Opinion
B304119
05-20-2021
THOMAS AHERN, Plaintiff and Appellant, v. CHICAGO TITLE COMPANY et al., Defendants and Respondents.
Catanzarite Law Corporation, Kenneth J. Catanzarite, Nicole M. Catanzarite-Woodward and Eric V. Anderton for Plaintiff and Appellant. McCormick, Barstow, Sheppard Wayte & Carruth, Scott M. Reddie; Fidelity National Law Group and David B. Owen for Defendants and Respondents Chicago Title Company and Chicago Title Insurance Company.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. BC484356) APPEAL from a judgment of the Superior Court of Los Angeles County, Daniel J. Buckley, Judge. Reversed and remanded with directions. Catanzarite Law Corporation, Kenneth J. Catanzarite, Nicole M. Catanzarite-Woodward and Eric V. Anderton for Plaintiff and Appellant. McCormick, Barstow, Sheppard Wayte & Carruth, Scott M. Reddie; Fidelity National Law Group and David B. Owen for Defendants and Respondents Chicago Title Company and Chicago Title Insurance Company.
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Thomas Ahern, individually and as the surviving spouse and successor in interest of Priscilla Ahern, appeals the judgment entered after the trial court sustained without leave to amend the demurrer of Chicago Title Company and Chicago Title Insurance Company (collectively Chicago Title) to Ahern's third amended complaint. Ahern contends the trial court erred in ruling his allegations of delayed discovery were inadequate and, as a result, all causes of action pleaded against Chicago Title were barred by the governing statutes of limitations. He also argues he alleged sufficient facts to state causes of action against Chicago Title, a ground for demurrer not reached by the trial court but asserted on appeal by Chicago Title. Alternatively, Ahern requests leave to amend to plead additional facts regarding Chicago Title's role in the investor fraud at issue in his complaint. We reverse the judgment and remand with directions to the trial court to grant Ahern leave to amend his complaint.
FACTUAL AND PROCEDURAL BACKGROUND
1. Ahern's Tenancy-in-common Investments
Based on tax advice from his lawyers and accountants, Ahern sold a fractional tenancy-in-common interest in property on South Robertson Boulevard in Los Angeles in mid-2006 and reinvested the net proceeds from that sale (approximately $900,000) in tenancy-in-common interests in improved real property in Anaheim (the Amlap property) and San Diego (the Aerovault property), which had been acquired by BH & Sons, LLC to market to tax-motivated investors. BH & Sons and its manager, Asset Management Consultants Inc. (AMC), provided preliminary information packages to qualified sophisticated investors in connection with their evaluation of the investment properties. After receiving the preliminary information, interested investors signed a tenant-in-common purchase and sale agreement for each property and thereafter received a property information package (or private placement memorandum) with due diligence and underwriting material.
The reinvestments were to be done in accordance with Internal Revenue Code section 1031, a "1031 exchange."
Several years later, following a significant decline in the real estate market, the secured lender foreclosed on the Amlap property, eliminating the tenancy-in-common investors' interests. The investment in the Aerovault properly also was a total loss.
2. The Initial Iterations of Ahern's Lawsuit
The early history of this litigation has been detailed in prior opinions of this court. (See, e.g., Ahern v. Asset Management Consultants Inc. (Aug. 11, 2015, B253974 & B257684) [nonpub. opn.]; Ahern v. Asset Management Consultants, Inc. (May 22, 2017, B271851) [nonpub. opn.]; see also BH & Sons, LLC v. Ahern (June 5, 2017, B272165) [nonpub. opn.]; Amlap St, LLC v. CBRE, Inc. (Jan. 19, 2016, B260822) [nonpub. opn.].)
Ahern initially filed this lawsuit in May 2012 against BH & Sons, AMC and several affiliated attorneys and accountants, alleging in a 77-page 16-cause-of-action putative class action complaint that he had been fraudulently induced to enter into the Amlap investment through the promotional materials developed and distributed by BH & Sons and AMC. Specifically, Ahern alleged the offering materials falsely represented the purchase price for the Amlap property was $34,550,000 and a $1.3 million commission was to be paid by the seller to AMC and related individuals as the buyer's broker. In fact, the true purchase price was $30 million or less and "what was purported to be a commission was an illegal and secret mark-up of the Property purchase price in which the defendants conspired to inflate the price to hide the fact the Property could have been purchased for $30,000,000 or less." That is, the purported real estate commission did not reduce the negotiated purchase price received by the seller, as it would if the seller truly paid the commission, but was added to the negotiated price so that its economic burden was shifted to the investors, thereby diluting the value of the investment. A similar claim was made concerning the Aerovault investment in the first amended complaint.
In the original complaint both Thomas Ahern and Priscilla Ahern were named plaintiffs, as well as Amlap Ahern LLC, a limited liability company owned by the Aherns as their community property. Michael Stella was also a named plaintiff. Stella dismissed his claims after settling with some of the defendants.
Ahern added Chicago Title to the action in the first amended complaint filed in March 2013, alleging causes of action against it for breach of contract and fiduciary duties, several varieties of fraud, unfair business practices and aiding and abetting financial elder abuse. After its demurrer was overruled, Chicago Title answered the first amended complaint.
Ahern filed a second amended complaint in October 2016. Chicago Title and CBRE, the property seller's broker, demurred, contending Ahern's action, filed more than five years after his investments, was time-barred. Chicago Title and CBRE argued Ahern was precluded by this court's decision in Stella v. Asset Management Consultants, Inc. (2017) 8 Cal.App.5th 181 (Stella) from asserting delayed accrual of his various causes of action and, even without issue preclusion, Ahern's allegations were insufficient for application of the delayed discovery rule. The court sustained the demurrer with leave to amend, ruling, "[T]he judicially noticed private placement memorandum here demonstrates that Ahern should have been on inquiry notice at the time of investment in 2006."
3. The Third Amended Complaint
a. The hidden syndication fees
Ahern filed his third amended complaint on July 1, 2019. As pertinent to his central claim of fraud, Ahern alleged: (1) An "Explanation of Fees" chart provided with every AMC tenancy-in-common investment, including the Amlap and Aerovault investments, failed to list syndication fees (that is, fees for organizing and marketing the tenancy-in-common interests) as a cost to the investors. (2) The purchase and sale agreement for the Amlap property stated the purchase price was $34,550,000, as did the property information package. (3) The property information package identified a commission of $1.3 million for AMC acting as buyer's side broker and represented it would be paid by the seller. (4) In fact, the actual negotiated price for the property, accepted by the seller, was $33,250,000; that figure was increased with the consent of the seller to include the commission; and what was represented to be a commission was, in fact a secret (and illegal) syndication fee to AMC and others working with it. (5) The purchase and sale agreement for the Aerovault property stated the purchase price was $27,885,000, as did the property information package. (6) The Aerovault property information package stated the commission of $1.25 million to be paid to the buyer's broker would be paid by the seller. (7) As with the Amlap property, the true purchase price (and real market value) had been increased to include the commission, meaning it was paid by the investors, not the seller. (8) The actual sales load for each investment—the undisclosed markup plus the disclosed fees—exceeded the amount of capital gains tax Ahern sought to defer by reinvesting the proceeds from the sale of his South Robertson Boulevard tenancy-in-common investment.
The chart was attached as an exhibit to the third amended complaint.
In support of his fraud claim Ahern's third amended complaint quoted an email from AMC to the Amlap property seller's broker obtained during discovery in the litigation: "Steve: [¶] Per our conversation a few moments ago, please make the seller aware of our intention to 'gross up' the purchase price by $1,300,000 to cover certain TIC [tenancy in common] and startup costs. Buyer will cover any costs which seller may incur as a result of this procedure. This is a normal procedure in our TIC transactions, and has been acceptable to all other sellers we have dealt with, but wanted to give you and the seller a 'heads up' that this price adjustment will appear in our P&S agreement comments. [¶] Thanks!" The pleading again alleges the only disclosures to the investors regarding the $1.3 million was that it was a commission to be paid by the sellers.
Ahern described in the third amended complaint his pre-investment due diligence, which included discussions with AMC's principal and one of the accountant defendants regarding the fees and costs associated with the investment. He also alleged post-investment review of various accounting and tax statements provided by AMC and the accountant defendants that continued to classify the $1.3 million and $1.25 million as if they were commissions in a conventional real estate transaction rather than syndication fees.
b. Chicago Title's role in the investments
The third amended complaint includes 10 causes of action against Chicago Title: "breach of contract, statutory and fiduciary duties" (sixth cause of action); constructive fraud (seventh cause of action); intentional misrepresentation (eighth cause of action); fraud by concealment (tenth cause of action); conversion (eleventh cause of action); disgorgement (twelfth cause of action); unfair business practices (thirteenth cause of action); accounting (fourteenth cause of action) and aiding and abetting financial elder abuse (seventeenth cause of action).
Ahern alleged AMC, in concert with the attorneys and accountants named as defendants, used Chicago Title for escrow and title services because AMC knew it could work with Chicago Title, through the use of double escrows, to hide the true facts, including the actual purchase price, in each of the tenancy-in-common investment transactions. He specifically alleged that, in arranging double escrows, Chicago Title knew of the illegal real estate commission and secret markup that was being used to inflate the price, hide who was paying the commission and hide the secret profits, commissions and fees being taken by various other defendants. He further alleged, on information and belief (and based on evidence yet to be discovered), that Chicago Title was aware of AMC's wrongful activities and assisted it in benefiting from those activities.
Ahern alleges Chicago Title Company and Chicago Title Insurance Company were joint venturers and each other's agent in connection with the tenancy-in-common investments, aided and abetted each other in breaching their obligations to him, and are alter egos.
c. Delayed discovery
Ahern alleged he first became aware of the actual purchase price of the Amlap and Aerovault properties and the existence of the hidden syndication fees falsely identified as commissions in April 2012 when he was contacted by a lawyer in connection with the lawyer's investigation of a case brought by another AMC investor. He further alleged nothing between acquisition of the two investments in 2006 and April 2012 put him on notice of this information and he did not suspect, nor did he have reason to discover, that the purchase price for the properties, as represented to the investors, had been marked up to include syndication fees to be paid by the investors. To the contrary, periodic property accountings for financial statement purposes provided by AMC and the defendant accountants as part of AMC's asset management services "concealed the true facts having classified the $1,300,000 and $1,250,000 ratably as a tangible asset as part of land/building when syndication fees were required by disclosure, tax and accounting rules to be broken out separately as intangible assets reducing land/building values and separately classified in the balance sheet as an 'intangible asset' amortized over 180 months for income tax purposes."
4. Chicago Title's Demurrer
Chicago Title again demurred, arguing all causes of action alleged against it were barred by the statute of limitations; the negligence-based causes of action failed because, as a matter of law, Chicago Title did not owe Ahern any of the purported duties of care; and the claims for fraud failed to allege specific facts necessary to state a valid cause of action.
After noting the limitations period for Ahern's claims ranged from two to four years and the lawsuit was filed nearly six years after the Amlap and Aerovault investments had been made, Chicago Title again argued Ahern was collaterally estopped from asserting delayed discovery by virtue of our decision in Stella, supra, 8 Cal.App.5th 181, which had rejected a similar claim of delayed discovery and affirmed a judgment of dismissal after the trial court sustained a demurrer without leave to amend. Although Ahern was not a party to that lawsuit, Chicago Title asserted issue preclusion applied because he was making the same claims, against the same defendants, "based on virtually identical transactions, arising out of the same language in their respective Offering Memorandums." Even without collateral estoppel, Chicago Title argued, the language in the various offering materials provided the investors adequately disclosed the commissions, sales loads and risks of the investments, putting Ahern and the others, at minimum, on inquiry notice of their potential claims.
As an alternate ground for its demurrer, Chicago Title argued escrow holders owe only a limited fiduciary duty to the depositors in escrow to remain neutral and strictly follow the escrow instructions, not a duty to police the affairs of the parties or advise them of the risks of a transaction. Because Ahern did not allege Chicago Title failed to follow the escrow instructions (or even attach a copy of the instructions to his pleading), his causes of action based on breach of duty (identified as the sixth, seventh and tenth causes of action) failed. As for the fraud-related claims (identified as the eighth, ninth and tenth causes of action), Ahern did not allege Chicago Title made any misrepresentations and, it contended, failed to adequately allege facts demonstrating it assisted any of the other defendants in defrauding the investors. Specifically, the third amended complaint failed to allege facts showing that Chicago Title had any knowledge the commission being charged was a hidden syndication fee.
Although the demurrer itself contended each of the 10 causes of action naming Chicago Title failed to state facts sufficient to constitute a cause of action, the supporting memorandum argued that ground for demurrer only as to the sixth, seventh and tenth causes of action based on lack of duty and the eighth, ninth and tenth causes of action based on inadequate allegations that Chicago Title had aided and abetted fraud by other defendants.
Ahern filed an opposition, arguing, in part, issue preclusion did not apply because the disclosures regarding the commission made to prospective limited partners in the property information package at issue in Stella were materially different from the disclosures made in offering materials provided to the tenants in common in this case. Ahern also requested leave to amend to add factual allegations if the court believed he had insufficiently pleaded Chicago Title's breach of duty or its role in assisting the investor fraud.
5. The Court's Ruling Sustaining the Demurrer Without Leave To Amend
Argument at the hearing on Chicago Title's demurrer, as well as the concurrently filed demurrer by CBRE, focused on the adequacy of the disclosure regarding the $1.3 million commission, that is, whether Ahern was on notice that it was not actually being paid by the seller of the property. At the conclusion of the hearing the court sustained the demurrer without leave to amend, adopting its tentative ruling.
Referring to its ruling sustaining the demurrers to the second amended complaint, the court stated, "As discussed previously [citation], the Court rejects Plaintiffs' argument that they were not on inquiry notice until they consulted with their attorneys here in 2012. The Court likewise rejects Plaintiffs' argument that the commission was not disclosed in the Private Placement Memorandum." The court sustained the demurrer without leave to amend, explaining it was unconvinced the defect in the pleading could be remedied by amendment.
In considering CBRE's demurrer, the court also addressed whether the delayed accrual doctrine applied to Ahern's fraud allegations concerning statements in the investor materials relating to the likelihood the then-current tenant in the Amlap property would renew its lease. Ahern does not allege Chicago Title assisted in those misrepresentations, and this issue is not before us.
Judgment was entered on November 26, 2019. Ahern filed a timely notice of appeal.
DISCUSSION
1. Standard of Review
A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the trial court's ruling on a demurrer and determine de novo whether the pleading alleges facts sufficient to state a cause of action or discloses a complete defense. (Mathews v. Becerra (2019) 8 Cal.5th 756, 768; T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162.) We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) However, we are not required to accept the truth of the legal conclusions pleaded in the complaint. (Mathews, at p. 768; Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) We liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 726; see Schifando, at p. 1081 [complaint must be read in context and given a reasonable interpretation].)
A demurrer based on an affirmative defense will be sustained only where the face of the complaint and matters judicially noticed clearly disclose the defense or bar to recovery. (See Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 224; see also Stella, supra, 8 Cal.App.5th at p. 191; Marina Tenants Assn. v. Deauville Marina Development Co. (1986) 181 Cal.App.3d 122, 130-132.) If "'the complaint's allegations or judicially noticeable facts reveal the existence of an affirmative defense, the "plaintiff must 'plead around' the defense, by alleging specific facts that would avoid the apparent defense. Absent such allegations, the complaint is subject to demurrer for failure to state a cause of action."'" (Esparza v. County of Los Angeles (2014) 224 Cal.App.4th 452, 459.)
"'Where the complaint is defective, "[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint."'" (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 970-971.) We determine whether the plaintiff has shown "in what manner he [or she] can amend [the] complaint and how that amendment will change the legal effect of [the] pleading." (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) "[L]eave to amend should not be granted where . . . amendment would be futile." (Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 685; see generally Ivanoff v. Bank of America, N.A., supra, 9 Cal.App.5th at p. 726; Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 618 [the burden of proving a reasonable possibility that the complaint's defects can be cured by amendment "'"is squarely on the plaintiff"'"].)
2. The Delayed Discovery Rule
"The limitations period, the period in which a plaintiff must bring suit or be barred, runs from the moment a claim accrues." (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191.) Traditionally, a claim accrues "'"when [it] is complete with all of its elements"—those elements being wrongdoing, harm, and causation.'" (Ibid.; accord, Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 815.) "This is [known as] the 'last element' accrual rule." (Aryeh, at p. 1191.)
An exception to the general rule of accrual is the delayed discovery rule, "which postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) "Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110.) In other words, the limitations period begins "'once the plaintiff has notice or information of circumstances to put a reasonable person on inquiry. [Citation.] Subjective suspicion is not required. If a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation.'" (McCoy v. Gustafson (2009) 180 Cal.App.4th 56, 108; accord, Fox, at pp. 807-808; Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1251.)
"In order to rely on the discovery rule for delayed accrual of a cause of action, '[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.'" (Fox v. Ethicon Endo-Surgery, Inc., supra, 35 Cal.4th at p. 808.) "When a plaintiff reasonably should have discovered facts for purposes of the accrual of a cause of action or application of the delayed discovery rule is generally a question of fact, properly decided as a matter of law only if the evidence . . . can support only one reasonable conclusion." (Stella, supra, 8 Cal.App.5th at p. 193; accord, Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912, 921.)
3. Ahern's Claims Are Not Time-barred as a Matter of Law
a. Our decision in Stella v. Asset Management Consultants, Inc.
The parties agree, as did the trial court, that this court's analysis in Stella, supra, 8 Cal.App.5th 181 is central to determining whether, in light of the language of the tenancy-in-common offering materials, Ahern properly alleged the applicability of the delayed discovery rule.
Michael Stella was a limited partner investor in a number of tax-motivated investments in commercial real estate offered by AMC similar to the Amlap investment at issue in the case at bar. (See Stella, supra, 8 Cal.App.5th at p. 184.) The private placement memorandum for each limited partnership investment reported the total purchase price for the property being acquired and advised the prospective limited partners a real estate commission would be paid by the seller to AMC at closing. (Id. at pp. 185-186.) The limited partnership agreements signed by Stella repeated the private placement memoranda's description of the real estate commission. (Id. at p. 187.) The gravamen of Stella's lawsuit, like Ahern's, was that this description of a real estate commission to be paid by the seller of the property at closing was false: The payment was not a real estate commission but a syndication fee or markup, the economic burden of which was borne by the purchasers of the limited partnership units, not the seller of the real property. As a result of this fundamental misrepresentation, Stella alleged, the private placement memoranda contained additional false representations or misleading half-truths concerning the fair market value of the property, the appraised value of the property, the loan-to-cash value ratio and the compensation to be received by the general partner of the limited partnership. (Id. at p. 188.)
As noted, Stella also invested in a fractional tenancy-in-common interest in the Amlap property and was originally a plaintiff in this action.
A listing of "operating risks" in the risk factors section of the private placement memoranda received by the limited partners, however, included the following language: "'Market Value of Property. The purchase price of the Property has been negotiated to include a commission to be paid to [AMC] by the Seller (see 'General Partner's Compensation and Fees') in addition to other brokerage commissions owed by the Seller. Accordingly, the Seller would have sold the Property for a lower Purchase Price if it were not obligated to pay such commission. Although the General Partner believes that the Purchase Price fairly corresponds to the market value of the Property, and it is expected that the Property will be appraised for that amount by the lender financing the acquisition, there is no assurance that the Partnership will be able to sell the Property for such amount.'" (Stella, supra, 8 Cal.App.5th at p. 186.)
Stella conceded, because the misrepresentations and material omissions he alleged occurred at the time of each limited partnership transaction, absent application of the delayed discovery rule to postpone accrual of his causes of action, they were all barred by the governing two-, three- or four-year statutes of limitations. (Stella, supra, 8 Cal.App.5th at p. 192.) But Stella, like Ahern, pleaded he had first discovered the misrepresentations regarding the purchase price and seller-paid commissions in April 2012 following a conversation with counsel for investors in another limited partnership transaction sponsored by AMC. (Ibid.) Stella also alleged he had no reason to suspect the private placement memoranda were materially false prior to that time because he trusted AMC and its principals, with whom he had a 20-year investment relationship, and further alleged a reasonable investigation at the time of the limited partnership offerings would not have revealed the false representations and omissions because the defendants were the only sources of information concerning the investments. (Id. at pp. 192-193.)
Although acknowledging when a plaintiff reasonably should have discovered facts for purposes of the accrual of a cause of action or application of the delayed discovery rule is generally a question of fact (Stella, supra, 8 Cal.App.5th at p. 193), we affirmed the judgment of dismissal, holding Stella's claims were barred by the governing statutes of limitations. We explained Stella's allegations of delayed discovery failed as a matter of law "given the clear and specific statements in the private placement memoranda, which Stella admits he read and relied on, that the purchase price for the properties acquired by the limited partnerships had been negotiated to include the commission to be paid to AMC and related entities in addition to other brokerage commissions owed by the seller and the additional unambiguous explanation, 'the Seller would have sold the Property for a lower Purchase Price if it were not obligated to pay such commission.' Those disclosures provided actual notice that the investors, not the sellers of the property being acquired for the limited partnerships, bore the economic burden of the challenged 'real estate commission.' At the very least, those statements put Stella and other sophisticated investors who received the private placement memoranda on notice that further inquiry was necessary." (Ibid.)
b. Issue preclusion does not prevent Ahern from alleging delayed discovery
Although not the basis for the order sustaining its demurrer, Chicago Title contends in its respondent's brief, as it did in the trial court, that our decision in Stella, supra, 8 Cal.App.5th 181, and specifically our holding that the market value risk factor disclosure in the limited partnership private placement memoranda put sophisticated investors on inquiry notice regarding the true nature of the challenged commissions, precludes (collaterally estops) Ahern from asserting delayed discovery. Chicago Title's argument ignores a fundamental requirement for application of issue preclusion.
Chicago Title's contention Ahern forfeited his right to respond to this argument because issue preclusion was not addressed in his opening brief misapprehends appellate procedure. While it is true an appellant forfeits claims of error not raised and supported in the opening brief (see, e.g., Golden Door Properties, LLC v. County of San Diego (2020) 50 Cal.App.5th 467, 554-555), as explained in Orange County Water Dist. v. Sabic Innovative Plastics US, LLC (2017) 14 Cal.App.5th 343, 380 & fn. 13, the absence of a ruling by the trial court on additional grounds asserted by a defendant in support of a demurrer does not constitute "error" from an appellant's perspective. If, as here, one of those grounds is urged by the respondent as a basis for affirming the trial court's order, it is entirely proper for the appellant to rebut the argument in the reply brief.
Issue preclusion (historically referred to as collateral estoppel) applies "(1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party." (DKN Holdings LLC. v. Faerber (2015) 61 Cal.4th 813, 825.) "The 'identical issue' requirement addresses whether 'identical factual allegations' are at stake in the two proceedings." (Lucido v. Superior Court (1990) 51 Cal.3d 335, 342; accord, Miske v. Coxeter (2012) 204 Cal.App.4th 1249, 1259.)
As discussed, our holding in Stella was based on the language of the market value risk factor disclosures in the private placement memoranda for the limited partnerships at issue in that case. The parallel disclosures in the property information package for the tenancy-in-common investments in the case at bar were not the same: "Market Value of Property. The purchase price of the Property being acquired by the Co-Owners includes a commission to be paid to AMC by the Seller (see 'Manager's Compensation and Fees'). Accordingly, the Seller would have sold the Property for a lower Purchase Price if it were not obligated to pay such commission. Although the Manager believes that the Purchase Price fairly corresponds to the market value of the Property, and it is expected that the Property will be appraised for that amount by the lender financing the acquisition, there is no assurance that the Co-Owners will be able to sell the Property for such amount. Additionally, the purchase price of the tenant in common interests being paid by the TIC investors include [sic] an acquisition premium to be paid to AMC by each purchaser."
This disclosure to the prospective tenancy-in-common investors has two significant differences from the limited partnership disclosure. First, rather than specifically stating the purchase price for the property "has been negotiated to include a commission" to be paid to AMC by the seller, it simply states the purchase price includes a commission to be paid by the seller. Second, the final sentence of the tenancy-in-common disclosure, which expressly states the investors are funding an acquisition premium to be paid to AMC that is included in the price of their interests, is not included in the Stella disclosure.
Given these two differences, which we discuss in the following section, whether the language in this paragraph put Ahern on inquiry notice of the inflated purchase price of the tenancy-in-common properties is not the same question as the one we decided in Stella, supra, 8 Cal.App.5th 181. Issue preclusion does not apply. (See People v. Ruiz (2020) 49 Cal.App.5th 1061, 1069 [although issue preclusion is intended to prevent a second bite at the apple, "this is a different apple"].)
We question, but need not address, Chicago Title's argument privity exists between Ahern and Stella that would permit application of issue preclusion even if the market risk disclosures in the two cases had been identical. (See Rodgers v. Sargent Controls & Aerospace (2006) 136 Cal.App.4th 82, 93 ["representation of different plaintiffs in different cases by the same attorneys is not a factor that justifies imposition of collateral estoppel to preclude litigation of an issue by appellant as a nonparty to the prior actions, at least without evidence that through his attorney he participated in or controlled the adjudication of the issue sought to be relitigated"]; Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 299 ["'[N]otwithstanding expanded notions of privity,' due process requirements must be satisfied. [Citation.] The cases uniformly state that, in addition to an identity or community of interest between the party to be estopped and the losing party in the first action, and adequate representation by the latter, 'the circumstances must have been such that the party to be estopped should reasonably have expected to be bound by the prior adjudication'"].)
c. The disclosures in the property information package did not put Ahern on inquiry notice of the allegedly fraudulent nature of the real estate commission
As Ahern alleges in the operative pleading, AMC acted as the investors' real estate broker in the Amlap and Aerovault transactions and, as such, was responsible for negotiating the best purchase price available to the investors. In a conventional real estate transaction the seller pays the commissions of both the seller's broker and the buyer's broker from the proceeds of the sale. The payment of commissions, therefore, reduces the seller's net proceeds from the sale.
In this traditional scenario a willing seller relieved of the obligation to pay commissions should be amenable to selling the property at a lower price. The net proceeds will be the same in both situations. But the extent of the seller's obligations to pay commissions should be irrelevant to the buyer, who is interested in what it needs to pay, not how much the seller nets, unless the seller's commission obligation has been shifted to the buyer. In that circumstance, however, the willing buyer who assumes the unconventional obligation to pay a commission to its broker should be prepared to offer the seller less, not more, to buy the property or be willing for the cost of the acquisition to increase above fair market value.
Against this background, the risk factor disclosure in Stella and the case at bar that the seller would have sold the property for a lower purchase price if not obligated to pay a commission to AMC, without more, was tautological. What gave that statement significance and provided notice of the fraud in Stella was the additional disclosure that the purchase price actually had been negotiated to include the commission. (Stella, supra, 8 Cal.App.5th at p. 193.) In a conventional transaction the purchase price always includes a commission to be paid the buyer's broker by the seller, the anodyne statement in the tenancy-in-common offering materials. To actually negotiate the sale price to include a buyer's commission, however, is highly unusual and therefore should have warned the sophisticated investors in Stella that further investigation was necessary. (Ibid.) Indeed, our holding in Stella repeatedly referred in the plural to the "disclosures" and "statements" as providing notice, not just to the single, essentially economically meaningless statement relied upon by Chicago Title that the seller would have sold the property for a lower price without the commission to AMC. (Ibid.)
The misleading nature of the commission disclosure to the tenancy-in-common investors was exacerbated by the negative pregnant of the final sentence in this paragraph of the risk factor disclosures. By expressly stating an acquisition premium to be paid to AMC was included in the price of the tenant-in-common interests being paid by each investor, but not explaining the purchase price of the property itself has been grossed-up to make the investors also responsible for paying the commission to AMC, the paragraph implied the opposite was true and that, as would be typical, the buyer's broker's commission reduced the actual purchase price received by the seller.
Whether or not Ahern will ultimately be able to establish he had neither actual nor inquiry notice of the alleged fraud at issue in this litigation until April 2012, we cannot say at the pleading stage, as a matter of law, the applicable statutes of limitations bar his claims based on the disclosure in the property information package. (See generally Geneva Towers Ltd. Partnership v. City and County of San Francisco (2003) 29 Cal.4th 769, 782 [if it does not "clearly and affirmatively appear" on the face of the complaint and from matters properly subject to judicial notice that the action is barred by the statute of limitations, "the demurrer should have been overruled on this ground"]; United States Liability Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 597 ["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"].)
The court of appeal's decision in WA Southwest 2, LLC v. First American Title Ins. Co. (2015) 240 Cal.App.4th 148 (WA Southwest), which, together with our decision in Stella, supra, 8 Cal.App.5th 181, formed the legal framework for the trial court's ruling, does not suggest a different result. In that case investors who acquired tenant-in-common interests in a commercial real estate building alleged they had been misled by oral misrepresentations and deceptive statements about the "sales load" (described as fees, expenses and commissions paid) and degree of risk of the investment. (WA Southwest, at p. 152.) However, the private placement memorandum provided to the investors warned of the speculative nature of the investment and described the various sales load items they challenged. (Id. at p. 154.) The court of appeal affirmed the trial court's ruling sustaining demurrers on statute of limitations grounds, rejecting the investors' argument the statutes began to run only when they consulted tax and accounting experts six years after their investment: "The problem with this position is that the private placement memorandum provided to plaintiffs prior to their investments clearly disclosed the fees, expenses, and commissions that would be paid out of their cash investments, as well as the risky nature of the investments." (Id. at p. 157.) That information, the court held, put plaintiffs on notice of the falsity of any communications they may have received about the sales load, tax advantages or risk-free nature of the investments. (Ibid.)
Essential to the court's holding was that, in light of the disclosures in the private placement memorandum that contradicted the alleged oral misrepresentations, "[t]his is not a case in which the plaintiff 'possessed no factual basis for suspicion.'" (WA Southwest, supra, 240 Cal.App.4th at p. 157, quoting E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1326.) Here, in contrast (and in contrast to the situation in Stella), the market risk disclosures were not inconsistent with the oral representations concerning the amount of the sales load and nature of fees to be paid, as alleged by Ahern, and was apparently constructed so as not to alert the tenancy-in-common investors to the real nature of the commission to be paid AMC. On the limited record before us, there was no factual basis for suspicion.
4. Consideration of Chicago Title's Additional Grounds for Demurrer Is, as a Practical Matter, Premature in Light of Ahern's Proposed Amendments to the Complaint
In its demurrer to Ahern's first amended complaint, in addition to arguing all causes of action were barred by the statute of limitations, Chicago Title asserted Ahern had not sufficiently alleged causes of action against it for breach of contract, breach of fiduciary duty or aiding the purported fraud perpetrated by AMC and the other defendants. The demurrer was overruled, and Chicago Title answered the first amended complaint.
When demurring to the second and third amended complaints, Chicago Title again asserted Ahern's breach of duty and fraud causes of action were inadequately pleaded, grounds not reached by the trial court. In its respondent's brief Chicago Title urges us to address these arguments as an alternate basis for affirming the trial court's order sustaining its demurrer. In support Chicago Title cites case law limiting an escrow holder's fiduciary duties to strictly following the escrow instructions (e.g., Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711 (Summit Financial) ["an escrow holder 'has no general duty to police the affairs of its depositors'; rather, an escrow holder's obligations are 'limited to faithful compliance with [the depositors'] instructions'"]) and argues Ahern failed to allege how Chicago Title violated any provision of the escrows involving the Amlap or Aerovault transactions. (As discussed, Chicago Title points out that Ahern did not attach copies of the escrow instructions to his pleadings.) As for the fraud-related causes of action, Chicago Title quotes Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1145, that "California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted," and argues the third amended complaint alleges no facts to show it had knowledge the commissions being charged to the investors were hidden.
Ahern notes Chicago Title does not argue on appeal he inadequately pleaded his eleventh through fourteenth and seventeenth causes of action for conversion, disgorgement, unfair business practices, accounting and aiding and abetting financial elder abuse.
In his reply brief Ahern argues the third amended complaint does not purport to ground Chicago Title's liability on its failure to police the affairs of the parties, but rather alleges Chicago Title, with knowledge the actual purchase prices had been marked up and misrepresented to the investors, performed the escrows in a manner that concealed the misrepresentations—allegations he insists are sufficient to establish both breaches of duty and aiding and abetting fraud by Chicago Title. Ahern emphasizes the Supreme Court's description of the limited nature of an escrow holder's duties in Summit Financial, supra, 27 Cal.4th 705, relied upon by Chicago Title, was expressly premised on the absence of any evidence of fraud: "[T]here is no evidence CTLC was aware of any collusion or fraud in the fund disbursement that would have adversely affected any party to the escrow." (Id. at p. 711.)
In addition to arguing he sufficiently alleged Chicago Title breached duties owed to him and knowingly assisted the fraud perpetrated on the tenancy-in-common investors, in his reply brief Ahern identified proposed amendments he asserts would cure any pleading deficiencies. The third amended complaint alleges Chicago Title knew about the purchase price and seller-paid buyer's broker's commission misrepresentations made to Ahern. Ahern states he can amplify this charge by alleging on information and belief that individuals from Chicago Title, including Irene Meltzer, had one or more secret meetings with one of the principals or agents of AMC, one or more of the attorney defendants and one or more of the accountant defendants at which it was agreed Chicago Title would not report to the investors the property purchase prices had been marked up to disguise the investors' payment of a syndication fee to the promoters. He also states he can amend to allege escrow instructions were comprised of a series of writings in Chicago Title's files prior to the close of escrow, including the selling broker's commission instructions based on the actual purchase prices, rather than the grossed-up prices.
In light of Ahern's willingness to amend the pleading to respond to several of the specific objections raised by Chicago Title, as a practical matter it is most efficient to permit him to make those amendments and then, if Chicago Title still wishes to challenge the sufficiency of the allegations by demurrer, for the trial court to consider the issue in the first instance. Even if we were to agree with Chicago Title's arguments based on the allegations in the third amended complaint—an issue we do not reach—the defects asserted are not irremediable; and the proposed amendments are significant enough that we would grant Ahern leave to amend. (See Sierra Palms Homeowners Assn. v. Metro Gold Line Foothill Extension Construction Authority (2018) 19 Cal.App.5th 1127, 1132 [plaintiff may meet burden of proving an amendment would cure a legal defect for the first time on appeal].) It makes far more sense to resolve the pleading issue without multiple additional steps.
DISPOSITION
The judgment, including the award of costs, is reversed; and the cause remanded with directions to the trial court to vacate its order sustaining without leave to amend the demurrer of Chicago Title to all causes of action asserted against it and to enter a new order permitting Ahern to file a fourth amended complaint. Ahern is to recover his costs on appeal.
PERLUSS, P. J.
We concur:
SEGAL, J.
Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.