Filed 1/29/15 Poon v. George Realty The Heights CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
JENNIE POON et al., B255145
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC490187)
v.
GEORGE REALTY THE HEIGHTS,
INC., et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County.
Holly E. Kendig, Judge. Reversed and remanded with directions.
Robert J. Wheeler for Plaintiffs and Appellants.
Manning & Kass, Ellrod, Ramirez, Trester, David Gorney, Candace E. Kallberg
for Defendants and Respondents.
___________________________________________________
Plaintiffs sued defendants, real estate brokers and agents, after plaintiffs purchased
a property and fixed it up to resell it, only to discover that they acquired the property at a
junior trust deed sale. Plaintiffs lost their entire investment when the senior trust deed
was foreclosed.
Plaintiffs alleged that defendants advised them the purchase was suitable for their
needs and did not warn them that the property was subject to a senior trust deed. The
trial court sustained defendants’ demurrer without leave to amend on the bases that
plaintiffs’ claims were barred by the statute of frauds and plaintiffs failed to allege a
breach of duty. We reverse.
BACKGROUND
The Original Complaint
Plaintiffs and appellants Jennie Poon, Jacob Poon, Nancy Fong, Jonathan Poon,
Bryson Fong, and Danny Wong filed suit against defendants and respondents George
Realty The Heights, Inc. (George Realty), High Ten Partners, Inc. (High Ten), and Mei-
Miao Kuo in August 2012. Briefly, the complaint alleged that plaintiffs engaged
defendants to advise in finding and purchasing a house to fix up and resell at a profit.
Plaintiffs identified a house in Cerritos for potential purchase at a trustee’s sale, and
defendants advised plaintiffs that the house was suitable for their needs. Only after
acquiring the property and remodeling it did plaintiffs learn from defendants that they
had purchased the property at a junior trust deed sale, and that the property was still
subject to a large senior trust deed. The senior trust deed was subsequently foreclosed,
and plaintiffs lost their entire investment. Plaintiffs sued defendants for professional
negligence, breach of fiduciary duty, breach of oral contract, and breach of implied-in-
fact contract.
High Ten filed a demurrer, arguing that there was no agency relationship between
it and plaintiffs, and that plaintiffs failed to allege that High Ten owed them a duty. High
Ten further argued that the statute of frauds (Civ. Code, § 1624) barred any oral or
implied contract. The trial court sustained the demurrer, finding that plaintiffs failed to
allege a duty based on the lack of a written agreement and insufficient allegations of an
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oral agreement creating an agency relationship. The court also found that the statute of
frauds barred plaintiffs’ contract claims. Plaintiffs were granted leave to amend to allege
that equitable estoppel negated the statute of frauds defense.
The First Amended Complaint
The operative first amended complaint alleges that plaintiffs were family members
who were inexperienced in real estate. They decided to secure the services of a real
estate broker and agent to advise them on suitable properties, to assist in the purchase of a
property, and finally to assist in an “owner” sale of the property or to list the property if
the owner offering was unsuccessful. Plaintiff Fong requested and defendants agreed to
perform these services, with the understanding that (i) plaintiffs would compensate
defendants a “reasonable amount” for their assistance in a sale by owner, (ii) defendants
would have the opportunity to list and sell the house if the owner offering was
unsuccessful, and (iii) Fong would refer potential real estate clients to defendants.
Defendants knew that plaintiffs were inexperienced in real estate dealings, and,
over a period of months, defendants advised Fong in locating, identifying, and acquiring
a suitable property. Plaintiffs and defendants discussed the strategy of purchasing a
property at a first trust deed foreclosure sale, and, on at least one occasion, defendants
advised Fong that a particular property was not suitable because it involved the
foreclosure of a junior trust deed.
Plaintiffs considered purchasing the Cerritos property by bidding at a trustee’s
sale, which they thought to be based on a first trust deed. Defendants advised plaintiffs
that the property was suitable, even though defendants were aware or should have been
aware that plaintiffs were only interested in acquiring properties at first trust deed sales
and the Cerritos property involved the sale of a junior trust deed subordinate to a large
first trust deed. Defendants also failed to explain the implications of purchasing the
property under a junior trust deed.
Plaintiffs acquired the Cerritos property at the junior trust deed sale in September
2010. They then spent a considerable amount of money fixing it up. When plaintiffs
asked defendants to research comparable property sales for resell purposes, defendants
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discovered the senior trust deed and informed plaintiffs. Defendants then essentially
stopped communicating with plaintiffs. The senior trust deed was foreclosed, causing
plaintiffs to lose all interest in the property and their entire investment of over $150,000.
As did the original complaint, the first amended complaint contained four causes
of action: (1) professional negligence, (2) breach of fiduciary duty, (3) breach of oral
contract, and (4) breach of implied-in-fact contract. Unlike the original complaint, each
cause of action also included the label “and equitable estoppel.” Additionally, the first
amended complaint contained allegations relating to whether defendants were estopped
from asserting the statute of frauds as a defense.
High Ten again filed a demurrer, arguing that plaintiffs failed to adequately allege
equitable estoppel. Following the filing of the demurrer, the parties stipulated to the
appearance of respondents George Realty and Kuo as defendants and to their joinder in
the demurrer filed by High Ten.
The trial court sustained the demurrer to the first amended complaint without leave
to amend, finding that plaintiffs’ allegations of equitable estoppel were inadequate.
Judgment was entered in favor of defendants in January 2014. Plaintiffs timely appealed.
DISCUSSION
We review a ruling sustaining a demurrer de novo, exercising independent
judgment as to whether a complaint states a cause of action as a matter of law. (Desai v.
Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115.) We give the complaint a
reasonable interpretation, assuming that all properly pleaded material facts are true, but
not assuming the truth of contentions, deductions, or conclusions of law. (Aubry v. Tri-
City Hospital Dist. (1992) 2 Cal.4th 962, 967.) Allegations are “liberally construed, with
a view to substantial justice between the parties.” (Code Civ. Proc., § 452.)
A demurrer tests the legal sufficiency of a complaint. (Hernandez v. City of
Pomona (1996) 49 Cal.App.4th 1492, 1497.) Accordingly, we are not concerned with the
difficulties plaintiffs may have in proving the claims made. (Desai v. Farmers Ins.
Exchange, supra, 47 Cal.App.4th at p. 1115.) We are also unconcerned with the trial
court’s reasons for sustaining the demurrer, as it is the ruling, not the rationale, that is
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reviewable. (Mendoza v. Town of Ross (2005) 128 Cal.App.4th 625, 631; Sackett v.
Wyatt (1973) 32 Cal.App.3d 592, 598, fn. 2.) The ruling will be upheld insofar as any of
the grounds stated in the demurrer is dispositive. (Gomes v. Countrywide Home Loans,
Inc. (2011) 192 Cal.App.4th 1149, 1153; Franchise Tax Board v. Firestone Tire &
Rubber Co. (1978) 87 Cal.App.3d 878, 883-884.)
I. The Statute of Frauds and Equitable Estoppel.
Defendants’ demurrer was based, in part, on the ground that plaintiffs’ contract
claims were barred by the statute of frauds. The statute of frauds requires that a contract
be in writing and subscribed by the party charged if the contract involves, in pertinent
part, an “agreement authorizing or employing an agent, broker, or any other person to
purchase or sell real estate, . . . or to procure, introduce, or find a purchaser or seller of
real estate . . . for compensation or a commission.” (Civ. Code, § 1624, subd. (a)(4).)
Defendants assert that the outcome of this case is dictated by Phillippe v. Shapell
Industries (1987) 43 Cal.3d 1247 (Phillippe). In Phillippe, our Supreme Court found that
a licensed real estate broker could not recover a broker’s commission from a real estate
buyer (who was also a licensed broker) because the plaintiff’s claim was based on a
purported oral agreement, and therefore was barred by the statute of frauds. (Id. at p.
1252, 1258-1259.) Phillippe is applicable to the instant case to the extent it reiterates the
rule that an agreement for the purchase of real estate, or for finding a buyer of real estate,
be in writing and signed. The agreement alleged by plaintiffs here is clearly subject to
the statute of frauds.
Phillippe’s primary holding, however—that “a licensed real estate broker cannot
invoke equitable estoppel to avoid the statute of frauds unless the broker shows actual
fraud” (43 Cal.3d at p. 1252)—is not applicable. Brokers undergo extensive training and
education to acquire and maintain their licenses, and therefore are presumed to know the
statute of frauds’ requirements. (Id. at pp. 1260-1261.) In contrast, plaintiffs here were
unlicensed and inexperienced in real estate matters. To hold them to the same standard as
a licensed broker would not promote the “primary purpose” of Civil Code section 1624,
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subdivision (a)(4), which is “to protect real estate sellers and purchasers from the
assertion of false claims by brokers for commissions.” (Phillippe, at p. 1257.)
This matter is governed instead by the general application of the statute of frauds,
which allows a plaintiff to invoke the exception of equitable estoppel “where necessary to
prevent either unconscionable injury or unjust enrichment.” (Tenzer v. Superscope, Inc.
(1985) 39 Cal.3d 18, 27.) The issue of whether a plaintiff may assert estoppel to a statute
of frauds defense is generally a question of fact. (Phillippe, supra, 43 Cal.3d 1247, 1272;
Mt. Holyoke Homes, LP v. California Coastal Com. (2008) 167 Cal.App.4th 830, 840.)
Construing the allegations liberally, we find that a trier of fact could determine that
plaintiffs suffered unconscionable injury due to their reliance on the alleged agreement
with defendants. Plaintiffs alleged that they spent a considerable amount of money fixing
up the Cerritos property after being told by defendants that it was a suitable purchase for
their needs. Plaintiffs then lost their entire investment after the senior trust deed was
foreclosed.1 The demurrer, therefore, should have been overruled as to the third and
fourth causes of action.
II. The Existence of Duty.
With respect to the first cause of action for professional negligence and second for
breach of fiduciary duty, defendants argue that they did not owe a duty to plaintiffs.
According to defendants, plaintiffs failed to establish an agency relationship. This
argument misstates the scope of analysis applicable to a demurrer. “[A] demurrer tests
the adequacy of the complaint’s allegations, not whether plaintiffs can produce evidence
to support those allegations.” (Taxpayers for Improving Public Safety v. Schwarzenegger
(2009) 172 Cal.App.4th 749, 758.) Plaintiffs only needed to allege the existence of a
1 Defendants argue that we should find that the alleged oral agreement was devoid
of specifics, as the court did in Phillippe, supra, 43 Cal.3d 1247, 1260. Phillippe,
however, was an appeal following a jury trial, not a sustained demurrer. Plaintiffs’
allegations, which contain the required elements of breach of oral contract and and breach
of implied-in-fact contract, are sufficient to withstand a demurrer.
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relationship with defendants that gave rise to a duty; they were not required to actually
establish a duty at this stage of the proceedings.
Again, construing the allegations liberally, we find that plaintiffs’ allegations were
adequate. A real estate broker is required to exercise reasonable skill and care in the
performance of duties for a client (Wilson v. Hisey (1957) 147 Cal.App.2d 433, 438), and
brokers owe their clients fiduciary duties (Saffie v. Schmeling (2014) 224 Cal.App.4th
563, 568). The existence of an agency relationship is generally a question of fact.
(Zimmerman v. Superior Court (2013) 220 Cal.App.4th 389, 401.) Plaintiffs alleged that
defendants agreed to advise them on suitable properties, to assist in the purchase of a
property, and to assist in a sale or listing of a property. Plaintiffs further alleged that they
were to compensate defendants a “reasonable amount” for their assistance in a sale by
owner, or to allow defendants to list the property, entitling defendants to compensation
upon its sale. Based on these allegations, a trier of fact could find that defendants agreed
with plaintiffs to act as their agents and/or brokers, which would lead to imposition of a
duty to give competent advice.
DISPOSITION
The judgment in favor of defendants is reversed and remanded with directions to
the trial court to vacate its order sustaining the demurrer to the first amended complaint.
Plaintiffs are awarded costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
BOREN, P.J.
We concur:
ASHMANN-GERST, J.
HOFFSTADT, J.
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