Filed 12/23/19 Gonzales v. Silverhawk, Inc. CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(San Joaquin)

—-

RICARDO A. GONZALES,

Plaintiff, Cross-defendant and Respondent,

v.

SILVERHAWK, INC. et al.,

Defendants, Cross-complainants and Appellants;

ANTHONY VIRK,

Cross-defendant and Respondent.

C083810

(Super. Ct. Nos. 39-2015-00326258-CU-OR-STK,

STK-CV-URP-2015-5381)

Kamal Kapoor and his wife Sunita Kapoor, a lawyer, appeal the dismissal of their cross-complaint against the seller and real estate agent who sold them a gas station in 2005. The Kapoors, claiming to be inexperienced and unsophisticated purchasers, alleged in 2016 that the seller and agent had defrauded them 11 years earlier by grossly overstating the value of the business. The trial court granted the demurrers without leave to amend because all of the causes of action were barred by the relevant statutes of limitation and awarded the seller, Ricardo A. Gonzales attorney fees based on the attorney fee provisions in the promissory note and deed of trust. The Kapoors failed, and continue to fail, to explain why they could not have discovered the true value of the business sooner and what reasonable steps they took to ascertain the true value so as to trigger the delayed discovery rule. We affirm.

FACTS

The only facts relevant to an appeal of a judgment of dismissal sustaining a demurrer without leave to amend are recited in the pleadings. (Burns v. Neiman Marcus Group, Inc. (2009) 173 Cal.App.4th 479, 486.) Our review is de novo. (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247.)

On March 21, 2005, Kamal Kapoor signed a contract to purchase a Chevron gas station, convenience store, and carwash for $1.8 million from Gonzales. The contract provided for a six-month due diligence period. Virk, a licensed real estate broker, represented the sellers and the buyers. On July 15, 2005, Kamal assigned his interests in the contract to Silverhawk, Inc. He is president of Silverhawk, Inc.

In September 2005, Kamal initialed every page of the escrow instructions and signed, on behalf of Silverhawk, Inc., at the end of the document. He acknowledged, “an independent investigation of the subject business has been made and [Kamal] is satisfied that he . . . can properly operate same.” He also acknowledged that Gonzales had provided an opportunity for him to “inspect all the equipment, furniture, fixtures, electricity, plumbing, drainage, heating & cooling system prior to close of escrow . . . .”

The Kapoors complain that Kamal was presented with the escrow instructions right before signing and was not provided an opportunity to read the instructions. They further allege that Virk did not advise them to get an appraisal or to independently investigate the business.

The Kapoors provided $605,408.40 in cash and executed a promissory note for $617,562.13 secured by a deed of trust on rental property owned by Kamal and the personal residence of Kamal and Sunita. On December 22, 2006, Kamal and Sunita, on behalf of Silverhawk, Inc., executed a second promissory note replacing the first note Kamal had signed at the close of escrow. Under the terms of the note executed on December 22, 2006, Gonzales agreed to loan the principal amount of $607,820 to the Kapoors in exchange for their agreement to repay the loan together with interest at a rate of 8 percent per annum. The note was secured by a deed of trust and assignment of rents granting Gonzales the right to foreclose on the property if the Kapoors defaulted.

Approximately nine years later, Silverhawk, Inc. failed to make the monthly payment due on May 1, 2015, and all subsequent payments. On June 15, 2015, Gonzales filed suit against the Kapoors and Silverhawk, Inc. to enforce the terms of the promissory note and stated causes of action for judicial foreclosure and the appointment of a receiver. The court appointed a receiver.

On February 2, 2016, the Kapoors filed their first cross-complaint against Gonzales and Virk, alleging that they had mispresented the value of the leasehold improvements and grossly overstated the value of Gonzales’s business in 2005. Gonzales’s and Virk’s demurrers were sustained with leave to amend. The receiver sold the business on June 28, 2016. The court approved the sale, the receiver completed his duties, and the court granted Gonzales’s motion for discharge of the receiver.

The Kapoors tried again. They filed a second amended cross-complaint adding that “[o]n or about May 2015, Kamal and Sunita contacted a real estate broker to list the business for sale and were told that the business was purchased in 2005 at a grossly inflated price.” They did not explain, however, why they could not have discovered the alleged wrongdoing sooner, particularly during the six-month due diligence period in 2005.

Gonzales and Virk demurred a second time. The trial court sustained both demurrers without leave to amend. The court wrote: “After being advised specifically by the Court of the delayed discovery doctrine, [the Kapoors] have only added the allegation that they were told in 2015 that the value of the business they bought in 2005 was grossly exaggerated. They fail to allege the second part to the delayed discovery doctrine; that is, that they could not have discovered the true value of the business any sooner.”

The promissory note and deed of trust both contained attorney fee provisions. In the promissory note, the Kapoors, on behalf of Silverhawk, Inc., agreed: “If action be instituted on this Note, I promise to pay such sum as the Court may fix as attorney’s fees.” The deed of trust contained a similar provision. The court granted Gonzales’s motion for attorney fees of $69,122, plus costs of $1,080, and receiver’s fees and costs of $27,800 for a total of $98,002.

The Kapoors appeal.

DISCUSSION

I

Statute of Limitations

A complaint disclosing the statute of limitations has expired is subject to demurrer. (Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 962.) On appeal of a judgment sustaining a demurrer without leave to amend, we must give the complaint a reasonable interpretation and treat the demurrer as admitting all the material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) The dispositive question we must ultimately resolve is whether the facts alleged establish that the Kapoors’ claims are barred as a matter of law. (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191.)

Statutes of limitations “promote the diligent assertion of claims, ensure defendants the opportunity to collect evidence while still fresh, and provide repose and protection from dilatory suits once excess time has passed.” (Aryeh v. Canon Business Solutions, Inc., supra, 55 Cal.4th at p. 1191.) Although the Kapoors allege a variety of causes of action with some variance in the length of the statute of limitations attendant to each cause of action, no one disputes that the longest possible statute of limitations on the alleged causes of action pleaded in the complaint is four years. (Code Civ. Proc., § 343 for breach of fiduciary duty; Code Civ. Proc., § 337 for claims based on a written agreement.) The limitations period begins to run as soon as the cause of action accrues; that is, “from the occurrence of the last element essential to the cause of action.” (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 187.) The last element, the sale of the business, was completed on September 9, 2005. Thus, the four-year statute of limitations ran in 2009, unless the complaint discloses the accrual of a cause of action that was postponed by the “discovery rule,” an important exception to the general rule of accrual. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.)

The discovery rule postpones the accrual of a cause of action until the plaintiff discovers, or should discover, the cause of action. (Neel v. Magana, Olney, Ley, Cathcart & Gelfand, supra, 6 Cal.3d at p. 179.) “[T]he uniform California rule is that a limitations period dependent on discovery of the cause of action begins to run no later than the time the plaintiff learns, or should have learned, the facts essential to his claim.” (Gutierrez v. Mofid (1985) 39 Cal.3d 892, 897.) “The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action. The discovery rule does not encourage dilatory tactics because plaintiffs are charged with presumptive knowledge of an injury if they have . . . ‘ “ ‘the opportunity to obtain knowledge from sources open to [their] investigation.’ ” ’ ” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808, fn. omitted (Fox).) In other words, a plaintiff must seek to learn the facts necessary to bring the cause of action within the limitations period. (Norgart v. Upjohn Co., supra, 21 Cal.4th at pp. 463-464.)

The Kapoors, as cross-complainants, carry the burden of properly pleading the application of the discovery rule; conclusory allegations will not withstand demurrer. (McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160, superseded by statute on another ground as stated in Lopez v. Sony Electronics, Inc. (2018) 5 Cal.5th 627, 633, fn. 3.) They must “plead and prove the facts showing: (a) Lack of knowledge. (b) Lack of means of obtaining knowledge (in the exercise of reasonable diligence the facts could not have been discovered at an earlier date). (c) How and when [they] did actually discover the fraud or mistake. Under this rule constructive and presumed notice or knowledge are equivalent to knowledge.” (Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1525.) Or, as the Supreme Court made clear in Fox, “In order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’ ” (Fox, supra, 35 Cal.4th at p. 808.) As to fraud, it is well established, “the facts relating to such discovery should be detailed in order that the court may determine whether, with due diligence, the fraud should have been discovered sooner.” (Davis v. Rite-Lite Sales Co. (1937) 8 Cal.2d 675, 681.)

The Kapoors insist that at the time of purchase they had no reason to suspect or to be put on inquiry notice that the sales price for the business was “grossly more than a fair market price.” In their view, therefore, their causes of action did not accrue in 2005 at the time of the sale but rather the accrual of their causes of action was postponed until 10 years later when a real estate broker told them the 2005 price was too high. The trial court, in sustaining Gonzales’s and Virk’s first demurrers, admonished them that their complaint did not in fact invoke the discovery rule, but gave them the opportunity to amend their complaint to state sufficient facts to trigger the rule. Yet again they failed to satisfy the rigorous burden to sufficiently plead both elements of the discovery rule; they merely added an allegation that they were told in 2015 that the value of the business they bought in 2005 was grossly exaggerated. They did not, as the trial court explained, allege the very important second part to the delayed discovery doctrine; that is, that they could not have discovered the true value of the business any sooner.

The Kapoors fail to appreciate the two-pronged nature of the discovery rule exception to the accrual of a cause of action. It is not enough to plead a belated discovery. Rather it is incumbent upon a plaintiff, or in this case, a cross-complainant to demonstrate diligence in ascertaining the facts. Here the Kapoors were provided a six-month due diligence period to thoroughly examine the business they sought to purchase. They do not contend they were denied access to any part of the business, including all of the financial records. They were free to get an independent appraisal, but apparently did not. They have not plead, nor have they offered any proposed pleading, to demonstrate what efforts they made to ascertain the value of the business. We agree with Gonzales and Virk that any ordinary prudent person would investigate the price of a business during the due diligence period before closing on the transaction. After all, the cases are crystal clear that the discovery rule does not postpone accrual if the plaintiffs had an opportunity to discover the harm they later allege or were in a position in which they should have initiated some type of inquiry or investigation. But the Kapoors are silent on this score. They offer no explanation for failing to make even a modest effort to determine what the true value of the business was during the due diligence period. Thus, they have failed to meet their burden to survive a demurrer, and in the absence of any showing they might make to demonstrate reasonable diligence, the trial court properly sustained the demurrers without leave to amend. (Lee v. Los Angeles County Metropolitan Transportation Authority (2003) 107 Cal.App.4th 848, 854.)

Sunita, a lawyer, insists that she and her husband were unsophisticated and inexperienced purchasers who depended on the advice of their fiduciary, Virk. It is true that a fiduciary relationship can mitigate the usual duty of diligence. (United States Liability Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 598.) It does not, however, negate the Kapoors independent duty to exercise reasonable care to protect themselves. “Nothing . . . relieves a buyer or prospective buyer of the duty to exercise reasonable care to protect himself or herself, including those facts which are known to or within the diligent attention and observation of the buyer or prospective buyer.” (Civ. Code, § 2079.5.) Here Virk was representing both the seller and the buyer. It would be hard to imagine anything more central to the Kapoors’ decision to purchase the business than the price and the presence of a dual agent would not eliminate their duty to independently investigate the value of the business.

The 1898 case upon which they rely, Tarke v. Bingham (1898) 123 Cal. 163, is easily distinguished and illustrates the danger of extracting legal principles untethered to the facts of the case. Tarke does not involve a real estate agent; nor does it involve fraud, breach of fiduciary obligations, or any other cause of action arising from the sale of a business. Rather Tarke involved a clerical error and the plaintiff sought reformation of the deed to conform to the terms of the promissory note as the parties had agreed. (Id. at p. 164.) The mortgager raised the statute of limitations as an affirmative defense. (Id. at p. 165.) The Supreme Court held that, although the means of information to discover the mistake were available to the plaintiff, under the circumstances there was nothing to put “ ‘a prudent man’ ” on notice that anything had gone awry or to trigger a duty to inquire. (Id. at p. 166.)

Here, by contrast, the Kapoors retained an independent duty to ascertain the value of what they were purchasing, and a modicum of prudence would have impelled them to do something to determine whether the price was “grossly inflated” as they would allege a decade later. Nor did their duty arise solely by statute. Rather, they were explicitly instructed to conduct an investigation in the purchase and loan documents and Kamal initialed each page of the documents indicating that he understood this directive. Their duty to exercise reasonable diligence, therefore, arose from the contracts they signed as well as section 2079.5 of the Civil Code.

Fraudulent concealment is a closely related principle to delayed discovery. “A defendant’s fraudulent concealment tolls the statute of limitations only when, as a result of that concealment, the plaintiff fails to discover some critical fact.” (Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 774.) Here there are absolutely no alleged facts that the cross-defendants concealed the facts of their alleged fraudulent representation of the value of the business. To the contrary, the Kapoors were given six months to examine the business and they do not allege that either Gonzales or Virk concealed information from them. Fraudulent concealment has no bearing on this case.

II

Attorney Fees

The trial court awarded Gonzales, the prevailing party, attorney fees based on the express provisions in the deed of trust and the promissory note. The Kapoors contend that because the sale was based on a fraud, the fees for the receiver and for Gonzales’s lawyer should not have been awarded. They cite no authority and do not mention the award of fees in their reply brief. They appear to misunderstand the basis for the awards.

Attorney fees are not recoverable as costs unless a statute or contract expressly authorizes them. (Code Civ. Proc., § 1021.) Section 1717 of the Civil Code creates a right to attorney fees based on the provision in the loan documents. There is no question that Gonzales prevailed on his claims for judicial foreclosure and the appointment of a receiver. Fees were expressly awarded according to the terms of the loan document to Gonzales, as the prevailing party, on his claims. The Kapoors’ allegations of fraud in the cross-complaint are irrelevant to the attorney fee award. Thus, the trial court did not err in awarding fees.

DISPOSITION

The judgment is affirmed. Respondents shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

/s/

RAYE, P. J.

We concur:

/s/

MAURO, J.

/s/

RENNER, J.