Case Name: Khanh Nguyen v. Huey Q. Phan, et al.
Case No.: 19-CV-341814

Currently before the Court are the demurrer and motion to strike by defendants
Alan Huynh (“Huynh”) and Hillview International, Inc. dba KW Silicon City (“KW”), and the joinders by defendants Huey Q. Phan (“Phan”) and Jessica Thuong Vu (“Vu”).

Factual and Procedural Background

This is an action for breach of contract, fraud, and negligence. In mid-2015, plaintiff Khanh Nguyen (“Nguyen”) entered into negotiations to purchase real property owned by Phan and Vu (collectively, “Sellers”). (First Amended Complaint (“FAC”), ¶¶ 1, 2, & 9.) Defendant Hoa Truc Bui (“Bui”), a licensed real estate agent, and CR Realty & Mortgage Corporation (“CR”), a licensed real estate company, represented Nguyen. (Id. at ¶¶ 5, 6, & 11.) Huynh, a licensed real estate agent, and KW, a licensed real estate company, represented Sellers. (Id. at ¶¶ 3, 4, & 11.)

During this time, Sellers provided Nguyen with a disclosure statement. (FAC, ¶ 13 & Ex. C.) In the disclosure statement, “Sellers checked ‘No’ in the box asking whether there were Flooding, Drainage, or Grading problems.” (Ibid.) Additionally, although Sellers also checked boxes for “related to non-compliant fill and soil problems,” they did not “explain nor disclose the ongoing and extent of cracking or land sliding problems” at the property. (Ibid.)

Nguyen and Sellers later entered into a written contract whereby Sellers agreed to sell the property for $1,400,000. (FAC, ¶¶ 9 & 18, & Ex. A.) “Before close of escrow, [Nguyen] and his sister … visited the property and noticed the basketball court located in the backyard of [the property] had become unleveled and cracked.” (Id. at ¶ 12.) When Nguyen and his sister returned a few days later, the basketball court had been filled in. (Ibid.) “When [Nguyen] inquired, [Sellers, Huynh, and KW] represented the problem was resolved via an addendum ….” (Id. at ¶ 12 & Ex. B.) In light of these representations, Nguyen continued with his purchase of the property. (Id. at ¶¶ 10 & 12.)

Escrow eventually closed in October 2015. (FAC, ¶ 9.)

“On or about April 1, 2016, [the property] experienced sliding and cracking.” (FAC, ¶ 14.) Nguyen “sought to correct the hazard by hiring experts, such as engineers and geologists to investigate and start repairs.” (Ibid.)

“On or about September 13, 2018, [Nguyen] was surprised when informed by the City of San Jose that [the property] was graded without permits, which violated [the] San Jose Municipal Code.” (FAC, ¶ 15 & Ex. D.) “This grading occurred prior to [Nguyen’s] ownership, and likely [occurred] during [Sellers’] ownership of approximately 13 years.” (Ibid.) “The City directed [Nguyen] to cease work until [he] complied with City ordinances and obtained proper permits.” (Ibid.) “The estimated costs of these permits and their related process are … $50,000.” (Ibid.)

“On or about December 21, 2018, [Nguyen] contracted with Steven F. Connelly, C.E.G., for a Preliminary Engineering Geological Investigation … concerning the grading violation and land sliding issue.” (FAC, ¶ 16 & Ex. E.) “According to aerial photos, Mr. Connelly documented dirt fill and debris placed on the fill pad on the subject property during the years Sellers owned the property and stated ‘a large crack is apparent on the fill slope on the September 11, 2012 photo.’ ” (Ibid.) “Investigations revealed the backyard experienced multiple cracking and landslides spanning the years [Sellers] owned the Property.” (Ibid.)

“As [of] June 2019, [Nguyen] obtained an estimate of approximately $720,000 from LC Engineering to repair the issues.” (FAC, ¶ 19.)

Based on the foregoing allegations, Nguyen filed a complaint against Sellers, Huynh, KW, Bui, and CR (collectively, “Defendants”) on January 23, 2019.

On June 11, 2019, Nguyen filed the operative FAC against Defendants, alleging causes of action for: (1) fraud/intentional misrepresentation; (2) failure to disclose/concealment; (3) negligent misrepresentation; (4) breach of contract/failure to disclose material facts; (5) negligence; and (6) breach of fiduciary duty. The sixth cause of action is only brought against Bui and CR.

Thereafter, the court clerk issued a Civil Filing Rejection Letter, stating that the FAC could not be filed without a court order.

On July 11, 2019, Huynh and KW filed the instant demurrer and motion to strike. A stipulation and order was filed on August 29, 2019, which provided that the FAC was deemed filed as of June 11, 2019. The stipulation and order further provided that the demurrer and motion to strike filed by Huynh and KW were valid and Sellers could move to join the demurrer.

That same day, Sellers filed joinders to the demurrer and motion to strike. On October 2, 2019, Plaintiff filed an opposition to the demurrer, motion to strike, and joinders. Most recently, Huynh and KW filed replies in support of their demurrer and motion to strike on October 7, 2019.

Discussion

I. Joinders

Sellers seek to join the demurrer filed by Huynh and KW because “[t]he arguments in [the] demurrer to the [FAC] … that the causes of action are barred by the applicable statute of limitations and fail to state a cause of action also apply to [them].” (Ntc. of Joinder & Joinder to Dem., pp. 1:19-2:3.) Sellers also seek to join “the portion of the [m]otion to strike the [FAC]” filed by Huynh and KW “relatng [sic] to the request for punitive damages only” because “[t]he arguments in [the] motion to strike the request for punitive damages … are also applicable to [them].” (Ntc. of Joinder & Joinder to Mtn. to Strike, pp. 1:19-2:2.)

The joinders filed by Sellers suffer from multiple fatal defects. As an initial matter, Sellers did not specifically request relief on their own behalf; they merely seek to “join in” the demurrer and motion to strike by Huynh and KW, which request relief in favor of Huynh and KW only. (See Barak v. The Quisenberry Law Firm (2006) 135 Cal.App.4th 654, 661–662 [a joinder must seek affirmative relief on behalf of the party seeking to join in the pending motion]; see also Commonwealth Energy Corp. v. Investor Data Exchange, Inc. (2003) 110 Cal.App.4th 26, 31, fn. 3 [same].)

Furthermore, even if the Court were to liberally construe the joinders as motions seeking relief on behalf of Sellers, the joinders are inadequate. Sellers are not similarly situated to Huynh and KW, and the arguments raised by Huynh and KW in the demurrer and motion to strike do not apply equally to Sellers. Sellers were the original owners of the property while Huynh and KW were Sellers’ broker in connection with the sale of the property. This factual distinction underlies the legal arguments raised in the pending demurrer and motion to strike. For example, Huynh and KW argue that the first, second, third, and fifth causes of action are time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4, which applies to actions against a real estate broker for breach of the broker’s duty to visually inspect the property and disclose facts materially affecting the value or desirability of the property. Huynh and KW also argue that the second, third, and fifth causes of action fail because their duty of disclosure, as a broker, is limited by statute to facts that a visual inspection would have revealed. These arguments do not apply equally to Sellers because they are not brokers. Additionally, Huynh and KW argue that the first cause of action and the request for punitive damages fail because the alleged misrepresentations were made by Sellers, not them. Similarly, Huynh and KW argue that the fourth cause of action fails because Sellers are parties to the alleged contract, not them. It is readily apparent that these arguments do not apply equally to Sellers.
Accordingly, Sellers’ joinders to the demurrer and motion to strike are DENIED.

II. Demurrer

Huynh and KW demur to the first through fifth causes of action of the FAC on the ground of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

A. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) Consequently, “ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ [citation].” (Hilltop Properties, Inc. v. State (1965) 233 Cal.App.2d 349, 353; see Code Civ. Proc., § 430.30, subd. (a).) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. [ ] Thus, [ ] the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.) However, while “[a] demurrer admits all facts properly pleaded, [it does] not [admit] contentions, deductions or conclusions of law or fact.” (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120.)

B. First Cause of Action

Huynh and KW initially argue that the first cause of action for fraud/intentional misrepresentation is time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4.

Huynh and KW’s initial argument lacks merit. The first cause of action is based on Huynh and KW’s affirmative misrepresentations that (1) the property did not have “grading problems or extreme land sliding issues” and (2) the cracking and sliding of the property was “remediated or repaired.” (FAC, ¶¶ 12, 13, & 28.) Nguyen alleges that Huynh and KW knew the representations were false at the time they were made, and Huynh and KW made the representations with the intent to deceive and defraud him. (Id. at ¶ 30.) Thus, the gravamen of the cause of action is that Huynh and KW made intentional fraudulent statements in order to mislead Nguyen; the claim does not arise from Huynh and KW’s statutory duty to inspect and disclose imposed by Civil Code section 2079. The two-year statute of limitations set forth in Civil Code section 2079.4 does not apply to causes of action for intentional fraud, like the first cause of action. (See Williams v. Wells & Bennett Realtors (1997) 52 Cal.App.4th 857, 858–859, 861-862, & 865 (Williams) [holding that Civil Code section 2079.4 does not apply to causes of action for intentional fraud]; see also Peake v. Underwood (2014) 227 Cal.App.4th 428, 444–445 (Peake) [“In enacting section 2079, the Legislature did not intend to preclude a real estate agent’s liability for fraud.”].)
Huynh and KW also argue that Nguyen fails to allege facts showing that they, as opposed to Sellers, made the alleged misrepresentations that form the basis of the claim.

This argument is well-taken. Nguyen alleges the first misrepresentation—that the property did not have “grading problems or extreme land sliding issues”—was made by Sellers in their disclosure statement. (FAC, ¶ 13 & Ex. C.) Review of the disclosure statement, itself, confirms that the representation at issue is set forth in a portion of the disclosure signed by Sellers, not Huynh and KW. (Ibid.) Furthermore, there are no other factual allegations pleaded in the FAC demonstrating that the representation was made by Huynh and KW. With respect to the second misrepresentation—that the cracking and sliding of the property was “remediated or repaired”—Nguyen alleges that the misrepresentation was set forth in an addendum to the contract. (Id. at ¶¶ 12 & 28, & Ex. B.) The addendum itself is signed only by Sellers, there are no other factual allegations pleaded in the FAC showing that the representation was made by Huynh and KW. (See Mead v. Sanwa Bank Cal. (1998) 61 Cal.App.4th 561, 567-568 [courts accept as true the facts in exhibits attached to the pleading and, if the facts in the exhibit “contradict those expressly pleaded, those in the exhibit are given precedence”].) Thus, Nguyen fails to plead sufficient facts to state a claim for intentional misrepresentation against Huynh and KW.

Accordingly, Huynh and KW’s demurrer to the first cause of action is SUSTAINED, with 10 days’ leave to amend. (See City of Stockton v. Super. Ct. (2007) 42 Cal.4th 730, 747 (City of Stockton) [where plaintiff has not had opportunity to amend complaint in response to demurrer, “leave to amend is liberally allowed as a matter of fairness unless the complaint shows on its face that it is incapable of amendment”].)

C. Second Cause of Action

Huynh and KW initially argue that the second cause of action for failure to disclose/concealment is time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4.

Huynh and KW’s initial argument lacks merit. In the second cause of action, Nguyen alleges that a real estate broker has a duty under California law to disclose to the buyer of a property all facts known to the broker regarding the property or relating to the transaction that materially affect the value or desirability of the property, and a broker must disclose such facts if the broker knows or should know that the buyer is not aware of and cannot reasonably be expected to discover the facts through diligent attention and observation. (FAC, ¶¶ 40-41.) Huynh and KW allegedly “knew … of the lack of grading permit, chronic cracks and land sliding concerning the [property],” which “affect[ ] the marketability and desirability of the [property].” (Id. at ¶ 42.) Huynh and KW allegedly failed to disclose to these facts to Nguyen “in an attempt to deceive Plaintiff and induce Plaintiff to purchase the [property].” (Ibid.)

As alleged, the claim for nondisclosure/concealment is not derived from Huynh and KW’s statutory duty to conduct a visual inspection of the property and disclose facts affecting the value or desirability of the property that would have been revealed by such an inspection. Rather, the claim is for intentional fraud, arising out of Huynh and KW’s common law duty to disclose known facts materially affecting the value or desirability of the property to Nguyen when Huynh and KW knew that such facts were not known to, or within the reach of the diligent attention and observation of Nguyen. (See Peake, supra, 227 Cal.App.4th at pp. 444-445 [discussing common law claims for intentional concealment and nondisclosure predicated on the common law duty owed by sellers, and their agents, to disclose known facts materially affecting the value or desirability of the property if they also know that such facts are not known to, or within the reach of the diligent attention and observation of the buyer].) Because the gravamen of the second cause of action is for intentional nondisclosure/concealment in violation of Huynh and KW’s common law duty to disclose, the cause of action is not time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4. (See Williams, supra, 52 Cal.App.4th at pp. 864-865 [a cause of action is subject to the two-year statute of limitations set forth in Civil Code section 2079.4 if it is derived from the statutory duty to inspect and disclose]; see also Loken v. Century 21-Award Properties (1995) 36 Cal.App.4th 263, 271-273 (Loken) [same]; Peake, supra, 227 Cal.App.4th at pp. 444-445 [in enacting section 2079, the Legislature did not intend to preclude a real estate agent’s liability for intentional fraud].)

Next, Huynh and KW persuasively argue that the claim fails because Nguyen does not allege facts showing they possessed the requisite knowledge. Specifically, Nguyen does not allege any facts demonstrating that Huynh and KW knew the subject facts were not known to Nguyen or within the reach of his diligent attention and observation.

Moreover, the allegations of the FAC permit the reasonable inference that the subject facts were either known to Nguyen or within the reach of his diligent attention and observation. In particular, the documents attached to the FAC show that Nguyen received numerous disclosures advising that: there was settling, slippage, sliding, or other soil problems on the property; the “surface/dirt” of the backyard was sloping near and around the basketball court; the backyard was settling; there was settling in the back of the property by the “sport court”; repairs were performed to the basketball court due to the settling; there was fill on the property; dirt/fill had been added to the back of the property (specifically, the “sport court”); more fill needed to be added and packed; Nguyen should “[keep] an eye” on water puddling in the backyard; alterations and repairs were made without necessary permits and were not in compliance with building codes; and the property was below the street level. (FAC, Exs. B & C.) Given these disclosures, it is reasonable to infer that Nguyen knew or was on inquiry notice of the need to conduct further investigation regarding land movement and drainage on the property and whether any issues remained after repairs were performed on the property without permits. (See Robinson v. Grossman (1997) 57 Cal.App.4th 634, 644 [“once the sellers and their agent make the required disclosures, it is incumbent upon the potential purchasers to investigate and make an informed decision based thereon”].)

For these reasons, Nguyen fails to plead sufficient facts to state a claim for failure to disclose/concealment against Huynh and KW.

Accordingly, Huynh and KW’s demurrer to the second cause of action is SUSTAINED, with 10 days’ leave to amend. (See City of Stockton, supra, 42 Cal.4th at p. 747 [where plaintiff has not had opportunity to amend complaint in response to demurrer, “leave to amend is liberally allowed as a matter of fairness unless the complaint shows on its face that it is incapable of amendment”].)

D. Third Cause of Action

Huynh and KW initially argue that the third cause of action for negligent misrepresentation is time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4.

This argument is well-taken. In the third cause of action, Nguyen alleges that Huynh and KW “had a duty to fully and truthfully disclose to … any defects affecting the [property] such as the cracking and land sliding issues,” and they “breached this duty when they represented to [him] that … they repaired the problem, as indicated in the [a]ddendum.” (FAC, ¶¶ 12 & 46-48.) Huynh and KW allegedly “knew or should have known that the backyard would have continued to experience cracking and land sliding as it had over the previous years of Sellers’ ownership, thus when they assured [Nguyen] that the problem had been remedied, this was false, a half-truth, or at best wishful thinking.” (Id. at ¶ 47.)

Based on these allegations, the gravamen of the third cause of action is that it was unreasonable for Huynh and KW to represent that the cracking and sliding problem—evidence by the cracked basketball court—had been repaired because Huynh and KW, who had a duty to inspect the property and disclose defects, should have known that the cracking and land sliding would continue. In other words, Huynh and KW should have apparently recognized “ ‘red flags’ ” (see Easton v. Strassburger (1984) 152 Cal.App.3d 90, 104) indicating the soundness of the purported repair was suspect and/or inadequate. As the claim appears to be derived from Huynh and KW’s statutory duty to inspect and disclose, the third cause of action for negligent misrepresentation, as alleged, is time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4. (See Williams, supra, 52 Cal.App.4th at pp. 864-865 [a cause of action is subject to the two-year statute of limitations set forth in Civil Code section 2079.4 if it is derived from the statutory duty to inspect and disclose]; see also Loken, supra, 36 Cal.App.4th at pp. 271-273 [same].)

Accordingly, Huynh and KW’s demurrer to the third cause of action is SUSTAINED, with 10 days’ leave to amend. (See City of Stockton, supra, 42 Cal.4th at p. 747 [where plaintiff has not had opportunity to amend complaint in response to demurrer, “leave to amend is liberally allowed as a matter of fairness unless the complaint shows on its face that it is incapable of amendment”].)

E. Fourth Cause of Action

Huynh and KW initially argue that the fourth cause of action for breach of contract/failure to disclose material facts fails because Nguyen does not allege any facts showing that they were a party to the alleged contract.

In the fourth cause of action, Nguyen alleges that Huynh and KW breached contractual duties by failing to disclose facts regarding the property. (FAC, ¶¶ 52-55.)

This argument is well-taken. The only contract alleged in the FAC is the purchase and sale agreement between Sellers and Nguyen. (FAC, ¶¶ 9 & 18, & Ex. A.) Huynh and KW merely represented Sellers in connection with the sale of the property. (Id. at ¶¶ 3, 4, & 11.) Thus, Nguyen fails to plead sufficient facts to state a claim for breach of contract against Huynh and KW. (See Tri-Continent Internat. Corp. v. Paris Savings & Loan Assn. (1993) 12 Cal.App.4th 1354, 1359 [“[one] cannot assert a claim for breach of contract against one who is not a party to the contract.”].)

Accordingly, Huynh and KW’s demurrer to the fourth cause of action is SUSTAINED, with 10 days’ leave to amend. (See City of Stockton, supra, 42 Cal.4th at p. 747 [where plaintiff has not had opportunity to amend complaint in response to demurrer, “leave to amend is liberally allowed as a matter of fairness unless the complaint shows on its face that it is incapable of amendment”].)

F. Fifth Cause of Action

Huynh and KW initially argue that the fifth cause of action for negligence is time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4.

In the fifth cause of action, Nguyen alleges that Huynh and KW had “a duty to disclose … defects concerning the [property]” and “[t]he lack of permits for grading, the sliding land, and the cracks that affected the land during [Sellers’] ownership were defects that a reasonable person would have disclosed.” (FAC, ¶ 59.) Huynh and KW allegedly “breached their duty to [Nguyen] by carelessly and negligently failing to maintain or otherwise disclose stated defects.” (Id. at ¶ 60.) In effect, the fifth cause of action attempts to plead a claim for negligent nondisclosure.

To the extent the claim is based on Huynh and KW’s negligent failure to disclose cracks and sliding land, the gravamen of the third cause of action appears to be that Huynh and KW breached their statutory duty to visually inspect the property and disclose defects that such an inspection would reveal. As this portion of the claim appears to be derived from Huynh and KW’s statutory duty to inspect and disclose, it is time-barred by the two-year statute of limitations set forth in Civil Code section 2079.4. (See Williams, supra, 52 Cal.App.4th at pp. 864-865 [a cause of action is subject to the two-year statute of limitations set forth in Civil Code section 2079.4 if it is derived from the statutory duty to inspect and disclose]; see also Loken, supra, 36 Cal.App.4th at pp. 271-273 [same].)

Moreover, Nguyen does not allege sufficient facts in the fifth cause of action to establish that Huynh and KW had a duty to disclose the fact that permits had not been obtained for grading the property. (See Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 62) [the elements of negligence include the existence of a legal duty].) Under Civil Code section 2079, subdivision (a), Huynh and KW were only obligated to conduct “a reasonably competent and diligent visual inspection of the property offered for sale.” (Civil Code § 2079, subd. (a).) A review of public records was not required. (See Civil Code §§ 2079, subd. (a), & 2079.3.) The information regarding whether permits were obtained for grading is not of the type that “a reasonably competent and diligent visual inspection of the property offered for sale” would reveal. (Civil Code § 2079, subd. (a).) Although such information might have been revealed by reviewing various public records, a review of public records is not required. (See Civil Code §§ 2079, subd. (a), & 2079.3.)

For these reasons, Nguyen fails to plead sufficient facts to state a claim for negligence against Huynh and KW.

Accordingly, Huynh and KW’s demurrer to the fifth cause of action is SUSTAINED, with 10 days’ leave to amend. (See City of Stockton, supra, 42 Cal.4th at p. 747 [where plaintiff has not had opportunity to amend complaint in response to demurrer, “leave to amend is liberally allowed as a matter of fairness unless the complaint shows on its face that it is incapable of amendment”].)

III. Motion to Strike

Huynh and KW move to strike Nguyen’s requests for punitive damages and attorney fees.

Given the Court’s ruling on the demurrer, Huynh and KW’s motion to strike is MOOT.