2010-00091529-CU-FR

Darlyne Andrus vs. Stewart Title Of Placer

Nature of Proceeding: Hearing on Demurrer

Filed By: Samaan, Nabil

Defendants Brett Adair, Stone Canyon Mortgage, and Adair Realty & Land
Development’s demurrers to Plaintiffs’ second amended complaints (“SACS”) in this
consolidated action is ruled upon as follows.

Plaintiffs’ request for judicial notice of the SACS and the Court’s minute order on the
demurrer to the previous pleadings is granted.

In the SAC in case no. 2010-0091529 (“Andrus”), Plaintiffs allege a fraudulent scheme
pursuant to which Defendants sought to defraud them of their real property rights in
certain property in Orangevale when Defendants allegedly forged their signatures on a
sales contract when Plaintiffs believed the property was being refinanced. In case no.
2010-00094562 (“Ruiz”), Plaintiffs allege Defendants defrauded them through a Ponzi
scheme pursuant to which Defendants induced Plaintiffs to refinance their homes and
make improper payments of escrow funds to Defendants which belonged to Plaintiffs.
Both SACS allege causes of action for fraud, financial elder abuse, negligent
hiring/supervision, breach of fiduciary duties, civil RICO, negligent misrepresentation,
and constructive fraud.

As with the last demurrer, the instant demurrer fails to comply with requirements of form, specifically CRC, Rule 3.1320(a) as it does not set forth each ground of demurrer
in a separate paragraph. Indeed, the demurrer purports to address two separate
complaints (Andrus and Ruiz) in this consolidated action though this is not self-evident
from the notice. The Court declines Plaintiffs’ request that it disregard the demurrer on
this basis. The Court does note, however, that this failure, in connection with the
failure of the memorandum to address in any meaningful depth the allegations of the
two separate complaints has made it difficult for the Court to analyze the demurrer.

The Court declines to consider the exhibits attached to Defendants’ counsel’s
declaration as the versions of the SACS contain unidentified handwritten notes and
differ from the versions actually filed in these actions. In addition, the Court disregards
the tentative ruling attached to the declaration as the controlling ruling is embodied in
the Court’s September 19, 2013, minute order attached to Plaintiffs’ requests for
judicial notice.

Special Demurrer (CCP § 430.10(g).)

Defendants appear to demur to every cause of action in the SACS pursuant to CCP §
430.10(g) arguing that it is “unclear if there is a written or oral contract.” A demurrer on
this basis only lies where the action is on a contract. (CCP § 430.10(g).) That section
does not apply where, as here, the action arises out of fraud. (Strozier v. Williams
(1960) 187 Cal.App.2d 528, 532.) Plaintiffs allege no breach of contract cause of
action and the demurrer on this basis is overruled.

Special Demurrer (CCP § 430.10(f).)

Defendants’ demurrer to every cause of action in the SACS pursuant to CCP § 430.10
(f) on the basis that they are “uncertain” or “unintelligible” is overruled. Demurrers for
uncertainty are disfavored and only sustained where the complaint is so muddled that
the defendant cannot reasonably respond. The favored approach is to clarify theories
in the complaint through discovery. (Khoury v. Maly’s of Calif., Inc. (1993) 14
th
Cal.App.4 612, 616.) The Court has reviewed the SACS and finds Defendants can
reasonably respond. It is clear which causes of action are directed against them, and
Defendants fail to articulate how the SACS are so uncertain that they cannot respond.
The demurrer on this basis is overruled.

First Cause of Action (Fraud)

Defendants’ demurrer to the fraud causes of action is overruled. Defendants argue
that Plaintiffs failed to allege fraud in both the Andrus and Ruiz actions without the
requisite level of specificity.

Andrus Action

The Court finds that Plaintiffs alleged fraud with the requisite specificity as against
Defendants. Plaintiffs allege Defendants made or conspired to make numerous
misrepresentations to Plaintiff Darlyne Andrus to induce her to sell her home which
she owned along with Plaintiff Daniel and Wendy Proskine. (Andrus SAC ¶ 57.)
Plaintiffs allege Plaintiff Andrus and Daniel Proskine’s signatures were forged on a
residential purchase agreement by “Defendants, or some of them, including without
limitation, Defendants Rachel Siders, Christopher Jackson, Brett Adair, Stone
Canyon Mortgage, LLC, and/or Brett Andrew Adair dba Stone Canyon Mortgage and dba Adair Realty & Land Development Co.” (SAC ¶ 31.) They also alleged
that moving Defendants conspired with other defendants to misrepresent to Plaintiff
Darlyne Andrus that her home was being refinanced, not sold, so that she could invest
her equity in projects suggested by Defendants, and also that they concealed
information regarding the purported buyers of the home so that lenders would proceed
with the transaction. (Andrus SAC ¶¶ 57, 60, 61.) Plaintiffs allege Plaintiff Andrus
relied upon the representations to proceed with what she believed was a refinance.
(Id. ¶¶ 60, 63, 64.) Plaintiffs adequately alleged the details of the alleged fraud,
including the misrepresentations made directly by moving defendants in addition to
their participation in the fraudulent scheme with other defendants.

Ruiz Action

The allegations in the Ruiz action are also sufficient. Indeed, these Plaintiffs alleged
that in order to induce them to refinance their homes, Defendants represented that
they could safely invest the funds received from the refinance in real estate
investments knowing such representation was false. (Ruiz SAC ¶ 55.) Plaintiffs also
allege that these Defendants represented to Plaintiff Darlene Record that money she
loaned to defendant Genesis Innovations, Inc. was to be used in a legitimate business
project when in fact the money was not going to be used for such purposes. (Ruiz
SAC ¶¶ 42, 54) Defendants are also alleged to have conspired with the defendants to
whom Darlene Record lent money in misrepresenting that the loan was actually
secured by their real property when in reality the property listed as securing the loan
was not owned by the defendants to whom money was lent. (Ruiz SAC ¶¶ 41, 54)
The Ruiz Plaintiffs have alleged the details of the fraud with sufficient detail to
withstand demurrer.

Statute of Limitations

Defendants’ demurrer to the fraud causes of action on the basis that they are barred
by the statute of limitations is overruled. Defendants argue that the fraud cause of
action in Andrus accrued in June 2006 when the subject refinance transaction took
place and accrued in Ruiz in January 2007 when the subject refinance transactions
took place. They argue that these causes of action are barred by the three year
statute of limitations governing fraud found in CCP § 338(d) as the SACs were filed
more than three years later.

Here, for pleading purposes, both the Andrus and Ruiz SACS adequately allege a
basis for delayed discovery such that the fraud causes of action, at least as pled, are
not barred by the statute of limitations, allegations which Defendants fail to address in
the demurrer. (Andrus SAC ¶¶ 51-55 [setting forth facts showing no plaintiff had any
reason to suspect wrongdoing as Defendants continued to make assurances regarding
the transaction and there was no reason to suspect wrongdoing until a notice of
eviction was received by Darylene Record in 2009 without any previous indication of a
notice of foreclosure]; Ruiz SAC ¶¶ 46-53 [funds owed Plaintiffs from Defendants
under loans not due until February 2010, Defendants made repeated assurances
regarding funds being properly invested, no notice of wrongdoing until July 2, 2009,
when Defendants ignored second request for repayment].) Indeed, each SAC
specifically alleges facts showing the time and manner of discovery of the alleged
fraud, and the inability to have made the earlier discovery despite reasonable
th
diligence. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4 797, 808.) Second Cause of Action (Financial Elder Abuse)

Defendants’ demurrer on the basis that Plaintiffs failed to allege they owed a duty to
Plaintiffs is overruled. Indeed, “duty” is not an element of a financial elder abuse
cause of action. Rather, Plaintiffs were required to allege that Defendants took, hid,
appropriated, or retained their property or assisted other in doing so, with the intent to
defraud or by undue influence. (Welf. & Inst. Code § 15610.30.) Defendants do not
challenge the allegations in this regard. The demurrer is therefore overruled.

Fourth Cause of Action (Breach of Fiduciary Duties)

Defendants demur on the basis that Plaintiffs fail to allege “what the fiduciary
obligation Adair had” is overruled. In the Andrus Action, Plaintiffs alleged that
Defendants owed them a fiduciary duty “by virtue of their licensing by the State of
California, their license as a real estate broker, their license as a mortgage broker,
their being a financial advisor, and the special relationship of trust and confidence
imposed upon them by law and by their undertaking and contracting concerning
Plaintiffs real property.” (Andrus SAC ¶ 78.) Similar allegations are contained in the
Ruiz Action. (Ruiz SAC ¶ 76.) Thus, the demurrer to the Fourth Cause of action on
the basis that Plaintiffs failed to allege “what the fiduciary obligation Adair had” is
overruled. One who acts as an agent and also deals with his principal as to the subject
matter of the agency cannot take advantage of his principal by withholding from him
information secured by means of the agency. Rattray v. Scudder, (1946) 28 Cal. 2d
214, 224; see, also Skopp v. Weaver (1976) 16 Cal. 3d 432; Wm L. Lyon & Asociates,
Inc. v. Superior Court (2012) 204 Cal. App. 4th 1294.

In addition, while Defendants also argue that there are no allegations that Plaintiffs
disputed any of the loans that they brokered, no legal authority is cited which would
impose such a pleading requirement.

Fifth Cause of Action (Civil Rico)

Defendants’ demurrer to the fifth cause of action in the SACS is overruled.
Defendants argue that this cause of action “fail [sic] automatically because it is
dependent on the other causes of action.” (Dem. 14:5-6.) This argument necessarily
fails given that the Court has overruled the demurrers to the above causes of action.
In any event, Defendants fail to argue that Plaintiffs have not adequately alleged the
elements of a Civil Rico cause of action in either the Andrus or the Ruiz action,
specifically, that they violated 18 USC § 1962(c) and (d) by conspiring to create an
enterprise that affected interstate commerce through a pattern of racketeering activity.
Indeed, in each action, Plaintiffs alleged Defendants engaged in at least two acts of
bribing employees to violate the law, using the mail to send forged documents and
fraudulently using wires to pay bribes and transmit illegal payments/kickbacks and
these allegations are not challenged. (Andrus SAC ¶ 83-87; Ruiz SAC ¶ 81-85.) The
demurrer is therefore overruled.

Sixth Cause of Action (Negligent Misrepresentation)

Defendants’ demurrer to the sixth cause of action in the SACS is overruled.
Defendants’ argument consists of a single paragraph that the “complaint (Defendants
fail to state which SAC they are referring to) simply does not state that Adair is
responsible for any of the above representations or that he had any duty. Without the
element of duty being properly alleged and satisfied there can be no liability for
Negligence.” (Dem. 14:12-17.) However, in the Andrus SAC, Defendants are alleged
to have made numerous misrepresentations, including that other defendants entered
into a purchase agreement when they had not and that only certain funds would be
used for the purchase when in fact Plaintiff Andrus’ funds were used. (Andrus SAC ¶
92.) Plaintiffs also alleged that Defendant “vouched” for the subject investment
proposal. (Id. ¶¶ 93-94.) Similar allegations are present in the Ruiz SAC as those
Plaintiffs alleged Defendants made misrepresentations regarding the loan broker to
whom Defendants referred Plaintiffs. (Ruiz SAC ¶ 90.) Further, while Defendants
appear to argue that the causes of action in the SACS are deficient based on a failure
to allege duty, Defendants are incorrect. Indeed, while negligent concealment requires
an allegation of a duty to disclose a concealed fact, negligent misrepresentation
contains no such requirement. Negligent misrepresentation only requires allegations
“(1) a misrepresentation of a past or existing material fact, (2) without reasonable
grounds for believing it to be true, (3) with the intent to induce another’s reliance on the
fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the
party to whom the misrepresentation was directed, and (5) damages.” (Fox v. Pollack
(1986) 181 Cal.App.3d 954, 962.) The demurrer is overruled.

Seventh Cause of Action (Constructive Fraud)

Defendants’ demurrer to the seventh cause of action in the SACs is overruled. As with
the breach of fiduciary duty cause of action, Defendants argue that no duty has been
alleged. However, as the Court already found in connection with that cause of action,
Plaintiffs alleged Defendants owed them a fiduciary duty and thus the demurrer is
overruled for the same reasons that the demurrer to the fourth cause of action was
overruled.

Punitive Damages

Defendants’ demurrer to the prayer for punitive damages is overruled. A motion to
strike must be utilized to challenge an improper request for relief. Indeed, even an
improper request for relief does not render a cause of action invalid. (Caliper
th
Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4 365, 385.)

The demurrer is overruled in its entirety. Defendants shall file and serve their answers
no later than November 18, 2013.

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