Filed 1/11/16 Medrano v. Stratham Montecito West CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
JAIME MEDRANO et al., B260528
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC438377)
v.
STRATHAM MONTECITO WEST et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County, Soussan
G. Bruguera, Judge. Reversed with directions.
Law Offices of Jerome Zamos and Jerome Zamos for Plaintiffs and Appellants.
Ulich, Ganion, Balmuth, Fisher & Feld, Andrew K. Ulich, Donald W. Fisher and
Ivette Kincaid for Defendant and Respondent Stratham Montecito West.
Ericksen Arbuthnot, Lisa P. Gruen, Dale A. Arakawa and Gregory A. Mase for
Defendants and Respondents Strategic Sales and Marketing Group and Jane Fowler
Kelleher.
Lessley Law Firm and Rebecca H. Lessley for Defendants and Respondents Dora
S. Cordero and Exodus Financial Group.
_________________________
INTRODUCTION
After purchasing a home, the plaintiff homebuyers sued the seller, brokers and
agents involved for claims arising out of alleged misrepresentations regarding their
monthly payments for principal, interest, taxes and insurance. The defendants filed
demurrers, which the trial court sustained without leave to amend. The buyers appeal
from the judgment subsequently entered.
As to Exodus Financial Group (Exodus) and Dora Cordero, we conclude the
plaintiffs adequately stated fraud, failure to disclose and professional negligence claims.
As to Stratham Montecito West (Stratham), Strategic Sales and Marketing Group
(Strategic) and Jane Kelleher, we determine the plaintiffs stated a failure to disclose
claim, but not a fraud or professional negligence claim. As to the fraud claim, however,
we find there is a reasonable possibility that the defect can be cured by amendment.
Finally, we find the plaintiffs have abandoned their claim for failure to supervise
Spanish-speaking agents. Accordingly, we reverse.
FACTUAL AND PROCEDURAL BACKGROUND1
A. The Fourth Amended Complaint
Jaime and Maribel Medrano, the homebuyer plaintiffs, allege four causes of action
in their operative complaint: (1) fraudulent inducement; (2) negligent failure to disclose
facts materially affecting value or desirability of property; (3) failure to supervise
1 Because this appeal challenges the trial court’s order sustaining three demurrers
without leave to amend, we set forth the relevant allegations of the operative (fourth
amended) complaint and assume the truth of all properly pleaded facts and reasonable
inferences drawn from those facts as we are required to do. (Hambrick v. Healthcare
Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 133, fn. 5; see Broberg v. The
Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912, 916, fn. 1 [all properly
pleaded allegations are deemed true, regardless of plaintiff’s ability to later prove them].)
2
Spanish-speaking agents; and (4) professional negligence. The following facts are
alleged in their fourth amended complaint:
Stratham is engaged in residential real estate development, marketing and sales.
Both Strategic and Exodus are licensed real estate brokers. Jane Kelleher is a licensed
real estate agent associated with Strategic, and Dora Cordero is a licensed real estate
agent with Exodus. Stratham and Strategic engaged Exodus and Cordero to locate
prospective buyers for a subdivision of single family residences in Lancaster and to assist
as the designated lender in marketing the subdivision. Strategic, Exodus, Kelleher and
Cordero are all sales agents of Stratham.
In May 2009, Cordero solicited the Medranos to purchase a new single family
residence, representing herself to be a professional with experience in assisting distressed
homeowners faced with the threat of foreclosure.2 During their conversations in May
2009, the Medranos shared with Cordero the status of their loan modification discussions
with their lender as well as their financial records. Cordero advised the Medranos she
could help them purchase and finance a new home in the Lancaster subdivision based on
the financial information they had provided.
Cordero counseled the Medranos to: (1) allow her and her broker Exodus to
negotiate on their behalf with lenders regarding all financing required to resolve their
financial concerns; (2) meet with Stratham and Strategic’s sales agent Kelleher at
Stratham’s sales office in Lancaster; and (3) cease making further payments on their
current residence.
The Medranos then accompanied Cordero to Stratham’s sales office in May 2009
where they met with Kelleher. The Medranos are Spanish speakers who do not
understand English. During the meeting, through Cordero’s Spanish language
2 The complaint alleged Cordero was acting on behalf of Stratham, Strategic and
Exodus. The Medranos told Cordero they were attempting to avoid the foreclosure of
their home by negotiating directly with their lender to reduce their monthly housing
payments through a modification program. The lender had not commenced foreclosure
proceedings.
3
translation, Kelleher assured the Medranos that by purchasing the Lancaster property
instead of modifying the loans against their current residence, their monthly payments for
principal, interest, taxes and insurance could be reduced. In their discussions with
Cordero and Kelleher, the Medranos were told Kelleher would prepare a purchase
agreement reflecting terms and conditions Cordero orally described to them. More
specifically, Kelleher assured the Medranos their monthly payments for principal,
interest, taxes and insurance would not exceed $1,917.68 pursuant to the documents she
would instruct Stratham’s escrow agents to prepare. The Medranos made clear to
Cordero and Kelleher (1) their unwillingness to enter into any agreement which would
cause their monthly housing expenses to exceed this amount ($1,917.68) following close
of escrow, (2) their desire to avoid the loss of their family residence through foreclosure,
and (3) their limited financial resources.
On or about May 30, 2009, when Kelleher presented the residential purchase
agreement for signature, she assured the Medranos (through Cordero’s translation) the
document accurately reflected the terms and conditions Cordero had orally described in
Spanish. Kelleher told the Medranos “their monthly payments for principal, interest,
taxes and insurance would not exceed [the] agreed sum of . . . $1,917.68 . . . following
close of escrow.”
The Medranos were not provided with a Spanish translation of any of these
documents. They relied on the translation and explanation of the content and meaning of
the documents Kelleher and Cordero provided, because the Medranos were unable to
read documents written in English.
Cordero and Kelleher led the Medranos to believe the agreement was for their
benefit, and they would avoid the prospect of losing their current home through
foreclosure. Jaime only executed the residential purchase agreement and loan documents
after Cordero and Kelleher assured monthly payments for principal, interest, taxes and
4
insurance would not exceed $1,917.68.3 The Medranos never would have purchased the
Lancaster residence from Stratham (or transferred title to their prior residence in the short
sale the defendants arranged) had they been advised that shortly after the purchase their
monthly payments would be increased to $2,676.06.
About six months after Cordero’s and Kelleher’s advice and close of escrow, their
loan servicer informed the Medranos their monthly payments would be increased by
$758.38 to $2,676.06.
As real estate professionals, Strategic, Exodus, Kelleher and Cordero knew or
should have known the manner in which the Medranos’ property taxes would be
calculated following close of escrow and knew the monthly installments the Medranos
would be obligated to pay. As a result of the defendants’ actions, the Medranos lost their
$4,000 initial deposit, their $16,808 additional deposit, their monthly payments in the
amount of $1,917.68 and then their home through foreclosure, in addition to incurring
attorney’s fees among other damages.
B. The Demurrers, Hearing and Ruling on the Fourth Amended Complaint
Stratham, Strategic and Kelleher, and Exodus and Cordero filed demurrers arguing
that the fourth amended complaint contained allegations inconsistent with the Medranos’
prior pleadings. The defendants referred to a prior version of the complaint wherein the
Medranos alleged $1,917.68 was the correct monthly payment amount, but because of
their loan servicer’s miscalculation the amount was later increased. Thus, pursuant to the
Medranos’ prior pleadings, the defendants were not the cause of any loss by the
Medranos and the amended pleading naming them as defendants was a sham.
The defendants also asserted the Medranos could not state a cause of action
against them based on their future property tax obligations pursuant to Holder v. Home
Sav. & Loan Assn. (1968) 267 Cal.App.2d 91, 106-107 (Holder).
3 The Medranos would use an impound escrow account with the lender to collect
real property taxes and insurance on a monthly basis.
5
During the demurrer hearing, counsel for the Medranos represented he was
prepared to amend the complaint to add allegations based on information learned in
discovery after the filing of the fourth amended complaint. Counsel informed the court,
based on information concerning an earlier cancelled escrow, he could allege Stratham
and Strategic knew the correct amount of real property taxes the Medranos would be
required to pay, and Stratham and Strategic made the decision to misquote the amount of
taxes to be paid—either intentionally or negligently. He argued as Exodus undertook to
address the Medranos’ financial concerns, brought the Medranos to the sale transaction,
acted as the mortgage broker and made all of the arrangements with the lender, Exodus
was liable as it was obligated to explain all of the relevant terms of the financing.
The Medranos’ counsel argued “[t]he whole source of the damage” was the
defendants’ miscalculation of the amounts to be impounded which led the Medranos to
believe their monthly payments would be about $1,900. Using the correct amount of
taxes Stratham actually paid in 2008 and 2009, all of the defendants would have known
the monthly payment to which the Medranos agreed would result in a deficiency,
authorizing the loan servicer to later increase the Medranos’ monthly payments by almost
$800 for the impound escrow account. Counsel argued this was the essence of the
original verified complaint and every iteration thereafter. He claimed these facts
supported the Medranos’ claims for intentional misrepresentation, negligent
misrepresentation and breaches of duty under California law. According to the
Medranos’ counsel, the Medranos could now see that Stratham “consciously withheld”
the correct amount of taxes because it had even withheld the correct tax amount from the
multiple listing service as a “magnet” to draw people in.
After hearing argument and taking the matter under submission, the trial court
sustained all three demurrers without leave to amend. The court struck the second cause
of action for negligent failure to disclose material facts, and the fourth cause of action for
professional negligence, on its own motion, finding both exceeded the scope of
amendment permitted after the defendants’ demurrers to the third amended complaint
were sustained with leave to amend. As to the first cause of action for fraudulent
6
inducement, and the third cause of action for failure to supervise, the trial court found the
Medranos had failed to allege sufficient facts to constitute these causes of action.
More particularly, the trial court found the Medranos had failed to allege the
elements of fraud with the requisite specificity, “especially in light of the conflicting
allegations set forth in [their] prior pleadings.” As to the third cause of action for failure
to properly supervise Spanish-speaking agents, the court indicated the complaint alleged
Cordero and Kelleher were agents of Exodus and Strategic, not Stratham, and the
plaintiffs had failed to allege facts showing Strategic, Exodus and Stratham had reason to
believe undue risk of harm or damages would result from the agents’ employment.
The Medranos appeal from the judgment of dismissal subsequently entered.
DISCUSSION
A. Standard of Review
In reviewing a trial court’s order sustaining a demurrer, “we independently
evaluate whether the operative complaint states facts sufficient to state a cause of action.”
(Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29, 34; accord, AIDS
Healthcare Foundation v. State Dept. of Health Care Services (2015) 241 Cal.App.4th
1327, 1336.) “When a demurrer is sustained without leave to amend, ‘we decide whether
there is a reasonable possibility that the defect can be cured by amendment: if it can be,
the trial court has abused its discretion and we reverse; if not, there has been no abuse of
discretion and we affirm. [Citations.]’ [Citation.]” (Giacometti v. Aulla, LLC (2010)
187 Cal.App.4th 1133, 1136-1137.)
7
B. The First Cause of Action: Fraudulent Inducement4 (All Defendants)
Exodus and Cordero as well as Strategic and Kelleher argue the trial court was
correct in sustaining their demurrers to the fraudulent inducement cause of action without
leave to amend because (1) the Medranos did not allege fraud with the required
specificity, (2) the alleged misrepresentations were correct, and (3) a fraud claim may not
be based on statements of future action by third parties.
Making similar arguments, Stratham contends it has no liability for the increase in
payments, and the Medranos could not justifiably rely on representations regarding
property taxes under Holder, supra, 267 Cal.App.2d at pages 106-107. Unlike the other
defendants, Stratham does not argue that the Medranos’ fraud claim suffers from a lack
of specificity.
“‘The elements of fraud, which give rise to the tort action for deceit, are
(a) misrepresentation (false representation, concealment, or nondisclosure);
(b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance;
(d) justifiable reliance; and (e) resulting damage.’ [Citations.]” (Lazar v. Superior Court
(1996) 12 Cal.4th 631, 638.)
1. Specificity
Fraud must be plead with specificity; “‘general and conclusory allegations do not
suffice.’” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) This specificity
requirement means “a plaintiff must allege facts showing how, when, where, to whom,
and by what means the representations were made, and, in the case of a corporate
defendant, the plaintiff must allege the names of the persons who made the
representations, their authority to speak on behalf of the corporation, to whom they
spoke, what they said or wrote, and when the representation was made.” (West v.
JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)
4 While labeled as a claim of fraudulent inducement, the parties concede that the
Medranos are alleging fraud. Accordingly, we analyze it in the same manner.
8
We enforce the specificity requirement guided by its two purposes: (1) “to give
notice to the defendant with sufficiently definite charges that the defendant can meet
them” and (2) in an effort to weed out meritless fraud claims, “‘“‘to enable the court to
determine whether, on the facts pleaded, there is any foundation, prima facie at least, for
the charge of fraud.’”’ [Citation.]” (West v. JPMorgan Chase Bank, N.A., supra, 214
Cal.App.4th at p. 793; Curcini v. County of Alameda (2008) 164 Cal.App.4th 629, 649
[facts constituting the alleged fraud must be pled with “sufficient specificity to allow
[the] defendant to understand fully the nature of the charge made”].)
a. As to Cordero and Exodus
The Medranos allege Cordero,5 who arranged the financing for the transaction,
told them their monthly payments of $1,917.68 would not increase, and would cover the
monthly obligations for principal, interest, taxes and insurance when this was not true.
Cordero made the misrepresentation to induce the Medranos to purchase the house so she
could obtain a commission for the sale. The Medranos justifiably relied on Cordero
because she represented herself to them not only as a real estate agent, but also as a
professional with particular expertise in assisting distressed homeowners in avoiding
foreclosure; she told the Medranos she and her broker would work on their behalf to
negotiate financing that would resolve their financial concerns. Because they relied on
Cordero’s misrepresentations, they suffered damages. They lost their deposits (totaling
$20,808), the monthly payments they made of $1,917.68 and ultimately their home
among other damages.
5 The Medranos allege Cordero is a real estate agent associated with Exodus as
broker. Therefore, we include Exodus in our references to Cordero as “[i]t is settled that
for purposes of liability to third parties for torts, a real estate salesperson is the agent of
the broker who employs him or her. The broker is liable as a matter of law for all
damages caused to third persons by the tortious acts of the salesperson committed within
the course and scope of employment.” (California Real Estate Loans, Inc. v. Wallace
(1993) 18 Cal.App.4th 1575, 1581; see also Civ. Code, § 2079.13, subd. (b).)
9
Cordero and Exodus argue it is “impossible” to tell when, where and how the
representations were made, notwithstanding the “amazingly detailed allegation”
regarding the payment amount. We disagree. The Medranos allege that Cordero assured
them when they met with her and Kelleher at Strategic’s office in Lancaster in May 2009
that $1,917.68 would cover principal, interest, taxes and insurance, and the documents
prepared to accomplish the transaction would not require payments exceeding this
amount. They allege that on multiple occasions, including just before Jaime Medrano
signed the purchase agreement on May 30, 2009, and before they signed the loan
documents to complete the transaction thereafter, Cordero reconfirmed the documents
written in English described the transaction to which they had orally agreed. (See Smith
v. Home Loan Funding, Inc. (2011) 192 Cal.App.4th 1331, 1338.)
The Medranos, however, fail to allege that Cordero and Exodus knew their
representation concerning the monthly payments was false. Despite this omission, based
on the alleged broker/buyer relationship as well as the specific allegations concerning the
other elements of fraud, the Medranos’ operative complaint supports a claim against
Exodus and Cordero for constructive fraud. (Civ. Code, § 1573.)
“‘Constructive fraud is a unique species of fraud applicable only to a fiduciary or
confidential relationship.’ [Citation.] [¶] ‘. . . Most acts by an agent in breach of his
fiduciary duties constitute constructive fraud. The failure of the fiduciary to disclose a
material fact to his principal which might affect the fiduciary’s motives or the principal’s
decision, which is known (or should be known) to the fiduciary, may constitute
constructive fraud. Also, a careless misstatement may constitute constructive fraud even
though there is no fraudulent intent.’ [Citation.]” (Salahutdin v. Valley of California,
Inc. (1994) 24 Cal.App.4th 555, 562, italics added and omitted.)
While the Medranos have not alleged Exodus and Cordero knew that their
representation concerning the monthly payment amount was false, they do allege that
Exodus and Cordero knew, or should have known, that the representation was wrong. As
alleged, Exodus and Cordero had undertaken to represent the Medranos’ financial
interests in the transaction. Exodus and Cordero are real estate professionals who knew
10
how real estate taxes are calculated and recalculated upon sale. Through such allegations
as well as all of the other specific allegations they made concerning fraud, the Medranos
stated a claim against Exodus and Cordero for constructive fraud.
b. As to Stratham, Strategic and Kelleher
The Medranos alleged that Exodus, Cordero, Strategic and Kelleher are all agents
acting on behalf of Stratham. Stratham enlisted all of its agents to assist it in disposing of
its excess inventory in its Lancaster subdivision.
The Medranos further alleged that Stratham’s agent, Kelleher,6 made the same
representation as Cordero. The Medranos went to Stratham’s sales office in late May
2009 where Kelleher assured them, with Cordero translating, that their monthly payments
for the property would not exceed $1,917.68. Kelleher stated that the documents she
prepared, or instructed escrow agents designated by Stratham to prepare, would reflect
her representation about their monthly payment. She informed the Medranos that by
purchasing a new home from Stratham rather than modifying the loan on their then
current home, the Medranos could reduce their monthly property payment. On May 30,
2009, Kelleher advised the Medranos that the purchase contract she presented for their
signature reflected the transaction that she had previously discussed with them. Like
Cordero, as a real estate agent, Kelleher knew or should have known how property taxes
were calculated. Kelleher was working with Cordero on Stratham’s behalf to dispose of
its excess inventory and would benefit financially from the sale. Stratham and its agents
intended to have the Medranos rely on representations about the monthly payment
amount to facilitate the sale. The Medranos believed the transaction was for their benefit
6 The Medranos allege Kelleher is a real estate agent associated with Strategic, a
real estate broker. We include Strategic in our references to Kelleher as we did with
Cordero and Exodus. Additionally, as a principal, Stratham “is responsible to third
persons for the negligence of his agent in the transaction of the business of the agency,
including wrongful acts committed by such agent in and as a part of the transaction . . . .”
(Civ. Code, § 2338.)
11
and justifiably relied on Stratham’s agent Kelleher as she was a real estate professional
assisting them with the purchase and assuring them their monthly payment limits could
be met. Because they relied on Kelleher’s misrepresentations, they suffered damages.
As with Exodus and Cordero, the Medranos do not specifically allege in their
operative complaint that Strategic and Kelleher knew their representations on behalf of
Stratham were false. Further, the Medranos have not alleged a fiduciary or confidential
relationship between them and Stratham or Strategic and Kelleher, the selling
broker/agent, and therefore they cannot rely on a constructive fraud theory. Thus, the
court properly sustained the demurrer as to Strategic and Kelleher on the grounds that the
Medranos did not allege all of the elements of fraud with specificity; they did not plead
knowledge of the falsity of the representation.
During argument on the demurrer, the Medranos’ counsel indicated he could
supplement the Medranos’ allegations to allege actual knowledge of the falsity of the
representation by Stratham, Strategic and Kelleher. Counsel argued that Stratham,
Strategic and Kelleher all intentionally withheld the correct amount of real property taxes
the Medranos would be required to pay based on discovery that had recently been
conducted. Given the argument, it appears there is a reasonable possibility that the defect
can be cured by amendment. The court’s failure to grant leave to amend was therefore
error.7
2. The Sham Pleading Doctrine Does Not Undermine the Alleged
Misrepresentation
All of the defendants argue the Medranos cannot state a claim for fraud because
they alleged in prior versions of their complaint that $1,917.68 was the correct monthly
7 While Stratham did not challenge the fraud claim based on a lack of specificity,
given that the Medranos can allege, based on counsel’s representations made during the
hearing on the demurrer, knowledge of falsity as to both the seller and seller’s agents, we
believe it is consistent with judicial economy to permit the Medranos leave to amend as
to that element of their fraud claim as to Stratham.
12
payment amount, but their loan servicer later improperly demanded payments of
$2,676.06 due to the loan servicer’s miscalculation.8 In Stratham’s words, the Medranos
received what they were promised—a total monthly payment of $1,917.68, comprised of
approximately $1,400 principal and interest, $60 hazard insurance, $110 private
mortgage insurance and $210 in property taxes—“exactly what [the Medranos] allege
they were told;” if not for the loan servicer’s miscalculation, the defendants argue, this
action never would have been filed and they would have no liability.9
An amended pleading ordinarily supersedes prior pleadings, but an exception is
found “‘“where an amended complaint attempts to avoid defects set forth in a prior
complaint by ignoring them.”’” (Larson v. UHS of Rancho Springs, Inc. (2014) 230
Cal.App.4th 336, 343.) A “‘“court may examine the prior complaint to ascertain whether
the amended complaint is merely a sham.” [Citation.] . . . Moreover, any inconsistencies
with prior pleadings must be explained; if the pleader fails to do so, the court may
disregard the inconsistent allegations. [Citation.]’” (Ibid.; see State of California ex rel.
Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 412 [“‘[u]nder the
sham pleading doctrine, plaintiffs are precluded from amending complaints to omit
harmful allegations, without explanation, from previous complaints to avoid attacks
raised in demurrers or motions for summary judgment’”].)
In their original complaint, the Medranos sued defendants along with their loan
servicer alleging defendants had assured them that their monthly payments for principal,
interest, taxes and insurance would not exceed $1,917.68, but the loan servicer informed
them in March 2010 that their payments would increase to $2,676.06. This allegation by
8 They argue this allegation is fatal to all of the claims against the defendants.
9 More precisely, according to exhibits attached to prior versions of the complaint,
the Medranos’ payments of $1,917.68 were directed as follows: $1,483.12 for principal
and interest, $110.81 for private mortgage insurance and $62.42 for hazard insurance,
leaving $261.33 for property taxes.
13
the Medranos is consistent throughout all versions of the complaint and the central
premise of their lawsuit.10
Subsequently, in a first amended complaint naming the loan servicer as the only
defendant, the Medranos alleged the “sole and exclusive reason” for the deficiency in
their impound escrow account was the loan servicer’s error in calculating the correct
amount of impound and the servicer’s overpayment of property taxes due. The Medranos
based this erroneous conclusion on the notice of supplemental assessment from the Los
Angeles County Tax Assessor dated November 5, 2009 (attached as an exhibit)
indicating the property’s assessed value had decreased from $344,237 to $252,000 (the
Medranos’ purchase price), a net difference of $92,237. Despite this decrease in property
value, the loan servicer had demanded a 275 percent increase in the Medranos’ monthly
impound payment from $434.56 per month to $1,192.96.
We reject the argument the fourth amended complaint is a sham based on the
Medranos’ prior allegations that $1,917.68 was the correct monthly payment and the loan
servicer was solely at fault. (Larson v. UHS of Rancho Springs, Inc., supra, 230
Cal.App.4th at p. 344.) “‘The sham pleading doctrine is not “‘intended to prevent honest
complainants from correcting erroneous allegations . . . or to prevent correction of
ambiguous facts.’” [Citation.] Instead, it is intended to enable courts “‘to prevent an
abuse of process.’” [Citation.]’ [Citations.]” (Ibid.)
Here, the Medranos have alleged they understood they were executing documents
obligating them to make monthly payments in the amount of $1,917.68 with the
10 The Medranos argue the “‘one wrongful act’” they have alleged “in all of their
pleadings is the failure . . . to properly disclose the impact that the inclusion of taxes
would have on [their] monthly obligations if they purchased the [property] . . . in July of
2009.” In essence, in the trial court and on appeal, the Medranos have explained they did
not initially understand why, in a matter of a few months, their monthly payments
increased by almost $800, but they purchased the Lancaster property “in reliance on
[defendants’] preclosing representations in May 2009 that their monthly payment of
$1,917.68 was properly calculated to cover ‘the existing taxes’ assessed against the
property” when defendants knew (or should have known) they were not.
14
understanding this sum would cover principal, interest, property taxes and insurance
when this was not the case; the exhibits attached to the Medranos pleadings establish that,
notwithstanding their earlier misimpression that the loan servicer was the cause of the
deficiency in their escrow impound account, their complaint is not a sham.11 (Aubry v.
Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [we give “the complaint a reasonable
interpretation,” reading it as a whole and its parts in context].) Nothing suggests that the
Medranos’ prior erroneous conclusion concerning the loan servicer’s liability was made
in bad faith or that the Medranos were engaged in an abuse of process. (See Hahn v.
Mirda (2007) 147 Cal.App.4th 740, 751.) Instead, “read in context, it appears [the
Medranos were] omitting an alternate factual allegation [concerning the loan servicer’s
sole responsibility] that had proven to be erroneous.” (Ibid.)
3. The Holder Case and Misrepresentations as to Existing Facts
Defendants argue the Medranos’ claim against them is not actionable as they could
not justifiably rely on any prediction concerning the amount of real property taxes they
11 Exhibits attached to different versions of the complaint support the Medranos’
consistent allegation that they were promised their monthly payment for principal,
interest, taxes and insurance would not exceed $1,917.68 when that was never the case.
The final settlement statement also attached to the Medranos’ first amended
complaint indicates property taxes due at a rate of $18.338 per day (or $6,601.68 per
year). In other words, the allocation of only $261.33 per month for property taxes out of
the $1,917.68 payment was insufficient from the outset—before the loan servicer ever
took over the servicing of the loan from the original lender. Dividing the $6,601.68
annual property tax amount due by 12 and adding the required two-month cushion under
the law governing maintenance of impound accounts, the Medranos were obligated to
pay $641.83 per month ($550.14 plus $91.69) for property taxes to remain current on
their loan. The Medranos allege, as real estate agents and brokers, Cordero and Exodus
and Kelleher and Strategic knew the formula for calculating property taxes. Yet, working
together with Stratham to dispose of its excess inventory, the Medranos allege defendants
arranged a transaction that effectively set them on a path to foreclosure. With each
payment of $1,917.68, the Medranos would and did grow further behind in their actual
obligation on their loan.
15
would be required to pay in the future. They rely on Holder, supra, 267 Cal.App.2d 91
for support. Defendants misunderstand the Medranos’ allegations.
Holder provides: “In general, reliance may be made by a buyer of real estate upon
representations as to existing tax liens, amounts of taxes for current or prior years, or
assessed values for current or former years. [Citations.] [¶] . . . [S]uch reliance may be
justifiable even though the purchaser fails to consult the public records from which the
fact might be ascertained. There is authority to the contrary where there is no relation of
trust and confidence [citation]. [¶] Whether in a particular case the purchaser relied or
had a right to rely is a matter of fact depending upon the particular circumstances,
including the language in which the representation is couched. [Citations.]
“The rule is different as to statements with regard to future assessments or levies
of taxes. The fixing of assessed values of property and of tax rates is solely within the
power of public officials, whose decisions are not and should not be subject to control by
a property owner, so that representations made by a private person as to such matters may
not justifiably be relied on. [Citations.]” (Holder, supra, 267 Cal.App.2d at pp. 106-107,
fn. omitted; see also Brakke v. Economic Concepts, Inc. (2013) 213 Cal.App.4th 761, 769
[“‘it is inherently unreasonable for any person to rely on a prediction of future IRS
enactment, enforcement, or non-enforcement of the law by someone unaffiliated with the
federal government’”: “‘the reasonable reliance element of any fraud claim based on
these predictions fails as a matter of law’”]; Borba v. Thomas (1977) 70 Cal.App.3d 144,
152, 154 [statement there would be “‘no problem’” in getting Bureau of Reclamation
approval of the purchase price was merely a nonactionable expression of opinion;
“[a]bsent some special relationship between the parties, a private person is not entitled to
rely on the opinion of another private person concerning the future decisions of a public
body”].)
For the reasons already described, Holder actually supports the Medranos. The
Medranos’ allegations implicate the general rule that a buyer may rely upon
representations as to tax amounts for current and prior years (and assessed values for
current and former years). (Holder, supra, 267 Cal.App.2d at p. 106.) The Medranos
16
alleged that defendants assured them that their monthly payments due after the close of
escrow would not exceed $1,917.68. The monthly payment contemplated current tax
obligations. Moreover, whether the Medranos relied or had a right to rely is a question of
fact “depending upon the particular circumstances, including the language in which the
representation is couched.”12 (Ibid.)
To the extent defendants argue the Medranos’ claims are barred as they are based
on future actions by a third party and are non-actionable opinions (Cansino v. Bank of
America (2014) 224 Cal.App.4th 1462, 1469 [forecasts regarding the future of the real
estate market are not actionable misrepresentations as they are forecasts of future
events]), we disagree.
Under the authorities defendants rely upon, “exceptions to the general rule that, to
be actionable, a misrepresentation must be of an existing fact, not an opinion or
prediction of future events,” arise “‘(1) where a party holds himself out to be specially
qualified and the other party is so situated that he may reasonably rely upon the former’s
superior knowledge; (2) where the opinion is by a fiduciary or other trusted person;
(3) where a party states his opinion as an existing fact or as implying facts which justify a
belief in the truth of the opinion. [Citation.]’ [Citation.]” (Brakke v. Economic
Concepts, Inc., supra, 213 Cal.App.4th at p. 769; accord, Borba v. Thomas, supra, 70
Cal.App.3d at p. 152.) Accepting the Medranos’ allegations as true as we must, it
appears the Medranos meet at least two of the three exceptions.13
Based on the foregoing, we find the trial court erred in sustaining the demurrer of
Exodus and Cordero to the Medranos’ fraud claim. We agree the trial court properly
12 Holder is further distinguishable in that it addressed the obligation of a lender
while the Medranos allege facts supporting the conclusion Cordero acted as their
mortgage broker and agent and therefore owed them a fiduciary duty. (Wyatt v. Union
Mortgage Co. (1979) 24 Cal.3d 773, 782; Smith v. Home Loan Funding, Inc. (2011) 192
Cal.App.4th 1331, 1335.)
13 All three exceptions require factual determinations and cannot be resolved on
demurrer.
17
sustained the demurrer to the fraud claim as to Stratham, Strategic and Kelleher, but find
that it was an abuse of discretion to do so without leave to amend based on counsel’s
representations during the hearing that he could allege those defendants had actual
knowledge of the falsity of the representations.
C. The Second Cause of Action: Negligent Failure To Disclose Facts Materially
Affecting the Value or Desirability of Property (All Defendants)
The trial court struck the second cause of action on the ground the claim exceeded
the scope of amendment permitted by the court’s prior order sustaining the demurrers to
the third amended complaint with leave to amend. The Medranos argue their second
cause of action was an attempt at refining their pleading. They explain when the court
sustained the demurrers to the third amended complaint with leave to amend, the trial
court noted the first cause of action for fraudulent inducement was actually two causes of
action, a claim for fraud and a claim for nondisclosure.
In their operative complaint, the Medranos addressed the concern noted by the
trial court. They separated their fraudulent inducement claim into two claims based on
the allegations. Instead of alleging only fraudulent inducement, the operative complaint
alleged fraud based on misrepresentation as well as a claim for nondisclosure. We
consider the second cause of action to be responsive to the deficiencies the court noted in
the prior pleading. Accordingly, the court should have addressed this cause of action on
its merits. (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015.)
In opposing the demurrer to this cause of action, relying on Holmes v. Summer
(2010) 188 Cal.App.4th 1510, and cases cited therein, the Medranos note: “‘It is now
settled in California that where the seller knows of facts materially affecting the value or
desirability of the property which are known or accessible only to him and also knows
that such facts are not known to, or within the reach of the diligent attention and
observation of the buyer, the seller is under a duty to disclose them to the buyer.
[Citations.]’ [Citations.] When the seller’s real estate agent or broker is also aware of
such facts, ‘he [or she] is under the same duty of disclosure.’ [Citation.] A real estate
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agent or broker may be liable ‘for mere nondisclosure since his [or her] conduct in the
transaction amounts to a representation of the nonexistence of the facts which he has
failed to disclose [citation].’ [Citation.]” (Id. at pp. 1518-1519, italics omitted; cf. Civ.
Code, § 2079, subd. (a).)
This duty to disclose applies not only to a seller and the seller’s agent, but to the
buyer’s broker as well. A buyer’s broker can be liable for misrepresentations he or she
passes on to the buyer from a seller that are material to the buyer’s decision to buy the
property. (Salahutdin v. Valley of California, Inc, supra, 24 Cal.App.4th at pp. 561-563
[buyer’s agent failed to verify the accuracy of information concerning size of property
and its ability to be subdivided].)
According to the allegations of their complaint, all defendants assured the
Medranos they could rely on the stated monthly payment to cover their monthly housing
costs, and the Medranos made it clear to defendants that they were unwilling and unable
to make a higher payment. Although defendants knew or should have known the manner
in which property taxes were calculated, they withheld from the Medranos the fact this
calculation meant their agreed payments were insufficient. The trial court should have
overruled defendants’ demurrer to this cause of action.
D. The Third Cause of Action: Failure To Supervise Spanish-Speaking Agents
(Stratham, Strategic and Exodus)
The Medranos fail to address the third cause of action in their opening brief; we
therefore consider it abandoned. (Mendoza v. Town of Ross (2005) 128 Cal.App.4th 625,
630 [“while our review of the order sustaining the demurrer is de novo, it is limited to
issues adequately raised and supported in [the appellant’s] brief”]; Reyes v. Kosha (1998)
65 Cal.App.4th 451, 466, fn. 6 [issues not raised in an appellant’s brief are deemed
waived or abandoned].)
As defendants argued and the trial court found, the Medranos failed to allege these
defendants had reason to believe an undue risk of harm would exist because of Cordero’s
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employment—a necessary element of a cause of action for negligent supervision.
(Federico v. Superior Court (1997) 59 Cal.App.4th 1207, 1214.)
E. The Fourth Cause of Action: Professional Negligence (Strategic, Kelleher, Exodus
and Cordero)
As with the second cause of action, the trial court struck the fourth cause of action
on the ground the claim exceeded the scope of amendment permitted by the court’s prior
order sustaining the demurrers to the third amended complaint with leave to amend.
Again, the Medranos argue they were further refining their pleading in an attempt to
respond to the court’s prior order sustaining the demurrers to their third amended
complaint. Instead of alleging breach of fiduciary duty as they had done previously, they
restated it as a professional negligence claim.
As with the second cause of action, we consider the fourth cause of action to be
responsive to the deficiencies the court noted in connection with the prior pleading.
Accordingly, the court should have addressed this cause of action on its merits. (Patrick
v. Alacer Corp., supra, 167 Cal.App.4th at p. 1015.)
“To state a cause of action for professional negligence, a party must show ‘(1) the
duty of the professional to use such skill, prudence and diligence as other members of the
profession commonly possess and exercise; (2) breach of that duty; (3) a causal
connection between the negligent conduct and the resulting injury; and (4) actual loss or
damage resulting from the professional negligence.’ [Citation.] ‘The threshold element
of a cause of action for negligence is the existence of a [legal] duty to use due care
toward an interest of another that enjoys legal protection against unintentional invasion.’
[Citation.] ‘Where there is no legal duty, the issue of professional negligence cannot be
plead because with the absence of a breach of duty, an essential element of the cause of
action for professional negligence is missing.’ [Citation.]” (Giacometti v. Aulla, LLC,
supra, 187 Cal.App.4th at p. 1137.)
As the Medranos’ broker and agent, Exodus and Cordero had a duty to disclose
information to the Medranos that was material to their decision to purchase the property.
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“‘The agent’s duty to disclose material information to the principal includes the duty to
disclose reasonably obtainable material information. [¶] . . . [¶] The facts that a broker
must learn, and the advice and counsel required of the broker, depend on the facts of each
transaction, the knowledge and the experience of the principal, the questions asked by the
principal, and the nature of the property and the terms of sale. The broker must place
himself in the position of the principal and ask himself the type of information required
for the principal to make a well-informed decision. The obligation requires investigation
of facts not known to the agent and disclosure of all material facts that might reasonably
be discovered.’ [Citation.]” (Field v. Century 21 Klowden-Forness Realty (1998) 63
Cal.App.4th 18, 25-26.)
The Medranos sufficiently alleged a claim against Exodus and Cordero for
professional negligence.14 They alleged Exodus and Cordero breached their duty in
failing to disclose material facts concerning the monthly amount of real estate taxes they
would be required to pay after purchasing the property. The breach, according to the
allegations, resulted in damages to the Medranos.
As to Stratham, Strategic and Kelleher, however, the Medranos did not allege a
duty (other than the general duty of disclosure that is asserted in the failure to disclose
claim) to support a professional negligence claim.15 This lack of duty is fatal to the
Medranos’ professional negligence claim as to Stratham, Strategic and Kelleher, and the
trial court properly sustained their demurrer to it. Given the Medranos’ inability to
suggest it was reasonably possible they could cure the defect by amendment, the trial
court properly denied the Medranos leave to amend as to this claim.
14 “[T]he disclosure duty is a general duty imposed on the agent, and whether a
breach of that duty constitutes negligence or fraud depends on the particular
circumstances of each case. [Citation.]” (Salahutdin v. Valley of California, Inc., supra,
24 Cal.App.4th at p. 563.)
15 During oral argument, in response to questioning, counsel did not identify any
other duty running to the Medranos from the seller and its agents. The Medranos’ claim
for failure to disclose is set forth as their second cause of action.
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DISPOSITION
The judgment of dismissal is reversed. The trial court is directed to vacate its
order sustaining defendants’ demurrers to the fourth amended complaint and to enter a
new order: (1) as to the first cause of action for fraudulent inducement, overruling the
demurrer of Exodus and Cordero and sustaining with leave to amend the demurrers of
Stratham, Strategic and Kelleher; (2) as to the second cause of action for negligent failure
to disclose, overruling the demurrers of all defendants; (3) as to the third cause of action
for failure to supervise, sustaining the demurrers of Stratham, Strategic and Kelleher
without leave to amend; and (4) as to the fourth cause of action for professional
negligence, overruling the demurrer of Exodus and Cordero and sustaining without leave
to amend the demurrers of Stratham, Strategic and Kelleher. The Medranos are to
recover their costs on appeal.
BECKLOFF, J.*
We concur:
PERLUSS, P. J.
ZELON, J.
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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