2018-00242585-CU-BC

3230 Broadway, LLC vs. Vicki A. Pfingst

Nature of Proceeding: Hearing on Demurrer

Filed By: Enos, Robert J.

Defendants Vicki A. Pfingst, individually and as Trustee of the Vicki A. Pfingst Trust U.T.D. March 3, 1998, and Angela Saldivia, individually and as Trustee of the Angela Saldivia Trust U/A dated December 4, 2001 (collectively, “Defendants”) demurrer to plaintiff 3230 Broadway, LLC’s (“Plaintiff”) complaint is OVERRULED.

This action arises from the sale of commercial real property located at 3230 Broadway, Sacramento, California 95817. The property consists of a two-story, multi-tenant building with four commercial units and four residential apartments.

On July 13, 2017, Plaintiff and Defendants entered into a Commercial Property Purchase Agreement for the sale of commercial real property located at 3230

Broadway for $775,000 (the “Purchase Agreement”). In order to finance the purchase, Plaintiff executed an Installment Note (the “Note”) as well as a deed of trust in favor of Defendants covering the property to secure the Note.

Pursuant to the terms of the Note, Plaintiff agreed to make an initial payment of

$77,500 to Defendants on March 11, 2018, and then to pay $4,053.86 per month from April 11, 2018, through February 11, 2023, until the balance was paid in full. Pursuant to the terms of the Purchase Agreement, Defendants were required to disclose to Plaintiff all known material defects affecting the property.

After completing the sale, Plaintiff alleges it discovered Defendants were aware, but failed to disclose, that methamphetamine had been used, manufactured, and sold by former occupants of the property, that the property was contaminated with asbestos, and that the property only had 100 amps of electricity despite Defendants’ representation that the property contained 800 amps of total electricity. Plaintiff stopped making payments to Defendants after it discovered the foregoing defects.

Plaintiff filed its complaint on October 16, 2018, alleging the following six causes of action: (1) fraud; (2) negligent misrepresentation; (3) breach of contract; (4) breach of the implied duty of good faith and fair dealing; (5) failure to disclose in violation of Civil Code § 1102; and (6) violation of Business & Professions Code § 17200.

Defendants demur to each of the six causes of action on the grounds that each fails to state facts sufficient to maintain a cause of action. (CCP § 430.10(e).)

Legal Standard

The pleading rules applicable to demurrers are now familiar and well established. Pleadings are to be liberally construed. (Code Civ. Proc. § 452) A demurrer admits the truth of all material facts properly pled and the sole issue raised by a general demurrer is whether the facts pled state a valid cause of action – not whether they are true. ( Serrano v. Priest (1971) 5 Cal. 3d 584, 591.)

A demurrer may be sustained only if the complaint lacks any sufficient allegations to entitle the plaintiff to relief. (Financial Corp. of America v. Wilburn (1987) 189 Cal. App. 3d 764, 778.) “Plaintiff need only plead facts showing that he may be entitled to some relief . . . , we are not concerned with plaintiff’s possible inability or difficulty in proving the allegations of the complaint.” (Highlanders, Inc. v. Olsan (1978) 77 Cal. App. 3d 690, 696-697.) “[Courts] are required to construe the complaint liberally to determine whether a cause of action has been stated, given the assumed truth of the facts pleaded.” (Picton v. Anderson Union High School Dist. (1996) 50 Cal. App. 4th 726.)

Fraud

“Under California law, a cause of action for fraud requires the plaintiff to prove (a) a knowingly false misrepresentation by the defendant, (b) made with the intent to deceive or to induce reliance by the plaintiff, (c) justifiable reliance by the plaintiff, and

(d) resulting damages.” (Wilkins v. National Broadcasting Co. (1999) 71 Cal.App.4th 1066, 1080.) “[T]he elements of a cause of action for fraud based on concealment are: ‘”(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to

defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage. [Citation.]” [Citation.]’ [Citation.]” (Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 850; accord, Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1126-1127.)

Defendants contend the complaint fails to sufficiently allege intent to defraud, justifiable reliance, and resulting damage. Defendants argue Plaintiff purchased the property in its “as-is” condition and did not conduct inspections prior to purchasing the property. However, those facts are inapposite to whether Plaintiff has sufficiently pled a cause of action for fraud. Indeed, “defendants cannot set forth allegations of fact in their demurrers which, if true, would defeat a plaintiff’s complaint.” (Gould v. Md. Sound Indus., Inc. (1995) 31 Cal.App.4th 1137, 1145.) Further, Defendants have cited to no legal authority supporting their contention that a claim for fraud based on concealment is precluded if property is purchased “as-is” or there is a lack of inspections. The Court also notes that all of the cases cited by Defendants in support of their argument on reply that the reliance pled must be reasonable and Plaintiff has not made that showing involve motions for summary judgment. The legal standard applicable to a motion for summary judgment is entirely different than the standard before the Court now on demurrer, which the Court has fully set forth above. Accordingly, the legal authority cited by Defendants is not persuasive to this motion.

Here, Plaintiff has sufficiently alleged intent to defraud. Plaintiff has alleged Defendants were aware of meth use on the property because tenants had complained to Defendants about the property manager’s and his girlfriend’s use, manufacture and sale of meth on the property. (Compl. ¶ 33.) Plaintiff also alleges Defendants were aware the property manager had been arrested for selling meth nearby the property because Saldivia delivered food to the property manager while he was under house arrest for three months for the conviction. (Compl. ¶ 32.) Plaintiff further alleges Defendants deliberately and intentionally failed to disclose the meth use and manufacture at the property in order to induce Plaintiff to enter into the Purchase Agreement. (Compl. ¶ 35.) There are further allegations Defendants were aware there was asbestos on the property due to prior repairs that had been done, but Defendants intentionally concealed this fact to induce Plaintiff to purchase the property. (Compl. ¶ 43.) Finally, for pleading purposes, there are sufficient allegations that Defendants were aware the building only had 100 amps of electricity, but intentionally concealed that material fact to Plaintiff to induce it to purchase the property. (Compl. ¶ 51.)

Plaintiff has also sufficiently alleged justifiable reliance and damages. Plaintiff has alleged it justifiably relied upon Defendants’ failure to disclose the use of meth inside the building, the presence of asbestos on the property, and the false misrepresentation that the property had 800 amps of electricity. (Compl. ¶¶ 34, 37, 43, 45, 49, 50.) Further, Plaintiff alleges it has “suffered or will suffer damages, including damages for loss of use of the property, lost profits, clean-up costs and other damages

… .” (Compl. ¶ 66.)

Based on the foregoing, the Court finds Plaintiff has sufficiently alleged a cause of action for fraud. The demurrer to the first cause of action is OVERRULED.

Negligent Misrepresentation

“The elements of negligent misrepresentation are (1) a misrepresentation of a past or existing material fact, (2) made without reasonable ground for believing it to be true,

(3) made with the intent to induce another’s reliance on die fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Raglandv. U.S. Bank National Assn. (2012) 209 Cal. App.4th 182, 196.)

Defendants contend Plaintiff cannot state a cause of action because Plaintiff has failed to sufficiently allege justifiable reliance for the same reasons Defendants set forth in support of the demurrer to the fraud cause of action. For the same reasons discussed above, this argument is rejected. The Court finds Plaintiff has sufficiently alleged justifiable reliance. The demurrer to the second cause of action is OVERRULED.

Breach of Contract

To establish a claim for breach of contract, Plaintiff must plead and establish: (1) the existence of the contract, (2) Plaintiffs’ performance or excuse for nonperformance, (3) defendants’ breach, and (4) the resulting damage to Plaintiff.”(Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821 (emphasis added); Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal. App. 4th 915.)

Defendants contend Plaintiff has failed to sufficiently allege its performance under the Purchase Agreement and, in fact, that Plaintiff concedes it breached the Purchase Agreement because it stopped making the requisite payments. However, the Court finds Plaintiff has sufficiently alleged excuse for nonperformance as Plaintiff alleges it withheld payments due to Defendants breach by failing to disclose all known material facts affecting the property. (Compl. ¶¶ 19, 21, 7959, 60-65, 79.) This is sufficient at this stage of the proceedings. The demurrer to the third cause of action is OVERRULED.

Breach of the Implied Duty of Good Faith and Fair Dealing

Defendants contend Plaintiff has failed to state a cause of action for breach of the implied duty of good faith and fair dealing because Plaintiff failed to sufficiently allege excuse for its nonperformance. For the same reasons discussed above, this argument is rejected. Plaintiff has sufficiently alleged excuse for nonperformance. (Compl. ¶¶ 19, 21, 59, 60-65, 79.) (See, e.g. Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371.) The demurrer to the fourth cause of action is OVERRULED.

Failure to Disclose in Violation of Civil Code § 1102

Defendants contend Civil Code § 1102 does not apply because Civil Code § 1102 “ … applies to all transfers of real property improved with or consisting of not less than one nor more than four dwelling units, even if the property also has commercial uses.” ( Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1189.) Defendants argue the property consists of four commercial units and four residential units, which constitutes eight dwellings, putting the subject property outside the parameters of § 1102.

The Court is not persuaded by Defendants’ reading of Richman v. Hartley. The court in Richman stated “section 1102 applies to any transfer of real property on which are located one to four residential units, regardless of whether the property also has a commercial use.” (Richman, supra, at 1188 (emphasis added).) Here, the residential

portion of the property consists of four apartments, keeping the property within the parameters of § 1102. Defendants have not cited to any legal authority that commercial units are to be considered “dwelling units” in addition to the residential units.

The demurrer to the fifth cause of action is OVERRULED.

Violation of Business & Professions Code § 17200

Defendants finally contend the sixth cause of action fails to state a cause of action because the causes of action under fraud fail and grounds for restitution exist under the breach of contract claim. The demurrer to the sixth cause of action is OVERRULED. Proscribing ‘any unlawful’ business practice, ‘section 17200 ‘borrows violations of other laws and treats then as unlawful practices’ that the unfair competition law makes independently actionable.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [citations omitted].) Essentially any law, federal, state or common law is a sufficient predicate for a violation of the unlawful prong under § 17200. (People v. E.W.A.P., Inc. (1980) 106 Cal.App.3d 315, 319.) As held above, Plaintiff has alleged fraud, negligent misrepresentation, and violation of Civil Code § 1102, which are sufficient to serve as the foundation for Plaintiffs’ UCL claim. Moreover, each cause of action is pled with the reasonable particularity required for a UCL claim.

Conclusion

The demurrer is OVERRULED.

Defendants shall file and serve their answers by January 22, 2019.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.