Nature of Proceeding: Hearing on Demurrer (JTS Communities, Inc.)
Filed By: Loorz, Shawn C.
Defendant JTS Communities’ Demurrer to the Second, Third and Fourth Causes of
Action in Plaintiffs’ First Amended Complaint (“FAC”) is sustained with leave to amend.
Plaintiffs allege that they purchased their homes “within the last ten years from the
filing” of the complaint. (FAC ¶ 18.) They allege that at some point they learned of
violations of certain Residential Building Standards and that they initiated the requisite
pre-litigation procedures. (Id. ¶¶ 19, 20.) They further allege that defendants
promised to fix the problems causing them to delay filing the lawsuit. (Id.) They allege
that they became aware within the year prior to filing the action that the homes which
they thought were purchased from JTS were actually part of a scheme of a number of
alter ego entities and had they known such facts, they would never have purchased
their homes. (Id. ¶¶ 22-23.) They also allege that defendants misrepresented that the
homes would be high quality and constructed by properly licensed contractors when in
fact they were not. (Id. ¶ 24.) Plaintiffs’ causes of action for Unfair Business Practices,
Rescission and Fraud are the subject of the instant demurrer.
Second Cause of Action (Unfair Business Practices)
JTS’ demurrer to the second cause of action for unfair business practices is sustained
with leave to amend. JTS demurs on the basis that as pled, the second cause of
action is barred by the four year statute of limitations in Bus. & Prof. Code § 17208.
JTS reasons that the conduct forming the basis of this cause of action occurred when
the homes were constructed in 2003-2008 and thus is barred by the four year statute
of limitations given the FAC was filed in May 2013.
Here, contrary to JTS’ argument that the statute of limitations begins to run from the
occurrence of the harm, Plaintiffs are correct that the unfair business practices causes
of action accrues and thus the statute of limitations begins to run “only when a
reasonable person would have discovered the factual basis for a claim.” (Aryeh v.
th
Cannon Business Solutions, Inc. (2013) 55 Cal.4 1185, 1195.) However, as pled, the
conduct forming the basis of the action occurred no later than 2008 and thus Plaintiffs
were required to allege facts showing some basis for tolling the statute of limitations.
Specifically, to invoke the discovery rule, Plaintiffs were required to “specifically plead
facts to show (1) the time and manner of discovery and (2) the inability to have made
earlier discovery despite reasonable diligence. In assessing the sufficiency of the
allegations of delayed discovery, the court places the burden on plaintiff to ‘show
diligence’; ‘conclusory allegations will not withstand demurrer’. [Citations omitted]” (
th
Grisham v. Phillip Morris USA (2007) 40 Cal.4 623, 638.)
Plaintiffs’ allegations at paragraph 22 of the FAC that they “only became aware within
the last year, that the homes they purchased which they thought were developed,
constructed, sold, and warranted by one entity known as ‘[JTS]’ were really part of the
scheme of alter ego entities as alleged above” is not sufficient to meet this standard as
it fails to show the “time and manner” of discovery and that Plaintiffs had the inability to
discover such facts earlier in the exercise of reasonable diligence. While there are
allegations in the FAC as to how JTS allegedly concealed its relationship with the other
defendants, there are no allegations in the FAC setting forth Plaintiffs specific “inability
to have made earlier discovery despite reasonable diligence.” ( Grisham, supra, at
638.) Plaintiffs have failed to adequately allege facts to demonstrate the applicability
of the delayed discovery rule. The Court, however, rejects JTS’ arguments in reply
that Plaintiffs will be unable to allege that they were reasonably diligent. Whether or
not Plaintiffs were reasonably diligent is an inherently factual question not
appropriately resolved on demurrer. It is enough at this juncture to say that Plaintiffs
have yet to allege any facts showing the “time and manner” of discovery and their
inability to discover the basis for the cause of action earlier despite the exercise of
reasonable diligence and the demurrer to the second cause of action must therefore
be sustained.
Third Cause of Action (Rescission)
JTS’ demurrer is sustained with leave to amend. Plaintiffs seek to rescind their sales
contracts based upon fraud pursuant to Civil Code § 1689. JTS demurs on the basis
that this is a remedy not a cause of action and that in any event, it is barred by the four
year statute of limitations found in Code of Civil Procedure § 337(3).
The demurrer on the basis that the cause of action is barred by the statute of
limitations is sustained with leave to amend for the same reasons stated above in
connection with the second cause of action as the same factual basis supports this
cause of action.
The Court need not reach JTS’ alternate argument that rescission is not a cause of
action. Though, liberally construed, the third cause of action is essentially one for
fraud seeking rescission as a remedy.
Fourth Cause of Action (Fraud)
JTS’ demurrer to the fourth cause of action for fraud is sustained with leave to amend
for the same reasons discussed above. JTS demurs on the basis that the cause of
action is barred by the three year statute of limitations for fraud found in Code of Civil
Procedure § 338(d). Again, the factual basis for the cause of action is the same as the
second cause of action and Plaintiffs’ delayed discovery allegations are insufficiently
pled.
Plaintiffs may file and serve a second amended complaint no later than December 2,
2013. JTS shall file and serve its response within 15 days thereafter, 20 days if the
second amended complaint is served by mail. (Although not required by any statute or
rule of court, Plaintiffs are requested to attach a copy of the instant minute order to the
second amended complaint to facilitate the filing of the pleading.)
The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or other notice is required.
Item 8 2012-00123782-CU-CD
Rosa Cervantes vs. JTS Communities, Inc.
Nature of Proceeding: Hearing on Demurrer (Does)
Filed By: Loorz, Shawn C.
Defendants Jack T. Sweigart (Doe 3), Larry Carter (Doe 4), J&L Properties (Doe 5),
J&L Properties II (Doe 6), VSHC (Doe 9) MKHIC (Doe 10), Victoria Sweigart (Doe 11)
and Mary Kate Carter (Doe 12) (collectively “DOE Defendants”) Demurrer to the
Second, Third and Fourth Causes of Action in Plaintiffs’ First Amended Complaint
(“FAC”) is ruled upon as follows.
Plaintiffs allege that they purchased their homes “within the last ten years from the
filing” of the complaint. (FAC ¶ 18.) They allege that at some point they learned of
violations of certain Residential Building Standards and that they initiated the requisite
pre-litigation procedures. (Id. ¶¶ 19, 20.) They further allege that defendants
promised to fix the problems causing them to delay filing the lawsuit. (Id.) They allege
that they became aware within the year prior to filing the action that the homes which
they thought were purchased from JTS Communities were actually part of a scheme of
a number of alter ego entities and had they known such facts, they would never have
purchased their homes. (Id. ¶¶ 22-23.) They also allege that defendants
misrepresented that the homes would be high quality and constructed by properly
licensed contractors when in fact they were not. (Id. ¶ 24.) Plaintiffs’ causes of action
for Unfair Business Practices, Rescission and Fraud are the subject of the instant
demurrer.
Improper Doe Designations
DOE Defendants’ demurrer on the basis that they do not “fit within the description of
the DOES as alleged in Plaintiffs’ original complaint” is overruled. An amended
pleading relates back to the filing of the original complaint when its sets forth charging
allegations against the fictitiously named defendants. ( Winding Creek v. McGlashan
th
(1996) 44 Cal.App.4 933, 941.) DOE Defendants argue that they do not fit into the
original complaint’s definition of DOES that “include corporations, partnerships, and
individuals acting as developers, general contractors, subcontractors, architects,
engineers, and material manufacturers and/or supplies.” (Original Compl. ¶ 4.) DOE
Defendants argue that the FAC does not describe their roles and thus they do not fit
within the original doe allegations and therefore no cause of action is alleged against
them. The Court rejects this argument. First, DOE Defendants’ overlook that the
original complaint also defined the DOEs as “developers of mass-produced residential
housing, manufacturers, suppliers, distributors, contractors, sub-contractors, or
professionals engaged in the construction or repair of residential housing…” (Id. ¶ 5.)
In the FAC, Plaintiffs alleged that DOE 3 and DOE 4 formed DOE 5 and DOE 6, a
general partnership whose partners were DOEs 7 and 8 (wholly owned by DOEs 3 and
4 respectively) which “constructed, marketed, warranted, and sold residential
homes.” (FAC ¶ 5.) Thus, DOEs 3-8 fit squarely within the definition of the DOES in
the original complaint. DOE 9 and 10 are alleged to be the new names of DOES 7 and
8 and they too fit within the DOE allegations. DOE 11 is alleged to be an owner of
DOE 9 and DOE 12 is alleged to be an owner of DOE 10 and thus they also fit the
definition. As a result, the demurrer on the basis that the DOE Defendants do not “fit
within the description of the DOES as alleged in Plaintiffs’ original complaint” is
overruled.
Second Cause of Action (Unfair Business Practices)
DOE Defendants’ demurrer to the second cause of action for unfair business practices
is sustained with leave to amend. DOE Defendants demur on the basis that as pled,
the second cause of action is barred by the four year statute of limitations in Bus. &
Prof. Code § 17208. They reason that the conduct forming the basis of this cause of action occurred when the homes were constructed in 2003-2008 and thus is barred by
the four year statute of limitations given the FAC was filed in May 2013.
Here, contrary to DOE Defendants’ argument that the statute of limitations begins to
run from the occurrence of the harm, Plaintiffs are correct that the unfair business
practices causes of action accrues and thus the statute of limitations begins to run
“only when a reasonable person would have discovered the factual basis for a
th
claim.” (Aryeh v. Cannon Business Solutions, Inc. (2013) 55 Cal.4 1185, 1195.)
However, as pled, the conduct forming the basis of the action occurred no later than
2008 and thus Plaintiffs were required to allege facts showing some basis for tolling
the statute of limitations. Specifically, to invoke the discovery rule, Plaintiffs were
required to “specifically plead facts to show (1) the time and manner of discovery and
(2) the inability to have made earlier discovery despite reasonable diligence. In
assessing the sufficiency of the allegations of delayed discovery, the court places the
burden on plaintiff to ‘show diligence’; ‘conclusory allegations will not withstand
th
demurrer’. [Citations omitted]” (Grisham v. Phillip Morris USA (2007) 40 Cal.4 623,
638.)
Plaintiffs’ allegations at paragraph 22 of the FAC that they “only became aware within
the last year, that the homes they purchased which they thought were developed,
constructed, sold, and warranted by one entity known as ‘[JTS]’ were really part of the
scheme of alter ego entities as alleged above” is not sufficient to meet this standard as
it fails to show the “time and manner” of discovery and that Plaintiffs had the inability to
discover such facts earlier in the exercise of reasonable diligence. While there are
allegations in the FAC as to how JTS allegedly concealed its relationship with the other
defendants, there are no allegations in the FAC setting forth Plaintiffs specific “inability
to have made earlier discovery despite reasonable diligence.” ( Grisham, supra, at
638.) Thus, Plaintiffs have failed to adequately allege facts to demonstrate the
applicability of the delayed discovery rule. The Court, however, rejects DOE
Defendants’ arguments in reply that Plaintiffs will be unable to allege that they were
reasonably diligent. Whether or not Plaintiffs were reasonably diligent is an inherently
factual question not appropriately resolved on demurrer. It is enough at this juncture to
say that Plaintiffs have yet to allege any facts showing the “time and manner” of
discovery and their inability to discover the basis for the cause of action earlier despite
the exercise of reasonable diligence and the demurrer to the second cause of action
must therefore be sustained.
Third Cause of Action (Rescission)
DOE Defendants’ demurrer is sustained with leave to amend. Plaintiffs seek to
rescind their sales contracts based upon fraud pursuant to Civil Code § 1689. DOE
Defendants demur on the basis that this is a remedy not a cause of action and that in
any event, it is barred by the four year statute of limitations found in Code of Civil
Procedure § 337(3).
The demurrer on the basis that the cause of action is barred by the statute of
limitations is sustained with leave to amend for the same reasons stated above in
connection with the second cause of action as the same factual basis supports this
cause of action.
The Court need not reach DOE Defendants’ alternate argument that rescission is not a
cause of action. Though, liberally construed, the third cause of action is essentially
one for fraud seeking rescission as a remedy.
Fourth Cause of Action (Fraud)
DOE Defendants’ demurrer to the fourth cause of action for fraud is sustained with
leave to amend for the same reasons discussed above. DOE Defendants’ demur on
the basis that the cause of action is barred by the three year statute of limitations for
fraud found in Code of Civil Procedure § 338(d). Again, the factual basis for the cause
of action is the same as the second cause of action and Plaintiffs’ delayed discovery
allegations are insufficiently pled.
Plaintiffs may file and serve a second amended complaint no later than December 2,
2013. DOE Defendants shall file and serve their responses within 15 days thereafter,
20 days if the second amended complaint is served by mail. (Although not required by
any statute or rule of court, Plaintiffs are requested to attach a copy of the instant
minute order to the second amended complaint to facilitate the filing of the pleading.)
The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or other notice is required.
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