Opinion
G037032
6-6-2007
SHIRLEY BAXLEY et al., Plaintiffs and Appellants, v. CAMBRIDGE FINANCIAL MANAGEMENT, INC., Defendant and Respondent.
W. Patrick OKeefe, Jr., for Plaintiffs and Appellants. Palmieri, Tyler, Wiener, Wilhelm & Waldron, Michael H. Leifer and Norman J. Rodich for Defendant and Respondent.
NOT TO BE PUBLISHED
Shady Hollow Homeowners Association (the Association) sued Cambridge Financial Management, Inc. (Cambridge), the successor in interest to the developer of its project, alleging the developer committed fraud by conveying a long-term leasehold interest in a common area parcel rather than a fee interest. The trial court sustained Cambridges demurrer to the second amended complaint without leave to amend and dismissed the action as to Cambridge, finding the causes of action against it were barred by the statute of limitations. The Association appeals, claiming it pleaded sufficient facts to justify late discovery of the fraud. We affirm.
FACTS
The facts are taken from the second amended complaint. Shady Hollow, a 150-unit condominium development in Santa Ana, was built in 1974 by Warmington Development (Warmington) on land owned by the John and Vera B. Rohrs Trust (the Trust). The land was divided into three parcels; condominium units were built on parcels 1 and 3 in two phases, and the projects clubhouse and pool were built on parcel 2, which was designated as Common Area B. The Trust and Warmington established Shady Hollow Homeowners Association, naming five individuals who were agents of Warmington or the Trust as initial directors. The Trust and Warmington also executed a declaration of covenants, conditions and restrictions (CC&Rs) which bound all three parcels.
The Trust, as lessor, and Warmington, as lessee, entered into 150 long-term leases for 75 years, each of which covered one condominium unit and an undivided interest in the common area on parcels 1 or 3. Upon the sale of each condominium, Warmington assigned its interest under that condominiums lease to the purchaser and was thereby released from all obligations and liabilities with respect to that lease. The monthly rent for each condominium was either $42 or $44. The Trust and Warmington also entered into a long-term lease of Common Area B for a nominal rent of $1 for the entire term of 75 years.
When recorded in October 1974, the CC&Rs recited that Warmington was "presently the lessee of the Property under eighty-three separate residential condominium leases . . . as to Parcel 1 and one common area lot lease . . . as to Parcel 2." The document explained that the common area was divided into Common Area A and Common Area B. Common Area A consisted of the property in parcel 1 not used by the condominium units, in which each owner owns an undivided interest. Common Area B "consists of Parcel 2 . . . , and shall be owned by the Association. Common Area B shall be conveyed to the Association prior to the time of conveyance to an Owner of the first Unit within the Project."
The lease for Common Area B was assigned to the Association in December 1974. The assignment was "executed, acknowledged and approved of by Warmington, the Trust and the Association." In June 1975, after 51 percent of the units had been sold, the owners elected new directors for the Association, "the majority of whom were independent from the Trust and Warmington."
The second amended complaint alleges the Trust and Warmington represented in the CC&Rs "that the Associations ownership of Common Area B would displace the Common Area B Lease." The Association did not discover the failure to convey fee ownership because "[a]t no time after the new independent Board of Directors of the Association was elected did the Trust or Warmington ever inform the Association or any of its members that the Common Area B Lease had been assigned by Warmington to the Association, or that the Common Area B Lease was intended to satisfy the obligations of the Trust and Warmington to convey ownership of Common Area B to the Association, or that ownership to Common Area B had not been conveyed to the Association prior to the sale of the first unit in the Project, and knowledge of those facts was first obtained by Plaintiffs and the independent Directors of the Association at or about the time this litigation was commenced."
The condominium leases provide that the rate of rent shall be adjusted after 30 years to an annual amount of 8 percent of the fair market value of the leased property "at highest and best use." When the time for the rental adjustments arrived, in 2005 and 2006, the Trust notified the owners that each units rent would increase to $2000 per month. The Association disputed the rental adjustments, and the Trust demanded arbitration as provided in the leases.
Subsequently, the individual homeowners filed suit against the Trust, alleging that Common Area B should be conveyed to the Association in fee based on the promise to do so in the CC&Rs, thus excluding it from the valuation of the remaining leased land. In the amended complaint, the plaintiffs added fraud causes of action, seeking money damages based on the misrepresentation that fee ownership of Common Area B would be conveyed to the Association. The second amended complaint added the Association as a plaintiff and added Cambridge Financial Management, Inc., "the successor in interest to Warmington . . . by virtue of a series of corporate mergers and name changes," as a defendant. Cambridge is named in the fifth cause of action for intentional misrepresentation, the sixth cause of action for negligent representation, and the seventh cause of action for fraudulent suppression of fact.
The trial court sustained Cambridges demurrer to the second amended complaint on the following grounds: "1. Plaintiff[s] ha[ve] ignored this Courts prior rulings with regard to the allegations of the prior Complaints. The allegations of the Second Amended Complaint are still insufficient. [¶] 2. Plaintiff[s] must plead specific facts of the late discovery and must also plead specific facts as to why discovery could not have been made sooner. Plaintiffs must explain thirty years of inaction in light of the fact that relevant documents had been recorded as public records. The Action is barred by the statute of limitations. [¶] 3. There is no fraud as to the Common Area since it was conveyed to the Association by virtue of the Lease. The Lease is alleged by Plaintiff[s] and it is clear that Plaintiff has `ownership of the common area. There is no requirement in the CC&Rs that the ownership interest of the Plaintiff[s] be in fee. The CC&Rs are ambiguous in that regard. The CC&Rs do not constitute the vehicle for fraud. [¶] 4. The Second Amended Complaint does not plead fraud with the necessary particularity. The Second Amended Complaint is uncertain." The trial court entered judgment dismissing Cambridge from the action.
DISCUSSION
When reviewing a trial courts ruling sustaining a demurrer, the appellate court assumes the truth of all properly pleaded facts in the complaint and judicially noticed matters, then makes a de novo determination of whether the demurrer should have been sustained. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) After performing these tasks, we determine that the trial court correctly ruled the causes of action against Cambridge were barred by the statute of limitations.
Code of Civil Procedure section 338, subdivision (d) provides that "[a]n action for relief on the ground of fraud or mistake" must be brought within three years of the injury, but "[t]he cause of action . . . is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." A plaintiffs mere ignorance of the facts is not sufficient; it must exercise diligence to discover the facts. "[T]he rule is that the plaintiff must plead and prove the facts showing: (a) lack of knowledge; (b) lack of means of obtaining knowledge (in the exercise of reasonable diligence the facts could not have been discovered at an earlier date); (c) how and when he did actually discover the fraud or mistake. Under this rule constructive and presumed notice or knowledge are equivalent to knowledge. So, when the plaintiff has notice or information of circumstances to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to his investigation (such as public records or corporation books), the statute commences to run." (3 Witkin, Cal. Procedure (4th ed. 1996) Actions, § 602, p. 773.)
The Association had both actual and constructive notice that the conveyance of Common Area B was a leasehold interest long before the three-year limitations period expired. In October 1974, the lease of Common Area B by Warmington from the Trust was recorded in Orange County; the CC&Rs were also recorded at that time, reciting Warmingtons leasehold interest in Common Area B. In December 1974, the assignment of the leasehold to the Association was recorded. Most importantly, however, the Association formally accepted the assignment of the lease from Warmington in December 1974. The Association cannot now claim, more than 30 years later, that it had no knowledge that the assignment was not of a fee interest.
The Association argues the "independent" directors were never told that the Association occupied Common Area B as a tenant. It claims it "had absolutely no reason to believe that it did not own the property during the entire 30-year period" because no rent was paid and the real property taxes on Common Area B were allocated among the 150 condominium units. But the Association did not reinvent itself when the new directors were elected; the acts perpetrated by the original directors lived on in its corporate books and records. (Casualty Insurance Co. v. Rees Investment Co. (1971) 14 Cal.App.3d 716, 720.)
The Association claims even if it had been aware of the recorded documents, it would not have been able to ascertain that the conveyance of the leasehold interest was intended to be in lieu of a fee interest. It contends the fraud was Warmingtons secret intent that no fee ownership would ever be conveyed. A review of the relevant documents convinces us otherwise. Warmington built the entire project on land it held under a 75-year lease. All the condominium interests were long-term leases. The Association does not explain why it would expect Warmington to convey a fee interest in Common Area B when all it had was a long-term lease. Furthermore, we have taken judicial notice of the Final Subdivision Public Reports for Parcels 1 and 2, issued October 25, 1974, and Parcel 3, issued June 5, 1975, which were prepared by the Department of Real Estate. These public reports are for the information of the prospective lessees and clearly indicate the common facilities on Parcel 2 are subject to a lease agreement which was assigned to the Association. Each lessee was required to sign a statement that he or she had received and read the report. Because the Association does not propose any amendment that would obviate the statute of limitations, we conclude the trial court correctly sustained the demurrer and dismissed the complaint.
DISPOSITION
The judgment is affirmed. Respondents are entitled to costs on appeal.
We Concur:
RYLAARSDAM, J.
MOORE, J.