Opinion
B227120
09-07-2011
837 PRAIRIE AVE., LLC et al., as Trustee, etc., Plaintiffs and Appellants, v. PALOS VERDES ESCROW CO. INC., Defendant and Respondent.
Law Offices of Rodney T. Lewin, Rodney T. Lewin and R. Stephen Duke for Plaintiffs and Appellants. No appearance for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC408600)
APPEAL from a judgment of the Superior Court of Los Angeles County. Holly Kendig, Judge. Affirmed.
Law Offices of Rodney T. Lewin, Rodney T. Lewin and R. Stephen Duke for Plaintiffs and Appellants.
No appearance for Defendant and Respondent.
Appellants 837 Prairie Ave. LLC and the Harry Soukiassian Living Trust challenge a dismissal of their complaint against Palos Verdes Escrow Co. Inc. (PV) for negligence and breach of fiduciary duty. We affirm.
FACTS
In 2002, Harry Soukiassian, through his trust, and Carl Sperber, through his Nevada corporation, ACS Real Estate Services (ACS), organized a limited liability company named 837 Prairie Avenue LLC (LLC). Soukiassian's trust owned 84 percent and ACS owned 16 percent of the LLC, with both listed as managers. Under the terms of the operating agreement, "[t]he managers have full charge of the management of the limited liability company, subject to Section 12.0." Section 12.0 provided that "[t]he members shall vote on the matters affected (sic)the business of the limited liability company in accordance with the proportions of their capital contributions." That year, two commercial properties located in Inglewood and Lawndale were purchased in the name of the LLC.
On February 26, 2009, appellants brought suit against Sperber and ACS, alleging that Sperber sold the properties held by the LLC without authorization. PV was the escrow agent for the sales of the Inglewood and Lawndale properties. Appellants sued PV, the title insurer, the buyers and the banks that financed the purchases. Appellants sought to recover damages from PV for negligence and breach of fiduciary duty. Demurrers were filed by the title insurer and the banks, which were sustained with leave to amend by the trial court. As a result, PV took its demurrer off calendar pending the filing of a second amended complaint. PV subsequently renewed its demurrer and the matter was heard on June 1, 2010.
An escrow is "any transaction in which one person, for the purpose of effecting the sale, transfer, [or] encumbering, . . . of real or personal property to another person, delivers any written instrument, money, evidence of title . . . or other thing of value to a third person to be held that such third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, promisor, obligee, obligor, . . . or any agent or employee of any of the latter." (Fin. Code, § 17003.) An escrow agent or holder is any person who receives escrows for deposit or delivery. (Fin. Code, § 17004.)
At oral argument, the trial court explained that its tentative was to sustain without leave to amend because it was not the duty of PV "to ensure that no action would be taken on the purported seller's behalf without first obtaining the requisite authorizations and consents for the sales and conveyances." The trial court further held that appellants failed to allege a cause of action for negligence or breach of fiduciary duty because they failed to allege "how it is that Palos Verdes breached their duties under the escrow agreement." The trial court later converted its tentative to become its final ruling on the record. A written order dismissing PV was signed by the trial court on July 2, 2010, and served on appellants on July 9, 2010. Appellants timely filed their appeal on September 1, 2010.
DISCUSSION
No respondent's brief has been filed in this appeal. We do not consider this to be a default or admission of error by respondents. California Rules of Court, rule 8.220 provides that in such circumstances, "the court may decide the appeal on the record, the opening brief, and any oral argument by appellant." We reverse only if prejudicial error is found. (Lee v. Wells Fargo Bank (2001) 88 Cal.App.4th 1187, 1192, fn. 7; In re Marriage of Riddle (2005) 125 Cal.App.4th 1075, 1078, fn. 1.)
I. Standard of Review
"The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also 'give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citations.]' [¶] If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer. '[W]e are not limited to plaintiffs' theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory. The courts of this state have . . . long since departed from holding a plaintiff strictly to the 'form of action' he has pleaded and instead have adopted the more flexible approach of examining the facts alleged to determine if a demurrer should be sustained.' [Citations.] If a complaint does not state a cause of action, but there is a reasonable possibility that the defect can be cured by amendment, leave to amend must be granted." (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39.)
II. Allegations Against PV
Appellants alleged the following with respect to PV:
"24. In or about August, 2008 and October, 2008, Plaintiff 837 Prairie Ave. LLC as seller and [buyers] entered into written Commercial Property Purchase Agreements and Joint Escrow Instructions under which Defendant Palos Verdes Escrow (PVE) agreed to act as their primary escrow agent to administer the purchase and by virtue thereof Defendant Palos Verdes Escrow became the agent and fiduciary for both Plaintiff seller and Defendant buyers."
[¶] . . . [¶]
"26. . . . The above-referenced written escrow instructions gave Defendant buyers 15 days to review and approve [the preliminary title report]. This preliminary title report advised all parties concerned, including Defendant PVE and Defendant Buyers, that the Operating Agreement of the Plaintiff LLC as seller must be reviewed and the current names of all members and managers thereof would have to be verified and certified by such managers and members directing that a full list of all such current members and managers and other documents that Plaintiff LLC filed with the Secretary of State be provided to assure the true and correct managers and members were authorized to sell these properties on behalf of the Plaintiff LLC.
"27. Plaintiff is informed and believe and so alleges that [buyers] did receive, review and approve this Preliminary Title Report as provided by the escrow instructions and that by virtue thereof and the escrow instructions, Defendant PVE and Defendant Buyers had actual knowledge of the correct and duly designated managers and members of the seller Plaintiff LLC as set forth in the Operating Agreement of Plaintiff LLC, attached hereto as Exhibit 'A,' or by virtue of this report and escrow instructions had a duty to inquire and investigate the status of its managers and members whereby they would have obtained such information and therefore had constructive knowledge and notice of such LLC documents and the current and correct designated managers and members of Plaintiff LLC."
[¶] . . . [¶]
"59. Defendant Palos Verdes Escrow (PVE), as escrow agent for Plaintiff LLC as the seller in connection with the aforementioned sale of both the Inglewood and Lawndale properties and pursuant to the written escrow instructions between the Plaintiff LLC seller and Defendant Buyers, the Defendant PVE owed the Plaintiff LLC as the purported seller duties of a fiduciary, including the duty to ensure that no action would be undertaken on the purported seller's behalf without first obtaining the requisite authorizations and consent of the current managers, including Plaintiff Soukiassian for the sales and conveyances to the Defendants Shims, Lesser & McGarr, including, but not limited to, reviewing the LLC's Articles of Organization, Operating Agreement, and current lists of authorized and designated member-managers of Plaintiff LLC as required by the "preliminary title reports" issued by the Defendant Fidelity and delivered to Defendant PVE and to the Defendant Buyers which expressly required a review of the Operating Agreement and other organizational documents of Plaintiff to investigate, inquire, discover and ascertain the true, correct, and authorized managers and members of Plaintiff Seller necessary to execute the required sale documents and deeds.
"60. In breach of said duties and the escrow instructions Defendant PVE and DOES 101-150, inclusive, failed to perform and conduct any competent inquiry or investigation into whether the plaintiff LLC in fact had properly consented to or authorized the sales and conveyances of the Inglewood property and Lawndale property as required by the preliminary title report and provided by the escrow instructions.
"61. Plaintiffs are informed and believe, and thereon allege that, in further breach of said duties, Defendant PVE and DOES 101-150, inclusive, prepared the grant deeds purportedly signed on behalf of the LLC by "Carl Sperber, Managing Member" when, in fact, Sperber had never been a managing member of the LLC at all, and therefore was outside the chain of title.
"62. As a direct a proximate result of said breaches of fiduciary duty by Defendant PVE and DOES 101-150, inclusive, Plaintiffs have sustained general damages in amount according to proof at the time of trial but which exceed $1 million.
[¶] . . . [¶]
"64. At all relevant times mentioned herein, Defendant Fidelity and DOES 151-200, inclusive, undertook to act as the title insurer, abstractor, and sub-escrow agent for this sale. Further, Defendant PVE and DOES 201-250, inclusive, undertook to act as the primary escrow company and agent for Plaintiff Seller and Defendant Buyers in connection with both the sale of the Inglewood property (Order No. 19572983 / Escrow No. 7-24358) and the sale of the Lawndale property (Order No. 19572355 / Escrow No. 7-24330).
"65. Defendant Fidelity as the disclosed sub-escrow agent, and Defendant PVE as primary escrow agent and DOES 201-250, inclusive, each owed a duty of care to Plaintiff Seller, under the escrow documents and instructions, to ensure that no action was undertaken without obtaining the requisite and correct authorizations and consents signed by the designated authorized manager of Plaintiff LLC for the sales and conveyances to the Defendants Shims, Lesser & McGarr, including, but not limited to the duty to review the LLC's Operating Agreement (Exhibit "A"), and to obtain and review the other organizational documents of Plaintiff LLC as required by the preliminary title report and escrow documents.
"66. In breach of said duty of care, Defendant Fidelity and Defendant PVE and DOES 201-250, inclusive, failed to faithfully perform and conduct any competent inquiry, review, or investigation required by its written preliminary title reports and the escrow documents as to whether the Plaintiff LLC as seller in fact had properly consented to or authorized the sales and conveyances of the Inglewood property and/or Lawndale property, including, but not limited to, their failure to review the LLC's Operating Agreement (Exhibit "A" hereto) which if reviewed would have disclosed that Defendant Sperber was not a manager or member of Plaintiff Seller and not authorized to enter into these purchase agreements or to convey legal title under the purported deeds recorded by Defendants Fidelity and PVE.
"67. In further breach of said duty of care, Fidelity and Defendant PVE and DOES 201-250, inclusive, participated in the wrongful and deceitful conveyance of both the Inglewood property and the Lawndale property and the fraudulent and false grant deeds signed on behalf of the LLC by "Carl Sperber, Managing Member" when, in fact, Sperber had never been a managing member of the LLC at all, and therefore the deeds were outside the chain of title.
"68. As a direct a proximate result of said acts and omissions by Defendant Fidelity and DOES 151-200, inclusive, and Defendant PVE and DOES 201-250, inclusive, Plaintiffs have sustained general damages in amounts according to proof at the time of trial but which exceed $1 million."
III. Analysis
Appellants' case hinges on what duties PV owed the LLC because "[n]egligence cannot exist without the breach of a duty to the injured party. [Citations.] This basic rule has a corollary—a fiduciary duty may be breached by negligence in some instances." (Zang v. Northwestern Title Co. (1982) 135 Cal.App.3d 159, 166 (Zang).)This is one instance in which the duties underlying both causes of action are the same. Appellants contend that PV had "a fiduciary duty to take steps to verify that there was at least ostensible authority to enter into the transaction; such as requesting and obtaining a written resolution by the LLC's manager and members authorizing Sperber to enter into these sales and transfers to the Defendant Buyers or reviewing the applicable and disclosed Operating Agreement for this LLC." Appellants allege the same duty with respect to their negligence cause of action.
While the LLC was a party to the escrow, neither Soukiassian nor his trust was. Accordingly, any duty owed by PV was only to the LLC. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 712-713 (Summit)[escrow holder not liable to third party for following principals' instructions].)
However, an escrow holder in California " 'has no general duty to police the affairs of its depositors.' " (Summit, 27 Cal.4th at p. 711; Claussen v. First American Title Guaranty Co. (1986) 186 Cal.App.3d 429, 435.) "Absent clear evidence of fraud, an escrow holder's obligations are limited to compliance with the parties' instructions." (Ibid.)Here, appellants do not allege what escrow instructions were ignored. Accordingly, they have failed to state a claim for either breach of fiduciary duty or negligence.
In Vournas v. Fidelity Nat. Tit. Ins. Co. (1999) 73 Cal.App.4th 668 (Vournas), a trustee sold real property owned by the trust without proper authorization from the trust beneficiaries and diverted the sales proceeds to his own use. (Id. at p. 670.) Fidelity served as the escrow holder and title insurer for the sale. The trustee was replaced when the beneficiaries discovered his transgression and the successor trustee brought suit against Fidelity for negligence. (Id. at p. 671.) The trial court granted summary judgment to Fidelity on the ground that it owed no duty to ensure the sale by the trustee was authorized. The summary judgment was affirmed on appeal. The court agreed that Fidelity did not owe the trust (its principal) a duty to investigate whether the trustee had obtained consent from the beneficiaries to negotiate the sale. (Id. at p. 673.) Barring actual knowledge of a breach of trust, Probate section 18100 excused Fidelity from investigating whether the trustee had sufficient authorization. (Ibid.)The court further held that the duties owed by Fidelity as the escrow agent were not greater than what was contemplated under Probate Code section 18100. (Id. at p. 674.)
"[Probate Code s]ection 18100 protects third parties who deal with or assist the trustee by excusing them from investigating and permitting them to assume ' "the existence of a trust power and its proper exercise," ' except where the third parties have actual knowledge of a breach of the trust." (Vournas, supra, at p. 673, fn. omitted.)
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Although PV does not enjoy the same protection under the Probate Code as Fidelity did in Vournas, we find its analysis to be instructive because it delineates the limits of an escrow holder's duties. An escrow holder, as a dual agent of the parties to the escrow, owes a duty to strictly and faithfully perform the instructions given to it by the parties to the escrow. (Vournas, supra, at p. 674; 3 Miller & Starr, Cal. Real Estate (3d ed. 2000) Escrows, § 6:11, pp. 6-32.)
Code of Civil Procedure, section 425.10(a)(1) requires a complaint to contain "[a] statement of the facts constituting the cause of action, in ordinary and concise language." Here, appellants have alleged conclusions rather than facts. In particular, they do not allege what escrow instructions required PV to investigate whether Sperber had the authority to sell the properties on behalf of the LLC. Although they argue in their brief that PV should have obtained written authorization from the LLC's members, they do not allege in their complaint that is what was required under the escrow. Instead, the second amended complaint alleges that a preliminary title report advised the parties to verify the members and managers of the LLC to ensure proper authorization for the sale. There is no allegation the preliminary title report recommendation was part of the escrow instructions. The escrow instructions only required the buyers to review and approve the preliminary title report within 15 days, which they did.
Alternatively, appellants base their fiduciary duty argument on a breach of Civil Code section 2306, which provides "[a]n agent can never have authority, either actual or ostensible, to do an act which is, and is known or suspected by the person with whom he deals, to be a fraud upon the principal." (See also Vournas, supra, 73 Cal.App.4th at pp. 674-675.) Appellants likewise argue that PV should have reviewed the LLC's operating agreement and conveyed that information to the parties. (Kirby v. Palos Verdes Escrow Co. (1986) 183 Cal.App.3d 57, 64 [fiduciary duty of escrow agent to review documents and to disclose information which might affect the principal's decision] overruled on other grounds by Summit, supra, 27 Cal.4th at p. 714.) However, they do not allege that PV was provided a copy of the LLC's operating agreement or that it even read it. Appellants have failed to allege facts establishing PV knew Sperber was committing a fraud upon the LLC or that it had constructive knowledge of the fraud. Instead, appellants allege generally that PV knew or should have known of the purported fraud by Sperber. That is not enough.
Zang, supra, 135 Cal.App.3d at pages 168-169, relied upon by appellants, does not support their cause. There, the escrow agent was instructed by both parties that the plaintiff was to receive a note secured by a deed of trust on the subject property once he paid off the property owner's first mortgage. The escrow agent, however, knew that the property owner had arranged to borrow money from a different lender to be secured by the same property. Rather than record the deed in favor of the plaintiff as instructed, the escrow agent colluded with the property owner to defraud the plaintiff. (Ibid.)The court noted the plaintiff's "complaint included allegations concerning the creation of the escrow and his instructions to appellants. The complaint alleged that appellants were negligent in permitting the recordation of the deed of reconveyance contrary to his instructions. These allegations were sufficient to establish a cause of action based on negligent performance of appellants' duties as an escrow holder." (Id. at p. 166.) No similar factual allegations from which we may infer knowledge, constructive or actual, are contained in the second amended complaint here.
IV. Leave to Amend
Appellants also complain that the trial court's decision to sustain the demurrer without leave to amend was in error. They contend that it is an abuse of discretion because it "was the first and only time the [trial court] considered the allegations against [PV]." Yet, it was not the first time appellants were alerted to a defect in their complaint relating to a lack of duty on the part of a defendant. During oral argument on the title insurer's demurrer, the trial court warned appellants that "the Second Amended Complaint does not include sufficient allegations about any verbal escrow instructions given by Plaintiffs to [the title insurer acting as sub-escrow agent] which were to be followed." When the trial court denied leave to amend, appellants had amended their complaint twice, but still had "not sufficiently addressed the lack of duty argument in the opposition, and they failed to demonstrate how it is that they could allege this cause of action against [the title insurer] so as to correct the defect."
We reject appellants' contention that the trial court abused its discretion because it misinterpreted their allegations. Appellants took comments made by the trial court during oral argument out of context. There was no error in the court's understanding of the law or the allegations. Because appellants have failed to demonstrate how they can correct the defects in their complaint, we find the trial court did not abuse its discretion in denying leave to amend.
DISPOSITION
The judgment is affirmed.
BIGELOW, P. J. We concur:
FLIER, J.
GRIMES, J.