Opinion
G052063
05-08-2017
ARI-SCC 3, LLC, et al., Plaintiffs and Appellants, v. JOSEPH J. BLAKE AND ASSOCIATES, INC., et al., Defendants and Respondents.
Catanzarite Law Corporation, Kenneth J. Catanzarite, Nicole M. Catanzarite-Woodward and Eric V. Anderton for Plaintiffs and Appellants. Gaglione, Dolan & Kaplan, Robert T. Dolan and Jack M. LaPedis for 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. JCCP 4811 / 30-2011-00516849) OPINION Appeal from a judgment of the Superior Court of Orange County, Gail Andrea Andler, Judge. Affirmed. Catanzarite Law Corporation, Kenneth J. Catanzarite, Nicole M. Catanzarite-Woodward and Eric V. Anderton for Plaintiffs and Appellants. Gaglione, Dolan & Kaplan, Robert T. Dolan and Jack M. LaPedis for Defendants and Respondents.
Last summer this court considered seven appeals arising from Judge Gail Andler's March 2014 rulings on 49 motions made in eight different superior court cases in a single minute order. Those appeals presented similar fact patterns and had overlapping legal issues. We will now consider another appeal arising from the same 2014 order: This appeal is functionally identical to one we already decided, ARI-SCC 3, LLC v. Burch & Company, Inc. (June 23, 2016, G050847) [nonpub. opn.] (ARI-SCC 3 I).
The gist of the complaint is that 22 plaintiffs invested in property, and certain costs and other information about the investment was allegedly concealed from them. The ARI-SCC 3 I opinion discussed at length how the costs were disclosed to plaintiffs in a Private Placement Memorandum (PPM) they received before investing. We agreed with Judge Andler's conclusion plaintiffs were put on notice of their claim from the outset and their claims were time barred. (ARI-SCC 3 I, supra, G050847.) The other information allegedly hidden from plaintiffs was that the Property's anchor tenant, Medtronic, would likely be moving to a new office campus and not renewing its lease (the Medtronic misrepresentation). Based on our review of the allegations related to this issue, we affirmed the ruling sustaining the four defendants' demurrers without leave to amend this claim. (Ibid.)
In the ARI-SCC 3 I appeal the defendants/respondents were LaSalle Bank, N.A. (LaSalle), the real estate broker CBRE, Inc., the securities broker and dealer, Burch & Company (Burch), and the law firm Hirschler Fleischer (Hirschler).
We now consider Judge Andler's ruling in favor of three other defendants, Joseph J. Blake and Associates, Michael J. Maglocci (Maglocci), and Leon Sweet (Sweet). The complaint alleged Maglocci and Sweet, "principals" at Blake, prepared an appraisal of the Property used by LaSalle before lending money to "the ARGUS Defendants." These three defendants will be referred to collectively as Blake unless the context requires otherwise.
Plaintiffs concede only the Medtronic misrepresentation is applicable to Blake. Their brief on appeal is essentially identical to the one filed in ARI-SCC 3 I, except all arguments relating to the cost misrepresentations were removed. We conclude the contentions on appeal lack merit, and we affirm the judgment.
FACTS
The following factual allegations are derived from the third amended complaint (TAC). Because we have described the allegations in detail multiple times before, we will present a simplified version of the TAC, focusing on the specific allegations concerning the Medtronic misrepresentation.
The 22 appealing plaintiffs are all Delaware limited liability companies (ARI-SCC 3, LLC; ARI-SCC 4, LLC; ARI-SCC 8, LLC; ARI-SCC 10, LLC; ARI-SCC 11, LLC; ARI-SCC 13, LLC; ARI-SCC 14, LLC; ARI-SCC 18, LLC; ARI-SCC 19, LLC; ARI-SCC 20, LLC; ARI-SCC 21, LLC; ARI-SCC 22, LLC; ARI-SCC 23, LLC; ARI-SCC 25, LLC; ARI-SCC 26, LLC; ARI-SCC 27, LLC; ARI-SCC 28, LLC; ARI-SCC 30, LLC; ARI-SCC 31, LLC; ARI-SCC 33, LLC; ARI-SCC 35, LLC; ARI-SCC 39, LLC). For convenience and clarity we will refer to the appealing ARI-SCC entities collectively as Plaintiffs.
The case concerns Plaintiffs' failed multi-million dollar investment in commercial real estate. In 2005 and 2006, Plaintiffs invested in five office buildings known as Shoreview Corporate Center in Shoreview, Minnesota (the Property). The transaction was promoted by ARI-SCC, LLC (the Company), and its related entities and affiliates, referred to collectively by the parties as the "ARGUS Defendants."
The trial court sustained the ARGUS Defendants' demurrer, however, these entities are not parties to this appeal.
The purchases were part of an Internal Revenue Code section 1031 exchange (1031 exchange), which allowed Plaintiffs to defer capital gains taxes on the sale of other real estate assets they owned. However, all did not proceed as planned and the investment property was foreclosed upon.
In 2012, Plaintiffs (in a class action complaint) sued 30 defendants including Blake. The operative TAC alleges 15 causes of action and groups the defendants into three categories ("Class Defendants" subject to the class action claims, "Non-Class Defendants" subject to individual claims, and "Doe Defendants"). Blake is one of the Class Defendants and is only named in the third cause of action for intentional misrepresentation and the fourth cause of action for fraudulent concealment.
In the TAC, Plaintiffs expected to unravel the whole failed investment on the grounds they would not have invested in the Property had they known the total up-front costs, or "Sales Loads," actually exceeded the 15 percent capital gains tax they sought to defer by making the investment. Specifically, they alleged there was an undisclosed $1,440,000 mark up in the purchase price. The details of the transaction were described at length in ARI-SCC 3 I, which we incorporate here by reference.
Plaintiffs also alleged they were misled about the Property's value. Specifically, the TAC alleged the ARGUS Defendants misrepresented the Property's anchor tenant, Medtronic, had a 50 percent chance of renewing the lease. Plaintiffs claim they should have been told there was no chance of renewal because Medtronic was developing new office space. The TAC alleged the leases were set to expire in 2007 and 2009 and accounted for 38 percent of the Property (209,250 square feet). It further alleged that on October 24, 2005, Medtronic purchased a golf course site a few miles away from the Property and it was constructing a new office campus, adding 1,500,000 square feet of office space to the area. The TAC stated the following: "Thus, a 0 [percent] assumption was required along with a full disclosure of all known facts. The misrepresentation concealing the additional office space is material as the historically low absorption market area resulting in high vacancy and decreased rents leading to lower office property valuations, not higher."
In the cause of action alleging intentional misrepresentation, Plaintiffs alleged, "[Blake] aided and abetted the ARGUS Defendants by preparing an appraisal (the 'Appraisal') which reflected a 75 [percent] probability that Medtronic would renew its leases when in fact he/it/they knew the substantial information that Medtronic would not renew for the reasons stated above. The Appraisal was:
"a. Known by [Blake] to be disseminated to [P]laintiffs and the Class and intended to be relied upon by them in making the decision to invest in the securities;
"b. Used by [LaSalle] in making the loans; and
"c. Otherwise used to market and promote the sale of the securities."
The cause of action alleging fraud by concealment raised the same underlying facts as the intentional misrepresentation claim. Plaintiffs asserted all defendants collectively disclosed some facts "but intentionally failed to disclose other important facts thereby making the disclosure deceptive." This cause of action does not specifically refer to an action or concealment by Blake.
The trial court took judicial notice of the PPM. Relevant to this appeal, the PPM disclosed a long list of risk factors concerning the investment. The very first "Real Estate Risk[]" mentioned concerned tenant occupancy rates. In bold and italic lettering the PPM warned, "Most of the leases for the Property expire within the next five years, including a lease and sublease with Medtronic, Inc., which account collectively for 37.85 [percent] of the net rentable square feet at the Property." (Emphasis omitted.)
The bold and italicized risk warning was followed by a lengthy paragraph disclosing the timing of lease expirations and how loss of this income could eventually lead to foreclosure of the property. The PPM warned as follows: "Unless extended by the tenants, the leases with tenants of the Property representing approximately 81.84 [percent] of the net rentable square feet currently leased at the Property will expire within the next five years, with 12.07 [percent] expiring in 2006, 3.03 [percent] expiring in 2007, 40.89 [percent] expiring in 2008 and 28.88 [percent] expiring in 2009. In particular, Medtronic, Inc. directly leases 14.98 [percent] of the net rentable square feet at the Property and subleases 22.87 [percent] . . . from Deluxe Financial Services, Inc., for an aggregate of 37.85 [percent] . . . . Medtronic's direct lease expires in July 2008 and its sublease expires in September 2009. Medtronic is undergoing corporate expansion and is developing a large campus north of the Property, and, therefore, may not renew its lease or sublease." (Italics added.) This portion of the PPM clearly advised potential investors that there were multiple tenants that may not extend their leases. In particular, Medtronic (directly leasing 14.98 percent) was discussed. The PPM disclosed Medtronic may not renew because it was building its own campus "north of the Property." Thus, the PPM disclosed Medtronic's new construction of additional office space in close proximity to the Property.
We note Medtronic's direct lease was less than 20 percent of the total amount of space subject to soon-to-expire leaseholds, i.e., it directly leased only 14.98 percent of the 81.84 percent of the net rentable square feet.
The next section of the real estate risk warning paragraph said it was projected that 75 percent of all expired leases would renew, including an 80 percent "renewal probability" of Land O'Lakes lease, but only a "50 percent renewal probability" with respect to the Medtronic lease and sublease. The PPM further disclosed, "If Medtronic or the other tenants do not renew their leases or downsize the space they have leased, the Property would suffer vacancy when the leases expire and no assurances can be given that the Property Manager would be successful in releasing the vacant space." The PPM explained that if the space is not re-leased, the property would not perform "as contemplated" and "[i]n a worse case scenario" the rental income would not be sufficient to "make the debt service payments on the Loan." If this occurred, the PPM stated the lender could foreclose and "the investors could suffer a complete loss on their investment and material adverse tax consequences." Thus, to summarize, the PPM said from a probability standpoint it was the same as coin toss whether Medtronic would renew its direct lease or sublease. The PPM made no promises about Medtronic releasing the property. To the contrary, it spelled out in detail the worst case scenario if Medtronic and other tenants failed to renew, i.e., foreclosure.
In its demurrer, Blake argued Plaintiffs "failed to plead with specificity and certainty any facts in the TAC as to any liability as to [Blake]." It noted the only allegations in the TAC under the intentional misrepresentation claim directed towards Blake was its role in preparing an appraisal that reflect a 75 percent probability Medtronic would renew its lease and Blake knew Plaintiffs would rely on this information. "However, nowhere in the TAC does it provide any support for a relationship between [Blake] and [P]laintiffs. Nowhere in the TAC does it state that [P]laintiffs . . . relied on the . . . appraisal in deciding to make this investment. Furthermore, [P]laintiffs allege that the appraisal was 'otherwise used to market and promote the sale of the securities.' . . . But nowhere in the TAC does it state that [Blake's appraisal] was part of any marketing materials. [¶] Moreover, there is no connection mentioned in the TAC how the . . . appraisal . . . is related to [the ARGUS Defendant's] actions. The only tentative connection stated is with LaSalle Bank and . . . an Assistant Vice President of [LaSalle] in the Appraisal Risk Management Department worked up the appraisal of the property provided by [Blake.] It is unclear what 'worked up' means. The TAC never states that the . . . appraisal was distributed to the [P]laintiffs or that [they] ever admit relying on the information in that appraisal report."
As for the fraudulent concealment cause of action, Blake argued the TAC failed to allege facts with sufficient particularity. It noted, "Not a single defendant is specifically named."
In their opposition, Plaintiffs argued they pled the misrepresentations and omitted facts "in great detail." Plaintiffs explained the TAC alleged Blake was liable for aiding and abetting others in making negligent misrepresentations. They maintain the allegation Blake prepared a false appraisal to help obtain the loan was more than sufficient to establish "actual knowledge of the primary wrong." Plaintiffs maintained fraudulent concealment was also sufficiently pled. They argued it was not necessary to plead there was a relationship between themselves and Blake, all that was required were allegations Blake knew the appraisal was necessary for the loan and acquisition of the property.
In its reply, Blake asserted that within 439 paragraphs in the TAC, Blake is only mentioned in eight paragraphs. It argued those allegations do not support an aiding and abetting theory of recovery because there were no facts establishing Blake gave substantial assistance to others committing fraud. There were also no allegations to support the conclusion Blake had actual knowledge of the alleged fraudulent scheme.
Judge Andler sustained Blake's demurrers to the TAC, without leave to amend (in addition to ruling on the other 49 motions). Judge Andler did not specifically discuss the Medtonic misrepresentation when sustaining the multiple demurrers without leave to amend. Instead, she commented about the nature and history of the collection of ARI cases. She explained, "It is an understatement to say that much time and effort has been spent by counsel and the court discussing these pleadings, in some cases for years, in order to determine if a pleading could be crafted which could survive a challenge. Each version of each complaint generated demurrers and motions to strike. Although recognizing the valid concerns expressed by a number of defendants, leave to amend was previously granted in recognition of the great liberality the law provides for amending pleadings. There were specific discussions as to what the concerns were, and counsel for plaintiffs had asserted, at oral argument, that the deficiencies could and would be cured. . . . [P]laintiffs were put on notice as to the need to plead with greater specificity regarding the roles played by each of the defendants and their alleged acts or omissions. [¶] The court previously commented that plaintiffs appear in some of the pleadings to simply sue anyone and everyone who had anything to do with the transactions, regardless of how remote the participation of some of the defendants might be."
The trial court stated that in addition to sustaining the demurrers on statute of limitations grounds, the court also considered and ruled on causes of action for alternative grounds alleged by Defendants. For example, the court determined some of the fraud-based causes of action failed because Plaintiffs "still plead elements of . . . each cause of action in general terms-identifying the alleged responsible defendant by group, and failing to plead each element with specific facts. It strains credibility to believe that none of the plaintiffs have any recall or records on which to rely in sufficiently pleading these causes of action, given the nature of these transactions and the amount of money involved."
Judge Andler added the aiding and abetting allegations failed because Plaintiffs did not allege facts "that said defendants had 'actual knowledge' that the directly liable defendant intended to commit 'a specific wrongful act' and that said defendants gave substantial assistance to the directly liable defendant." The court repeated the pleadings were defective because, despite "having been previously admonished" by the court, Plaintiffs "have continued to use 'group pleading' for apparently related entities . . . and the parties must be able to differentiate the specific roles, acts and omissions alleged as to each defendant 'lumped together' in the group allegations." (Emphasis omitted.)
DISCUSSION
I. Standard of Review
"In conducting our de novo review, we 'must "give[ ] the complaint a reasonable interpretation, and treat[ ] the demurrer as admitting all material facts properly pleaded." [Citation.] Because only factual allegations are considered on demurrer, we must disregard any "contentions, deductions or conclusions of fact or law alleged . . . ."' [Citation.]" (WA Southwest 2, LLC v. First American Title Ins. Co. (2015) 240 Cal.App.4th 148, 151 (WA Southwest).) "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; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
Moreover, "As a general rule in testing a pleading against a demurrer the facts alleged in the pleading are deemed to be true, however improbable they may be. [Citation.] The courts, however, will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed." (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.) II. Two Fraud Causes of Action in the TAC
We begin our analysis by reviewing the elements required for a fraud cause of action. "'"The elements of fraud, which gives rise to the 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.]" (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173.) "Fraud must be pleaded with specificity rather than with '"general and conclusory allegations."' [Citation.] The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made. [Citation.] [¶] We enforce the specificity requirement in consideration of its two purposes. The first purpose is to give notice to the defendant with sufficiently definite charges that the defendant can meet them. [Citation.] The second is to permit a court to weed out meritless fraud claims 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.'"' [Citation.]" (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)
In making her ruling, Judge Andler did not directly discuss the issues raised in Blake's demurrer or the Medtronic allegations. However, in sustaining the demurrers she reminded the parties of prior discussions about the need for pleading allegations with greater specificity and concluded some claims failed for lack of certainty. On appeal, Plaintiffs argue the court erred in concluding the TAC was uncertain because they clearly defined Blake's "roles, acts, and omissions." Plaintiffs also maintain the court erroneously concluded their theories of liability against Blake were unclear. They maintain the TAC clearly indicated the intentional misrepresentation claim was based on an aider and abettor theory of liability, whereas the fraudulent concealment claim alleged Blake was directly liable. In addition, they argue the TAC contained ample specific facts to support both theories of recovery. We disagree. A. Aiding and Abetting Fraud
Plaintiffs assert there were sufficient facts to support the theory Blake was liable for aiding and abetting the ARGUS Defendants because they clearly described the nature of the real estate scam and the ARGUS Defendants' goal to obtain a profit from the investors. Indeed, they devote much of their argument on appeal to repeating specific allegations supporting the conclusion the ARGUS Defendants' made multiple intentional misrepresentations in connection with their fraudulent scheme, including false representations to mark up the purchase price, misrepresentations regarding the costs falling below 11 percent, and that a commission was "'seller paid.'" Plaintiffs add the ARGUS Defendants also found it necessary to conceal that Medtronic would not be renewing its lease to show the investment property would "actually perform." Plaintiffs allege the ARGUS Defendants concealed "the inevitable failure of the Property when Medtronic vacated the premises." We agree the multiple layers of this purported scam were described with specificity in the TAC. However, what was plainly missing from the complaint were allegations specifically supporting Blake's liability for the primary wrong committed by a large group of defendants having no clear connection to Blake.
"California has adopted the common law rule for subjecting a defendant to liability for aiding and abetting a tort. '"Liability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person." [Citation.]' [Citation.]" (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1144 (Casey).)
"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. . . . [¶] In Howard v. Superior Court (1992) 2 Cal.App.4th 745, the court stated that '"[a]iding-abetting focuses on whether a defendant knowingly gave 'substantial assistance' to someone who performed wrongful conduct . . . ." [Citation.] [¶] . . . [A]iding and abetting . . . necessarily requires a defendant to reach a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.' [Citation.]" (Casey, supra, 127 Cal.App.4th at pp. 1145-1146.)
Here, Plaintiffs have not alleged Blake had actual knowledge of the entire fraudulent scheme orchestrated by the ARGUS Defendants, that Blake consciously decided to participate, or that Blake substantially assisted the ARGUS Defendants in running the sham 1031 exchange. Although there are many specific allegations regarding how the ARGUS Defendants and others prepared the PPM, advertised the investment, and persuaded investors to participate in a complex "real estate scam" profiting those directly liable defendants, there are no allegations suggesting Blake unduly profited.
Plaintiffs assert the aiding and abetting theory was supported by the following two allegations: (1) Blake prepared an appraisal that dishonestly represented Medtronic renewal chance was 75 percent, when it should have said zero chance of renewal; and (2) Blake knew the appraisal was being used to obtain a loan on the investment property. They conclude these two allegations "are sufficient to establish actual knowledge of the primary wrong." No so. There are no allegations connecting this appraisal to the ARGUS Defendants' complex scheme, involving many misrepresentations unrelated to the appraisal.
Similarly, allegations to establish the element of "substantial assistance" with the fraudulent plan were missing from the TAC. Plaintiffs argue it was sufficient to allege Blake prepared an incorrect appraisal that was necessary to acquire the loan. However, more was required. The TAC is silent as to the relationship of the appraiser and the other wrongdoers or that Blake understood its role in this multi-layered and complex fraud. It cannot be assumed that when an appraiser agrees to prepare a report for a bank, the appraiser is also making a "conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.' [Citation.]" (Casey, supra, 127 Cal.App.4th at p. 1146.)
Plaintiffs argue the complaint could be amended to say the following additional facts concerning Blake's "fraud and participation in the fraud": (1) LaSalle made Blake agree to provide a draft "for review and any recommended edits" from LaSalle before it submitted the final version; (2) Blake knew the Medtronic's lease renewal risk was not accurately disclosed in the PPM; (3) Blake knew the appraisal would support and be referred by the PPM. Plaintiffs conclude these facts further support the conclusion Blake knew of the PPM's misrepresentations. We disagree.
The first "fact" does not appear to establish any causal connection. Plaintiffs appear to be suggesting, without any supporting legal authority, that it was wrong for the bank's appraiser to forward a draft report to the bank. However, they do not allege the lender made edits or that Blake improperly incorporated any third party edits into the final appraisal. Further allegations would be required to explain how this tangential fact supports an aiding and abetting theory with the ARGUS Defendants.
Similarly, the allegation Blake knew the PPM was inaccurate does not assist Plaintiffs because aiding and abetting depends on proof Blake had "actual knowledge" of the true nature of the entire real estate scam and gave substantial assistance to the directly liable defendant (the ARGUS Defendants). There are no allegations describing any relationship between Blake and the ARGUS Defendants, or between Blake and the Plaintiffs. Rather, it is alleged Blake was asked to prepare the appraisal for LaSalle's benefit. We cannot infer from this relationship that Blake consciously and knowingly agreed to participate in the ARGUS Defendant's sham 1031 venture. Similarly, the proposed third "new fact" is insufficient because it is too conclusory and lacks specificity. When and what was communicated to who at Blake regarding the use of the appraisal in the PPM?
We conclude the pleadings in the TAC were insufficient to support an "aiding and abetting" claim against Blake. We agree with the trial court's decision the complaint failed to allege facts to support the conclusion Blake had "'actual knowledge' that the directly liable defendant intended to commit 'a specific wrongful act' and that [Blake] gave substantial assistance to the directly liable defendant." B. Direct Liability for Fraud
Plaintiffs maintain the cause of action for fraudulent concealment "sufficiently alleges [Blake was] directly liable." They acknowledge the cause of action "consists of allegations against all defendants generally" but also "only advances a direct theory of liability against" them all. Plaintiffs point out this cause of action does not mention the phrase "aiding and abetting" or "vicarious liability." In addition, Plaintiffs contends the TAC sufficiently alleged Blake had an affirmative duty to prepare an appraisal representing there was no chance of Medtronic renewing the lease. "Having included misleading information in the appraisal Blake . . . would owe a duty to disclose facts necessary to make that information not misleading." Plaintiffs point out that the TAC alleged Blake "knew that the appraisal was necessary for formation of the loan and acquisition of the property and for the sale" to the ARGUS Defendants. Plaintiffs argue Blake, "having been initially engaged by LaSalle," is not protected from liability for including "misleading information" in the appraisal because a separate duty arises from Blake's agreement to volunteer information to the investors.
We agree this cause of action appears to be based on a theory of direct liability as to all defendants. But only that much is clear. The same cannot be said about the allegations connecting Blake's appraisal to any actionable misconduct. As noted in the trial court's minute order, "Plaintiffs were put on notice as to the need to plead with greater specificity regarding the roles played by each of the defendants and their alleged acts or omissions." The court previously cautioned Plaintiffs to stop simply suing anyone who had anything to do with the transaction. Apparently this warning went unheeded. The cause of action simply pleads all defendants concealed all the same facts, making "the disclosure deceptive."
Second, there is no legal or factual support for Plaintiff's theory Blake created an affirmative duty of disclosure to all parties by agreeing to prepare an appraisal for the bank. They do not allege any relationship, contractual agreement, or statute created a duty of disclosure to Plaintiffs. In the briefing, they maintain a duty arose simply because Blake volunteered information to Plaintiffs. However, the cases they rely on do not support their unique theory of recovery.
"It goes without saying that no one can be liable in tort for causing injury to another unless he, or someone whose conduct is attributed to him, was legally obligated to act differently. Liability cannot arise from silence unless the law commands the defendant to speak. [¶] A duty to speak may arise in four ways: it may be directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; and it may arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent." (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 867 (Blickman Turkus).) Plaintiffs rely on the Blickman Turkus case to support their theory Blake's agreement to appraise the property for the bank was sufficient to make it wrongful for Blake to remain silent about the true nature of the Medtronic lease issue. They misread the case.
In the Blickman Turkus case, "The primary question [was] whether a realtor who represented the lessee in a complex commercial lease transaction had a duty to inform the lessor, after the lease was signed but before the lessee took possession, that the lessee's ability to perform the conditions of the lease was jeopardized by its deteriorating financial condition." (Blickman Turkus, supra, 162 Cal.App.4th at p. 864.) The appellate court affirmed the trial court's ruling "the lessor had failed to plead facts sufficient to establish any duty on the realtor's part to disclose this information." (Ibid.)
After defining the elements of a concealment action, the court noted the parties focused on the second element requiring that the defendant be under a duty to disclose the concealed or suppressed material fact. (Blickman Turkus, supra, 162 Cal.App.4th at p. 869.) However, before reaching that issue, the court stated there were other deficiencies in the pleading. "[L]iability for concealment requires that the defendant have 'suppressed the fact with the intent to defraud the plaintiff.' [Citation.] . . . . It is not enough that the misstatement (or concealment) actually harmed the plaintiff; it must have been made by the defendant with the intent to induce action (or inaction) by the plaintiff." (Ibid.) The court concluded the allegations failed to assert the realtor intended to induce action or inaction.
As for the issue of duty, the court disagreed with the Lessor's argument a realtor has a fundamental duty to be truthful and honest to all parties in the transaction. (Blickman Turkus, supra, 162 Cal.App.4th at p. 872.) The court recognized there was case authority imposing a duty of disclosure on realtors, however, "[t]he holding there rested on a duty peculiarly imposed upon the seller's agent to disclose inobvious facts affecting the value of the property." (Id. at p. 874, italics omitted.) The court found the case inapplicable because in the Blickman Turkus case the realtor represented a buyer (not the seller), the transaction involved commercial and not residential property, and the concealed matter did not relate to the value of the property or the desirability of the transaction. (Ibid.) It found no reason to extend a duty to the realtor in the case before it. There were no allegations the Lessor "was ever led to believe, or did believe, or rationally could have believed" the realtor was representing its interests. (Id. at p. 876.)
We conclude the Blickman Turkus case does not assist Plaintiffs. Blake is neither a realtor nor an agent of either the buyer or seller. Moreover, in this transaction one of the ARGUS Defendants purchased the property, after borrowing money from LaSalle, and then offered tenancy in common interests to investors. Thus, Blake was hired by LaSalle to prepare an appraisal before the property sold to the ARGUS Defendants, not Plaintiffs. The case does not support the theory LaSalle's appraiser owed a duty to disclose information to parties not directly concerned with LaSalle's loan to the ARGUS Defendants. We found no allegations in the TAC to support the theory Blake prepared the appraisal for LaSalle with the intention to "induce action" by potential investors not involved in the original sale transaction.
The Plaintiffs also mistakenly rely on a case concerning whether the law firm representing one client in a merger transaction between two companies owed a duty to disclose the "toxic terms of a third party financing transaction." (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 287 (Vega).) The complaint alleged the law firm hid the existence of the toxic stock provision to induce action, i.e., make plaintiff give up valuable stock in exchange for worthless stock. (Id. at p. 290.) The firm had prepared a disclosure schedule detailing the "toxic" financing, but did not send a copy to plaintiffs, knowing the information would kill the deal. Instead, the firm participated in misrepresenting to plaintiff that the financing was "'standard' and 'nothing unusual'" and sent plaintiff's counsel a "'sanitized version' of the disclosure schedule which did not include the 'toxic' stock provisions." (Id. at p. 288.)
The court held that if an attorney commits fraud in his dealings with a third party "'"the fact he did so in the capacity of attorney for a client does not relieve him of liability."' [Citation.]" (Vega, supra, 121 Cal.App.4th at p. 291.) "[The law firm] specifically undertook to disclose the transaction and, having done so, is not at liberty to conceal a material term. Even where no duty to disclose would otherwise exist, 'where one does speak he must speak the whole truth to the end that he does not conceal any facts which materially qualify those stated. [Citation.] One who is asked for or volunteers information must be truthful, and the telling of a half-truth calculated to deceive is fraud.' [Citations.]" (Id. at p. 292.) The court stated the law firm did not give an inaccurate legal opinion but rather concealed "a material fact in a transaction the lawyers undertook to disclose[.]" (Ibid.)
We see no similarities between the allegations in Vega with the allegations here. Blake prepared a document for LaSalle. Plaintiffs have not explained how Blake would know the alleged inaccuracies would be relied on by anyone other than LaSalle. It is not alleged Blake specifically undertook to disclose the entire transaction to Plaintiffs. Blake was not involved in the negotiations and never contacted them. There are no allegations suggesting Blake prepared one document for the bank and intentionally falsified a second one, knowing it would be given to Plaintiffs. Additional allegations were required to explain who at the corporation directly made the false representation to Plaintiffs, what his or her intention was, and what Plaintiffs told about the appraisal. In addition, no explanation was offered as to why Plaintiffs could reasonably rely on the appraisal, ignoring many express and direct warnings contained in the PPM regarding tenant occupancy issues and the risk of foreclosure.
Finally, we find inapt Plaintiffs' cases, Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 (Bily), and Soderberg v. McKinney (1996) 44 Cal.App.4th 1760 (Soderberg). Our Supreme Court in Bily held an auditor may be liable to a third party who relies on an audit report containing negligent misrepresentations, as long as the auditor intended that the third party use the report. (Bily, supra, 3 Cal.4th at p. 376 [ordinarily no general duty of care to persons other than client].) And in Soderberg, the court extended this liability to a real estate appraiser retained by a mortgage broker because the appraiser also knew his report would be used by potential investors in the brokered loan. (Soderberg, supra, 44 Cal.App.4th at p. 1770.) In these cases, the accountant and appraiser issued documents with the unequivocal knowledge and intent it would be distributed and relied upon by those specific third parties.
Here, there are no specific allegations explaining why the appraiser, retained by the bank, also knew its report would be replied on a group of investors unconnected with the bank. And there are no allegations Plaintiffs actually relied on the statements made in the appraisal, which conflicted with more dismal percentages and risk assessments in the PPM. As noted by Blake, a fraud claim required allegations suggesting Blake intended to mislead or influence the Plaintiffs. (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 607 ["appraisal is a value opinion performed for the benefit of the lender, there is no representation of fact upon which a buyer may reasonably rely"]; Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1099 [lender appraising property used as security for loan owed no duty to borrower in preparing appraisal because its purpose was to protect lender not borrower].) III. Questions of Fact in the TAC
Plaintiffs assert the court erroneously decided questions of fact when ruling on the demurrer. They argue "a pivotal issue in the case" was what the PPM disclosed regarding the Property's purchase price. They add, "Notwithstanding [that Blake was] not alleged to have aided and abetted the costs misrepresentations . . . and that the court offered no discussion on the Medtronic misrepresentations . . . the trial court sustained [Blake's demurrer] on this basis." Not so.
Blake's demurrer did not contain any argument concerning what the PPM disclosed regarding the purchase price. Plaintiffs reply to Blake's demurrer did not mention it either. All the briefing concerned the two fraud claims based on the Medtronic issue. We found nothing in the court's ruling suggesting the PPM's purchase price disclosure was the reason it sustained Blake's demurrer without leave to amend. We have concluded Blake's demurrer to the two fraud claims was properly sustained without leave to amend because there were problems with specificity and certainty. These problems were discussed in general terms in the court's mega ruling. We need not consider an issue having no relevance to merits of the fraud claims alleged against Blake. IV. Discussion of Original Complaint—Unfair Competition Law (UCL) Cause of Action
We reviewed and rejected the cost misrepresentation issue in ARI-SCC 3 I, supra, G050847.
Plaintiffs argue Judge Andler improperly sustained demurrers to their UCL (Bus. & Prof. Code, §17200 et seq.) claim asserted in the original versions of the complaint. They explain her ruling was based on the determination the UCL did not apply to security transactions pursuant to Bowen v. Ziasun Technologies, Inc. (2004) 116 Cal.App.4th 777 (Bowen). They assert the case is no longer controlling.
Blake argues the UCL claim was deleted from the TAC and was not subject to Blake's demurrer to the TAC. Blake did not demur to the earlier versions of the complaint, and it was not the basis for the trial court's ruling dismissing Blake from the case. Blake concludes the argument is moot.
Plaintiffs did not include in the appellant's appendix any documents relating to the earlier rounds of demurrers. However, in their reply brief, Plaintiffs argue Blake received the benefit of the ruling on the second amended complaint (SAC) although it did not demur to it. They explain deletion of the UCL claim was not a voluntary dismissal of the claim and therefore the issue was not moot.
It is our task to review the complaint de novo to determine whether or not the complaint "alleges facts sufficient to state a cause of action under any legal theory[.]" (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879.) However, to establish Plaintiffs adequately pleaded the UCL claim, they "must show that [they] pleaded facts sufficient to establish every element of that cause of action. [Citation.] (Ibid.; Friendly Village Community Assn., Inc. v. Silva & Hill Constr. Co. (1973) 31 Cal.App.3d 220, 224-225.) Plaintiffs do not discuss the required elements of a UCL cause of action, refer to facts supporting their UCL claim, or provide legal authority to support the argument they alleged sufficient facts to overcome a demurrer. Instead, Plaintiffs limit their argument on appeal to attack the applicability of the Bowen case and cite case authority to support their theory Business and Professions Code section 17200 applies to a securities transaction. Thus, if we assume for the sake of argument (without deciding) Plaintiffs were right about the applicability of the Bowen case and right about the mootness issue, we would still affirm the judgment because Plaintiffs did not meet their burden of demonstrating error.
Finally, we note Blake did not demurrer to the earlier versions of the complaint and the UCL claim was deleted from the SAC. Our record does not contain copies of the successful demurrers filed by various defendants to the original complaint. Consequently, we cannot determine if there were other arguments raised in those demurrers that would have negated other elements of the UCL cause of action. Plaintiffs made no effort to take the basic steps of stating which facts properly establish any element of the UCL cause of action against Blake.
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
O'LEARY, P. J. WE CONCUR: BEDSWORTH, J. MOORE, J.