Demurrer (Judge Michael E. Whitaker)

Case Number: 23SMCV00589    Hearing Date: December 8, 2023    Dept: 207

TENTATIVE RULING

DEPARTMENT 207
HEARING DATE December 8, 2023
CASE NUMBER 23SMCV00589
MOTION Demurrer
MOVING PARTY Defendant NAI Capital Commercial, Inc.
OPPOSING PARTY Plaintiff Alexander Rivkin, MD

MOTION

Defendant NAI Capital Commercial, Inc. (“Defendant”) demurs to all three causes of action alleged in Plaintiff Alexander Rivkin, MD’s (“Plaintiff”) Complaint.

This case stems from a dispute over the failed purchase of an apartment building.  Plaintiff Alexander Rivkin, MD (“Plaintiff”) brought suit against realtor Defendant Mario Gandara (“Gandara”) and Gandara’s company, Defendant NAI Capital Commercial, Inc. (“NAI”) alleging three causes of action: (1) negligent misrepresentation; (2) professional negligence; and (3) breach of contract.

NAI demurs to all three causes of action pursuant to Code of Civil Procedure section 430.10, subdivisions (e) and (f) on the bases that they fail to state a cause of action and are uncertain.  Additionally, NAI demurs to the third cause of action for breach of contract pursuant to subdivision (g) on the basis that it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct.

Plaintiff opposes the demurrer and NAI replies.

REQUEST FOR JUDICIAL NOTICE

            NAI requests the Court take judicial notice of the following two Los Angeles Municipal Code ordinances:

  • Ordinance No. 186585, adding Article 14.6 to the Los Angeles Municipal Code, regarding evictions during the COVID-19 pandemic.
  • Ordinance No. 186696, amending Article 14.6 of Chapter IV of the Los Angeles Municipal Code, regarding tenant protections during the COVID-19 pandemic.

The request is unopposed.

The Court may properly take judicial notice of “[r]egulations and legislative enactments issued by or under the authority of the United States or any public entity in the United States.”  (Evid. Code, § 452, subd. (b).)  In particular, local ordinances are properly the subject of judicial notice under Evidence Code section 452, subdivision (b).  (Martin v. City of Corning (1972) 25 Cal.App.3d 165, 167, fn. 1.)

Therefore, the Court takes judicial notice of the requested ordinances.

ANALYSIS

  1. DEMURRER

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.”  (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.)  In testing the sufficiency of a cause of action, a court accepts “[a]s true all material facts properly pled and matters which may be judicially noticed but disregard contentions, deductions or conclusions of fact or law.  [A court also gives] the complaint a reasonable interpretation, reading it as a whole and its parts in their context.”  (290 Division (EAT), LLC v. City & County of San Francisco (2022) 86 Cal.App.5th 439, 450 [cleaned up]; Hacker v. Homeward Residential, Inc. (2018) 26 Cal.App.5th 270, 280 [“in considering the merits of a demurrer, however, “the facts alleged in the pleading are deemed to be true, however improbable they may be”].)

Further, in ruling on a demurrer, a court must “liberally construe” the allegations of the complaint “with a view to substantial justice between the parties.”  (See Code Civ. Proc., § 452.)  “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.”  (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

In summary, “[d]etermining whether the complaint is sufficient as against the demurrer on the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if one consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

  1. UNCERTAINTY

A demurrer for uncertainty will be sustained only where the pleading is so bad that the responding party cannot reasonably respond – i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what claims are directed against him or her.  (Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.)  Where a demurrer is made upon the ground of uncertainty, the demurrer must distinctly specify exactly how or why the pleading is uncertain, and where such uncertainty appears by reference to page and line numbers.  (See Fenton v. Groveland Comm. Services Dist. (1982) 135 Cal.App.3d 797, 809.)

NAI contends that there are no allegations as to NAI specifically, or connecting the conduct of Gandara to NAI.

The Complaint alleges:

  1. Defendant MARIO GANDARA is, and at all times herein mentioned was, an individual and resident of the County of Los Angeles, in the State of California.  Defendant MARIO GANDARA is a California-licensed real estate broker and salesperson.
  2. Plaintiff is informed and believes, and thereon alleges, that [NAI] is a California Corporation, authorized to conduct business in the state of California as a Real Estate Brokerage Firm.
  3. Plaintiff is informed and believes, and thereon alleges, that Defendant MARIO GANDARA (hereinafter “GANDARA”) is the Vice-President of [NAI].
  4.          Plaintiff is informed and believes, and thereon alleges that at all times herein mentioned, each of the Defendants sued herein was the agent and/or employee of each of the remaining Defendants and was at all times acting within the purpose and scope of such agency and employment.

(Compl. ¶¶ 3-5, 7.)

            Moreover, the Purchase Agreement, attached as Exhibit 1 to the Complaint, lists the “Buyer’s Brokerage Firm” as “NAI Capital Mario Gandara” and the “Buyer’s Agent” as “Mario Gandara,” both under License Number 01898787.

            While the Court agrees that the Complaint could be more explicit in expressly connecting the conduct of Gandara to NAI,  taken as a whole, Plaintiff alleges that Gandara’s actions, as set forth in the Complaint, were made “as the agent and/or employee” on behalf of and through NAI, the buyer’s brokerage firm for the transaction.

As such, NAI does not demonstrate that any portions of the Complaint are so bad that NAI cannot reasonably determine what issues must be admitted or denied, or what claims are directed against it.  The Court thus declines to sustain NAI’s demurrer on the basis of uncertainty.

  1. FAILURE TO STATE A CAUSE OF ACTION

NAI argues (1) the Purchase Agreement and Buyer’s Inspection Advisory attached to the complaint preclude the recovery Plaintiff seeks; (2) the Complaint contains no allegations as to NAI; (3) Plaintiff fails to state a misrepresentation, justifiable reliance, or damages to support his negligent misrepresentation claim; (4) Plaintiff fails to state a cause of action for professional negligence; and (5) Plaintiff fails to state a cause of action for breach of contract.

  1.             Demurrer Based on the Purchase Agreement and Buyer’s Inspection Advisory

NAI first contends that its demurrer should be sustained as to all causes of action, because the causes of action rely on Plaintiff’s claims that “he purportedly relied upon NAI/Gandara to inspect public records and ordinances regarding use of the property, to provide legal advice regarding tenant evictions, and, indeed, to predict the future (specifically, when the eviction moratorium enacted in response to the Covid-19 pandemic would be lifted)”.  Yet, the terms of the Purchase Agreement and Buyer’s Inspection Advisory contradict Plaintiff’s assertion that these were NAI’s, as opposed to Plaintiff’s responsibility, and the terms expressly disclosed to Plaintiff information he claims NAI withheld.  (Demurrer at pp. 4-8.)

This argument conflates whether Plaintiff has validly asserted a claim, taking all allegations in the Complaint as true, with whether Plaintiff will ultimately prevail on the merits of his claims.  Thus, at this stage of the litigation, whether there exists some evidence suggesting that Plaintiff may or may not ultimately prevail on his claims, is irrelevant in determining whether Plaintiff has stated a cause of action.

Therefore, the Purchase Agreement and Buyer’s Inspection Advisory do not warrant sustaining a demurrer at this stage of the litigation.

  1.             No Allegations as to NAI

As discussed above, taken as a whole, and in context, the Complaint sufficiently alleges that the conduct of Gandara was made as an agent for and on behalf of NAI.  Therefore, the fact that there are no “direct” allegations as to NAI is not fatal to Plaintiff’s claims.

                                                                iii.            First Cause of Action – Negligent Misrepresentation

The elements for fraudulent misrepresentation are (1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant had no reasonable grounds for believing the misrepresentation to be true when made; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; and (7) the plaintiff’s reliance on the defendant’s representation was a substantial factor in causing that harm to the plaintiff.  (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 605–606; Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231; see also CACI No. 1903 (2023 ed.).)

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)  “This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.”  (Ibid.)  Causes of action for negligent misrepresentation sound in fraud, and must also, therefore, be pleaded with particularity.  (Chapman v. Skype Inc., supra, 220 Cal.App.4th at pp. 230-231.)

NAI contends the Complaint does not allege NAI made any affirmative misrepresentations; any justifiable reliance; or damages.

Affirmative Misrepresentations

NAI first contends the Complaint does not allege NAI made any affirmative misrepresentation, because the alleged representations about when the pandemic restrictions would be lifted were non-actionable opinions and speculation; the failure to disclose that Plaintiff would lose his $132,000 deposit is not an affirmative misrepresentation; and these disclosures were all properly made in any event via the purchase agreement and buyer’s inspection advisory.

  The Court disagrees.  With respect to affirmative misrepresentation, the Complaint alleges:

  1. In order to induce and encourage Plaintiff RIVKIN to enter into the Purchase Agreement and financially commit to acquiring the subject income producing property for $4,375,000.00 and paying an initial deposit in the sum of $132,000.00, Defendant GANDARA made an unwarranted, baseless, and untrue assertion by affirmatively representing to Plaintiff RIVKIN that he would not lose his $132,000.00 initial deposit and that he would be able to evict existing tenants and/or increase their monthly rent within a few months, so as to have a positive cash flow if he were to purchase the subject property.
  2. Defendant GANDARA further erroneously represented to Plaintiff RIVKIN that the Covid-19 Moratoriums against landlords would be ending within a few months (July 2020) and Plaintiff RIVKIN would not be hindered by the onerous restrictions of the existing Moratoriums and would have the ability to either evict tenants, increase their monthly rent, or both. Defendant GANDARA further failed to disclose the fact that even if the Covid-19 eviction moratoriums ended, the subject apartment buildings would still be subject to the limitations and restrictions of the RSO which Plaintiff had previously made clear to Defendant GANDARA would be a deal breaker.
  3. The representations made by Defendant GANDARA with respect to the initial deposit and the Covid-19 Moratoriums concerning evictions and rent increases, were specific and direct statements made to Plaintiff RIVKIN without any reasonable ground for believing them to be true or in a manner not warranted by available is information to Defendant GANDARA, or information he should have known.
  4. Not only did the Covid-19 eviction and rent increase Moratoriums continue throughout the year of 2021, they were extended for the entire year of 2022, and a part of 2023. In addition, the significant limitations and restrictions of the applicable RSO are still in existence to this date.

Thus, Plaintiff alleges several affirmative misrepresentations, including that NAI affirmatively misrepresented that Plaintiff would not lose his $132,000 deposit.

Justifiable Reliance

NAI next contends that investors like Plaintiff are legally precluded from relying on another party’s representations.  In support, NAI cites Bank of America Nat. Trust & Sav. Ass’n v. Vannini (1956) 140 Cal.App.2d 120.  Bank of America is distinguishable.  There, the contract at issue provided a 17-month due diligence period during which time the plaintiff was supposed to (but did not actually) conduct investigations, and after which time the plaintiff had an option to purchase.  By contrast, here, there was no due diligence or investigation period.  With regard to justifiable reliance, Plaintiff alleges:

  1. The representations and or failures to disclose made by Defendant GANDARA were made with the intent to induce Plaintiff to act in reliance on them and specifically to enter into the Purchase Agreement and/or not cancel the Purchase Agreement within the permissible timeframe during escrow.
  2. Plaintiff RIVKIN reasonably relied to his financial detriment on the affirmative representations made by Defendant GANDARA and his reliance was justified based on Defendant GANDARA’s assurances, statements and representations about his expertise, knowledge, and abilities in representing buyers of apartment buildings.

(Compl. ¶¶ 39-40.)  Therefore, Plaintiff has sufficiently alleged justifiable reliance.

Damages

Finally, NAI contends the Complaint fails to allege damages because Plaintiff’s decision to cancel escrow is what caused his deposit being forfeited, as the liquidated damages clause of the purchase agreement indicated would happen.  The Court again disagrees.  With respect to damages, Plaintiff alleges:

  1. As a result of Plaintiffs justifiable reliance on Defendant GANDARA’S affirmative representations, Plaintiff RIVKIN agreed to purchase the subject apartment building and pay into escrow the initial deposit in the sum of $132,000.00 plus interest at a rate of and from a date according to proof. Plaintiffs reliance on the assurances, representations, and statements made by Defendant GANDARA as well as the non disclosures were the immediate cause of Plaintiff agreeing to purchase the subject apartment building and not cancel escrow during the allowable timeframe. Plaintiff would not have financially committed to the subject acquisition but for themisrepresentations or non-disclosures made by Defendant GANDARA.
  2. When Plaintiff RIVKIN finally discovered the truth about the impact of the Covid-19 Moratoriums and their corresponding effect on his planned investment or purchase of the subject apartment building including his discovery that the subject apartment building was subject to a RSO, Plaintiff reasonably determined that he could not purchase the subject property without suffering a major financial loss. However, this discovery was not made by Plaintiff RIVKIN until after the contingency period had been removed which event occurred as a direct result of the representations and assurances, as well as the failures to make accurate disclosures, that were falsely made by Defendant GANDARA.
  3. As a result of the clear and compelling evidence that the purchase of the subject apartment building would result in financial suicide or a significant negative cash flow. Plaintiff RIVKIN was left with no alternative but to cancel the escrow which resulted in the loss of his initial deposit in the sum of $132,000.00.
  4. As a direct and proximate result of the negligent misrepresentations made by Defendants, and each of them, Plaintiff lost his initial purchase-deposit in the sum of $132,000.00, plus interest thereon at an interest rate permitted by law from and after a date according to proof.

(Compl. ¶¶ 35-44.)  Therefore, Plaintiff has sufficiently alleged that he incurred damages of $132,000 as a result of NAI’s alleged misrepresentations.

  1.             Second Cause of Action – Professional Negligence

“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.”  (Giacometti v. Aulla, LLC (2010) 187 Cal.App.4th 1133, 1137.)

NAI contends Plaintiff has not alleged a breach of any such duty.  With regard to breach, the Complaint alleges:

  1. The affirmative representations and statements of Defendant GANDARA to Plaintiff RIVKIN that he would not lose Plaintiffs deposit in the sum of $132,000.00 or that Plaintiff RIVKIN could evict tenants and/or raise their monthly rent were deliberate actions, conduct, representations, and statements by Defendant GANDARA that were not compatible with the standard of care exercised by a reasonable and a prudent California real estate broker or salesperson, particularly during the middle of a worldwide Covid-19 pandemic with a multitude of Moratoriums in place including those 4 prohibiting landlords from taking certain actions against their tenants. In addition, defendant GANDARA failed to disclose the fact that the subject apartment building was governed by the Los Angeles RSO, and the consequences that would flow to the management and operation of the apartment building because of said RSO regulations.

(Compl. ¶ 47.)  Therefore, the Complaint sufficiently alleges NAI breached its professional duty of care.

  1.             Third Cause of Action – Breach of Contract

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff.”  (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

NAI contends Plaintiff fails to state a cause of action for breach of contract because (1) Plaintiff “fails to plead with any degree of specificity either the terms of that contract, the consideration therefore, or its alleged breach” and (2) because the alleged oral contract “is belied by” the purchase agreement.

With regard to the terms and breach of the contract, the Complaint alleges:

  1. On or about February 24, 2021, Plaintiff RIVKIN and Defendants entered into a verbal contract wherein and whereby Plaintiff and Defendants agreed that Defendants would perform professional services as a real estate broker in assisting Plaintiff in acquiring and purchasing an apartment building as an income-producing investment. In exchange for said professional services, Plaintiff agreed to pay a monetary commission based on the total sales price of the property.
  2. Defendants, and each of them, breached the terms of the verbal contract with Plaintiff by their failure and refusal to competently perform the professional services they agreed to provide for Plaintiff.

Thus, Plaintiff sufficiently alleges the material terms of the alleged verbal contract.  With respect to breach, NAI alleges that there is no consideration for the alleged verbal contract because the purchase agreement provides that NAI and Gandara, as buyer’s agent, are to be compensated for their real estate services by the seller of the property.  As discussed above, the purchase agreement is not a basis to sustain a demurrer at the pleadings stage.  Moreover, just because the written purchase agreement provides that Defendants are to be paid by the seller from the proceeds of the sale does not mean that the parties did not enter into a verbal agreement whereby Plaintiff would also pay Plaintiffs “a monetary commission based on the total sales price of the property” as alleged.

Therefore, Plaintiff sufficiently states a cause of action for breach of contract.

CONCLUSION AND ORDER

For the reasons stated, the Court overrules NAI’s Demurrer to the Complaint.  Further, the Court orders NAI to file and serve an Answer to the Complaint on or before December 22, 2023.

NAI shall provide notice of the Court’s ruling and file a proof of service regarding the same.

DATED:  December 8, 2023                                                  ___________________________

                                                                                          Michael E. Whitaker

                                                                                          Judge of the Superior Court