Valentino Castellanos v. Sun 1031, LLC

Case Name: Castellanos, et al. v. Sun 1031, LLC, et al.

Case No.: 1-13-CV-249411

 

Defendants Matthew Vredevoogd (“Vredevoogd”), Sun 1031, LLC, Sun Capital, LLC and Shawn Coleman (collectively, the “Sun Defendants”) and Neel Bhatia, Cassidy Turley Northern California Inc. and Cassidy Turley Commercial Real Estate Services, Inc. f/k/a NAI BT Commercial Realty (collectively, the “Cassidy Defendants”) each demur to the fourth amended complaint (“4AC”) filed by plaintiffs Valentino Castellanos and Sun CP 26 (the “Castellanos Plaintiffs”) and Tim Tyler, The Tim Tyler Corporation and Sun CP 34 (collectively, the “Tyler Plaintiffs”).  The Sun and Cassidy Defendants also move to strike portions of the operative pleading.

 

This action involves claims arising out of the Castellanos and Tyler Plaintiffs’ (collectively, “Plaintiffs”) purchases of tenancy in common (“TIC”) ownership interests in a commercial property located in Wheeling, Illinois.  The Tyler Plaintiffs purchased their interest through several real estate agents, including Vredevoogd, in December of 2008, while the Castellanos Plaintiffs purchased their interest from the Sun Defendants, and through the Cassidy Defendants as real estate agents, in October 2008.  Plaintiffs allege that they were defrauded during their purchase of the TIC.  On August 28, 2014, Plaintiffs filed the 4AC asserting the following claims: (1) material misrepresentations in offer and sale of securities (against the Sun Defendants and others); (2) material misrepresentations in offer and sale of securities (against the Tyler RE Agents: defendants Peck, Red Door Realty, Knight, and Sun Exchange Properties, LLC); (3) materially assisting persons (against the Sun Defendants); (4) materially assisting persons (against the Tyler RE Agents); (5) control persons (violation of Corp. Code §§ 25504, 25504.1) (against the Sun Individual Defendants); (6) fraud and deceit (against the Sun Defendants); (7) fraud and deceit (against the Cassidy Defendants); (8) fraud and deceit (against the Tyler RE Agents); (9) negligent misrepresentation (against the Sun Defendants); (10) negligent misrepresentation (against the Cassidy Defendants); (11) negligent misrepresentation (against the Tyler RE Agents); (12) negligence (against the Sun Defendants); (13) negligence (against the Cassidy Defendants); (14) negligence (against the Tyler RE Agents); (15) conversion (against the Sun Defendants); (16) breach of fiduciary duty (against the Cassidy Defendants); (17) breach of fiduciary duty (against the Tyler RE Agents); (18) respondeat superior (against the Cassidy Defendants); (19) financial abuse of an elder (against the Sun Defendants); (20) financial abuse of an elder (against the Tyler RE Agents); (21) Probate Code § 859 (against the Sun Defendants); and (22) Probate Code § 859 (against the Cassidy Defendants).

 

The parties filed their demurrers on September 25th (Vredevoogd), October 1st (the Sun Defendants) and October 2nd (the Cassidy Defendants), 2014.  (Code Civ. Proc., § 430.10, subd. (e).)  The Cassidy Defendant also filed their motion to strike with their demurrer and Sun Defendants filed a notice of joinder in that motion on October 28, 2014.  (Code Civ. Proc., §§ 435, 436.)

 

The requests for judicial notice by Vredevoogd and the Sun and Cassidy Defendants are GRANTED.  (Evid. Code, § 452, subd. (d).)  Only the prior orders of the Court (Hon. McKenney, Hon. Folan and Hon. Elfving) can be noticed as to the truth of their contents.  The contents of the verified prior pleading, the third amended complaint (“TAC,” exhibit D to Vredevoogd’s request) are noticed for purposes of comparison with the operative 4AC.  Plaintiffs remain bound by their prior allegations that the alleged wrongdoing upon which all of their claims are based is the sale of securities in October (the Castellanos Plaintiffs) and December (the Tyler Plaintiffs) 2008.

 

Vredevoogd’s Demurrer

 

Vredevoogd demurs to the fourth, eighth, eleventh, fourteenth, seventeenth and twentieth causes of action on the ground of failure to state facts sufficient to constitute a cause of action.

 

The Court previously sustained Vredevoogd’s demurrer to all but the fourth cause of action of the foregoing claims on statute of limitations grounds, reasoning that Plaintiffs had not complied with the delayed discovery rule.  All of these claims arise from the Tyler Plaintiffs’ purchase of securities in December 2008; absent application of the delayed discovery rule, Plaintiffs’ claims against Vredevoogd are time-barred.

 

“A plaintiff has reason to discover a cause of action when he or she ‘has reason at least to suspect a factual basis for its elements.’  Under the discovery rule, suspicion of one or more of the elements of a cause of action, coupled with knowledge of any remaining elements, will generally trigger the statute of limitations period.  Norgart [v. Upjohn Co. (1999) 21 Cal.4th 383] explained that by discussing the discovery rule in terms of a plaintiff’s suspicion of ‘elements’ of a cause of action, it was referring to the ‘generic’ elements of wrongdoing, causation and harm.  In so using the term ‘elements,’ we do not take a hypertechnical approach to the application of the discovery rule.  Rather than examining whether the plaintiffs suspect facts supporting each specific legal element of a particular cause of action, we look to whether the plaintiffs have reason to at least suspect that a type of wrongdoing has injured them.”  (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807, internal citations omitted.)  “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.’  In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to ‘show diligence’; conclusory allegations will not withstand demurrer.’”  (Id. at 808, internal citations omitted; see also E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1319, 1324-1325 [in order to be entitled to the benefit of the delayed discovery rule, a plaintiff must specifically plead the time and manner of discovery and show the following: (1) the plaintiff had an excuse for late discovery; (2) the plaintiff was not at fault in discovering facts late; (3) the plaintiff did not have actual or presumptive knowledge to be put on inquiry; and (4) the plaintiff was unable to make earlier discovery despite reasonable diligence].)

When the Court previously sustained Vredevoogd’s demurrer to the Tyler Plaintiffs’ claims on statute of limitations grounds, it concluded that Plaintiffs had not complied with rule of delayed discovery with regards to Vredevoogd.  Plaintiffs had attempted, and still attempt now, to rely on a purported fiduciary relationship with Vredevoogd to excuse them from the usual duty of diligence necessary for application of the rule.  The Court previously held that in order to escape the effect of the statute of limitations, Plaintiffs not only had to “specifically plead the time and manner of their eventual discovery of the facts giving rise to their claims” but also had to allege “as to each defendant alleged to owe a fiduciary duty to each group of Plaintiffs- when and how the relationship including such a duty arose, how long it lasted and how the scope of that duty explains the failure to allege claims arising out of the sales of securities in October and December of 2008 any earlier than July of 2013.”  (See Vredevoogd RJN, Exhibit B at 8:3-10 (emphasis added).)

 

Here, while Plaintiffs continue to claim that Vredevoogd was their fiduciary, they fail to plead facts specific to him that demonstrate that he personally created a fiduciary duty with them.  Instead they refer to him only within the context of a larger group of defendants and thus fail to identify conduct- attributable solely to Vredevoogd- that would create such a relationship.  Moreover, conclusory allegations that a fiduciary relationship existed because Vredevoogd and the other defendants were licensed real estate agents at the time of their interactions with the Tyler Plaintiffs and represented that they possessed “expertise in financial investing” do not satisfy Plaintiffs’ burden to plead facts demonstrating that Vredevoogd personally acted as their real estate agent or financial advisor.  Finally, even if a fiduciary relationship with Vredevoogd existed, Plaintiffs fail to plead facts establishing how long it lasted, which is critical in demonstrating that their claims are timely.  Generally speaking, a broker’s fiduciary duty to its client ends at the close of the transaction.  (See Mezel v. Salka (1960) 179 Cal.App.2d 612, 624.)  The transactions at issue ended with the closure of escrow in 2008.  It is this fact which highlights a critical distinction between the authorities relied upon by Plaintiffs, i.e., Eisenbaum v. Western Energy Resources, Inc., et al. (1990) 218 Cal.App.3d 314 and the like, and the circumstances at bar.  In those cases, the fiduciary relationships were ongoing, and thus operated to limit the duties of inquiry and diligence on the part of the plaintiffs, resulting in delayed commencement of the statute of limitations.  Here, as Plaintiffs have not pleaded facts showing an ongoing fiduciary relationship with Vredevoogd, nor facts establishing why they could not have discovered Vredevoogd’s purportedly wrongful conduct after the fiduciary relationship ended, they have not demonstrated that their claims against him are timely.

 

Consequently, Vredevoogd’s demurrer to the eighth (fraud and deceit), eleventh (negligent misrepresentation), fourteenth (negligence), seventeenth (breach of fiduciary duty) and twentieth (financial abuse of an elder) causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

 

Vredevoogd’s demurrer to the fourth cause of action (materially assisting persons- violation of Corp. Code §§ 25504 and 25504.1) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.  Plaintiffs fail to plead facts setting forth the wrongful conduct of Vredevoogd, specifically.  Instead, Vredevoogd is referred to collectively with others as one of the “Tyler RE: Agents.”  As the Court advised Plaintiffs in its prior orders, this is insufficient to state an individual claim against Vredevoogd.

 

The Cassidy Defendants’ Demurrer and Motion to Strike

 

The Cassidy Defendants demur to the seventh, tenth, thirteenth, sixteenth, eighteenth and twenty-second causes of action on the ground of failure to state facts sufficient to constitute a cause of action.

 

The Cassidy Defendants’ demurrer to the seventh (fraud and deceit) and tenth (negligent misrepresentation) causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

 

The gravaman of Plaintiffs’ fraud claim in the 4AC and prior pleadings is that the Cassidy Defendants: (1) provided Plaintiffs with written materials prepared by the Sun Defendants which allegedly contained fraudulent information, and which were not independently verified by the Cassidy Defendants; (2) made assertions about the future quality and safety of the investment, (3) failed to explain that TIC was a security and that the Cassidy Defendants were not licensed to sell securities, (4) failed to explain the Cassidy Defendants’ fee structure, and (5) failed to disclose an existing encumbrance against the TIC and a prior foreclosure.  These allegations do not support a cause of action for fraud for the reasons set forth below.

 

First, as the Court articulated in its prior order, “[t]he law is well established that actionable misrepresentations must pertain to past or existing material facts.  Statements or predictions regarding future events are deemed to be mere opinions which are not actionable.”  (Cansino v. Bank of America (2014) 224 Cal.App.4th 153, 157.)  Thus, allegations of false statements regarding future performance do not support a claim for fraud.  Second, fraud claims cannot be based on the Cassidy Defendants allegedly passing along written materials prepared by the Sun Defendants unless it is clearly alleged that they knew that the contents of those materials were false; Plaintiffs were provided with an opportunity to amend to address this deficiency but still fail to allege in the 4AC that the Cassidy Defendants knew that the foregoing materials contained false information.  Third, Plaintiffs may not rely on allegations of the sale of unregistered securities to state fraud claims as demurrers to all of the securities claims previously alleged against the Cassidy Defendants have been sustained without leave to amend.  Plaintiffs’ attempt to re-cast these claims as common law fraud causes of action is improper and will not be permitted.  Fourth, the closing statement attached to the 4AC as Exhibits A and B make it clear that the Cassidy Defendants’ fee structure was disclosed to Plaintiffs.  Fifth, the existence of a loan or prior foreclosure is a matter of public record and such information would have been contained in the preliminary title report provided to Plaintiffs during the transaction.

Most critically, as currently pleaded, Plaintiffs’ fraud claims are still time-barred.  As with Vredevoogd, Plaintiffs fail to plead facts establishing how long their purported fiduciary relationship lasted with the Cassidy Defendants such that their duties of inquiry and due diligence were not implicated at any point between 2008, when the TIC transactions took place, and June 2013, when they met with their attorney.  Again, generally speaking, a broker’s fiduciary duty to its client ends at the close of the transaction.  (See Menzel, supra, 179 Cal.App.2d 612, 624.)  Plaintiffs have not pleaded any facts which suggest that the Cassidy Defendants maintained contact with them after the transaction, much less a fiduciary relationship.

 

Moreover, even if a fiduciary duty did exist over the entire length of that period, its existence did not by itself necessarily eliminate the duty to investigate and permit Plaintiffs to rely on the fiduciary’s initial representations in perpetuity.  Even where a fiduciary relationship exists, once a party becomes aware of facts that would make a reasonably prudent person suspicious, the duty to investigate arises.  (See Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 131.)  The Cassidy Defendants note persuasively that Plaintiffs would have known of the annual return in their investment after only a year and knew or should have known of their fee structure at the close of escrow in October 2008.  Plaintiffs otherwise offer no facts setting forth what prevented them from discovering the purported fraud until 2013.

 

The Cassidy Defendants’ demurrer to the thirteenth (negligence) and sixteenth (breach of fiduciary duty) causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.  As with the fraud claims, these causes of action as pleaded are time-barred.

 

The Cassidy Defendants’ demurrer to the eighteenth cause of action (Respondeat Superior) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.    All of the potential underlying claims alleged against individual defendant Bhatia are currently time-barred and/or fail to state sufficient facts.

 

The Cassidy Defendants’ demurrer to the twenty-second (violation of Probate Code § 859) cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.  In order to state a claim under this statute, there must be allegations of the fraudulent transfer of estate assets through trustee malfeasance, elder abuse, or undue influence.  (See, e.g., Estate of Kraus (2010) 184 Cal.App.4th 103.)  As with the TAC, financial elder abuse is not alleged against the Cassidy Defendants and there are no allegations against them of undue influence in bad faith.  Further, all of the potential underlying claims that might support an assertion of wrongful disposal of trust property are inadequately pleaded.

 

The Cassidy Defendants’ motion to strike Plaintiffs’ allegations of securities violations, requests for attorney’s fees and punitive damages, and allegations relating thereto, is GRANTED WITHOUT LEAVE TO AMEND.  As set forth above, Plaintiffs’ securities causes of action were previously declared invalid by the Court through the disposition of successive demurrers by the Cassidy Defendants.  Plaintiffs cannot now attempt to re-cast these claims as common law claims for fraud.

 

With regard to Plaintiffs’ request for attorney’s fees, generally, parties to litigation must pay their own attorney’s fees, except as provided by statute or agreement, or where such fees are themselves part of the measure of damages.  (See Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1257; Code Civ. Proc., § 1021 [“[e]xcept as attorney’s fees are specifically provided by statute, the measure of and mode of compensation of attorneys … is left to the agreement, express or implied, of the parties …”].)  Here, Plaintiffs fail to plead a valid contractual or statutory basis for attorney’s fees.  While Plaintiffs refer to Code of Civil Procedure section 1021.5, this statute refers to an award of attorney’s fees relating to “the enforcement of am important right affecting the public interest …”, yet in the 4AC there are no allegations regarding any right affecting the public interest.  Finally, Plaintiffs fail to plead facts supporting an award of punitive damages, i.e., facts demonstrating that the Cassidy Defendants are guilty of oppressive, fraudulent, or malicious conduct as defined by Civil Code section 3294.

 

Sun Defendants’ Demurrer and Motion to Strike

 

The Sun Defendants demur to the first, third, fifth, sixth, ninth, twelfth, fifteenth, nineteenth and twenty-first causes of action on the ground of failure to state facts sufficient to constitute a cause of action.  The Sun Defendants’ joinder to the Cassidy Defendants’ motion to strike is GRANTED.

 

The Sun Defendants’ demurrer to the first (material misrepresentation in offer and sale of securities- violation of Corp. Code §§ 25401, 25501 and 25504), third (materially assisting persons- violation of Corp. Code §§ 25504 and 25504.1) and fifth (control persons- violation of Corp. Code §§ 25504 and 25504.1) causes of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.  As articulated by the Court in its prior ruling on the Sun Defendants’ demurrer to these claims in the TAC, these claims are governed by the limitations period contained in Corporations Code section 25506, subdivision (b), and it is not apparent from the face of the 4AC that they are time-barred under that section based on when Plaintiffs purchased securities and when their original complaint was filed.

 

The Sun Defendants’ demurrer to the sixth (fraud and deceit), ninth (negligent misrepresentation) twelfth (negligence), fifteenth (conversion), twentieth (financial elder abuse) and twenty-first (Probate Code § 859) causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.  For the same reasons articulated above with respect to Vredevoogd, the Cassidy Defendants and the rule of delayed discovery, these claims are time-barred.

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