Opinion
A125872
08-02-2011
JOHN R. TOZZI et al., individually and as Trustees, etc., Plaintiffs and Appellants, v. HENRY SHINEFIELD et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(San Francisco County Super. Ct. No. CGC-06-459026)
INTRODUCTION
Plaintiffs John R. Tozzi and Georgene M. Tozzi, individually and as trustees of the Tozzi Family Trust, appeal from judgments of the San Francisco Superior Court in favor of defendants and respondents Henry Shinefield, M.D. and Gian Marco Martinelli, following the court's sustaining of respondents' demurrers to plaintiffs' fraud action against them. Plaintiffs had sued respondents and others for various causes of action, in connection with plaintiffs' purchase of a residence. Plaintiffs contend that the court erred in sustaining respondents' demurrers to plaintiffs' third amended complaint. Among other things, plaintiffs contend their third amended complaint adequately pleaded on information and belief and in the alternative causes of action for fraud, negligent misrepresentation, and concealment, as well as allegations of conspiracy and aiding and abetting. Plaintiffs further contend that they sufficiently explained any arguable contradictions between the third amended complaint and preceding complaints to avoid the court's treating it as a "sham pleading." We shall conclude the court erred in sustaining respondents' demurrers to the third amended complaint and we shall reverse the judgments dismissing respondents from the action.
FACTS AND PROCEDURAL BACKGROUND
The relevant facts are taken from the third amended complaint, unless otherwise indicated.
Purchase of the Property
In 2002, plaintiffs purchased residential property located at 2604 Pacific Avenue in San Francisco (the property) from defendant 2604 Pacific Avenue LLC, whose principals are defendants Paul Chow, James Chu and Anthony Chiang (collectively "sellers"). Sellers used the services of defendants Walter E. McGuire Real Estate, Inc. and WEM Corp. to sell the home. Defendants Camille Martinelli and Carol Brooks were real estate agents affiliated with McGuire.
Camille Martinelli, Carol Brooks, Walter E. McGuire Real Estate, Inc., WEM Corp. and Thomas Oxman, an officer in McGuire's San Francisco office, are collectively referred to as the "McGuire defendants." All remain parties to the action below and are not parties to this appeal.
Respondent Gian Marco Martinelli is a licensed real estate agent affiliated with Coldwell Banker Residential Brokerage Company, Inc. He is the former husband of Camille Martinelli. Respondent Shinefield was a former neighbor of Chow and had done business with Chow and Camille Martinelli on another project.
For ease of reference, Gian Marco Martinelli will be referred to as "Marco Martinelli."
On June 7, 2002, sellers listed the property for sale with McGuire for $6,995,000, with Camille Martinelli acting as McGuire's primary listing agent.
Plaintiffs also retained the McGuire defendants in early 2002 to assist them in searching for a house in San Francisco. In June 2002, plaintiffs offered to purchase the property for $7,000,000. Based on McGuire's advice, plaintiffs included in their offer an addendum providing: "If additional offers to purchase are presented, [plaintiffs] hereby offers [sic]to pay $100,000 over the highest bona fide competing offer delivered to Seller and the 'Purchase Price' shall be brought to that sum. . . ." This offer was not confidential or part of a sealed bidding process. In July 2002, the McGuire defendants advised plaintiffs that a second offer for $8,080,000 had been received on the property. Camille Martinelli drafted a counter offer from sellers to plaintiffs, accepting the provisions of plaintiffs' offer but increasing the sales price to $8,180,000 ($100,000 more than the purported second offer) with a deadline of hours for acceptance. Based on these and other representations, on July 3, 2002, plaintiffs accepted the sellers' counter offer and went into contract to purchase the property. Escrow closed on July 19, 2002.
Subsequently, plaintiffs were sued by a neighbor over agreements the neighbor had entered into with the sellers, restricting the use of the subject property with respect to preserving the neighbor's views. In December 2006, plaintiffs sued the McGuire defendants, alleging that the McGuire defendants had negligently drafted these restrictive agreements, had failed to disclose these agreements to plaintiffs and had actively concealed them, causing plaintiffs damages. In February 2008, three weeks before the trial date on plaintiffs' original complaint, plaintiffs sought leave to file a first amended complaint, alleging additional causes of action against the McGuire defendants and adding sellers and respondents Marco Martinelli and Shinefield as defendants.
Marco Martinelli was affiliated with Valley of California, Inc., doing business as Coldwell Banker Residential Brokerage Company, Inc. Although named as a defendant in the first amended complaint, Valley of California, Inc. was later dropped from the lawsuit.
First Amended Complaint
In their "Plaintiffs' Memorandum of Points and Authorities in Support of Motion for Leave to File First Amended Complaint," expanding their allegations and adding Marco Martinelli and Shinefield as defendants, plaintiffs explained that three weeks before the trial date of their action against the McGuire defendants relating to the view preservation agreements with the neighbor, Chow (a principal of the seller) testified in his deposition that "one or more of [the McGuire] Defendants, seller and/or other non-parties [Marco Martinelli and Shinefield] conspired to and knowingly, intentionally and fraudulently misrepresented that there was a second offer for the Property for $1 million more than Plaintiffs had offered." The supporting declaration of plaintiffs' attorney that was attached to the motion is not in the record before us. However, the supporting points and authorities state: "Specifically, Mr. Chow testified to the following:
"Shortly after the Tozzis had made their initial offer, Ms. Martinelli stated that 'she can have a best friend write up an offer' for $8,080,000. [¶] After the close of the sale, Camille Martinelli contacted Mr. Chow. Ms. Martinelli told Mr. Chow that Mr. Tozzi had contacted McGuire Real Estate and asked to see the other offer for the Property that was made for $8,080,000. Ms. Martinelli was crying and said there was no offer from her best friend, and that her friend would not write the offer, and so she could not give anything to Mr. Tozzi. Ms. Martinelli begged Mr. Chow to find someone to write up an offer for $8,080,000, which was understood would have to be back dated to the time of the sale. [¶] Mr. Chow suggested to Ms. Martinelli that they might be able to ask Henry R. Shinefield, M.D., to write up an offer for the Property. Dr. Shinefield was Mr. Chow's old neighbor, and he [Chow] had worked with [Dr.] Shinefield and Ms. Martinelli on a different spec development project. Ms. Martinelli agreed and proposed that her ex-husband, Marco Martinelli, a real estate agent at Coldwell Banker, could draw up the fraudulent offer papers for Dr. Shinefield. [¶] Mr. Chow contacted Dr. Shinefield. He explained the situation to Dr. Shinefield and asked him to write up the fictitious offer for the Property for $8,080,000 with Marco Martinelli. Dr. Shinefield agreed to write the offer." (Italics added.)
According to the first amended complaint filed by plaintiffs:
In July 2002, Camille Martinelli, through another agent at McGuire, informed plaintiffs that sellers had received a second, bona fide offer for the property for $8,080,000 (the second offer). Based on the second offer, Camille Martinelli drafted a counter offer from sellers to plaintiffs for $8,180,000 ($100,000 more than the purported second offer). The McGuire defendants presented the counter offer to plaintiffs with a deadline of hours for acceptance. On July 3, 2003, in reliance upon the general advice of the McGuire defendants and the specific advice and representations that there had been a bona fide second offer for $8,080,000, plaintiffs accepted the sellers' counter offer for $8,180,000.
The first amended complaint continued: "Shortly after Plaintiffs accepted the Counter Offer, Plaintiffs contacted defendant Mr. Oxman, McGuire's General Manager and General Counsel, and requested McGuire provide proof of the alleged bona fide second offer." On or about July 17, 2002, Oxman sent a memo to plaintiffs, assuring them that a bona fide second offer was received for the property for the stated price. The memo stated: " '[t]his memo confirms that I have examined and retained in [McGuire's] files a true copy of the competing offer to purchase the above referenced Property, for a price of $8,080,000 ($100,000 less than [Plaintiffs] contracted to pay). Said [second offer] in all respects appears to be "bona fide." ' "
Plaintiffs made further inquiries with the McGuire defendants about the second offer. On or about November 6, 2002, the McGuire defendants, through their attorney, sent a letter to plaintiffs' attorney agreeing to obtain and provide a declaration from Camille Martinelli confirming the bona fide second offer. "On or about November 20, 2002, instead of producing a declaration from [Camille] Martinelli, the McGuire Defendants through their attorney produced to Plaintiffs a copy of the alleged bona fide Second Offer. The McGuire Defendants also then advised that the alleged Second Offer was prepared by Defendant [Marco] Martinelli, a real estate agent/salesperson . . . , and was signed by Defendant Henry R. Shinefield, M.D. ("Dr. Shinefield"). The McGuire Defendants also then made further representations substantiating the existence of one or more offers other than the Plaintiffs at the time the Counter Offer was delivered." "Additionally, the McGuire Defendants produced to Plaintiffs a letter from Dr. Shinefield stating in part, '[t]his letter will confirm that I made an offer to purchase [the Property] for $8,080,000 (sic) through my agent Marco Martinelli of Coldwell Banker Realty.' " As a result of these representations, "Plaintiffs dropped their inquiry into the Second Offer."
The first amended complaint continued: "In February 2008, Mr. Chow admitted in sworn testimony that there was no bona fide Second Offer made prior to the delivery to Plaintiffs of the Counter Offer and that Plaintiffs' offer was the only bona fide offer ever made to Sellers for the purchase of the Property. Further, Mr. Chow admitted in this sworn testimony that he conspired with [Camille] Martinelli, [Marco] Martinelli, and Dr. Shinefield to fraudulently prepare and back-date a written Second Offer to be provided to Plaintiffs in order to deceive Plaintiffs into believing that theirs was not the only bona fide offer for the Property. Plaintiffs are informed and believe these facts admitted by Mr. Chow are true." (Italics added.)
There followed allegations that: "Each Defendant conspired to and personally falsely represented the existence of one or more offers other than the Plaintiffs' offer and manufactured the fraudulent Second Offer in order to drive up the price that the Plaintiffs would pay for the Property and to cover up their wrongdoing in deceiving the Plaintiffs into paying more for the Property than the Plaintiffs had offered. [¶] Each Defendant was negligent in insufficiently investigating the representations and actions of other Defendants, in failing to supervise the other Defendants, and in not disclosing facts known or imputed to that Defendant, thereby contributing to the cause of Plaintiffs' damages. [¶] Defendants' conspiracy and fraud were successful in that, despite their reasonable investigation, Plaintiffs only learned that they had been so deceived in February 2008."
Based on these new facts, plaintiffs alleged three new causes of action for intentional misrepresentation, negligent misrepresentation, and concealment against respondents Marco Martinelli, Shinefield, and all other defendants. Plaintiffs alleged that, [¶] 57. Defendants attempted to cover-up the false representations, including but not limited to as described above and by conspiring to and knowingly and intentionally preparing a fraudulent Second Offer and back-dating the Second Offer to a time prior to the Counter Offer. [¶] 58. Defendants further attempted to cover-up these false representations by conspiring to and knowingly and intentionally preparing and signing a fraudulent letter from Dr. Shinefield falsely representing that Dr. Shinefield had made an offer to purchase the Property for $8,080,000 when that was not true." (Italics added.) Plaintiffs also alleged causes of action for negligent misrepresentation and concealment. None of these paragraphs were alleged on information and belief.
In their cause of action against the McGuire defendants for breach of fiduciary duty, plaintiffs alleged that the McGuire defendants' breaches included: "incorrectly representing to Plaintiffs that there was any bona fide offer for the Property for $8,080,000; [¶] . . . attempting to cover-up and conceal the prior misrepresentations by asking defendants [Marco] Martinelli and Dr. Shinefield to draft and sign the fraudulent and back-dated Second Offer . . . ."
Demurrer to First Amended Complaint
Shinefield and Marco Martinelli demurred to the first amended complaint, raising the statute of limitations, uncertainty of the conclusory pleading, lack of specificity in the three fraud claims, and that there could have been no reliance by plaintiffs on respondents' actions, as the only conduct alleged by them occurred after the fraud had been completed by the McGuire defendants who alone—according to Chow—had falsely claimed that a second offer existed, before Shinefield and Marco Martinelli created the back-dated Shinefield offer. By order entered October 30, 2008, the court sustained the demurrer with leave to amend.
Second Amended Complaint
In the second amended complaint, plaintiffs alleged that:
"Prior to the time Plaintiffs accepted the Counter Offer, All Defendants conspired to and did knowingly and intentionally make false representations to Plaintiffs, through the McGuire Defendants, including but not limited to, that there was a bona fide Second Offer for the Property for $8,080,000, when there was no such bona fide Second Offer." (Italics added.) "During the contract period and before the close of escrow, All Defendants conspired to and did knowingly and intentionally make false representations to Plaintiffs and did create and sign fraudulent documents, including but not limited to a back-dated Second Offer for the Property and memorandum from Mr. Oxman, and present the fraudulent documents to Plaintiffs." (Italics added.) "After the close of escrow, All Defendants conspired to and did knowingly and intentionally make false representations to Plaintiffs and did prepare and present fraudulent documents to Plaintiffs, including [the] fraudulent letter from Dr. Shinefield . . . ." (Italics added.) These factual allegations were realleged and incorporated into the negligent misrepresentation and concealment causes of action. Plaintiffs alleged they relied upon these false representations and concealments by "accepting the Counter Offer for $8,180,000, by paying more for the Property than what they otherwise believed, in the absence of such representations, was its actual value at the time, by closing escrow on the Property, and by ceasing a reasonably diligent inquiry into Defendants' representations."
Plaintiffs also alleged the representation as to the existence of a second offer was made by "Sellers, in concert with and through the McGuire Defendants." "On or about July 19, 2002, in reliance on the general advice of the McGuire Defendants, and the specific advice and representations of Sellers and the McGuire Defendants or some of them that there had been a bona fide Second Offer for $8,080,000, . . . .Plaintiffs closed escrow on the Property and among other things, the contingencies on the sale of the Property were lifted." Plaintiffs further alleged: "All Defendants knowingly made misrepresentations to Plaintiffs and concealed facts from Plaintiffs with the intent that Plaintiffs rely on the representations and cease their inquiry into the alleged Second Offer and forego or postpone filing an action against Defendants." Plaintiffs alleged that on September 4, 2002, a copy of the alleged Second Offer prepared by Marco Martinelli was produced to plaintiffs and that on November 20, 2002, Shinefield was identified as the person making the offer and a letter from Shinefield confirming his offer to purchase was also produced. All defendants misrepresented to plaintiffs and concealed facts with the intent that plaintiffs "rely on the representations and cease their inquiry into the alleged Second Offer and forego or postpone filing an action against Defendants." "All Defendants conspired to and did create and produce to Plaintiffs fraudulent documents, including a backdated Second Offer, a memorandum from Mr. Oxman, and a letter from Dr. Shinefield, with the intent of concealing their wrongdoing and with the intent that Plaintiffs rely on the documents and cease their inquiry into the alleged Second Offer and forego or postpone filing an action against Defendants."
Plaintiffs identified no new source for their reframed allegations.
Demurrer to the Second Amended Complaint
At the hearing on respondents' demurrer to the second amended complaint, plaintiffs' counsel pointed out that the second amended complaint contained an allegation that prior to the time plaintiffs accepted the counter offer, all defendants, including Shinefield and Marco Martinelli, conspired to make false representations to plaintiffs through the McGuire defendants, including that there was a bona fide Second Offer. However, when asked by the court whether there were "any additional facts" he wished to plead, counsel acknowledged: "Unfortunately with respect to the time period before the counter-offer, none of these fraudsters has admitted anything going back that far. We don't know because there has been no discovery in this case since Mr. Chow confessed to the fraud in February of last year . . . . We have been unable to take discovery. We don't know any additional facts. They may be out there. [¶] . . . I would hate to see these people let out of this case only to find later in discovery that they were involved right from the beginning of this fraud. I will be honest with the Court, we can't specifically allege anything more than we have because we don't know such facts and we are not going to make them up."
The trial court sustained respondents' demurrer to the second amended complaint with leave to amend. In its order sustaining the demurrer, the court stated: "[N]o facts have been alleged specific to defendants Shinefield and Gian Marco Martinelli regarding their role in conspiring to defraud plaintiffs while plaintiffs were deciding to purchase the property. Plaintiffs have not alleged that defendants Shinefield and Gian Marco Martinelli did anything prior to plaintiffs accepting the counter offer."
Third Amended Complaint
Plaintiffs filed a third amended complaint. The primary difference between that complaint and its predecessors was that it added allegations on information and belief that "it was at this time—before the contract was signed—that Sellers and McGuire Defendants conspired with Dr. Shinefield and Mr. Martinelli to make false representations to Plaintiffs, including . . . that defendant Dr. Shinefield had made an offer to purchase the Property for $8,080,000," and also that "it was at this time—before the contract was signed—that Sellers and McGuire Defendants conspired with Dr. Shinefield and Mr. Martinelli to prepare fraudulent documents, including but not limited to a fraudulent Second Offer to purchase the Property for $8,080,000. . . ." (Italics added.)
The third amended complaint explained that the allegations stated on information and belief "[were] based on the following ostensible facts: the fraudulent Second Offer was dated and signed on July 1, 2002, i.e., before the contract was signed by Plaintiffs; defendant Mr. Chow testified in sworn deposition testimony that Sellers and McGuire Defendants conspired with Mr. Martinelli and Dr. Shinefield to make false representations and prepare fraudulent documents, including a fraudulent Second Offer to purchase the Property for $8,080,000; defendant Mr. Chow testified . . . that defendants Mr. Martinelli and Dr. Shinefield had in-fact prepared and signed a fraudulent Second Offer to purchase the Property for $8,080,000 and had provided that fraudulent Second Offer to the McGuire Defendants; and defendant Mr. Chow testified . . . that there was no bona fide Second Offer for the Property and that Plaintiffs' offer was the only bona fide offer received for the Property. These allegations are likely to have additional evidentiary support after a reasonable opportunity for further investigation and discovery."
Plaintiffs revised a previous "in concert with" allegation to add respondents so that it alleged: "In or about July 2002, Sellers, in concert with defendants Dr. Shinefield and Mr. Martinelli and in concert with and through the McGuire Defendants, represented to Plaintiffs that Sellers had received a second, bona fide offer for the Property . . . ."
The third amended complaint also alleged an alternative time frame for respondents' actions: after the contract was entered but before the close of escrow. "In the alternative to the allegations in" paragraphs 45 through 48, plaintiffs alleged, "based on . . . information and belief" that "it was at this time—after the Counter Offer was signed but before the close of escrow—that Sellers and McGuire Defendants conspired with defendants Dr. Shinefield and Mr. Martinelli to make false representations to Plaintiffs"; "to prepare fraudulent documents" including "the backdated fraudulent Second Offer"; and to transmit the fraudulent documents to the McGuire defendants with the intention and expectation that they would be produced to plaintiffs and the information transmitted to plaintiffs.
The third amended complaint set forth the "ostensible facts" upon which the foregoing alternative allegations were made. These were the same as the "ostensible facts" that formed the basis for the allegations that the conspiracy and actions occurred before the counter offer was signed by plaintiffs, except that there was added a factual allegation that "the fax transmission date/time on the fraudulent Second Offer indicates that the fraudulent Second Offer was provided to McGuire Defendants on July 17, 2002 at 10:55 A.M."
"61. The allegations stated on information and belief in Paragraphs 57-60 above are based on the following ostensible facts: defendant Mr. Chow testified in sworn deposition testimony that Sellers and McGuire Defendants conspired with Mr. Martinelli and Dr. Shinefield to make false representations and prepare fraudulent documents, including a fraudulent Second Offer to purchase the Property for $8,080,000; defendant Mr. Chow testified . . . that defendants Mr. Martinelli and Dr. Shinefield had in-fact prepared and signed a back-dated fraudulent Second Offer to purchase the Property for $8,080,000 and had provided that fraudulent Second Offer to the McGuire Defendants; the fax transmission date/time on the fraudulent Second Offer indicates that the fraudulent Second Offer was provided to McGuire Defendants on July 17, 2002 at 10:55 A.M.; and defendant Chow testified . . . that there was no bonafide Second Offer for the property and that Plaintiffs' offer was the only bona fide offer received for the Property. These allegations are likely to have additional evidentiary support after a reasonable opportunity for further investigation and discovery."
The third amended complaint also contained allegations regarding events after the close of escrow related to plaintiffs' inquiry about and attempts to obtain a copy of the purported Second Offer. These included allegations that "[o]n or about November 20, 2002, Sellers, in concert with and through the McGuire Defendants, identified Dr. Shinefield as the person who made the alleged bona fide Second Offer, and Sellers, in concert with and through the McGuire Defendants, produced to Plaintiffs a letter from Dr. Shinefield" confirming that he had made an offer to purchase the property thorough his agent Marco Martinelli. Additional allegations were made regarding the attempted cover-up and attempt to conceal facts, including creation and production of the fraudulent Second Offer. All defendants were alleged to have participated in these fraudulent acts to conceal their wrongdoing from plaintiffs.
Based upon the facts recited in the third amended complaint, plaintiffs again alleged three causes of action against respondents: intentional misrepresentation, negligent misrepresentation, and concealment.
Demurrer to the Third Amended Complaint
Respondents again demurred. Their demurrers focused on the lack of any new factual material and argued that the sequence of events as testified to by Chow remained the factual foundation for the claims against respondents and precluded any finding of justifiable reliance. Plaintiffs argued the new allegations did not contradict prior pleadings, but simply further developed the allegations with more specificity as to how and when the defendants participated in the conspiracy and the fraud. At the hearing on the demurrer, plaintiffs' counsel reiterated that Chow's testimony supported the fraud and conspiracy allegations, but argued that plaintiffs were not required to believe the entirety of Chow's "self-serving" testimony as to when the conspiracy occurred and the fraudulent document was created. Counsel acknowledged that he had rethought the inferences to be drawn from Chow's testimony, the date of the fraudulent Second Offer, and the fax transmission date of the Second Offer. Counsel said he had "realized that although I had been focusing on Mr. Chow's application, and I considered it an admission of backdating, this evidence is equally susceptible to the very legitimate inference that they had conspired before the date that they had appropriately dated the document. It wasn't necessarily backdated, but it still was a fraud just as Mr. Chow had admitted it was. . . ." "[W]e have facts that go to two different inferences, and the . . . documentary evidence and testimonial evidence that can read different ways and the facts are in the possession of the defendants."
"So the co-defendant has said, we weren't there in the room when they decided this. Mr. Chow has testified that this happened after the close of escrow, because that's convenient for him. . . .
The trial court sustained respondents' demurrers without leave to amend, and dismissed the action against them with prejudice. These timely appeals followed.
DISCUSSION
I. Standard of Review on Demurrer
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it 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. [Citation.]" (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865; accord, Delgado v. Interinsurance Exchange of Automobile Club of Southern California (2009) 47 Cal.4th 302.) " ' "[W]e examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory . . . ." ' (Betancourt v. Storke Housing Investors (2003) 31 Cal.4th 1157, 1162-1163.)" (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 43.) "Whether the plaintiff will be able to prove these allegations is not relevant. (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.)" (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 122.)
II. Fraud Causes of Action and "Sham Pleading" Doctrine
Respondents Marco Martinelli and Shinefield contend that the court did not abuse its discretion in sustaining their demurrers to the third amended complaint without leave to amend. In summary, respondents argue: (1) that plaintiffs' injuries were caused by plaintiffs' entering the contract and completing the transaction; (2) respondents could not have committed any tort against plaintiffs after escrow had closed, as plaintiffs could not have reasonably relied upon any statements made by respondents or any conspiracy in which they were alleged to have participated after the close of escrow; (3) under the "sham pleading" doctrine, plaintiffs were bound by fatal factual allegations of their first and second amended complaints and could not recast or reframe those factual allegations in their third amended complaint to circumvent the factual deficiencies disclosed in those prior complaints. A. Fraud and Conspiracy
"The elements of fraud that will give rise to a 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." ' [Citation.]" (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.) " 'Every element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made. [Citation.]' [Citations.]" (Curcini v. County of Alameda (2008) 164 Cal.App.4th 629, 649.)
" '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 requirement serves two purposes. First, it gives the defendant notice of the definite charges to be met. Second, the allegations 'should be sufficiently specific that the court can weed out nonmeritorious actions on the basis of the pleadings. Thus, the pleading should be sufficient " 'to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.' " ' (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217.) Thus, a plaintiff must plead facts which show how, when, where, to whom, and by what means the representations were made. (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.) . . . There are certain exceptions to the particularity requirement. 'Less specificity is required when "it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy." ' (Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 217.)" (Citizens of Humanity, LLC v. Costco Wholesale Corp. (2009) 171 Cal.App.4th 1, 20, disapproved on other grounds in Kwikset v. Superior Court (2011) 51 Cal.4th 310, 337.)
Similarly, when pleading allegations of conspiracy, " 'the plaintiff must allege the formation and operation of the conspiracy, the wrongful act or acts done pursuant to it, and the damage resulting from such acts. [Citation.] In making such allegations bare legal conclusions, inferences, generalities, presumptions, and conclusions are insufficient. [Citation.]' [Citation.]" (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 419.)
Respondents assert they could not have committed any tort against plaintiffs after the close of escrow, as plaintiffs did not and could not have justifiably relied upon any statements made or actions taken by respondents regarding the purported Second Offer after plaintiffs had accepted sellers' counter offer and closed escrow on the Property. (See Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1592-1593 [conspiracy to defraud claim failed as defendant could not conspire after the fact to commit an already completed tort]; see also General Advertising Agency, Inc. v. Komer (1967) 251 Cal.App.2d 805, 812 [reversing judgment based on conspiracy to commit an already completed tort]; see also Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773 [conspiracy to commit a tort is completed when the last act induced by the conspiracy has been completed]; State of California ex rel. Metz v. CCC Information Services, Inc., supra, 149 Cal.App.4th at p. 419 [conspirators' acts after the completion of the crime that is the primary object of a conspiracy cannot be deemed to be overt acts in furtherance of that conspiracy].)
In Kidron v. Movie Acquisition Corp., supra, 40 Cal.App.4th 1571, the fraudulent acts by partners to a joint venture to produce a TV series—inducing the plaintiff to join the venture and later ousting him—occurred without the defendant distributor's knowledge and long before defendant had entered any distribution agreement with the partners. Affirming the trial court's grant of a nonsuit in favor of defendant distributor, the appellate court recognized: "Kidron's theory of conspiracy requires the court to accept the premise that one can be liable for the commission of a tort that has already been committed by another. In examining the temporal element in criminal conspiracies, the courts have repeatedly held that one cannot be liable as a coconspirator if the crime was committed before he joined the conspiracy. [Citation.] . . . . In the instant case, [the former partner's] alleged purpose—to steal Kidron's concept—was achieved by May 1992, when Kidron left the show. . . . [¶] Cases addressing civil conspiracy also do not support Kidron's apparent rearview mirror image of the course of events." (Id. at p. 1593.)
"Actual reliance occurs when a misrepresentation is ' "an immediate cause of [a plaintiff's] conduct, which alters his legal relations," ' and when, absent such representation, ' "he would not, in all reasonable probability, have entered into the contract or other transaction." ' [Citations.] 'It is not . . . necessary that [a plaintiff's] reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor in influencing his conduct. . . . It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.' (Rest.2d Torts, § 546, com. b, p. 103.)" (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at pp. 976-977; accord, In re Tobacco II Cases (2009) 46 Cal.4th 298, 326-327. ) " 'Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff's reliance is reasonable is a question of fact.' [Citations.]" (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226,1239; see Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 678.) B. Sham Pleading Doctrine
"Under 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. (See Hendy v. Losse (1991) 54 Cal.3d 723, 742-743 [affirming an order sustaining defendants' demurrer without leave to amend when the plaintiff filed an amended complaint omitting harmful allegations from the original unverified complaint]; see also Colapinto v. County of Riverside (1991) 230 Cal.App.3d 147, 151 . . . ['If a party files an amended complaint and attempts to avoid the defects of the original complaint by either omitting facts which made the previous complaint defective or by adding facts inconsistent with those of previous pleadings, the court may take judicial notice of prior pleadings and may disregard any inconsistent allegations.'].) A noted commentator has explained, 'Allegations in the original pleading that rendered it vulnerable to demurrer or other attack cannot simply be omitted without explanation in the amended pleading. The policy against sham pleadings requires the pleader to explain satisfactorily any such omission.' (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2005) ¶ 6.708 . . . .)' " (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425-426, fn. omitted.) "The sham pleading doctrine is not ' "intended to prevent honest complainants from correcting erroneous allegations . . . or to prevent correction of ambiguous facts." ' (5 Witkin, Cal. Procedure (4th ed. 1997) Amendment of Pleadings, § 1122, pp. 577-578.) Instead, it is intended to enable courts ' "to prevent an abuse of process." ' [Citation.]" (Deveny v. Entropin, Inc., at p. 426.) C. Application
The allegations of the third amended complaint that were made in the alternative and on information and belief related to the time frame in which the alleged conspiracy occurred, including the conspiracy to falsely represent to plaintiffs that the second offer had been received and the actual preparation of the documents that were ultimately transmitted to plaintiffs.
Pleading on information and belief and in the alternative are well accepted methods of pleading. "A plaintiff may allege on information and belief any matters that are not within his or her personal knowledge, if he or she has information leading him or her to believe that the allegations are true. [Citation.] Often these facts are peculiarly within the knowledge of the defendant. These allegations must be accompanied by a statement of the facts on which the belief is founded. [Citation.]" (Moore and Thomas, Cal. Civil Practice Procedure (2010) § 7:18; see 4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 398, pp. 537-539.)
"[W]hen for any reason the pleader thinks it desirable so to do, as where the exact nature of the facts is in doubt, or where the exact legal nature of plaintiffs right and defendant's liability depend on facts not well known to the plaintiff, his pleading may set forth the same cause of action in varied and inconsistent counts with strict legal propriety." (4 Witkin, Cal. Procedure, supra, Pleading, § 402, pp. 542-543; see e.g., Williams v. Southern California Gas Co. (2009) 176 Cal.App.4th 591, 598 ["These claims are not inconsistent. At most, they are alternative factual allegations relying on alternative legal theories; this does not run afoul of truthful pleading"]; Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 29.)
The conspiracy allegations of plaintiffs' third amended complaint were stated with sufficient specificity in that the pleaded facts showed "how, when, where, to whom, and by what means the representations were made." (Citizens of Humanity, LLC v. Costco Wholesale Corp., supra, 171 Cal.App.4th at p. 20.) That complaint adequately alleged in the alternative the facts relating to the formation and operation of the conspiracy, the wrongful acts done pursuant to the conspiracy, and the damage resulting from these acts. Moreover, in the instant circumstances, less specificity was required, as the nature of the allegations makes clear that defendants (including respondents Marco Martinelli and Dr. Shinefield) necessarily possessed full information concerning the facts of the controversy and particularly, as to the time frame in which the conspiracy was formed and operated and in which the wrongful acts occurred.
Unless prevented from positing an alternative time frame by the sham pleading doctrine, plaintiffs were entitled to allege in the alternative that the conspiracy occurred before plaintiffs accepted the sellers' counter offer, after acceptance and before escrow closed, or after the close of escrow.
The lynch pin to respondents' successful demurrer was the court's application of the sham pleading doctrine to prevent plaintiffs from alleging that respondents' conduct occurred either before the counter offer was accepted or thereafter, but before close of escrow.
The trial court properly could determine that the third amended complaint attempted to avoid defects of the first amended complaint by adding facts inconsistent with those of the first amended complaint. The factual allegations of the first amended complaint alleged seller Chow had admitted he conspired with respondents and Camille Martinelli "to fraudulently prepare and back-date a written Second Offer to be provided to Plaintiffs in order to deceive Plaintiffs into believing that theirs was not the only bona fide offer for the Property." Allegations of the first amended complaint that each defendant conspired to and personally falsely represented the existence of the second offer to drive up the price and to cover up their wrongdoing are consistent with the allegations of the third amended complaint. However, the first amended complaint contained three new fraud-related causes of action against respondents and other defendants alleging that defendants attempted to cover up the false representations, by conspiring to and knowingly and intentionally preparing a fraudulent Second Offer and back-dating the Second Offer to a time prior to the counter offer, and by preparing and signing a fraudulent letter from Dr. Shinefield falsely representing he made an offer to purchase the property. These causes of action confirm the relevant time frame as following plaintiffs' acceptance of the counter offer, at the earliest. However, the first amended complaint itself is not inconsistent with allegations of later complaints that the conspiracy to misrepresent and the preparation and backdating of the Second Offer occurred after acceptance of the counter offer and before the close of escrow.
It is not in the first amended complaint, but rather in the points and authorities filed by plaintiffs in support of leave to file their first amended complaint that Chow's testimony is set forth in detail, including the critical fact that Chow admitted that Shinefield and Marco Martinelli became involved in the cover-up attempt after the close of escrow: "After the close of the sale, Camille Martinelli contacted Mr. Chow" to tell him that plaintiffs were asking to see the purported second offer and at that point Chow contacted Dr. Shinefield to write up the fictitious offer with Marco Martinelli. (Italics added.)
We recognize there is some inconsistency between the first amended complaint and the alternative time frames alleged in the third amended complaint. However, the inconsistencies themselves do not necessarily require us to affirm the court's disregard of the inconsistent allegations in the third amended complaint. "Under the sham pleading doctrine, allegations in an original pleading that rendered it vulnerable to demurrer or other attack cannot simply be omitted without explanation. (Deveny v. Entropin, Inc.[, supra,]139 Cal.App.4th [at pp.] 425-426.) The purpose of the doctrine is to enable the courts to prevent an abuse of process. (Id. at p. 426.) The doctrine is not intended to prevent honest complainants from correcting erroneous allegations or to prevent the correction of ambiguous facts. (Ibid.)" (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 751, italics added.)
At the hearing on the demurrer to the third amended complaint, plaintiffs' counsel explained that Chow's testimony supported the fraud and conspiracy allegations, but argued that plaintiffs were not required to believe the entirety of Chow's "self-serving" testimony as to when the conspiracy occurred and the fraudulent documents were created. Counsel acknowledged that he had rethought the inferences to be drawn from Chow's testimony, the date of the fraudulent second offer, and the fax transmission date of the second offer. Counsel said he had "realized that although I had been focusing on Mr. Chow's application, and I considered it an admission of backdating, this evidence is equally susceptible to the very legitimate inference that they had conspired before the date that they had appropriately dated the document. It wasn't necessarily backdated, but it still was a fraud just as Mr. Chow had admitted it was. . . ." "[W]e have facts that go to two different inferences, and the . . . documentary evidence and testimonial evidence that can read different ways and the facts are in the possession of the defendants." ~(Id. at 49.)
Despite concerns about sham pleadings, the Supreme Court has also long since "made it clear that 'a party should be allowed to correct a pleading by omitting an allegation which, it appears, was made as the result of mistake or inadvertence.' " (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 836; see also Hahn v. Mirda, supra 147 Cal.App.4th at p. 751 [amended complaint was not a sham pleading, despite omission of alternate factual allegation contained in previous complaint].) The question here is whether the trial court properly treated the additional alternative allegations regarding the time frame in which the alleged conspiracy occurred and the fraudulent second offer was prepared and transmitted as an instance of sham pleading, rather than merely a mistake by counsel in failing to recognize the varying reasonable factual inferences that could be drawn from the known facts as alleged in the third amended complaint. We conclude the court erred in refusing to accept counsel's reasonable explanation for the discrepancies.
In Deveny v. Entropin, Inc., supra, 139 Cal.App.4th 408, the court addressed a somewhat similar situation. There, investors sued a pharmaceutical company, asserting securities violations relating to its alleged concealment about the efficacy of "Esterom," a drug under development. In the first version of the complaint, plaintiffs alleged that " '[d]efendants withheld scientific and clinical knowledge that Esterom was not detected in the blood or urine of patients' and that '[w]hen Plaintiffs discovered that Entropin had omitted to disclose material information concerning the absorption of Esterom, Plaintiffs contacted counsel and began an investigation.' " (Id. at p. 423.) After the defendant moved for summary judgment based upon the statute of limitations, citing the existence of publicly available information on its website regarding the outcome of the blood and urine tests, the plaintiffs obtained leave to amend their complaint. In the amended complaint, plaintiffs alleged that the information disclosed on the website, while accurate, "did not provide plaintiffs or other investors with any reason to believe that Esterom was not absorbed or was not effective," and was thus insufficient to trigger the statute of limitations. (Id. at p. 417.) The defendant argued that the plaintiffs' substantial change in theory of liability—from "you didn't tell us about the tests," to "okay, you did tell us about the tests, but you didn't explain their significance"—was an instance of sham pleading. The appellate court disagreed. It noted that plaintiffs counsel had offered an explanation for the change; to wit, that he had initially been unaware of what information was publicly available, and that it was only after speaking with experts that he realized the data actually provided on defendant's website was simply insufficient to put potential investors on notice of the drug's problems. The court concluded this effort was sufficient to avoid the conclusion of sham pleading, noting "the sham pleading doctrine does not apply because [plaintiffs counsel] offered a plausible explanation for the amendment, i.e., that he had erred in relying on the failure to disclose the blood and urine data as the basis for the complaint because further discovery and consultation with experts had shown that such data was inconclusive." (Id. at p. 426, italics added.)
The requirement that the explanation for inconsistency be merely "plausible" is consistent with the standard by which all pleadings are judged: that is, that courts "must assume the truth of the complaint's properly pleaded or implied factual allegations. [Citation.]" (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) If plaintiffs' third amended complaint, coupled with counsel's explanation, alleges facts which plausibly explain the discrepancy between it and the allegations of the first and second amended complaints, the court is obliged to assume they are true. Here counsel admitted that he had initially failed to recognize that plaintiffs need not adopt Chow's description of events in its entirety as an attempt to cover up a fraud already completed and that the known facts were reasonably susceptible to alternative conclusions. That explanation was plausible, particularly given the date on the face of the fraudulent second offer (before plaintiffs accepted the counter offer) and the time and date stamp of the fax transmission to McGuire of that fraudulent offer (before close of escrow). It was plausible that respondents' participation in the conspiracy to create a fraudulent second offer occurred either before plaintiffs accepted the counter offer or, otherwise, before the close of escrow. The reasonableness of this explanation is further enhanced by the fact that further discovery apparently came to a halt upon Chow's admission of fraud in his deposition and the facts regarding the timing of defendants' conversations and actions necessarily would be in defendants' possession. Plaintiffs asserted they continued to uncover new facts by closer review of documents and testimony, but that extensive discovery was necessary to determine the true facts.
In these circumstances, we believe the court erred in disregarding the alternative allegations regarding time frame and in granting respondents' demurrer to the third amended complaint.
II. Damages
A. Allegations That Second Offer Was Made Before Close of Escrow Were Sufficient
Respondents contend that if the second offer came into existence before the close of escrow, plaintiffs could not demonstrate damages so long as Shinefield was "ready, willing and able" to perform. We disagree with this characterization. If the second offer was fraudulent as alleged, made only to increase the plaintiffs' bid, and without any intent on Shinefield's part to perform or on the sellers' part to enforce the contract, it could support a cause of action for damages. Whether plaintiffs reasonably relied upon the allegedly fraudulent second offer to increase their purchase price and whether they were damaged as a result are factual questions, not appropriate for resolution by demurrer in this case. B. Measure of Damages
The measure of damages for one defrauded in the purchase, sale or exchange of property is "the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received . . . ." (Civ. Code, § 3343, subd. (a).) Consequently, to prevail at trial, a buyer claiming fraud in the sale of property must demonstrate the price paid for the property exceeded the actual market value of the property. (Saunders v. Taylor (1996) 42 Cal.App.4th 1538, 1543 [nonsuit proper in action for deceit in sale of real property, where plaintiffs failed to prove price paid for property was greater than its actual value].) Respondent Marco Martinelli contends that plaintiffs knew the asking price for the property was more than $1 million over what they wished to pay and over the objective value of any appraisal. However, like the issue of whether plaintiffs would have paid $8 million for the property had they known there was no second offer, the question of the actual value of the property is a question of fact for the trier of fact. Plaintiffs alleged that in the absence of such fraud, they would not have accepted the counter offer for $8,180,000, would not have paid more for the property than its actual value, and would not have closed escrow on the property. Plaintiffs also alleged that they "suffered damages, subject to proof at trial, including but not limited to, paying more for the Property than its actual value, as in the absence of other bona fide offers, Plaintiffs were only willing to offer and pay $7,000,000 for the [p]roperty, which was its actual value, or was within 5% of its actual value at the time." Plaintiffs alleged that the actual value of the property was less than they paid or would have paid in the absence of the fraudulent second offer. These allegations of damage are sufficient to withstand a demurrer.
In footnotes to his respondent's brief, Shinefield asserts that "[a]n offer for purchase is . . . not a statement of fact and cannot be the basis for actionable fraud," and that exaggerations of market value of property, including that there were other purchasers willing to offer more for the property, were not actionable because such statements were regarded as " 'seller's talk.' " The citation provided for the first proposition does not support it, as the case did not involve any offer for purchase. (See Richard P. v. Vista Del Mar Child Care Service (1980) 106 Cal.App.3d 860, 865 [representation of adopted child's future good health was a nonactionable statement of opinion].) Moreover, the fraud here alleged was not the making of a legitimate second offer, which would not be a statement of fact, but the representation that a bona fide second offer had been made. As for the proposition that a misrepresentation that others were willing to offer more for the property was mere " 'sellers' talk,' " the allegations are not simply that defendants said that others were willing to offer more, but a false representation that a specific offer in a specific amount had been received. "Representations as to other offers [¶] "A cause of action for fraud or deceit is recognized when a person falsely represents to another in a sales transaction that the person has been offered more for the property in another offer and the prospective purchaser relies on the misrepresentation. [(Elias v. Handler, 155 A.D.2d 583, 548 N.Y.S.2d 33 (1989) (rescission of sale); Kabatchnick v. Hanover-Elm Bldg. Corp. (1952) 328 Mass. 341, 103 N.E.2d 692, 30 A.L.R.2d 918.)] [¶] It has been said that the courts must decide on a case by case basis what is actionable as fraud in a case in which a prospective purchaser alleges that the vendor has falsely represented that an offer has been made by a second prospective purchaser which the vendor will accept if first prospective purchaser does not agree to the asking price, and that liability is made to depend on degree of thoroughness to which fraud is perpetrated. [(Ravosa v. Zais (1996) 40 Mass. App. Ct. 47, 661 N.E.2d 111.); but see Ripy v. Cronan (1909) 131 Ky. 631, 115 S.W. 791.)]" (37 Am.Jur.2d (2001) Fraud and Deceit, § 184, p. 210, fn. omitted.)
III. Concealment
To succeed in a cause of action for fraud and deceit based on concealment, the plaintiff must show, among other things, that the defendant concealed or suppressed a material fact that the defendant was under a duty to disclose to the plaintiff. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868.) Shinefield argues that he owed no duty to plaintiffs to disclose the fact that his offer was not bona fide. A duty to disclose can arise from the making of affirmative representations with knowledge of undisclosed facts that " 'materially qualify the facts disclosed, or . . . render [the disclosed facts] likely to mislead. . . .' " (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132, quoting Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.) " '[T]he rule has long been settled in this state that although one may be under no duty to speak as to a matter, "if he undertakes to do so, either voluntarily or in response to inquiries, he is bound not only to state truly what he tells but also not to suppress or conceal any facts within his knowledge which materially qualify those stated. If he speaks at all he must make a full and fair disclosure." ' (Rogers v. Warden (1942) 20 Cal.2d 286, 289.)" (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 613.) That rule applies here. Plaintiffs pled that before their purchase of the Property, and alternatively, before the close of escrow, respondents misrepresented to them that there had been a second offer for $8,080,000. They also plead that respondents conspired with the sellers and the McGuire defendants to make such misrepresentations, to create and to transmit to plaintiffs documents appearing to substantiate the Second Offer, and to conceal that no such bona fide offer was made. By making these representations and producing the documents, respondents both assumed a duty to speak truthfully, and a duty not to conceal or suppress other facts within their knowledge that materially qualified those statements. Plaintiffs alleged this duty and the alleged misrepresentations with adequate specificity to withstand demurrer.
" '[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.' [Citations.]" (Lovejoy v. AT & T Corp. (2004) 119 Cal.App.4th 151, 157-158; accord, Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th at p. 868.)
IV. Sharp Bid
Shinefield contends that plaintiffs' initial offer to pay $100,000 over the next highest offer was not a valid offer, but a "sharp bid." Therefore, he asserts plaintiffs cannot claim they justifiably relied upon sellers' counter offer that was predicated on their own illegitimate offer. Shinefield argues this "sharp bid" prevents plaintiffs from obtaining relief in the matter, regardless of the merits, as plaintiffs did not come into court with "clean hands." Relying also on doctrines of in pari delicto and ex dolo malo non oritur actio, Shinefield further suggests plaintiffs were seeking to enforce an illegitimate bargain and, as wrongdoers, were not entitled to relief. The trial court did not appear to accept this claim, nor do we.
"The defense of unclean hands arises from the maxim, ' " 'He who comes into Equity must come with clean hands.' " ' [Citation.] The doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim. [Citations.] The defense is available in legal as well as equitable actions. [Citations.] Whether the doctrine of unclean hands applies is a question of fact. (Cross Talk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 639 ['This case presents no exception to the general rule that application of the doctrine of unclean hands is a question of fact.')" (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978, italics added.)
In Carver v. Teitsworth (1991) 1 Cal.App.4th 845 (Carver), the appellate court quoted the critique of the "sharp bid" practice in Short v. Sun Newspapers, Inc. (Minn. 1980) 300 N.W.2d 781 (Short), which found the "sharp bid" to be " 'a fraudulent practice' " on the bases that it is " 'inherently unfair to other bidders in a sealed bidding procedure, allowing the sharp bidder to 'appropriate' the judgment of the other bidders; it may also be unfair to the seller and, if allowed, would discourage and drive off specific-sum bidders.' " (Short, at pp. 787-788, fn. omitted, quoted in Carver at pp. 853-854.)
However, Carver, supra, 1 Cal.App.4th 845, like Short, recognized that " '[t]he infirmity of a sharp bid, as said above, lies in the concealment of its nature. If there is no concealment, then bidders may be frustrated but they are not defrauded. . . . [I]f the practice is known to be allowed, the fraud by concealment is gone and the question is one of business practicability, not fraud. If unconcealed, sharp bidding either would then be abandoned as unworkable or sellers and bidders would adopt protective ground rules to make it workable.' ([Short,] 300 N.W.2d at p. 789, fn. omitted.)" (Carver, at p. 854, fn. omitted.) Carver found "nothing inherently offensive in use of relative bids where full disclosure has been made" and reserved use of the term " 'sharp bid' for cases where there has not been full disclosure." (Id. at p. 854, fn. 5.) In Carver, the appellate court reversed summary judgment for the seller, holding that the seller's counter offer to sell real property to the highest sealed bidder was a binding offer to sell and that the prospective buyer's relative bid of $1,000 more than any other sealed bid was not necessarily defective as a sharp bid. The court concluded that "the answer to that question may depend in large measure on expert evidence of custom and practice in the real estate industry." (Id. at pp. 849, 855.)
The case before us did not involve a sealed bid process. Sellers and buyers were free to disclose the terms of any bid made or received. Also, plaintiffs allege they made the relative bid on the advice of the real estate professionals representing them, which indicates that the practice may be allowed and perhaps even customary in the residential real estate market. The question whether in the circumstances this bid constituted a "sharp bid" was a factual one not subject to resolution on demurrer.
We do not address and need not resolve plaintiffs' contention that even if their relative bid was a "sharp bid" that could have rendered the contract unenforceable, their fraud claims do not depend upon whether the defendant's promise is ultimately enforceable as a contract. (See Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)
V. Statute of Limitations
Shinefield contends plaintiffs' claims against him are barred by two different statutes of limitations: Code of Civil Procedure sections 338, subdivision (d) [three-year statute for fraud and concealment], and 339, subdivision 1 [two-year statute for nonpersonal injury negligence].) (See also Ventura County Nat. Bank v. Macker (1996) 49 Cal.App.4th 1528, 1530-1531 [two-year statute for negligent misrepresentation].)He contends that plaintiffs' causes of action accrued in July 2002, when plaintiffs became suspicious about the competing offer for the property. (We observe that at no point in the third amended complaint did plaintiffs specifically allege they were ever "suspicious" with respect to the purported second offer.)
"[A] cause of action for negligent misrepresentation typically is subject to a two-year limitations period. (See Code Civ. Proc., § 339; Ventura County Nat. Bank v. Macker[, supra,]49 Cal.App.4th [at pp.] 1530-1531. See generally 1 Schwing, Cal. Affirmative Defenses, supra, § 25:21, pp. 1415-1416, fns. 8-9.) That same two-year period generally applies to actions 'upon a contract, obligation or liability not founded upon an instrument of writing . . . .' (Code Civ. Proc., § 339, subd. 1.) A cause of action for fraud or mistake is governed by a three-year statute of limitations. (Code Civ. Proc., § 338, subd. (d).)" (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1316.)
" 'Generally speaking, a cause of action accrues at "the time when the cause of action is complete with all of its elements." ' (Fox [v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797,] 806 [(Fox)] . . . .) 'An exception to the general rule for defining the accrual of a cause of action—indeed, the 'most important' one—is the discovery rule.' [Citation; see generally 1 Schwing, Cal. Affirmative Defenses, supra, § 25:4, pp. 1334-1343.)" (E-Fab, Inc. v. Accountants, Inc. Services, supra, 153 Cal.App.4th at pp. 1317-1318.) The discovery rule "postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action." (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397; accord, Fox, supra, 35 Cal.4th at p. 807; E-Fab, Inc. v. Accountants, Inc. Services, at p. 1318.) "By statute, the discovery rule applies to fraud actions. (Code Civ. Proc., § 338, subd. (d).)" (E-Fab, Inc. at p. 1318.)
"The discovery rule 'protects the plaintiff, whose cause of action is preserved when, despite diligent investigation, he is blamelessly ignorant of the cause of his injuries. It also protects the defendant, who is spared precipitous litigation.' [Citation.] The discovery rule 'is based on the notion that statutes of limitations are intended to run against those who fail to exercise reasonable care in the protection and enforcement of their rights; therefore, those statutes should not be interpreted so as to bar a victim of wrongful conduct from asserting a cause of action before he could reasonably be expected to discover its existence.' [Citation.] Thus, in actions where the rule applies, the limitations period does not accrue until the aggrieved party has notice of the facts constituting the injury. (Fox, supra, 35 Cal.4th at p. 807.)" (E-Fab, Inc. v. Accountants, Inc. Services, supra, 153 Cal.App.4th at p. 1318.) "[U]nder the delayed discovery rule, a cause of action accrues and the statute of limitations begins to run when the plaintiff has reason to suspect an injury and some wrongful cause, unless the plaintiff pleads and proves that a reasonable investigation at that time would not have revealed a factual basis for that particular cause of action." (Fox, at p. 803.)
" 'Resolution of the statute of limitations issue is normally a question of fact.' (Fox, supra, 35 Cal.4th at p. 810.) More specifically, as to accrual, 'once properly pleaded, belated discovery is a question of fact.' [Citation.] As our state's high court has observed: 'There are no hard and fast rules for determining what facts or circumstances will compel inquiry by the injured party and render him chargeable with knowledge. [Citation.] It is a question for the trier of fact.' (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. [(1970)] 1 Cal.3d [586,] 597 [reversing judgment after demurrer].) . . . Thus, when an appeal is taken from a judgment of dismissal following the sustention of a demurrer, 'the issue is whether the trial court could determine as a matter of law that failure to discover was due to failure to investigate or to act without diligence.' [Citation.]" (E-Fab, Inc. v. Accountants, Inc. Services, supra, 153 Cal.App.4th at p. 1320, italics added.)
This is not a case where reasonable minds could draw only one conclusion from the evidence. (E-Fab, Inc., supra, 153 Cal.App.4th at p. 1320.) We recognize that " '[m]ere conclusory assertions that delay in discovery was reasonable are insufficient and will not enable the complaint to withstand general demurrer. [Citation.]' [Citations.]" (CAMSI IV v. Hunter Technology Corp. (1991) 230 Cal.App.3d 1525, 1536-1537.) Plaintiffs relying upon the discovery rule "must specifically plead facts which show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. [Citations.]" (Ibid.)We are convinced plaintiffs have adequately pled facts showing they discovered the second offer had been false at Chow's deposition in February 2008, and that as a result of the conspiracy and fraudulent conduct of all defendants, including respondents, plaintiffs were unable to have made earlier discovery despite reasonable diligence. That plaintiffs sought more information or inquired about the alleged second offer does not necessarily establish suspicion and we cannot say as a matter of law that given what plaintiffs knew, they should have been suspicious that the second offer was fraudulent. "Whether other circumstances exist which, in conjunction with [these allegations], would have made a prudent person suspicious is a question that cannot be resolved on demurrer." (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 298.) Moreover, were we to conclude that plaintiffs had some reason to suspect wrongdoing, that suspicion would not trigger the statute where, as here, "plaintiff pleads and proves that a reasonable investigation at that time would not have revealed a factual basis for that particular cause of action." (Fox, supra, 35 Cal.4th at p. 803.)
VI. Conspiracy and Aiding and Abetting Claims
Shinefield argues that plaintiffs did not adequately allege new facts in their third amended complaint as to how Shinefield conspired with or aided and abetted other defendants to support their conspiracy and aiding and abetting theories. Shinefield points out that the failure to rescind the transaction or to file suit is not actionable damage. However, the premise for this argument is that plaintiffs were precluded from alleging in their third amended complaint any time sequence other than that showing the underlying fraud was complete and the property purchased at the point that Shinefield became involved. We have previously rejected this contention. Shinefield also argues that as a third party offeror, he had no duty to plaintiffs. Absent a preexisting duty owed by him, he contends that the conspiracy and aiding and abetting allegations must fail. We have rejected this claim as well. Allegations of the third amended complaint that Shinefield conspired with defendants and aided and abetted them before the close of escrow to fraudulently represent there was a second offer for $8,080,000, and that he participated in creating and transmitting this fraudulent second offer, adequately set forth the bases for his duty to plaintiffs. (Rogers v. Warden (1942) 20 Cal.2d 286, 289; Marketing West, Inc. v. Sanyo Fisher (USA) Corp., supra, 6 Cal.App.4th at p. 613.)
Disposition
The judgments dismissing respondents from the action are reversed and the matter remanded for further proceedings.
Kline, P.J.
We concur:
Lambden, J.
Richman, J.