Case Number: EC065854 Hearing Date: October 19, 2018 Dept: NCD

TENTATIVE RULING

Calendar: 5

Case Number:EC 065854

Date: 10/19/18 Trial date: February 4, 2019

Case Name: Harnagel, et al. v. Remistarr, LLC, et al.

MOTION FOR SUMMARY JUDGMENT

(OR, in the Alternative, Summary Adjudication)

[CCP § 437c; CRC 3.1350 et seq.]

Moving Party: Defendants RK Group Realty (dba Remax Kings Realty),

Marisa Hunter and Demarco Fletcher

Responding Party: Plaintiffs John Harnagel and Donna Parish

RULING:

CCP 437c(g): Material facts which do or do not create a triable issue of controversy:

Motion for Summary Judgment, or in the Alternative, for Summary Adjudication of Issues by Defendants RK Group Realty, Marisa Hunter and Demarco Fletcher:

Plaintiff’s Request for Continuance is DENIED.The request is not supported by an affidavit or declaration setting forth what facts are needed to oppose the motion, that such facts are essential to justify any opposition to the motion, that such facts exist, and why such facts have been prevented from being now presented.

Motion for Summary Judgment is DENIED.

Motion for Summary Adjudication is GRANTED in part and DENIED in part as follows:

ISSUE 1: The Remax Defendants are not liable to Plaintiffs for fraud

Motion is DENIED. Defendants have failed to meet their initial burden on this motion, as the evidence relied upon, including the deposition testimony of plaintiffs, supports a reasonable inference that defendants misrepresented to plaintiffs through their real estate agent that the improvements at the subject property were fully permitted, and that plaintiffs relied upon such representations in purchasing the subject property. [See Ex. B, Harnagel Depo., pp 19-20; Ex. C., Parish Depo., pp. 25, 26, 28].

Even if the burden had shifted to plaintiffs, they have submitted with the opposition sufficient evidence to raise triable issues of material fact with respect to whether defendants affirmatively represented facts to be true which were not, including the declaration of Lynn Schults, plaintiffs’ real estate agent, reporting the content of two telephone conversations with defendant Fletcher, and her client’s reliance on the representations in those conversations. [Schultz Decl., paras.3-8].

ISSUE 2: The Remax Defendants are not liable to Plaintiffs for breach of fiduciary duty

ISSUE 3: The Remax Defendants are not liable to Plaintiffs for constructive fraud

Motion is GRANTED. Defendants have established that their alleged failure to disclose the permit status of the subject property was not a matter they were required to disclose under their statutory duties, which establish a fiduciary duty to the seller only, and that such matters were not “within the diligent attention and observation of” plaintiffs. [UMF Nos. 7, 13, 19]. Even under the legal authority cited by plaintiffs, it does not appear that plaintiffs can establish that any alleged failure to disclose or concealment on the part of these defendants concerned a matter they were under duty to disclose. Specifically, it does not appear that the permitting issue was one which was not within the diligent attention and observation of plaintiffs, the evidence submitted by plaintiffs does not show any specific deficiencies in the disclosures offered by the Remax defendants, and the alleged failure to disclose that the seller had not personally inspected the property does not appear to be a condition of the property which moving defendants had a duty to disclose. In the absence of some fiduciary duty, or special relationship giving rise to a duty to disclose, the cause of action under the stated theory cannot be established, and summary adjudication is properly entered in favor of defendants.

ISSUE 4: Plaintiffs have no basis for an award of attorney’s fees against the Remax Defendants

Motion is DENIED. The issue is not one which can be resolved on summary adjudication according to the applicable statutes, and does not dispose of an entire cause of action or other summarily adjudicable issue.

Relief Requested:

Summary judgment on the Second Amended Complaint

In the alternative, summary adjudication of issues

Causes of Action from Second Amended Complaint

1) Breach of Written Contract

2) Fraud

3) Breach of Fiduciary Duty

4) Negligence (Real Property Damage)

5) Professional Negligence

SUMMARY OF COMPLAINT:

Plaintiffs John Harnagel and Donna Parish allege that during their purchase of real property in Altadena, defendant Remistarr, LLC, the seller of the property, represented to plaintiffs and failed to disclose material information regarding the condition of the property, including representing that all areas of the house were permitted, electrical and plumbing systems were properly installed, with permits, that the house had three bedrooms and two baths, and a chimney which was functional. Plaintiffs allege they would not have entered into the transaction had they known the true facts, which were that all areas of the house were not fully permitted, electrical and plumbing was improperly installed, without permits, creating dangerous conditions in the residence, that the house is actually a 1 bedroom, 1 bath house with illegal and unpermitted conversions and room additions, and with a non-functional chimney.

Plaintiffs also allege that the seller’s real estate brokers and agents, defendants Remax Kings Realty, Demarco Hunter and Marisa Hunter repeated these representations without verifying their truth or accuracy, and that these defendants, along with plaintiffs’ real estate agents, defendants Lynn Schultz and Schultz Elite Financial Services, breached their fiduciary and professional duties to plaintiffs by, among other things, failing to make full disclosure, failing to conduct a reasonable, competent and diligent inspection of the property, and discouraging plaintiffs from making inquiries regarding the condition of the property.

It is also alleged that defendant Dan ONeil, individually and dba ONeil Construction Co., a general contractor, negligently performed services and installation of works of improvement on the property.

ANALYSIS:

Procedural

Request for Continuance

Plaintiffs in their opposition memorandum briefly request that if the court is inclined to grant the motion plaintiffs be given a continuance to conduct additional discovery.

CCP § 437c (h) provides

“If it appears from the affidavits submitted in opposition to a motion for summary judgment… that facts essential to justify the opposition may exist but cannot, for reasons stated, then be presented, the court shall deny the motion, or order a continuance to permit affidavits to be obtained or discovery to be had or may make any other order as may be just.”

Since the amendment of the summary judgment timelines in 2003, the courts have imposed good faith/diligence requirement on parties seeking continuances. The Second District in Cooksey v. Alexakis (2004) 123 Cal.App.4th 246, set forth the required elements of an affidavit in support of a request for continuance, holding that

“A declaration in support of a request for a continuance under section 437c, subdivision (h) must show:

1) the facts to be obtained are essential to opposing the motion;

(2) there is reason to believe such facts may exist; and

(3) the reasons why additional time is needed to obtain these facts.”

Cooksey, at 254, citations, internal quotations omitted.

It is recognized that where an appropriate declaration meeting these requirements is submitted, then denial of the motion or grant of the continuance is mandatory. Dee v. Vintage Petroleum, Inc. (2003) 106 Cal.App.4th 149, 167. Where the declaration is not timely submitted, or fails to make the required showing, then whether to grant a continuance is a matter within the trail court’s discretion, and the trial court’s ruling will be reviewed for abuse of discretion. Cooksey, at 254.

Here, the declaration of counsel submitted with the opposition papers does not address the issue of the need for a continuance, so plaintiffs have failed to timely submit the required affidavit, and no showing is before the court showing diligence, what discovery is necessary or how it could defeat the motion.The court does not continue the matter on this showing.

Substantive

CCP § 437c (o): Burdens of Proof

Under CCP § 437c(p)(2) a defendant “has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action. Once the defendant… has met that burden, the burden shifts to the plaintiff… to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.”

CCP § 437c(f) provides that “a motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”

Defendants RK Group Realty (dba Remax Kings Realty), Marisa Hunter and Demarco Fletcher (the “Remax Defendants”) argue that plaintiffs will be unable to establish an essential element of each cause of action brought against these parties, as well as their claim for attorneys’ fees.

ISSUE 1: The Remax Defendants are not liable to Plaintiffs for fraud

To establish a cause of action for fraud, plaintiffs must plead and prove the following elements: A false representation, actual or implied, or concealment of a matter of fact material to the transaction which defendant had a duty to disclose, or defendant’s promise made without intention to perform; defendant’s knowledge of the falsity; defendant’s intent to deceive; plaintiff’s justifiable reliance thereon; and resulting damage to plaintiff. Pearson v. Norton (1964) 230 Cal.App.2d 1.

Defendants argue that plaintiffs will be unable to establish that the Remax defendants made a misrepresentation of fact regarding the subject property on which plaintiffs relied. Defendants argue that plaintiffs have admitted that they have no evidence that the Remax defendants ever stated that the property was all permitted, and that they never directly communicated with any of the Remax defendants, so that no representations were made directly to either plaintiff, and that they do not know who their agent allegedly called on the phone and did not hear any of the Remax defendants say that the property was “all permitted.” [UMF Nos. 16-18]. The evidence relied upon is deposition testimony of plaintiffs, in which they indicate that they were present when they had their real estate agent, Schultz, call defendant DeMarco, asked if everything was permitted, and then when the call ended, told plaintiffs that everything was permitted. [Ex. B, Harnagel Depo., pp 19-20; Ex. C., Parish Depo., pp. 25, 26, 28].

This is insufficient to meet any initial burden, as the evidence relied upon supports a competing inference that there were representations by the Remax defendants to the agent for plaintiffs in response to a direct question regarding the permitting, that the subject property was in fact permitted, upon which plaintiffs relied to their detriment, in proceeding to purchase the property.

CCP § 437c(c) provides that “summary judgment shall not be granted by the court based on inferences reasonably deducible from the evidence if contradicted by other inferences or evidence that raise a triable issue as to any material fact.” See also Hepp v. Lockheed-California Co. (1978) 86 Cal.App.3d 714, 718.

While the Remax defendants, as the seller’s agents, may have had no affirmative duty to investigate the permitting, they had a duty, if they did not personally know the status of the permits, to not affirmatively represent that they had such knowledge and were affirming the status; they should have told plaintiffs and their agent that plaintiffs were responsible for that due diligence, and not made affirmative representations about the matter.

Even if the burden had shifted, plaintiffs have submitted evidence in the form of a declaration from their real estate agent, Lynn Schultz, who states that on November 15, 2014, she accompanied plaintiffs to the subject property, and they expressed concerns that the garage conversion and porch area were not properly permitted. [Schultz Decl., para. 3]. She goes on to state:

“In order to alleviate my clients’ concerns, and while we were at the Crawford property, I again called DeMarco Fletcher of RE Max Kings Realty to ask if the garage conversion to two bedrooms and a bath and the porch area enclosure were legally permitted. John Harnagel and Donna Parish were present

when I made this call. Mr. Fletcher informed by that all areas of the house were permitted for their current use. I relayed the substance of this conversation to John and Donna.”

[Schultz Decl., para. 4].

After DeMarco made this statement, plaintiffs made an all cash offer for the property. [Schultz Decl., para. 5].

Schultz then describes a second phone call on November 21, 2014, when plaintiffs and Schultz were at the subject property to review transaction documents:

“I was again asked by my clients, John Harnagel and Donna Parish, to call DeMarco Fletcher to verify the garage conversion to two bedrooms and a bath and the porch area enclosure were properly permitted. I then placed a telephone call to DeMarco Fletcher to again ask if the garage conversion to two bedrooms and a bath and the porch area were properly permitted. John Harnagel and Donna Parish were present when I made this telephone call. Mr. Fletcher again stated all areas in question were permitted for current use. I informed John and Donna of the substance of this telephone conversation with DeMarco Fletcher.”

[Schultz Decl., para. 7].

The transaction closed on December 5, 2014. [Schultz Decl., para. 8].

Triable issues of material fact have accordingly been raised concerning whether an affirmative misrepresentation was made by the moving defendants, upon which plaintiffs relied. The motion as to this issue is denied.

ISSUE 2: The Remax Defendants are not liable to Plaintiffs for breach of fiduciary duty

ISSUE 3: The Remax Defendants are not liable to Plaintiffs for constructive fraud

The Remax defendants argue that plaintiffs will be unable to establish their third cause of action for breach of fiduciary duty/constructive fraud, as plaintiff will be unable to establish any fiduciary duty owed to plaintiffs to disclose.

Defendants rely on Civil Code § 2079.14 and 2079.16. Civil Code § 2079.14 imposes a duty on the selling agent to provide a disclosure form to the buyer. Civil Code § 2079.16 sets forth the language to appear on a real estate agency relationship disclosure form, and provides, in pertinent part:

“SELLER’S AGENT

A Seller’s agent under a listing agreement with the Seller acts as the agent for the Seller only. A Seller’s agent or a subagent of that agent has the following affirmative obligations:

To the Seller:

A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller.

To the Buyer and the Seller:

(a) Diligent exercise of reasonable skill and care in performance of the agent’s duties.

(b) A duty of honest and fair dealing and good faith.

(c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.

An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.”

Defendants argue that while they have a fiduciary duty to their client the seller, they owe no fiduciary duty to plaintiffs, as buyers, so that any alleged breach of duty here was not breach of a fiduciary duty. Defendants argue that if there is no statutory duty, then plaintiffs may seek to derive a duty from the general laws of agency, but cannot in this instance establish any contractual relationship between the parties giving rise to a general agency or fiduciary relationship.

In opposition, plaintiffs argue that the facts of this case support a finding that the Remax defendants breached their duty of honest and fair dealing and good faith, and their duty to disclose all facts known to the agent materially affecting the value or desirability of the property which were not within the diligent observation of plaintiffs by making the fraudulent representations discussed above concerning the permitting issues, and also by failing to disclose material facts concerning the preparation of the transfer disclosure documents. [See Additional Facts Nos. 21, 22, 23]. With respect to the transfer disclosure documents, evidently the transfer documents were originally provided in blank, and had to be sent back to be completed, and plaintiffs also object that defendants failed to inform plaintiffs that the seller, Remi Star LLC’s representative, Jason Levin, had never seen the subject property, but completed the transfer disclosures. [Ex. D, Fletcher Depo., pp. 33-35].

The argument is then that a trier of fact could find that the defendants here failed to appropriately review the disclosures and concealed the material fact that the seller had completed those disclosures without having ever seen the subject property to be able to attest to its condition. While the evidence submitted shows that defendant Hunter did not review the disclosures, it is not clear that defendant Fletcher did not do so.

Plaintiffs rely onEaston v. Strassburger (1984) 152 Cal.App.3d 90, in which the court of appeal found that the trial court had not erred in instructing a jury in connection with a negligence claim brought by the buyer of real property against the seller’s real estate broker. The court of appeal dealt with a negligence cause of action, and a challenge to jury instruction which included a duty to disclose facts known to a broker or “which through reasonable diligence should have been known to him.” Easton, at 98. The court of appeal set forth the duty of the seller’s broker to a buyer as follows:

“It is not disputed that current law requires a broker to disclose to a buyer material defects known to the broker but unknown to and unobservable by the buyer. ( Cooper v. Jevne (1976) 56 Cal.App.3d 860, 866 [128 Cal.Rptr. 724]; Lingsch v. Savage (1963) 213 Cal.App.2d 729, 733 [29 Cal.Rptr. 201, 8 A.L.R.3d 537]; see also regulations of the Department of Real Estate set forth in Cal. Admin. Code, tit. 10, § 2785, subd. (a)(3).) The Cooper case contains the most complete judicial articulation of the rule: ‘It is the law of this state that where a real estate broker or agent, representing the seller, knows facts materially affecting the value or the desirability of property offered for sale and these facts are known or accessible only to him and his principal, and the broker or agent also knows that these facts are not known to or within the reach of the diligent attention and observation of the buyer, the broker or agent is under a duty to disclose these facts to the buyer. (Lingsch v. Savage [1963] 213 Cal.App.2d …).‘ (56 Cal.App.3d at p. 866.) If a broker fails to disclose material facts that are known to him he is liable for the intentional tort of ‘fraudulent concealment‘ or ‘negative fraud.‘ ( Warner Const. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 293-294 [85 Cal.Rptr. 444, 466 P.2d 996]; Cooper v. Jevne, supra., 56 Cal.App.3d at p. 866;Lingsch v. Savage, supra., 213 Cal.App.2d at p. 735-736.) (1c)As noted, however, appellant’s liability was here grounded on negligence rather than fraud. The issue, then, is whether a broker is negligent if he fails to disclose defects which he should have discovered through reasonable diligence. Stated another way, we must determine whether the broker’s duty of due care in a residential real estate transaction includes a duty to conduct a reasonably competent and diligent inspection of property he has listed for sale in order to discover defects for the benefit of the buyer.

Admittedly, no appellate decision has explicitly declared that a broker is under a duty to disclose material facts which he should have known. We conclude, however, that such a duty is implicit in the rule articulated in Cooper and Lingsch, which speaks not only to facts known by the broker, but also and independently to facts that are accessible only to him and his principal.3 ( Cooper, supra., 56 Cal.App.3d at p. 866;Lingsch, supra., 213 Cal.App.2d at p. 735, italics added.)”

Easton, at 99, footnotes omitted.

The court of appeal reviewed the purposes underlying the standard, and the position of the seller’s broker in a real estate transaction, and concluded:

“In sum, we hold that the duty of a real estate broker, representing the seller, to disclose facts, as that fundamental duty is articulated in Cooper and Lingsch, includes the affirmative duty to conduct a reasonably competent and diligent inspection of the residential8 property listed for sale and to disclose to prospective purchasers all facts materially affecting the value or desirability of the property that such an investigation would reveal.”

Easton, at 102, footnotes omitted.

The court of appeal also distinguished the negligence claim before it, which involved an alleged failure by the listing broker to disclose potential soils problems at the property, from a claim based on real estate fraud:

“With respect to the application of this holding, it is vitally important to keep in mind that in Cooper and Lingsch the basis of liability was fraud, not negligence. The fundamental duty to disclose set forth in those and other real estate fraud cases has application only where it is alleged that the broker either had actual knowledge of the material facts in issue or that such facts were ‘accessible only to him and his principal‘ ( Cooper, supra., 56 Cal.App.3d at p. 866;Lingsch, supra., 213 Cal.App.2d at p. 735, italics added), so that the broker may constructively be deemed to have had actual knowledge. The implicit duty to investigate is not considered in those cases simply because it is superfluous to the issue of fraud. However, in cases where, as here, the cause of action is for negligence, not fraud, it need not be alleged or proved that the broker had actual knowledge of the material facts in issue nor that such facts were accessible only to him or his principal and that he therefore had constructive knowledge thereof.

The real estate fraud cases also require that the undisclosed material facts be such as ‘are not known to or within the reach of the diligent attention and observation of the buyer.‘ ( Cooper, supra., 56 Cal.App.3d, p. 866;Lingsch, supra., 213 Cal.App.2d, p. 735.) We decline to place a similar limitation on

the duty to investigate here articulated. Such a limitation might, first of all, diminish the broker’s incentive to conduct the reasonably competent and diligent inspection which the law seeks to encourage. Furthermore, general principles of comparative negligence provide adequate protection to a broker who neglects to explicitly disclose manifest defects. (See generally, Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393].) The duty of the seller’s broker to diligently investigate and disclose reasonably discoverable defects to the buyer does not relieve the latter of the duty to exercise reasonable care to protect himself. Cases will undoubtedly arise in which the defect in the property is so clearly apparent that as a matter of law a broker would not be negligent for failure to expressly disclose it, as he could reasonably expect that the buyer’s own inspection of the premises would reveal the flaw. In such a case the buyer’s negligence alone would be the proximate cause of any injury he suffered.

Accordingly, we find that the instruction at issue in this case was legally correct, for, as the trial judge stated to the jury, a seller’s broker in a residential real estate transaction is ‘under a duty to disclose facts materially affecting the value or desirability of the property … which through reasonable diligence should be known to him.’

Easton, at 103.

It would appear that any concealment of the permitting issues would not be material facts which were not within the diligent observation of plaintiffs; any affirmative representations would be subject to an affirmative fraud claim, as discussed above. There does not, however, appear to have been any fiduciary duty to disclose those issues, which were in fact observed by plaintiffs and could have been explored by them. With respect to the disclosures, it is not clearly explained what was defective about the ultimate disclosures, and it appears that the fact that the seller had never seen the property was not a condition of the property which the broker should have been aware of, investigated or made the subject of disclosure, and the claim here is not for negligence on the part of the seller’s brokers, as was the case in Easton. Plaintiffs seem to primarily rely on their own discovery responses here, which are not necessarily based on personal knowledge, and fail to sufficiently establish that the brokers, as opposed to the seller, may have made insufficient disclosures.

Overall, plaintiffs do not appear to establish that there was a breach of a fiduciary duty running from the seller’s agent to plaintiffs here, or that a duty or special relationship existed giving rise to a duty to disclose the facts alleged to have been concealed here. The court finds that plaintiffs have failed to raise triable issues of material fact here and grants the motion for summary adjudication of this cause of action only.

ISSUE 4: Plaintiffs have no basis for an award of attorney’s fees against the Remax Defendants

CCP § 437c(f) provides that “a motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”

Subdivision (f)(1) provides “a party may move for summary adjudication as to … one or more claims for damages … if the party contends … that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code,…”

Section 3294 of the Civil Code specifically addresses only punitive damages:

“(a) In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”

The Second District has accordingly held that this portion of the summary adjudication statute applies only to punitive damage claims and that the statute does not permit summary adjudication of other claims for damages or remedies which do not dispose of an entire cause of action. DeCastro West Chodorow& Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410.

Here, the motion for summary adjudication of the issue of attorneys’ fees does not dispose of an entire cause of action. This part of the motion accordingly is denied.