Case Name: Kevin Christian et al. v. RADE Properties, LLC et al.

Case No: 19CV347464

I. Background
II.

Plaintiffs Kevin Christian, individually and as a managing member of Z&O Homes, LLC; James Patrick Darnell, individually and as trustee of the JPD Investment Trust; Jonathan England, individually and as a managing member of England Investments, LLC; Mark Dodds, individually and as managing member of CKLM Properties, LLC; and Michelle Zabriskie, individually and as managing member of Blue Mountain Goat, LLC (collectively, “Plaintiffs”) bring this action against TDTSA Inc., d.b.a. Keller Williams Saratoga (“Defendant”) and one of its brokers, David Propach, among others, for damages associated with breach of contract.

According to the allegations of the complaint, RADE Properties, LLC (“RADE”) was formed to acquire, improve and resell real property on a short-term basis. (Complaint, ¶ 25.) One of the properties identified by RADE was a two-lot, five acre property located in Los Gatos with one single residence (the “Property”). (Id. at ¶ 26.) RADE needed investors to acquire and develop the Property. (Id. at ¶ 27.) Plaintiffs were each induced to invest various sums in the property based on representations about potential for profit. (Id. at ¶ 29.)

Defendant acted as the broker when the property was purchased and was paid a commission. (Complaint, ¶¶ 30, 35.) Only $27,000 of the monies contributed by Plaintiffs was used to acquire the Property, and no deed of trust was recorded to secure their investments. (Id. at ¶ 35.) RADE obtained a $1.25 million loan secured by the Property and a deed of trust was recorded. (Id. at ¶ 38.)

After the acquisition, RADE had the property lines adjusted such that the residence was on one lot, and the second lot was vacant. (Complaint, ¶ 37.) Shortly thereafter, the lot with the residence sold for $2.4 million and Defendant acted as the broker for the transaction. (Id. at ¶ 40.) At the time of the sale, Defendant failed to disclose to Plaintiffs that RADE had not recorded a deed of trust reflecting their interest or that other encumbrances were recorded against the Property without the knowledge or consent of Plaintiffs. (Id. at ¶ 41.)

As a result of the foregoing, Plaintiffs filed the complaint alleging nine causes of action for: (1) breach of contract; (2) breach of fiduciary duty; (3) fraud; (4) promissory fraud; (5) constructive fraud; (6) negligence; (7) enforcement of lien; (8) declaratory relief; and (9) injunctive relief.

Before the Court is Defendant’s demurrer.

III. Judicial Notice
IV.

In support of its demurrer, Defendant requests judicial notice of “The California Department of Real Estate’s License History Certification for David Propach” which is a printout from the state Real Estate Licensing Board’s website.

The request is made pursuant to Evidence Code section 452, subdivision (h) which allows a court to take judicial notice of facts and propositions not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. Given that the items are from a source of “reasonably indisputable accuracy” – a state government website – the printouts from the California Department of Real Estate appear to satisfy the requirements of Evidence Code section 452, subdivision (h). Furthermore, Plaintiffs do not object to the request, so the item’s accuracy is not disputed.

Thus, the request for judicial notice is GRANTED.

V. Demurrer
VI.

Defendant demurs to the sixth and eighth causes of action on the ground of failure to state sufficient facts to constitute a cause of action pursuant to Code of Civil Procedure section 430.10, subdivision (e).

A. Legal Standard
B.

A demurrer tests the legal sufficiency of a pleading, but not the truth of a plaintiff’s allegations or the accuracy with which he or she describes the defendant’s conduct. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958; citing Committee on Children’s Television Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213.) The demurrer is treated as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer reaches only to the contents of the pleading and such matters subject to judicial notice. (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, citations omitted; see also Code Civ. Proc. § 430.10, subd. (a).)

C. Sixth Cause of Action
D.

Defendant demurs to the sixth cause of action for negligence on the basis that it owed no duty to Plaintiffs, or alternatively that breach of a duty has not been specifically alleged. Defendant also argues that damages are insufficiently pleaded.

A cause of action for negligence must allege duty to use due care, breach of that duty, and resulting injury. (Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP (2014) 59 Cal.4th 568, 573.) Where there is no broker-customer relationship, a real estate agent owes no duty of care to a third party. (Coldwell Banker Residential Brokerage Co. v. Superior Court (2004) 117 Cal.App.4th 158, 166.)

The Complaint alleges that the “Broker Defendants were the buyer’s agents when the Property was purchased, were the Seller’s agents when some of the Property was sold, and are the listing agents for marketing the remaining lot.” (Complaint, ¶ 30.) It also states that on purchase of the property, a deed was recorded, transferring title of the Property to RADE. (Id. at ¶ 35.) Thereafter, the allegations state that the “RADE Defendants sold the lot with the residence on it… and a real estate commission was paid to the Broker Defendants.” (Id. at ¶ 40.) Thus, taken together, the complaint alleges that RADE was the buyer and the seller, and the party with whom the “Broker Defendants” including Defendant had a broker-customer relationship.

In fact, allegations of privity between Plaintiff and Defendant are limited to Defendant’s alleged failure to disclose to Plaintiffs that RADE had failed to record a deed of trust in favor of Plaintiffs’ investments after the title report showed the “non-existence” of a deed of trust. (Complaint, ¶ 41.) In support of a duty under these facts, Plaintiffs cite Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35 (“Krug”). In Krug, a real estate agent facilitated a sale of real property, with knowledge of an unrecorded lien against the property, and knowledge of in whose favor the lien was held, but without disclosing the pending sale to the lienholder. The court held that the agent had breached a duty to a third party based on “the policy of preventing future harm and considerations of moral blame [which] compel the imposition of a duty on the part of a realtor never to allow a desire to consummate a deal or collect a commission to take precedence over his fundamental obligation of honesty, fairness and full disclosure toward all parties.” (Id. at 43.)

Here, Defendant’s knowledge is alleged in only a conclusory way and the complaint’s wording is ambiguous at best. The relevant allegation states that “The Broker Defendants failed to disclose to the Plaintiffs and other investors, all of whom said Defendants were aware, that the RADE Defendants had not recorded a deed of trust in favor of the investors…” (Complaint, ¶ 41.) This allegation is unclear as to who was “aware” and of what they were aware, and there are no facts in support. Thus, unlike in Krug, the complaint fails to allege Defendant had knowledge of possible harm to a third party, and in any event its alleged failure to disclose the issue with the title was unrelated to its desire to “consummate a deal or collect a commission.”

In reply, Plaintiffs cite the allegation that alleges “Broker Defendants owed a duty to all parties to the transaction, including Plaintiffs…” However, this is too conclusory to withstand a demurrer and the facts do not support it. Thus, duty has been insufficiently pleaded.

Likewise, as no duty has been alleged, there can be no breach of a duty.

With respect to damages, Defendant persuasively argues the allegations do not show it could be held to have caused any of Plaintiffs’ damages. The damage alleged to have occurred is Plaintiffs’ investment interest has not been recorded against the property through deed of trust, and that the property is over-encumbered. However, even assuming this to be true, the complaint does not allege that either injury was caused by the actions of Defendant who at best is alleged to have seen that Plaintiffs’ interest in the property was not recorded through a deed of trust, and failed to disclose this to Plaintiffs.

Consequently, the demurrer to the sixth cause of action is SUSTAINED with 20 days leave to amend, on the basis that negligence has been insufficiently pleaded.

E. Eighth Cause of Action
F.

Defendant demurs to the eighth cause of action for declaratory relief on the basis that it is not a party to the issue in controversy.

Declaratory relief is available in cases of actual controversy relating to the legal rights and obligations of respective parties. (Code Civ. Proc., § 1060.) Therefore, a cause of action for declaratory relief must allege some controversy between parties and the judgment sought must decree what the parties may or may not do. (See American meat Institute v. Leeman (2009) 180 Cal.App.4th 728, 741.)

In support of declaratory relief, Plaintiffs allege that there is an actual controversy in that “Plaintiffs assert that they have lien rights in the Property that are superior in priority to any rights of the Defendants and that any foreclosure or sale…would be subject to the lien rights of Plaintiffs.” (Complaint, ¶ 83.) However, the allegations are devoid of facts to suggest that Defendant is a party to the controversy regarding lien rights. At best, they allege Defendant obtained a title report and saw that Plaintiffs’ interest was not recorded. (Id. at ¶ 41.) This alone does not make Defendant a party to the lien interest on the property, nor does it allege a controversy between Plaintiffs and Defendant that could be a proper subject of declaratory relief.

In reply, Plaintiffs do not provide any arguments in support of the cause of action for declaratory relief and do not demonstrate how the pleading might be amended. (See Hendy v. Losse (1991) 54 Cal.3d. 723, 742 [the burden is on a plaintiff to demonstrate the manner in which a complaint might be amended].) Given the failure to even support the cause of action for declaratory relief, Plaintiffs appear to tacitly concede that it is not supported against Defendant.

As a result, the demurrer to the eighth cause of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend.