Case Number: TC029030 Hearing Date: August 07, 2018 Dept: A

# 1. Philip Alvarez v. Westland Architecture and Development Corp. et al

Case No.: TC 029030

Matter on calendar for: Demurrer to First Amended Complaint; Motion to Strike

Tentative ruling:

I. Background

Evangelina Alvarez passed away in April 2016, and her son, plaintiff Philip Alvarez, became the trustee of an estate that included the residence at question where Philip Alvarez resides (925 E. Stockton Ave., Compton, CA, 90221). At the time of Evangelina’s death the property was paid off with no mortgage liens. Plaintiff alleges that between September 2016 and May 2017 multiple hard money loans were taken out in violation of lending laws (relating to whether plaintiff occupied the residence). The property is now in foreclosure and plaintiff seeks reformation of the loans.

The operative First Amended Complaint alleges the following causes of action:

(1) Breach of a written contract;

(2) Breach of an oral contract;

(3) Fraud;

(4) Constructive fraud;

(5) Breach of a fiduciary duty;

(6) Unjust enrichment; and

(7) Unfair business practices B&P code §§ 17200 et seq.

Defendants Ridec, LLC, and Advanced Funding Solutions, Inc. (“AFS”), have filed a demurrer to causes of action 3–7.

Defendant Reo Group, LLC, has filed a demurrer and a motion to strike. The demurrer is to causes of action 3–7.

II. Standard

A. Demurrer

Where the complaint fails to state facts sufficient to constitute a cause of action, courts should sustain the demurrer. (Code Civ. Proc. § 430.10(e); Zelig v. County of Los Angeles (2002) 27 Cal. App. 4th 1112, 1126.) In ruling on a demurrer, the Court shall accept all material allegations in the Complaint as true. (Blank v. Kirwan (1985) 39 Cal. App. 3d 311, 318.) The Court may not consider contentions, deductions, or conclusions of fact or law. (Moore v. Conliffe (1994) 7 Cal. App. 4th 634, 638.) Because a demurrer tests the legal sufficiency of a complaint, the plaintiff must show that the complaint alleges facts sufficient to establish every element of each cause of action. (Rakestraw v. California Physicians Service (2000) 81 Cal. App. 4th 39, 43.)

A plaintiff must allege the “essential facts . . . with reasonable precision and with particularity sufficiently specific to acquaint the defendant with the nature, source, and extent of his cause of action.” (Gressley v. Williams (1961) 193 Cal. App. 2d 636, 643-644.)

Under Code Civ. Proc. § 430.10(f), a demurrer may also be sustained if a complaint is “uncertain.” Uncertainty exists where a complaint’s factual allegations are confusing and do not sufficiently apprise a defendant of the issues it is being asked to meet. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal. App. 3d 135, 139, fn. 2.)

B. Motion to strike

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc. § 436(a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc. §436(b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc. § 437.)

III. Analysis

A. Third Cause of Action: Fraud

The elements of fraud are: (1) a misrepresentation; (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Fraud must be pled with specificity. (Id. at 645.) This “necessitates pleading facts which show how, when, where, to whom, and by what means representations were tendered.” (Ibid.) When alleged against a corporate defendant, “plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]” (Ibid.)

a. Ridec and AFS

Alvarez fails to state, with specificity, the necessary elements of fraud as to corporate defendants Ridec and AFS. Alvarez’s allegation that defendants made representations is not sufficient. (FAC ¶ 90.) Alvarez must show who spoke, when they spoke, and what was said/communicated. (Lazar, supra, 12 Cal.4th at 638.)

b. Reo Group

Similarly, the fraud claim against Reo Group is insufficient. Although the FAC has more allegations as to Valentine and Vartan, Alvarez has failed to show how these two spoke with any authority as to the moving corporate defendants, or plead specific allegations as to any other corporate employees.

The demurrers are sustained with leave to amend.

B. Fourth Cause of Action: Constructive Fraud

The elements of constructive fraud are: “(1) a fiduciary or confidential relationship; (2) nondisclosure (breach of fiduciary duty); (3) intent to deceive; and (4) reliance and resulting injury (causation).” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal. App. 4th 1105, 1131 (citing Younan v. Equifax, Inc. (1980) 111 Cal. App. 3d 498, 516).)

Alvarez’s fourth cause of action for constructive fraud similarly fails. The allegations lack the necessary specificity required to plead a fraud action against the moving defendants, who are corporate entities.

The demurrers are sustained with leave to amend.

C. Fifth Cause of Action: Breach of Fiduciary Duty

Breach of fiduciary duty requires: (1) existence of a fiduciary relationship, (2) its breach, and (3) damages. (Meister v. Mensinger (2014) 230 Cal. App. 4th 381, 395.) A lender does not owe a duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money. (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal. App. 3d 1089, 1095–1096.) Nymark sets a general rule, but a lender may be found to owe a duty of care to a borrower upon a balancing of multiple factors; called the Biakanja factors. (Jolly v. Chase Home Finance, LLC (2013) 213 Cal. App. 4th 872, 901; Biakanja v. Irving (1958) 49 Cal.2d 647, 650.) The factors include “the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” (Biakanja, supra, 49 Cal.2d at 650.)

As pled, the FAC does not allege sufficient allegations to justify an exception to the Nymark rule. It is possible that a lender owed some duty of care to Alvarez. As of now, the FAC appears to rely upon general agency allegations (absent sufficient fraud allegations against these defendants). These are insufficient for the two moving lending entities.

As to AFS (which is a broker and therefore not protected by the Nymark rule), Alvarez fails to state a claim of breach of fiduciary duty as the alleged breach is fraud, and such conduct has not been pled with specificity.

a. Alter-ego theory

Alvarez argues an alter-ego theory between AFS (a broker) and Ridec (the lender) in its opposition. (Opp. to Ridec Demurrer pg. 3.) Alvarez must adequately plead an alter-ego theory by alleging “sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor. [Citation.]” (Leek v. Cooper (2011) 194 Cal. App. 4th 399, 415.) Such allegations between Ridec and AFS are not present in the FAC, though they are present in the opposition. (Opp. to Ridec pg. 4.) The FAC should be amended to include such allegations if Alvarez wishes to plead an alter-ego theory.

The demurrers are sustained with leave to amend.

D. Sixth Cause of Action: Unjust Enrichment

The elements of unjust enrichment are “’receipt of a benefit and unjust retention of the benefit at the expense of another’ [Citation.]” (Prakashpalan, supra, 223 Cal. App. 4th at 1332.) “’The theory of unjust enrichment requires one who acquires a benefit which may not justly be retained, to return either the thing or its equivalent to the aggrieved party so as not to be unjustly enriched.’ [Citation.]” (Ibid.)

This cause of action depends on the actions, breach of fiduciary duty and fraud, and therefore similarly fails.

The demurrers are sustained with leave to amend.

E. Seventh Cause of Action: Unfair Business Practices (Bus. & Prof. C. § 17200 et seq.) (Unfair Competition Law (UCL))

The UCL prohibits “unfair competition,” which is defined as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . . (Bus. & Prof. C. § 17200.) “The UCL’s purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.) “In service of that purpose, the Legislature framed the UCL’s substantive provisions in “’broad, sweeping language’” [Citations] and provided ‘courts with broad equitable powers to remedy violations’ [citation.]” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 320.)

Alvarez’s UCL claim likewise relies upon its allegations of fraud and breach of fiduciary duty.

The demurrers are sustained with leave to amend.

F. Motion to Strike

The motion to strike punitive damages is moot as they rely upon the fraud and fiduciary duty allegations. The move to strike paragraph 20. This is denied.

IV. Ruling

The demurrers are sustained as to the moving defendants with 20 days’ leave to amend. Any responsive pleading must be filed 20 days thereafter, or 25 if served by mail.