Stella v. Asset Management Consultants, Inc.

Filed 1/17/17; pub. order 2/6/17 (see end of opn.)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

MICHAEL STELLA, B269207

Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC508056)
v.

ASSET MANAGEMENT
CONSULTANTS, INC., et al.,

Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los
Angeles County, Amy D. Hogue, Judge. Affirmed.
Catanzarite, Kenneth J. Catanzarite, Nicole M.
Catanzarite-Woodward and Eric V. Anderton for Plaintiff and
Appellant.
Jackson Tidus, M. Alim Malik and Charles M. Clark for
Defendant and Respondent Asset Management Consultants, Inc.,
James R. Hopper, Gloria Hopper, AMC-Hamilton, LLC; AMC-
Baker-Cal, LLC; AMC-Overland, LLC; AMC-Wilnaldi, LLC;
AMC-Capom, LLC; AMC-Arbor Square, LLC and AMC-Packard,
LLC.
Jampol Zimet, Marc J. Zimet and Steven J. Markowitz for
Defendant and Respondent Property Mangement Associates, Inc.,
LM Property Service, Inc., Thomas Spear and Joshua Fein.
Goshgarian & Marshall, John A. Marshall and Mark S.
Reusch for Defendant and Appellant Davies Lemmis Raphaely
Law Corporatoin, Merton Randel Davies and Rosemary Lemmis.
Cadden & Fuller, Thomas H. Cadden and John B. Taylor
for Defendant and Respondent Allen L. Basso, Smith, Linden &
Basso, LLP, Allen A. Basso and August Real Estate
Enterprises, LP.
Law Offices of Anthony C. Duffy and Anthony C. Duffy for
Defendant and Appellant Kevin James Hopper.
Greenwald & Hoffman, Paul A. Hoffman and John R.
Flocken for Defendant and Respondent Hamilton Venture, L.P.,
Baker-Cal Venture, L.P., Overland Venture, L.P., Wilnaldi
Venture, L.P., Capom Venture, L.P., Arbor Square Venture, L.P.
and Packsard Venture, L.P.
___________________________
Michael Stella appeals from the judgment of dismissal
entered after a judicial referee, appointed pursuant to Code of

2
 1
Civil Procedure section 638, sustained without leave to amend
the demurrers of all defendants to Stella’s first amended
complaint for intentional misrepresentation, fraud by
concealment and related common law and statutory causes of
action. Stella contends the referee misapplied the delayed
discovery rule and, as a result, incorrectly concluded each of his
claims was barred as a matter of law by the applicable statute of
limitations. He also contends the trial court erred in enforcing
the judicial reference provisions in the limited partnership
agreements at issue in the case. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Limited Partnership Investments
From February 2007 through February 2009 Stella
invested in seven limited partnerships, each of which was formed
to acquire ownership of specific real property either as a tenant
2
in common or as the sole owner of the property. Stella had
previously made multiple investments over a period of
approximately 20 years with defendants Asset Management

1
Statutory references are to this code unless otherwise
stated.
2
The limited partnerships at issue are Hamilton Venture,
L.P., Baker-Cal Venture, L.P., Overland Venture, L.P., Wilnaldi
Venture, L.P., Capom Venture, L.P., Arbor Square Venture, L.P.,
and Packard Venture, L.P. Each of the limited partnerships is
named a defendant in Stella’s operative first amended complaint,
as are the general partners of each limited partnership, AMC-
Hamilton LLC, AMC-Baker-Cal LLC, AMC-Overland LLC, AMC-
Wilnaldi LLC, AMC-Capom LLC, AMC-Arbor Square LLC and
AMC-Packard LLC.

3
Consultants, Inc. (AMC) and its principals James Hopper and
Gloria Hopper.
Stella was solicited to invest in the limited partnerships
through a separate private placement memorandum prepared for
3
each of the investments by AMC. Stella acknowledged he read
the private placement memoranda prior to investing. In
addition, in connection with each investment Stella signed a
subscription agreement, which certified his status as an
accredited (qualified) investor, and a limited partnership
agreement. The parties agree the documentation for each of the
limited partnerships (that is, the private placement
memorandum, a subscription agreement and the limited
4
partnership agreement) was essentially identical, and the issues
presented by Stella’s appeal are the same as they relate to the
seven investments.
According to Stella’s description of the role of various
entities and individuals named as defendants in his lawsuit,
Property Management Associates, Inc., LM Property Services,
Inc., Thomas Spear and Joshua Fein were responsible for
overseeing the due diligence for each of the real property
acquisitions by the limited partnerships. Davies Lemmis

3
We accept as true all facts properly pleaded in Stella’s
operative first amended complaint to determine whether the
demurrer was properly sustained. (Beacon Residential
Community Assn. v. Skidmore, Owings, & Merrill LLP (2014)
59 Cal.4th 568, 571.)
4
The limited partnerships differed in the commercial
properties to be acquired, the purchase price for the properties,
the amount of the commission paid to the general partner and
the size of the limited partnership offerings.

4
Raphaely Law Corporation, Merton Randel Davies and Rosemary
Lemmis (lawyer defendants) were legal counsel for AMC. Kevin
Hopper also provided legal services to AMC and acted, either
directly or indirectly, as manager for the general partners of the
limited partnerships. Smith, Linden & Basso, LLP and Allen L.
Basso acted as accountants for the various entities, and Allen L.
Basso and Allen A. Basso, as well as August Real Estate
Enterprises, L.P., provided real estate services in connection with
the investment transactions.
a. The private placement memoranda
Using the documents for Hamilton Venture, L.P. as the
5
exemplar, as Stella does in his opening brief, the private
placement memorandum explained the limited partnership was
being formed to acquire, operate and sell a two-story office
building in Torrance, California over a six-to-nine-year period.
The total purchase price for the property was $14,735,000.
The offering was for 332 limited partnership units at
$10,000 per unit with a minimum subscription of two units. In
addition to the $3,320,000 to be contributed by the limited
partnership, co-owners of the property would contribute
$949,400; and a loan for $10,845,000 secured by a first deed of
trust would be obtained, “which is approximately 73.60% of the
Purchase Price of the Property.” Investors were advised the total
price for the property “includes a Five Hundred Sixty-Five
Thousand Dollars ($565,000) real estate commission to be paid to
AMC by the Seller at closing . . . portions of which will be paid to

5
Hamilton Ventures, L.P. was the earliest of the limited
partnership offerings at issue in this litigation. It was originally
scheduled to close on February 23, 2007 and actually closed the
following month.

5
the General Partner and other parties involved in the purchase of
the Property and/or the funding of the Partnership.”
The private placement memorandum stated the business
plan for the acquisition was, in part, to “[a]cquire the Property at
a price that is below the replacement cost.” The total funding for
the project was $15,114,400. The Use of Proceeds section of the
private placement memorandum repeated that the purchase
price of the property was $14,735,000 and described
organizational fees, general and administrative costs, legal fees,
acquisition and due diligence fees of $75,000; miscellaneous
closing costs of $110,513; loan origination fees and costs of
$138,450; and working capital and reserves of $55,437. The
discussion of use of funds also stated, in the event the fees and
costs described were less than estimated, “the excess will be
added to operating reserves or returned to Partners at the
discretion of the General Partner.”
The Risk Factors section of the private placement
memorandum contained the following caution in its listing of
“operating risks”: “Market Value of Property. The purchase
price of the Property has been negotiated to include a commission
to be paid to Manager of the General Partner of the General
Partner’s Manager by the Seller (see ‘General Partner’s
Compensation and Fees’) in addition to other brokerage
commissions owed by the Seller. Accordingly, the Seller would
have sold the Property for a lower Purchase Price if it were not
obligated to pay such commission. Although the General Partner
believes that the Purchase Price fairly corresponds to the market
value of the Property, and it is expected that the Property will be
appraised for that amount by the lender financing the

6
acquisition, there is no assurance that the Partnership will be
able to sell the Property for such amount.”
On page 4 of the Private Placement Memorandum, in all
capital letters, investors were warned, “These Securities Involve
A High Degree Of Risk As Described In This Memorandum
Under The Caption ‘Risk Factors.’” On the following page, also in
all capital letters, the investors were again advised, “See ‘Risk
Factors’ For A Discussion Of Certain Factors That Should Be
Considered In Connection With This Offering.” Paragraph 1.B. of
the representations and acknowledgments in the subscription
agreement, initialed by Stella, provided, “I have reviewed the
Confidential Private Placement Memorandum that accompanies
this Subscription Agreement, including the discussion of the Risk
Factors contained in that Memorandum.”
b. The limited partnership agreements
Paragraph 6.6.2 of each of the seven limited partnership
agreements repeated the private placement memorandum’s
description of the real estate commission. The Hamilton
Venture, for example, provided, “Brokerage Commission upon
Acquisition. At the closing of the acquisition of the Property,
Asset Management Consultants, Inc. (‘AMC’), which is the
manager of the General Partner’s manager, will receive a real
estate commission in the amount of Five Hundred Sixty Five
Thousand Dollars ($565,000) from the seller of the property. This
commission will be distributed in part by AMC to the General
Partner, its principals and affiliates and/or other parties and
entities who have assisted in the purchase of the Property and/or
the funding of the Partnership.”
Each limited partnership agreement also contained in
paragraph 13.8 a dispute resolution provision that mandated use

7
of a judicial reference pursuant to section 638: “Dispute
Resolution. Any controversy, claim, action or dispute arising out
of or relating to this Agreement, shall be heard in a court of
competent jurisdiction in the County of Los Angeles, State of
California, by a reference pursuant to the provisions of the
California Code of Civil Procedure Sections 638 through 645.1,
inclusive . . . . [¶] . . . [¶] . . . The referee shall have the power to
decide all issues of fact and law and report his/her decision
thereon, and to issue all legal and equitable relief appropriate
under the circumstances . . . .”
c. Stella’s investments
Stella purchased four limited partnership units ($40,000) in
Hamilton Venture, L.P. in March 2007. He completed his
acquisitions of limited partnership units in the other six limited
partnerships in July 2007 ($40,000), May 2008 ($20,000), August
2008 ($20,000), October 2008 ($20,000), January 2009 ($20,000)
and February 2009 ($20,000).
2. Stella’s Lawsuit
On May 6, 2013—more than six years after the close of the
Hamilton Venture, L.P. offering and more than four years after
the close of the Packard Venture LP, the last of the seven limited
partnership investments—Stella filed a 41-page putative class
action complaint for intentional misrepresentation, fraud by
concealment and related common law and statutory causes of
action on behalf of himself and other limited partner investors
against AMC, the seven limited partnerships, their general
partners and the various entities and individuals Stella believed
were responsible for the preparation and distribution of the
private placement memoranda used to solicit the limited
partnership investments. On April 17, 2015, while a demurrer on

8
statute of limitations grounds was pending, Stella filed a
193-page first amended complaint—the operative pleading—
which alleged nine causes of action (identified as the first
through ninth claims for relief) as to each of the seven limited
partnership transactions: intentional misrepresentation, fraud
by concealment, negligent misrepresentation, negligence,
violations of California Corporations Code sections 25401
(fraudulent marketing of securities), 25504 (control person
liability) and 25504.1 (materially aiding the fraudulent sale of
securities), breach of fiduciary duty and unfair business practices
in violation of the Business and Professions Code section 17200
6
et seq. Different groupings of defendants were named in the
various claims with some (in particular, AMC and the Hoppers)
included in all nine causes of action.
The gravamen of the lawsuit was that the private
placement memoranda’s description of a real estate commission
to be paid by the seller of the property at closing ($565,000 in the
7
Hamilton Venture transaction) was false. In fact, the payment
was not a real estate commission but a syndication fee or
markup, the economic burden of which was borne by the
purchasers of the limit partnership units, not the seller of the

6
Each claim for relief contained seven “counts,” one for each
of the limited partnership transactions in which Stella invested,
except the ninth claim for violating the UCL, which was simply
asserted against “all defendants.”
7
The real estate commission identified in the private
placement memorandum for the Baker-Cal Venture was
$1,425,000; for Overland Venture, $800,000; for Wilnaldi
Venture, $275,000; for Capom Venture, $280,000; for AMC-Arbor
Square, $275,000; and for AMC-Packard, $250,000.

9
real property. That is, the purported real estate commission did
not reduce the negotiated purchase price received by the seller, as
it would if the seller truly paid the commission, but was added to
the negotiated price so that its economic burden was shifted to
the investors, thereby diluting the value of the investment. As a
result of this fundamental misrepresentation, Stella alleged the
private placement memoranda contained additional false
representations or misleading half-truths concerning the fair
market value of the property, the appraised value of the property,
the loan-to-cash value ratio and the compensation to be received
8
by the general partner of the limited partnership.
Stella alleged AMC and the other defendants knew these
representations were false and intended the investors to rely on
them. He also alleged he and the investor classes he sought to
represent read the private placement memoranda and reasonably
relied on the misrepresentations contained in them.
Recognizing the limitations issue confronting his lawsuit,
Stella included a section in the first amended complaint labeled
“Application of Delayed Discovery Rule,” which alleged he had
first discovered the misrepresentations concerning the seller-paid
commissions on April 14, 2012 when he was contacted by counsel
in connection with another investment made by Stella: “Prior to
this discussion with counsel, [Stella] was completely unaware
that proceeds from his investment were used to satisfy this
economic burden and had no suspicion of the same.”

8
The private placement memoranda for the seven limited
partnership investments were attached as exhibits to the first
amended complaint.

10
 3. Appointment of the Judicial Referee
Following the filing of the original complaint, all
defendants filed or joined motions for a general reference
pursuant to section 638 and the dispute resolution provisions of
the limited partnership agreements. Stella objected, arguing the
fraud and fraud-related claims asserted in the complaint did not
arise out of or relate to the limited partnership agreements,
several of the defendants (in particular, AMC and the Hoppers)
were not parties to the limited partnership agreements and had
not consented to a general reference, and the judicial reference
provisions in the limited partnership agreements were both
procedurally and substantively unconscionable. The trial court
granted the motions on May 6, 2014 and appointed retired
superior court judge James L. Smith as referee in
September 2014.
4. The Defendants’ Demurrers
Stella filed his first amended complaint after the
appointment of the referee. All defendants demurred or joined in
the demurrers filed by other defendants. After briefing and oral
argument the referee issued a statement of decision, reported to
the trial court pursuant to section 643, subdivision (a), sustaining
the demurrers without leave to amend. The referee found all
causes of action barred by the governing statutes of limitations
9
(two, three or four years from date of discovery) because, when

9
The lawyer defendants contend all claims against them not
based on actual fraud (for example, breach of fiduciary duty and
violation of the UCL) are governed by section 340.6’s limitations
period (one year from date of discovery but no longer than four
years from the date of the alleged wrongful conduct).
Accordingly, they argue, even if Stella did not discover their

11
he received and reviewed the private placement memoranda,
Stella was either aware or, as a reasonable person, should have
conducted the due diligence required to inform himself that the
purchase price recited in the private placement memoranda had
been increased over that for which the property otherwise could
have been purchased to facilitate payment of the fee labeled “real
estate commission.” The referee explained, “It is difficult to
discern how Plaintiff could have been more clearly advised of the
impact the Seller’s payment of the Commissions would have on
the purchase price of the properties than by the statement in the
[private placement memorandum] that, ‘Accordingly, the Seller
would have sold the Property for a lower Purchase Price if it were
not obligated to pay such commission.’” The referee found that
disclosure language was clear and unambiguous and triggered
the running of the limitations periods as of the date Stella
purchased the limited partnership units—more than four years
before he filed his original complaint. “Plaintiff’s contention that
accrual of any of his causes of action [was] delayed based on his
lack of knowledge of his injury is unsupported by the allegations
in the [first amended complaint].”
Defendants moved for entry of judgment pursuant to
section 644. The trial court granted the motion. Judgment was

alleged wrongful conduct until April 14, 2012 as he has alleged,
the non-fraud-based causes of action are time-barred because the
lawsuit was not filed until May 6, 2013, more than one year later.
In reply Stella insists the gravamen of all claims against the
lawyer defendants is actual fraud. In light of our conclusion that
Stella had inquiry notice, if not actual notice, prior to the close of
each investment based on the disclosures in the private
placement memoranda, we need not resolve that issue.

12
entered on November 16, 2015. Stella filed a timely notice of
appeal.
DISCUSSION
1. Standard of Review
A demurrer tests the legal sufficiency of the factual
allegations in a complaint. We independently review the superior
court’s ruling on a demurrer and determine de novo whether the
complaint alleges facts sufficient to state a cause of action or
discloses a complete defense. (Loeffler v. Target Corp. (2014)
58 Cal.4th 1081, 1100; Committee For Green Foothills v. Santa
Clara Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) We assume
the truth of the properly pleaded factual allegations, facts that
reasonably can be inferred from those expressly pleaded and
matters of which judicial notice has been taken. (Evans v. City of
Berkeley (2006) 38 Cal.4th 1, 20; Schifando v. City of Los Angeles
(2003) 31 Cal.4th 1074, 1081.) We liberally construe the pleading
with a view to substantial justice between the parties (Code Civ.
Proc., § 452; Gilkyson v. Disney Enterprises, Inc. (2016)
244 Cal.App.4th 1336, 1340; see Schifando, at p. 1081 [complaint
must be read in context and given a reasonable interpretation]);
but, “[u]nder the doctrine of truthful pleading, the courts ‘will not
close their eyes to situations where a complaint contains
allegations of fact inconsistent with attached documents, or
allegations contrary to facts which are judicially noticed.’”
(Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th
390, 400; see Brakke v. Economic Concepts, Inc. (2013) 213
Cal.App.4th 761, 767 [“[w]hile the ‘allegations [of a complaint]
must be accepted as true for purposes of demurer,’ the ‘facts
appearing in exhibits attached to the complaint will also be
accepted as true and, if contrary to the allegations in the

13
pleading, will be given precedence’”]; SC Manufactured Homes,
Inc. v. Liebert (2008) 162 Cal.App.4th 68, 83 [“[i]f the allegations
in the complaint conflict with the exhibits, we rely on and accept
as true the contents of the exhibits”].)
Although a general demurrer does not ordinarily reach
affirmative defenses, it “will lie where the complaint ‘has
included allegations that clearly disclose some defense or bar to
recovery.’” (Casterson v. Superior Court (2002) 101 Cal.App.4th
177, 183; accord, Nolte v. Cedars-Sinai Medical Center (2015)
236 Cal.App.4th 1401, 1406; Favila v. Katten Muchin Rosenman
LLP (2010) 188 Cal.App.4th 189, 224.) “Thus, a demurrer based
on an affirmative defense will be sustained only where the face of
the complaint discloses that the action is necessarily barred by
the defense.” (Casterson, at p. 183; accord, Favila, at p. 224; see
Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185,
1191 [application of a statute of limitations based on facts alleged
in a complaint is a legal question subject to de novo review].)
Section 638, subdivision (a), provides that a referee may be
appointed by agreement of the parties to “hear and determine
any or all of the issues in an action or proceeding, whether of fact
or of law, and to report a statement of decision.” The judgment
based on a statement of decision following a consensual general
reference is treated as if the action had been heard by the court
(Code Civ. Proc., § 644, subd. (a)) and is reviewed on appeal using
the same rules that apply to a decision by the trial court. (See
Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th
501, 513.)
2. All of Stella’s Causes of Action Are Time-barred
Traditionally, a claim accrues “‘“when [it] is complete with
all of its elements”—those elements being wrongdoing [or

14
breach], harm, and causation.’” (Aryeh v. Canon Business
Solutions, Inc., supra, 55 Cal.4th at p. 1191; accord, Howard
Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809,
815.) “This is [known as] the ‘last element’ accrual rule . . . .”
(Aryeh, at p. 1191; see ibid. [“ordinarily, the statute of limitations
runs from ‘the occurrence of the last element essential to the
cause of action’”]; Howard Jarvis, at p. 815 [same]; Quarry v.
Doe I (2012) 53 Cal.4th 945, 960.)
An exception to the general rule of accrual is the delayed
discovery rule, “which postpones accrual of a cause of action until
the plaintiff discovers, or has reason to discover, the cause of
action.’” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th
797, 807.) “Under the discovery rule, the statute of limitations
begins to run when the plaintiff suspects or should suspect that
her injury was caused by wrongdoing, that someone has done
something wrong to her.” (Jolly v. Eli Lilly & Co. (1988)
44 Cal.3d 1103, 1110.) “A plaintiff need not be aware of the
specific ‘facts’ necessary to establish the claim; that is a process
contemplated by pretrial discovery. Once the plaintiff has a
suspicion of wrongdoing, and therefore an incentive to sue, she
must decide whether to file suit or sit on her rights. So long as a
suspicion exists, it is clear that the plaintiff must go find the
facts; she cannot wait for the facts to find her.” (Id. at p. 1111.)
Stella alleged the misrepresentations and material
omissions occurred at the time of each limited partnership
transaction and, as a result, has acknowledged all his causes of
action, whether governed by a two-, three- or four-year statute of
limitations, are time-barred absent application of the delayed
discovery rule to postpone accrual of the statutes of limitations.
That is, unless the discovery rule applies, Stella was injured and

15
the statute of limitations on his various causes of action began to
run when he purchased limited partnership units in each of the
seven investment transactions based on what he now deems to be
an artificially inflated purchase price for the commercial
properties acquired by the limited partnerships. (See
WA Southwest 2, LLC v. First American Title Ins. Co. (2015)
240 Cal.App.4th 148, 156, fn. 6 (WA Southwest) [“[r]eceipt of
investment disclosures can trigger the statute of limitations in
appropriate cases”].) However, Stella argues he adequately
pleaded facts demonstrating he was unaware of the false
representations concerning the nature of the “real estate
commission” to be paid to AMC until April 2012 and could not
have discovered the true nature of that charge any earlier despite
exercising reasonable diligence. (See Fox v. Ethicon Endo-
Surgery, Inc., supra, 35 Cal.4th at p. 815 [“[a] plaintiff seeking to
utilize the discovery rule must plead facts to show his or her
inability to have discovered the necessary information earlier
despite reasonable diligence”].)
As discussed, Stella pleaded he first discovered the
misrepresentations regarding the purchase price and seller-paid
commissions in the transactions at issue in this case on April 14,
2012—slightly more than one year before he filed his original
complaint—following a conversation with counsel for investors in
another limited partnership transaction sponsored by several of
the defendants. Stella also alleged he had no reason to suspect
the private placement memoranda were materially false prior to
that time because he trusted the Hoppers and AMC, with whom
he had a 20-year investment relationship, and further alleged a
reasonable investigation at the time of the limited partnership
offerings would not have revealed the false representations and

16
omissions because the defendants were the only sources of
information concerning the investments.
When a plaintiff reasonably should have discovered facts
for purposes of the accrual of a cause of action or application of
the delayed discovery rule is generally a question of fact, properly
decided as a matter of law only if the evidence (or, in this case,
the allegations in the complaint and facts properly subject to
judicial notice) can support only one reasonable conclusion. (Jolly
v. Eli Lilly & Co., supra, 44 Cal.3d at p. 1112; Broberg v. The
Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912,
921 (Broberg).) That is the case here: Stella’s allegations fail, as
a matter of law, to trigger the delayed discovery rule given the
clear and specific statements in the private placement
memoranda, which Stella admits he read and relied on, that the
purchase price for the properties acquired by the limited
partnerships had been negotiated to include the commission to be
paid to AMC and related entities in addition to other brokerage
commissions owed by the seller and the additional unambiguous
explanation, “the Seller would have sold the Property for a lower
Purchase Price if it were not obligated to pay such commission.”
Those disclosures provided actual notice that the investors, not
the sellers of the real property being acquired for the limited
partnerships, bore the economic burden of the challenged “real
estate commission.” At the very least, those statements put
Stella and other sophisticated investors who received the private
placement memoranda on notice that further inquiry was
necessary. “Reasonable diligence in such circumstances does not
consist of ignoring a private placement memorandum received

17
prior to making an investment.” (WA Southwest, supra,
10
240 Cal.App.4th at p. 157.)
Contesting this conclusion by relying on language in
Fremont Indemnity Co. v. Fremont General Corp. (2007)
148 Cal.App.4th 97 (Fremont Indemnity), Stella argues it was
improper for the referee on demurrer (and, inferentially, for this
court in conducting our de novo review of his ruling) to interpret
the private placement memoranda, even though they were
attached as exhibits to the complaint, rather than accepting the
meaning of those documents proffered by Stella in the first

10
In WA Southwest, supra, 240 Cal.App.4th 148 investors
who acquired tenant-in-common interests in a commercial real
estate building alleged they had been misled by
misrepresentations and deceptive statements about the “sales
load” (described as fees, expenses and commissions paid) and
degree of risk of the investment. (Id. at p. 152.) However, the
private placement memorandum provided to the investors
warned of the speculative nature of the investment and described
the various sales load items they challenged. (Id. at p. 154.) The
Court of Appeal affirmed the trial court’s ruling sustaining
demurrers on statute of limitation grounds, rejecting the
investors’ argument the statutes began to run only when they
consulted tax and accounting experts six years after their
investment: “The problem with this position is that the private
placement memorandum provided to plaintiffs prior to their
investments clearly disclosed the fees, expenses, and
commissions that would be paid out of their cash investments, as
well as the risky nature of the investments. . . . The information
and disclosures in the private placement memorandum put
plaintiffs on notice of the falsity of any communications they may
have received about the sales load, tax advantages, or risk-free
nature of the investments. The delayed discovery rule does not
apply.” (Id. at p. 157.)

18
amended complaint. Stella then contends the actual content of
the market value risk factor disclosure in the private placement
memoranda, as opposed to the referee’s interpretation of that
language, was insufficient to establish as a matter of law that at
the time of his investments Stella knew or as was on inquiry
notice that the private placement memoranda contained material
false statements, misleading half-truths and omissions.
Stella misconstrues the holding of Fremont Indemnity and
misstates its applicability to the delayed discovery issue
presented by defendants’ demurrers. In Fremont Indemnity the
plaintiff alleged, in part, that defendants had misappropriated
certain funds and that their conduct was not excused by the
terms of a July 2, 2002 letter agreement among the parties. The
complaint did not detail the terms of the purported agreement or
attach a copy of the letter agreement to the pleading. (Fremont
Indemnity, supra, 148 Cal.App.4th at pp. 112-113.) The
demurring parties requested judicial notice of a July 2, 2002
letter agreement and argued under the terms of the agreement
they had been released from any liability to plaintiff for the
purported misappropriation. (Id. at p. 113.) That interpretation
of the July 2, 2002 letter agreement was disputed. (Id. at p. 115.)
After the trial court sustained the demurrer, our colleagues in
Division Three of this court held the trial court had improperly
taken judicial notice of the meaning and enforceability of the
letter agreement, noting that the plaintiff had not alleged the
letter agreement was an enforceable contract: “For a court to
take judicial notice of the meaning of a document submitted by a
demurring party based on the document alone, without allowing
the parties an opportunity to present extrinsic evidence of the
meaning of the document, would be improper. . . . [A] court

19
cannot by means of judicial notice convert a demurrer into an
incomplete evidentiary hearing in which the demurring party can
present documentary evidence and the opposing party is bound
by what that evidence appears to show.” (Id. at pp. 114-115.)
Because the plaintiff “d[id] not rely on the letter dated July 2,
2002, to support a cause of action and did not attach a copy of the
letter to its complaint, [it was] not precluded from presenting
extrinsic evidence concerning the enforceability and proper
interpretation of the letter.” (Id. at pp. 118.)
Unlike Fremont Indemnity the case at bar does not concern
the interpretation of the terms of an agreement or enforceability
of a contract. Indeed, Stella has never suggested extrinsic
evidence was required to properly construe the provisions of the
private placement memoranda upon which he based his fraud
11
and related common law and statutory claims. To the contrary,
Stella has relied on the plain meaning and ordinary
understanding of statements in the private placement
memoranda to allege the limited partnership units were
marketed by fraudulent and misleading statements. It is entirely
appropriate under these circumstances for the trial court (and
this court on appeal) also to look to the plain meaning and
ordinary understanding of the market risk disclosures to
determine whether Stella was placed on at least inquiry notice
concerning the defendants’ purported wrongdoing at the time of
his investments. (See, e.g., WA Southwest, supra,
240 Cal.App.4th at pp. 151, 153-155, 157 [utilizing information

11
Unlike the plaintiff in Fremont Indemnity, Stella attached
copies of the documents at issue (the private placement
memoranda) to his first amended complaint and relied on them to
support each of his causes of action.

20
and disclosures in private placement memorandum to determine
on demurrer that plaintiffs were on notice of falsity of defendants’
communications at the time of their investment]; see also Brakke
v. Economic Concepts, Inc., supra, 213 Cal.App.4th at p. 767
[contents of exhibits attached to pleading must be given
precedence over inconsistent allegations in the pleading];
SC Manufactured Homes, Inc. v. Liebert, supra, 162 Cal.App.4th
at p. 83 [same].)
Similarly, this court’s decision in Broberg, supra,
171 Cal.App.4th 912, upon which Stella places heavy reliance,
does not require a different result. In Broberg we reversed the
dismissal of an insured’s lawsuit for fraud and unfair competition
against his insurer and the insurer’s agent after the trial court
sustained demurrers without leave to amend. The insured had
alleged he had been falsely promised by the agent the earnings
from a whole life insurance policy would be sufficient to pay the
premium costs after the 11th year and had been given misleading
marketing materials that similarly represented that out-of-
pocket premium costs would be eliminated in the 12th year of the
policy’s life—a “vanishing premium” policy. (Id. at p. 914.) The
lawsuit was filed 11 years after the policy had been sold; the
insured alleged he had not discovered the misrepresentations
until billed for additional premium for year 12. (Id. at p. 916.)
The trial court sustained the insurer’s and the agent’s demurrers,
ruling the claims had accrued when the policy was purchased and
disclaimers in the policy gave the insured at least inquiry notice
that earnings from the policy were not guaranteed, thus

21
precluding application of the delayed discovery rule. (Id. at
12
pp. 916, 918.)
We reversed, holding there was a question for the trier of
fact whether the insured’s reliance on the insurer’s deceptive
policy illustration and its agent’s promise that out-of-pocket
premiums would not be required after the 11th year of the policy
was manifestly unreasonable. (Broberg, supra, 171 Cal.App.4th
at p. 922.) We explained, “[T]he placement of the disclaimers
(buried in a sea of same-sized, capitalized print), coupled with the
absence of any cautionary language on the first page of the policy
illustration, which contains the deceptive language and figures
indicating [the insured’s] out-of-pocket payments will ‘vanish,’
preclude a determination the disclaimers are adequate as a
matter of law.” (Ibid.) In addition, we rejected the insurer’s
contention that the insured was on inquiry notice when he
purchased the policy because a policy term provided that
premiums would be payable for life. We pointed out the insured
“does not allege he was told premiums would stop, rather that
premiums after the 11th year would be paid from earnings from
the policy and that no further out-of-pocket payments would be
required. Accordingly, even though [the insured] may be charged
with knowledge of the terms of the policy he received, nothing in
the policy itself was inconsistent with the misrepresentations on
which the lawsuit is based.” (Id. at p. 923.)

12
The trial court also ruled the disclaimers as a matter of law
precluded proof of justifiable reliance on any contrary promises
by the insurer and its agent. (Broberg, supra, 171 Cal.App.4th at
p. 918.) We also reversed that aspect of the court’s ruling
sustaining the demurrers. (Id. at pp. 922-923.)

22
 Here, in sharp contrast to Broberg, there was no allegation
that any of the defendants made a false promise to Stella.
Rather, his claims of fraud and other actionable misconduct rest
on his understanding that a seller-paid commission generally
would not affect the fair-market-value/selling price of property,
thus the description of the markup to be paid to AMC as a
commission paid by the seller was false or misleading. Whether,
as in Broberg, nonconspicuous disclaimers are adequate to negate
an express promise and misleading marketing materials as a
matter of law is very different from the question in this case
whether an investor’s subjective understanding of the meaning of
a phrase in an investment document must be accepted at face
value or whether, at the very least, an obligation to inquire
further arose when the investment disclosures themselves
contained information that directly contradicted that
understanding.
Stella and the other limited partner investors were
cautioned on the first page of each private placement
memorandum that the partnership units being offered “are
speculative and involve a high degree of risk” and were
encouraged to retain their own counsel and accountant to review
the investment. That high-risk warning was repeated on page
four of the private placement memorandum and then again on
page nine with specific directions to the potential investor to
review the “risk factors” included in the memorandum. The risk
factors, in turn, disclosed that the price paid to acquire the
property had been increased beyond what the seller would have
otherwise accepted to accommodate the commission to be paid to
AMC. When he signed the subscription agreements for each
limited partnership offering, Stella acknowledged he had

23
reviewed this section of the private placement memoranda. His
failure to conduct any further inquiry into the meaning of that
disclosure or the relationship between the increase in the
purchase price caused by the commission and the value of his
investment—that is, to exercise reasonable diligence—precludes
application of the delayed discovery rule to rescue his untimely
claims.
The clear import of the market value risk factor disclosure
is not made less certain, as Stella suggests, by the additional
statement that the general partner “believes that the Purchase
Price fairly corresponds to the market value of the Property, and
it is expected that the Property will be appraised for that amount
by the lender financing the acquisition . . . .” First, as Stella
necessarily acknowledges, the statement goes on to caution
“there is no assurance that the Partnership will be able to sell the
Property for such amount.” Second, the private placement
memoranda each contained a warning concerning forward-
looking statements, which were defined as “statements
containing the words ‘believes,’ ‘assume,’ ‘will,’ ‘may,’ ‘might” and
words of similar importance,” cautioning that such forward-
looking statements involved known and unknown risks and
uncertainties that might cause actual results to be materially
different from the performance expressed or implied by those
statements. Given the explicit notice that the commission figure
had been added to the price the seller would have accepted for
the property, any suggested relationship between the ultimate
purchase price and the market value or anticipated lender
appraised value for the property, expressed as a belief or

24
expectation, could not be accepted without further inquiry—an
13
inquiry that Stella conceded he never made.
In sum, the private placement memoranda attached as
exhibits to Stella’s first amended complaint, rather than the
conclusory allegations in the pleading itself, establish that Stella
had inquiry notice, if not actual notice, of the alleged wrongdoing
at the time the transactions closed. The delayed discovery rule
does not apply, and the demurrers were properly sustained
14
without leave to amend.

13
Stella’s allegation he had a fiduciary relationship with
certain of the defendants based on his past investments with
them does not alter the analysis. While it is true a plaintiff’s
burden of discovery is reduced when he or she is in a fiduciary
relationship with another individual (see WA Southwest, supra,
240 Cal.App.4th at p. 157), “even assuming for the sake of
argument that each of the respondents had a fiduciary duty to
plaintiffs, this does not mean that plaintiffs had no duty of
inquiry if they were put on notice of a breach of such duty.”
(Ibid.) The information and disclosures in the private placement
memorandum put Stella on clear notice of any misstatements
elsewhere in that document regarding the “real estate
commission” and its impact on the use of investors’ funds;
whether or not any defendant owed him a fiduciary obligation, he
was obligated to make further inquiry.
14
Although Stella correctly states the trial court abuses its
discretion if it sustains a demurrer without leave to amend if the
pleading defect can be cured, he does not identify any additional
facts he can allege that would justify application of the delayed
discovery rule in this case. (See Schifando v. City of Los Angeles,
supra, 31 Cal.4th at p. 1081 [“plaintiff has the burden of proving
that an amendment would cure the defect”].)

25
 3. Any Error in Ordering a Section 638 General Reference
Was Harmless
Stella advances several grounds to argue the trial court
erred in ordering a general reference pursuant to section 638. He
contends, for example, the dispute resolution provision in the
limited partnership agreements is unenforceable because it does
not unambiguously establish a forum other than a judicial forum;
the scope of the dispute resolution provision does not include
fraud in the solicitation and sale of the limited partnership units;
and those defendants who were not signatories to the limited
partnership agreement lacked standing to compel a judicial
reference.
Even if Stella were correct on one or more of these points,
however, the error in appointing a referee is grounds for reversal
only if it resulted in a “miscarriage of justice”—that is, that a
different result would have been probable if the error had not
occurred. (Cal. Cons., art. VI, § 13 [“[n]o judgment shall be set
aside, or new trial granted, in any cause . . . for any error as to
any matter of procedure, unless after an examination of the
entire cause, including the evidence, the court shall be of the
opinion that the error complained of his resulted in a miscarriage
of justice”]; § 475 [“[n]o judgment, decision, or decree shall be
reversed or affected by reason of any error, ruling, instruction, or
defect unless it shall appear from the record that such error,
ruling, instruction, or defect was prejudicial, and also that by
reason of such error, ruling, instruction, or defect, the said party
complaining or appealing sustained and suffered substantial
injury and that a different result would have been probable if
such error, ruling, instruction, or defect had not occurred or
existed”]; see Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780,

26
800; Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1069.) The
burden rests with the party claiming error to demonstrate not
only error but also the resulting prejudice. (Carolina Casualty
Ins. Co. v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th
1181, 1196-1197; City of Oakland v. Public Employees’ Retirement
System (2002) 95 Cal.App.4th 29, 51-52.)
We have reviewed the ruling on the demurrers de novo and
determined each cause of action alleged in the first amended
complaint is time-barred as a matter of law. Accordingly,
whether the initial decision to sustain the demurrers was made
by a referee pursuant to section 638 or the trial court could not
possibly have affected the outcome of the case.
DISPOSITION
The judgment of dismissal is affirmed. Defendants are to
recover their costs on appeal.

PERLUSS, P. J.

We concur:

ZELON, J.

SEGAL, J.

27
Filed 2/6/17
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF
CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

MICHAEL STELLA, B269207

Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC508056)
v.
ORDER CERTIFYING
ASSET MANAGEMENT OPINION
CONSULTANTS, INC., et al., FOR PUBLICATION AND
DENYING PETITION FOR
Defendants and REHEARING
Respondents. (NO CHANGE IN
JUDGMENT)

THE COURT:
The opinion in this case filed January 17, 2017 was not
certified for publication. It appearing the opinion meets the
standards for publication specified in California Rules of
Court, rule 8.1105(c), respondents’ request pursuant to
California Rules of Court, rule 8.1120(a) for publication is
granted.
 IT IS HEREBY CERTIFIED that the opinion meets the
standards for publication specified in California Rules of
Court, rule 8.1105(c); and
ORDERED that the words “Not to be Published in the
Official Reports” appearing on page 1 of said opinion be
deleted and the opinion herein be published in the Official
Reports.
IT IS FURTHER ORDERED that appellant’s petition
for rehearing is denied. There is no change in judgment.

________________________________________________________
PERLUSS, P. J. ZELON, J. SEGAL, J.

2