Complaint is OVERRULED.

Factual and Procedural Background

This action arises from a number of real estate transactions entered into between Real Estate Portfolio Management, LLC (“REPM”), a real estate investment company, and several real estate brokers. On Nov. 12, 2015, Plaintiffs, real estate broker Angel Lynn Realty, Inc. and Angelica Maia Lynn (collectively, “Angel”), filed their original complaint against REPM and Steve George for breach of partnership agreement, breach of fiduciary duty, fraud, constructive fraud, an accounting and dissolution of partnership.

On January 8, 2016, the Presiding Judge of this Court transferred this action on a motion for change of venue to Orange County because all the defendants resided in Orange County and the contractual obligations were to be performed there. In Orange County the complaint was twice amended. Angel’s operative pleading is the Second Amended Complaint filed August 19, 2016.

The Orange County court then granted leave for REPM and Mr. George to file a cross-complaint. The Cross-Complaint was filed on November 30, 2016, against Angel, West Coast, and three additional cross-defendants.

On July 19, 2017, the Orange County court transferred venue back to Sacramento County for the convenience of the witnesses.

REPM and Mr. George filed the First Amended Cross-Complaint (“FACC”) on January 19, 2018, alleging seven causes of action for fraud and deceit, breach of fiduciary duty, professional negligence, unfair competition, unlicensed contracting, professional

negligence, and breach of contract. The FACC alleges misconduct and fraud in connection with approximately 62 real estate transactions. Generally, the FACC alleges Angel and West Coast implemented a scheme to defraud REPM in order to increase their real estate commissions. REPM alleges West Coast received real estate commissions without REPM’s knowledge as REPM believed its only real estate broker was Angel.

West Coast now demurs to the first, second, third, and fourth causes of action on the grounds that they fail to state facts sufficient to constitute a cause of action. These are the only causes of action alleged against West Coast.

First Cause of Action for Fraud and Deceit

The first cause of action alleges Angel and West Coast represented REPM, with or without its knowledge, as its real estate broker giving rise to a fiduciary relationship. (FACC ¶ 22.) Angel allegedly represented to REPM that it was representing REPM as its real estate broker for all of the at-issue real estate transactions. REPM then sets forth a non-exclusive list of seven transactions for which Angel represented REPM. (FACC ¶ 23.) REPM alleges Angel and West Coast knew the representations made to REPM were false and that Angel intentionally drafted the transactional documents to show West Coast (instead of Angel) as the broker representing REPM. REPM then lists the same non-exclusive list of seven transactions as examples. (FACC ¶ 24.) REPM then alleges this fraud led to REPM paying a higher purchase price for the properties. (FACC ¶ 25.) REPM alleges it was prevented from learning of the scheme because Angel and West Coast withheld the transactional documents and forged REPM’s signature. (FACC ¶ 27.) REPM alleges Angel only provided limited documentation for each property purchased and sold on behalf of REPM. (FACC ¶ 18.) REPM alleges if it known it would be paying higher purchase prices due to the false representations, then it would have terminated the relationship. (FACC ¶ 28.)

In California, fraud must be pled specifically; general and conclusory allegations do not suffice. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) This particularity requirement necessitates pleading 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.)

West Coast contends the FACC fails to meet this standard as it alleges general actions against multiple entities (i.e., Angel and West Coast), lacks allegations identifying the date of the alleged forgeries, fails to identify each of the documents or transactions in which the alleged forgeries were made and the specific individual to have caused the forgery.

The Court disagrees that REPM was required to allege this cause of action with more specificity. “It is harder to apply [the requirement of specificity] to a case of simple nondisclosure. ‘How does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?’“ (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199 (internal citations omitted.) “Even under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Id.) (internal citations omitted.) The Court agrees that given the allegations that the fraud involved a concealment as to West Coast’s involvement in the transactions, a relaxed standard is appropriate. (Committee on Children’s Television, Inc. v. General

Foods Corp., (1983) 35 Cal.3d 197, 214; Turner v. Milstein (1951) 103 Cal.App.2d 651, 658 [“If, in truth, Milstein concealed from plaintiff the fact that the property was to be sold, he knows it and he knows the time and place of concealment, if there was a time and place. It would seem that concealment is negative and that it would occur without any time or place. Milstein knows the facts.”].)

Further, failure to disclose or concealment can constitute actionable fraud in four circumstances: (1) when the defendant is in a fiduciary relationship with the plaintiff;

(2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and
(4) when the defendant makes partial representations but also suppresses some material fact. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 337; Falk v. GMC (N.D.Cal. 2007) 496 F.Supp.2d 1088, 1094-1095.)

Here, REPM has alleged a fiduciary relationship with West Coast (FACC ¶¶ 17, 22), triggering the duty to disclose all material facts. REPM has also alleged West Coast actively concealed its participation in the transactions by withholding transactional documents and forging REPM’s signature. (FACC ¶¶ 24, 27.)

The Court finds the fraudulent concealment claim has been adequately pled. The demurrer to the first cause of action is OVERRULED.

Second Cause of Action for Breach of Fiduciary Duty

The second cause of action alleges West Coast represented REPM as its real estate broker giving rise to a fiduciary relationship. (FACC ¶ 33.) REPM alleges West Coast breached this duty when it intentionally failed to disclose to REPM the scheme to defraud REPM and take secret profits. (FACC ¶ 35.) REPM alleges it was prevented from learning of the scheme because West Coast and Angel withheld transactional documents and forging REPM’s signature. (FACC ¶ 36.)

West Coast contends this cause of action fails on the grounds that the FACC also alleges REPM had no knowledge West Coast was acting as its real estate broker (FACC ¶¶ 16, 17, 22) and, therefore, no fiduciary relationship was formed because REPM never assented to the representation. In support, West Coast cites to Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 410-411. However, Huong Que does not stand for the proposition that a fiduciary duty can only arise when both parties assent. Huong Que concerned an appeal of a preliminary injunction order and involved an evaluation of whether there can be an alleged breach of a duty of loyalty if that breach potentially conflicts with the terms of the purchase contract, which the parties voluntarily executed. Here, the circumstances presented are distinguishable. The Court has been presented with a demurrer, and in the FACC REPM has alleged West Coast held itself out to be REPM’s agent without REPM’s knowledge and, as a result, owed REPM a fiduciary duty. This is sufficient, at the pleading stage, to support the claim.

“A fiduciary relationship is ‘ “ ‘any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other

party without the latter’s knowledge or consent. …’ ” ’ ” (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29, internal citations omitted.) “[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (City of Hope National Medical Center v. Genentech, Inc. (2008)
43 Cal.4th 375, 386.)

REPM contends West Coast assumed fiduciary duties when it signed the numerous contracts undertaking the role of real estate broker for REPM. The Court agrees. REPM has alleged West Coast held itself out as and acted as REPM’s real estate broker and therefore owed fiduciary duties to REPM, which West Coast allegedly breached. (FACC ¶¶ 16, 33-36.) It appears West Coast knowingly acted on behalf of REPM, and West Coast has not provided any legal authority that under these circumstances a fiduciary duty cannot arise.

A real estate agent has a fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the client. (See Civ. Code § 2079.16.) This relationship not only imposes on the agent the duty of acting in the highest good towards the principal, but also precludes the agent from obtaining any advantage over the principal by virtue of the agency. (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18, 25-26; Batson v. Strehlow (1968) 68 Cal. 2d 662, 674-675; Rattray v. Scudder, (1946) 28 Cal. 2d 214, 224; Skopp v. Weaver (1976) 16 Cal. 3d 432; Wm L. Lyon & Asociates, Inc. v. Superior Court (2012) 204 Cal. App. 4th 1294.)

The Court finds the allegations are sufficient to state the existence of a fiduciary relationship. The demurrer to the second cause of action is OVERRULED.

Third Cause of Action for Professional Negligence

West Coast demurs to the third cause of action for professional negligence on the grounds damages are insufficiently pled. West Coast refers to the allegations in REPM’s original Cross-Complaint in support. Such allegations, however, are of no moment. West Coast does not argue that the current allegations contradict the prior allegations, thereby making the FACC a “sham pleading,” nor do they set forth any authorities indicating these prior allegations should be considered.

In the operative FACC, REPM has alleged the actions of Angel and West Coast caused it to suffer damages in the form of higher purchase prices and duplicative commissions paid to West Coast. (FACC ¶ 44.) The Court finds these allegations are sufficient.

The demurrer to the third cause of action is OVERRULED.

Fourth Cause of Action for Unfair Competition

West Coast demurs to the fourth cause of action for unfair competition on the grounds that REPM lacks standing because they suffered no damage, because the FACC lacks allegations regarding which acts were unfair or unlawful, and, to the extent the cause of action is based on fraud, because the same pleading requirement of particularity should be applied.

West Coast’s argument that the FACC lacks allegations regarding the unfair acts is

rejected. This cause of action incorporates paragraphs 1 through 44, which describe the alleged unfair and unlawful actions, including Angel and West Coast engaging in a scheme to defraud REPM. Further, West Coast’s argument that the fraud pleading standard should be applied to this UCL claim is rejected. West Coast has set forth no legal authority in support of this proposition.

Lastly, REPM has adequately alleged standing. Business & Professions Code § 17204 allows one to bring an action where that person “has suffered injury in fact and has lost money or property as a result of the unfair competition.” REPM has alleged West Coast’s conduct resulted in their overpayment of purchase prices and duplicative commission fees to West Coast for work they did not perform. (FACC ¶ 48.) This is “concrete and particularized,” “actual or imminent,” and sufficient to constitute standing under § 17204. (Bower v. AT&T Mobility, LLC (2011) 196 Cal.App.4th 1545, 1554; see also Hall v. Time, Inc. (2008) 158 Cal.App.4th 847, 854-855.) Further, while damages are not available as a remedy, restitution of funds obtained through unfair business practices may be recovered. The focus of restitution serves to “thwart the wrongdoer’s unjust enrichment…” (Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440,

455.) Restitution is generally defined as an equitable remedy designed to cure unjust enrichment of the defendant. “Restitution” sometimes refers to the disgorging of something that has been taken and sometimes referring to compensation for injury done. (People ex rel. Kennedy v. Beaumont Investment, Ltd. (2003) 111 Cal.App.4th 102, 134.)

The demurrer to the fourth cause of action is OVERRULED.

Conclusion

The demurrer is OVERRULED.

No later than April 16, 2018, West Coast shall file and serve their answer to the FACC.