Case Name: Lawrence Commercial Center, LLC v. Wong, et al.
Case No.: 2014-1-CV-273829

Defendants/cross-defendants Altos Enterprises, Inc. dba Alpha Investments and Albert Wang (“Wang”) (collectively, “Alpha”) demur to the cross-complaint filed by defendants/cross-complainants Cheng & Neiman, LP (“Cheng & Neiman”) and Ken Ping Cheng (“Cheng”) (collectively, “Cross-Complainants” or “Seller”).

I. Factual and Procedural Background

This is an action for breach of contract, negligence, and indemnity arising out of a property dispute. According to the allegations of the underlying fourth amended complaint (“4AC”), plaintiff Lawrence Commercial Center, LLC (“Plaintiff”) is the owner of certain real property and improvements located at 510, 520 and 528 Lawrence Expressway in Sunnyvale (the “Property”). (4AC, ¶ 1 and Exhibit A.) The Property was previously owned by defendants Cheng & Neiman, a limited liability partnership in which defendant Cheng was the general partner. (Id., ¶ 2.) In January 2013, Cross-Complainants listed the Property for sale using SRS Real Estate Partners (“SRS”) and defendant Alpha Investments and Property Management Company (“Alpha”) as the listing brokers. (Id., ¶ 11.) As part of the sales process, SRS and Alpha prepared advertising materials which stated that there were 246 parking spaces on site and that there were an additional 41 spaces based on a cross-easement with the neighbor. (Id., ¶ 12 and Exhibit C.) Defendants sold the Property to Charles Tzeng (“Tzeng”), who subsequently assigned his interest to Plaintiff. (Id., ¶¶ 13-15.)

On August 19, 2013, SRS and Alpha forwarded disclosures, property information, and a “Property Information Sheet” to Tzeng. (4AC, ¶ 16 and Exhibits E, F and G.) In these materials, Defendants did not disclose that the owner of the Neighboring Property or its tenants used the parking spots and indicated that there were no unrecorded matters that would affect title. (Id.) Upon reviewing the Property, Tzeng noticed that there were less than 246 parking spaces on the Property as compared to what was represented in the sales materials. (Id., ¶ 17.) Tzeng questioned Alpha and SRS regarding this discrepancy on September 27, 2013 and was told that there were 59 additional spots for use on the Neighboring Property and that he had an exclusive easement for their use. (Id., ¶ 17 and Exhibit H.) Plaintiff alleges that the easement is not in fact exclusive because the neighboring owner and/or his tenants are improperly using the additional parking spaces. (Id., ¶ 24.)

On December 11, 2015, Plaintiff filed the 4AC (the “Underlying Action”) asserting the following causes of action: (1) quiet title (against Manton Wong); (2) breach of contract (against Defendants); (3) permanent injunction and damages (against Manton Wong); (4) negligence (against Alpha); (5) negligence (against Alpha, Albert Jun-Ren Wang, Robert Quigley and SRS); and (6) failure to disclose (against Defendants). In March 2016, Defendants/cross-defendants SRS Real Estate Partners-Northwest LP (“SRS”) and Robert Quigley’s (“Quigley”) (collectively, the “SRS Defendants”) demurrer to the sole cause of action asserted against them for negligence was sustained without leave to amend.

On October 10, 2017, Cross-Complainants (i.e., Cheng & Neiman and Cheng) filed the cross-complaint (“Cross-Complaint”) that is the subject of the instant motion against Alpha. According to the allegations of this pleading, Cross-Complainants hired Alpha pursuant to a written agreement to work as property managers and inform them of any issues regarding the Property, and to represent them as realtors/real estate brokers in the listing and sale of the Property. (Cross-Complaint, ¶ 4.) Alpha allegedly breached this agreement by failing to properly indemnify or defend Cross-Complainants in the Underlying Action. (Id., ¶ 9.) Cross-Complainants further allege that Alpha failed to use reasonable care in their representation of Cross-Complainants as real estate agents/brokers in the listing and sale of the Property. (Id., ¶ 17.) Cross-Complainants also allege that Alpha breached a duty of care owed to them by failing to demur to the Underlying Action as the SRS Defendants did so that they would be dismissed from the case. (Id., ¶ 27.)

Based on the foregoing allegations, Cross-Complainants assert the following causes of action: (1) breach of contract; (2) breach of covenant of good faith and fair dealing; (3) breach of implied contractual indemnity; (4) negligence; (5) negligence; and (6) professional negligence. On November 28, 2017, Alpha filed the instant demurrer to each of the six causes of action asserted in the Cross-Complaint on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Alpha also demurs to the second, fourth, and sixth causes of action on the ground of uncertainty. Cross-Complainants oppose the motion.

II. Alpha’s Request for Judicial Notice

In support of their demurrer to the Cross-Complaint, Alpha requests that the Court take judicial notice of the following items: (1) the 4AC, filed December 11, 2015 (Exhibit A); (2) the Order Re: Demurrer to the 4AC, filed March 22, 2016 (Exhibit B); (3) the Order Re: Demurrer to Cross-Complaint (filed by Cross-Complainants against the SRS Defendants), filed September 13, 2016 (Exhibit C); and (4) the subject Cross-Complaint, filed October 10, 2017 (Exhibit D). The foregoing are all court records, and therefore proper subjects of judicial notice pursuant to Evidence Code section 452, subdivision (d). Accordingly, Alpha’s request for judicial notice is GRANTED.

III. Alpha’s Demurrer

As articulated above, Alpha demur to each of the claims asserted against them in the Cross-Complaint. Alpha first argues that the first, second, and third causes of action are subject to demurrer based on the failure to state facts sufficient to constitute a cause of action because neither the 4AC nor the Cross-Complaint allege any specific misrepresentations by them.

Cross-Complainants’ first cause of action for breach of contract is predicated on the written agreement entered into by the parties (sometimes referred to herein in as the “broker agreement”) pursuant to which Alpha agreed to operate as the agent for the sale of the Property, along with the SRS Defendants. This agreement is attached as Exhibit 1 to the Cross-Complaint and incorporated by reference. This cause of action is specifically based on the indemnity provision of the broker agreement, which is contained in paragraph 6 and provides as follows:

Agent [Alpha] shall indemnify, defend, and hold principal [Seller] harmless from any and all liability, demands, damages, claims or costs (including attorneys’ fees incurred in defending against claims of the same) or any nature, on account of or arising out of or alleged to be on account of or arising out of Agent’s [Alpha’s] misrepresentations(s) regarding the property, except to the extent the misrepresented information came from or was omitted by Principal [Seller].

(Cross-Complaint, Exhibit 1, ¶ 6.)

Stated alternatively, the agreement entered into between the parties requires the sales broker, Alpha, to indemnify the seller only where a claim arises out of a misrepresentation that they, Alpha, made. Alpha maintains that their duty to indemnify and/or defend has not been triggered because there are no allegations, in either the underlying 4AC or the Cross-Complaint at issue, that they made any affirmative misrepresentations regarding the Property, particularly with respect to the exclusive nature of its parking spots. As it did previously in connection with the SRS Defendants’ demurrer, the Court finds this argument to be persuasive. Because Alpha are not alleged to have made any misrepresentations concerning the Property which serve as the basis for the claims asserted against Cross-Complainants in the Underlying Action, the indemnity provision contained in the agreement at issue in the first cause of action is not triggered. As Cross-Complainants fail to articulate how they can amend their pleadings to correct this deficiency as is their burden (see, e.g., Goodman v. Kennedy (1976) 18 Cal.3d 335, 384), and in fact do not even address Alpha’s argument, Alpha’s demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Turning to the second cause of action for breach of the covenant of good faith and fair dealing, this claim is similar to the preceding breach of contract claim, with Cross-Complainants alleging that Alpha failed to adhere to the agreed-upon terms of the agreements entered into between the parties. However, unlike the preceding claim, Cross-Complainants do not specify which terms of the unspecified “agreements” Alpha failed to adhere to. The Court is in agreement with Alpha that to the extent that Cross-Complainants are referring to the indemnity clause in paragraph 6 of the agreement at issue in the first cause of action, this claim fails for the same reason as that claim. However, as currently pleaded, it is not clear that Cross-Complainants are in fact referring to this provision of their agreement with the SRS Defendants, and the Court will not otherwise assume that this is the case. The Court nevertheless agrees with Alpha that this cause of action is not sufficiently pleaded because Cross-Complainants fail to identify the specific agreements that give rise to this claim or articulate how Alpha breached the implied covenants of good faith and fair dealing implicit within those agreements. Consequently, Alpha’s demurrer to the second cause of action on the grounds of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 30 DAYS’ LEAVE TO AMEND. Alpha’s demurrer to the second cause of action on the ground of uncertainty (see footnote 1, supra) is OVERRULED.

Next, Alpha contends that the third cause of action for breach of implied contractual indemnity is subject to demurrer because the broker agreement contains a preemptory express indemnity provision.

Under California law, the obligation of indemnity arises from either of two general sources: “[f]irst, it may arise by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. Second, it may find its source in equitable considerations brought into play either by contractual language not specifically dealing with indemnification or by the equities of the particular case.” (E.L. White, Inc. v. The City of Huntington Beach (1978) 21 Cal.3d 497, 506.) “Within the limitations of the language used, however, an express indemnity clause is accorded a certain preemptive effect, displacing any implied rights which might otherwise arise within the scope of its operation.” (Id. [emphasis added].) Thus, when parties have utilized an express contractual provision to establish a duty in one party to indemnify the other, “the extent of that duty must be determined from the contract and not from the independent doctrine of equitable indemnity.” (Id., at 508 [emphasis added].)

Here, as discussed above, the broker agreement between Cross-Complainants and Alpha provides that Alpha’s duty to indemnify and/or defend Cross-Complainants is triggered only if they are facing claims “arising out of or alleged to be on account or of arising out of Agent’s misrepresentation(s) regarding the Property,” except to the extent the misrepresented information came from or was omitted by the Cross-Complainants themselves. (Cross-Complaint, Exhibit 1, ¶ 6.) This can be the only basis for indemnity against Alpha by Cross-Complainants as explained in the preceding paragraph. As neither the plaintiff nor Cross-Complainants have alleged that Alpha knowingly made affirmative misrepresentations concerning the Property and the exclusivity of the parking spaces, Alpha’s obligation to indemnify and/or defend Cross-Complainants is not implicated. Consequently, no claim for implied indemnity against them can be maintained.

Cross-Complainants insist that they can still maintain their claim for implied contractual indemnity against Wang in particular because he is not a party to the broker agreement and thus not constrained by the express indemnification provision contained in that agreement in the same way that defendant Alpha Investments is. But this is precisely why no such claim can be maintained against him. It makes little sense that a contract that Wang is not a party to can serve as the basis for finding that an implied duty to indemnify and/or defend is owed by him to Cross-Complainants. Accordingly, Alpha’s demurrer to the third cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Alpha next assert that the fifth cause of action for negligence fails to state any actionable basis for liability. In order to state a claim for negligence, a plaintiff (or cross-complainant) must plead the following elements: (1) the defendant’s legal duty of care to the plaintiff; (2) breach of that duty; (3) injury proximately caused by that breach; and (4) damages to the plaintiff. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 141.) Alpha argue that they owed Cross-Complainants no duty in regards to their strategy for defense of the 4AC because they were not similarly situated to the SRS Defendants, who demurred to the 4AC and were dismissed from that pleading. Moreover, with this argument, Alpha continue, Cross-Complainants are essentially conceding that they, Alpha, did nothing wrong. In the Cross-Complaint, Cross-Complainants allege that “[Alpha] were wrongfully included as Co-Defendants by the original Plaintiff in this action” and, therefore, “[Alpha] … would have been quickly and summarily dismissed from this case, which would have greatly diminished (if not eliminated) all legal fees, costs [sic] that [Alpha] may have incurred.” (Cross-Complainant, ¶¶ 26-27.) If this is true, Alpha continue, none of the other claims in this action can be maintained.

The Court finds Alpha’s contention that they owed no duty of care to Cross-Complainants to demur to the Underlying Action so as to prevent them from incurring legal fees persuasive. Not only do Cross-Complainants fail to plead facts which establish the existence of such a duty, but the Court is not of the belief that such a duty could be found to exist in these circumstances anyway. Given the fact that the indemnification provision of the broker agreement has not been triggered, there is simply no basis to conclude that Alpha had any obligations with regard to the legal fees incurred by their co-defendant in an action. To the extent that Cross-Complainants are of the opinion that their presence in the Underlying Action is dependent on Alpha’s and Alpha’s inclusion was wrong, they were free to make such arguments when they demurred to prior iterations of Plaintiff’s complaint. They did not do so. Consequently, Alpha’s demurrer to the fifth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSAINED WITHOUT LEAVE TO AMEND.

Next, Alpha contend that the fourth and sixth causes of action for negligence and professional negligence, respectively, are not only duplicative, but fail to state facts sufficient to constitute a cause of action because they are predicated on impermissible legal conclusions rather than facts. Indeed, while Cross-Complainants set forth the bare elements of a negligence claim, these elements are not accompanied by any facts. As a general rule, a complaint “must contain only allegations of ultimate facts as opposed to allegations of … legal conclusions ….” (Burke v. Superior Court (1969) 71 Cal.2d 276, 279, fn. 4.) Here, with no facts pleaded, it is not clear how Alpha breached the duty of care that it owed to Cross-Complainants in connection with the sale of the Property. Absent such facts, no claims for negligence, professional or otherwise, have been stated. Consequently, Alpha’s demurrer to the fourth and sixth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 30 DAYS’ LEAVE TO AMEND. Alpha’s demurrer to these claims on the ground of uncertainty is OVERRULED.