Case Name: Gonzalez v. Wheat, et al.

Case No.: 1-14-CV-261480

This breach of contract and fraud action arises from the sale of residential real property located at 9245 Kestrel Court in Gilroy, California (the “Subject Property”). According to the allegations of the operative First Amended Complaint (“FAC”), on or about October 4, 2010, plaintiff Michelle Gonzalez (“Plaintiff”) entered into a Residential Purchase Agreement with defendants Christopher Wheat and Stefani Wheat (the “Wheat Defendants”). (FAC, ¶ 9.) To facilitate the sale, the Wheat Defendants obtained the services of defendants Gary Palacios and Intero Real Estate Services, Inc. (the “Intero Defendants”) to act as their agent with regard to the listing and sale of the Subject Property. (Id., ¶¶ 6-7.)

Following the execution of the parties’ agreement, but prior to closing, the Wheat Defendants provided Plaintiff with various disclosures concerning the Subject Property. In the disclosures, the Wheat Defendants indicated, among other things, that they were not aware of any structural modifications or other alterations or repairs made to the Subject Property without the necessary permits or not in compliance with the applicable building codes. (Id., ¶ 11.) The Wheat Defendants also indicated that they were not aware of any flooding, drainage, or grading problems. (Id.)

During the rainy season in each of the three years after the sale of the Subject Property, Plaintiff experienced flooding in the back yard, including water entering Plaintiff’s home and causing damage to her hardwood floors. (Id., ¶¶ 33-35.) Plaintiff learned in March 2013 that the defendants had failed to inform her that a culvert was removed from the rear of the property and that the Wheat Defendants had installed a retaining wall that was not code compliant. (See FAC, ¶¶ 25, 27, 36.)

Plaintiff filed a complaint against the Wheat Defendants and the Intero Defendants on February 28, 2014. Although he was not a signatory to the parties’ real estate agreement, Plaintiff’s husband was named as a plaintiff in the original complaint. Plaintiff filed the FAC on June 4, 2014. The FAC removes Plaintiff’s husband from the caption and sets forth three causes of action: (1) breach of contract; (2) fraud; and (3) violation of Civil Code section 1102.

The Intero Defendants demur to the FAC on two grounds. First, pursuant to Code of Civil Procedure section 430.10, subdivision (e), the Intero Defendants demur to Plaintiff’s Second Cause of Action for fraud on the ground that Plaintiff has failed to state facts sufficient to constitute a cause of action. More specifically, the Intero Defendants assert that the fraud claim is barred by the statute of limitations and that Plaintiff has failed to plead the claim with the specificity required for such claims. Second, the Intero Defendants demur to the entire FAC pursuant to Code of Civil Procedure section 430.10, subdivision (d) on the ground of misjoinder.

The Intero Defendants’ demurrer to the Second Cause of Action on the ground that the claim is barred by the statute of limitations is OVERRULED. “In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows merely that the action may be barred.” (McMahon v. Republic Van & Storage Co., Inc. (1963) 59 Cal.2d 871, 874.) Claims for fraud do not accrue until the plaintiff “has knowledge of facts sufficient to make a reasonably prudent person suspicious of fraud, thus putting him [or her] on inquiry.” (Cleveland v. Internet Specialties West, Inc. (2009) 171 Cal.App.4^th 24, 31.) In cases where the facts known to the plaintiff are susceptible to opposing inferences, the question of whether the plaintiff has notice of circumstances sufficient to put a prudent person upon inquiry is a question of fact. (See Cleveland, supra, 171 Cal.App.4^th at p. 31.) Moreover, the question of whether a plaintiff exercised reasonable diligence in discovering the facts necessary to a cause of action is a question to be determined by the trier of fact. (Id.) It is only in cases where reasonable minds cannot differ as to when the plaintiff suspected, or should have suspected, the wrongdoing giving rise to the fraud claim that the court may rule on the accrual issue as a matter of law. (See E-Fab, Inc., supra, 153 Cal.App.4^th at p. 1320.)

The statute of limitations for fraud claims is three years from accrual. (Code Civ. Proc., § 338, subd. (d).) The question here is whether the only reasonable inference to be drawn from the facts pleaded in the FAC is that Plaintiff suspected or should have suspected some wrongdoing by the defendants prior to February 28, 2011—three years from the date Plaintiff filed her original complaint.

Plaintiff alleges that she did not find out about the defendants’ misrepresentations concerning the Subject Property until March 2013, when a neighbor informed her husband that the Wheat Defendants removed the culvert. (FAC, ¶ 36.) The Intero Defendants argue that Plaintiff should have been on notice of any misrepresentations concerning problems with the drainage of the Subject Property in November or December of 2010 (one or two months after Plaintiff purchased the property), when the back yard flooded.

The Intero Defendants may be correct that Plaintiff was put on notice of the alleged fraud in November or December of 2010, but that conclusion is not the only reasonable inference that can be drawn from the facts alleged in the FAC. Indeed, reasonable minds could differ on whether Plaintiff was, or should have been, aware of the defendants’ misrepresentations the first year of the flooding or, because her husband’s efforts appeared to solve the problem, whether a reasonably prudent person would not have suspected wrongdoing until the second year of flooding—when the flooding became a reoccurring issue. Because the facts alleged in the FAC concerning the accrual date of Plaintiff’s fraud claim are susceptible to opposing inferences, the date upon which the fraud claim accrued is a question to be determined by the trier of fact and Plaintiff’s Second Cause of Action cannot be disposed of through a demurrer.

The Intero Defendants’ demurrer to the Second Cause of Action on the ground that Plaintiff failed to plead the fraud claim (as to the Intero Defendants) with specificity is SUSTAINED WITH TEN DAYS’ LEAVE TO AMEND. The rule of liberal construction of pleadings does not apply to allegations of fraud, and a pleading raising such a claim must specify by whom, how, when, where, to whom, and by what means a defendant’s alleged misrepresentations were tendered. (See Lazar v. Super. Ct. (1996) 12 Cal.4^th 631, 645; Caldo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4^th 513, 519.) Here, Plaintiff alleges that the Wheat Defendants (designated as the “Sellers” in the FAC) falsely represented that the Subject Property was code compliant and without flooding or drainage problems. (FAC, ¶¶ 24, 28, 30, 31.) However, the only allegation concerning the Intero Defendants alleged fraud in the FAC is that “Plaintiffs are informed and believe, and thereupon allege that Sellers notified Agent [the Intero Defendants] of the defects prior to the offer to purchase the Property, and Agent acted in collusion with Sellers in their actions to conceal and commit fraud upon Buyer.” (FAC, ¶ 41.) This conclusory allegation does not set forth the how, when, where, and by what means the Intero Defendants made false representations to Plaintiff. Accordingly, the demurrer must be sustained.

The Intero Defendants’ demurrer to the entire FAC on the ground of misjoinder is SUSTAINED WITH TEN DAYS’ LEAVE TO AMEND. In her opposition to the Intero Defendants’ demurrer, Plaintiff “concedes that Mr. Gonzalez [her husband] is not a plaintiff in this action and any reference to him as a plaintiff should be eliminated.” (Pl.’s Opp., at p. 3.)