Opinion
G052064
05-08-2017
ALICE GEE et al., Plaintiffs and Appellants, v. JOSEPH J. BLAKE AND ASSOCIATES, INC., Defendant and Respondent.
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 Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 / 30-2012-00554778) 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 Defendant and Respondent.
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, Alice Gee v. LaSalle Bank, N.A. (June 23, 2016, G050844) [nonpub. opn.] (Gee 1).
The gist of the complaint is that 19 plaintiffs invested in property, and certain costs and other information about the investment was allegedly concealed from them. The Gee 1 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. (Gee 1, supra, G050844.) The other information allegedly hidden from plaintiffs was the impact of a nearby city highway widening project that eventually reduced the number of parking spaces available at the investment property. 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 Gee 1 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 a fifth defendant, Joseph J. Blake and Associates (Blake). Plaintiffs concede only the highway widening misrepresentations are applicable to Blake. Their brief on appeal is essentially identical to the one filed in Gee 1, 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 second amended complaint (SAC). Because we have described the allegations in detail multiple times before, we will present a simplified version of the SAC, focusing on the specific allegations concerning the highway widening misrepresentation.
The 19 appealing plaintiffs include one individual, Alice Gee (Gee), and 18 limited partnerships (ARI-DFW East & West 1, L.P.; ARI-DFW East & West 2, L.P.; ARI-DFW East & West 3, L.P.; ARI-DFW East & West 5, L.P.; ARI-DFW East & West 6, L.P.; ARI-DFW East & West 7, L.P.; ARI-DFW East & West 8, L.P.; ARI-DFW East & West 10, L.P.; ARI-DFW East & West 11, L.P.; ARI-DFW East & West 12, L.P.; ARI-DFW East & West 13, L.P.; ARI-DFW East &West 14, L.P.; ARI-DFW East & West 15, L.P.; ARI-DFW East & West 16, L.P.; ARI-DFW East & West 20, L.P.; ARI-DFW East & West 21, L.P.; ARI-DFW East & West 22, L.P.; and ARI-DFW East & West 23, L.P.). For convenience and clarity we will refer to the appealing ARI-DFW East & West L.P. entities and Gee collectively as Plaintiffs.
The case concerns Plaintiffs' failed multi-million dollar investment in commercial real estate. In 2005, Plaintiffs invested in two office buildings located in the Dallas, Fort Worth, Texas freeway corridor. The commercial business complex was called DFW East & West (the Property). The transaction was promoted by ARI-DFW Direct Participant, L.P., and its related entities and affiliates, referred to collectively by the parties as the ARGUS Defendants.
The trial court also sustained the ARGUS Defendants' demurrer without leave to amend. 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 and sold.
In 2012, Plaintiffs (in a class action complaint) sued 21 defendants including Blake, a commercial real estate valuation firm. The operative SAC alleges 13 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 sixth cause of action for intentional misrepresentation and the seventh cause of action for fraudulent concealment.
In the SAC, 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 allege there was an undisclosed $271,000 mark up in the purchase price. The details of the transaction were described at length in Gee 1, which we incorporate here by reference.
Plaintiffs also alleged they were misled about the negative financial impact of plans for widening the highway next to the property. The SAC alleged the PPM and offering documents failed to disclose the Property, which "fronts a section of Texas State Highway 183," was slated for a highway widening project (highway widening). Plaintiffs alleged the following: "[The highway widening] would materially and adversely impact the value of the Property and ergo the investment. As of the date the subject securities were made, the following information on the [h]ighway [w]idening was available to ARGUS Defendants and BLAKE Defendants as due diligence professionals related to the Property:
"a. The Property . . . was identified as early as 1999 in a Texas Department of Transportation (TxDOT) Major Improvement Study (MIS) that identified $1.4 billion of recommended improvements including the lane additions and arterial improvements.
"b. The engineering and environmental analysis process for what was called this SH183 Study Corridor continued steadily through a series of public hearings from 1999 [to] 2005.
"c. The study and hearings process culminated in final presentations to the Irving City Council on April 28, 2005, and as of that date the [h]ighway [w]idening impact would have been known had the same been investigated.
"d. The [h]ighway [w]idening would have reduced the number of available parking spaces at the Property which would have been material because, and as disclosed by the PPM, the Property . . . already had [a] deficient number [of] parking spaces for compliance with local zoning ordinances."
Plaintiffs alleged they would not have acquired the Property had they known about the widening project. In the sixth cause of action (intentional misrepresentation), Plaintiffs alleged, "[Blake] aided and abetted the ARGUS Defendants by preparing an appraisal report (the 'Appraisal') for the Property[,] which reflected a value for the Property of $13,900,000 and rental projections for the Property." Plaintiffs maintained the valuation was a false statement and the rental projections failed to take into account the impact of decreased parking for the tenants after the city widened the highway. They alleged the following: "[Blake] knew or recklessly disregarded substantial information regarding the [h]ighway [w]idening and loss of parking. [Blake, responsible for the] appraisal[,] knew that the representations in the [a]ppraisal would be disseminated to Plaintiffs as part of the TIC Offering and further knew that the [a]ppraisal would be provided to [LaSalle] in making the Loan for the Property Acquisition."
The seventh cause of action (fraud by concealment) was based on the same underlying facts as the sixth cause of action. Plaintiffs asserted all defendants collectively disclosed some facts "but intentionally failed to disclose important facts thereby making the disclosure deceptive." This cause of action does not specifically refer to an action or concealment undertaken by Blake.
The trial court took judicial notice of the PPM. Relevant to this appeal, within the PPM's long list of "RISK FACTORS" it was disclosed there was a zoning issue due to an inadequate number of parking spaces. The PPM disclosed the following warning: " The Property has fewer parking spaces than required under existing zoning regulations ." The PPM explained, "ARI is in the process of obtaining approval from the requisite authorities for this nonconforming variance, but there can be no assurances that such approvals will be obtained."
In its demurrer, Blake argued the Plaintiffs' intentional misrepresentation claim was a type of fraud cause of action and must be pled with specificity. Blake explained the SAC did not assert Plaintiffs relied on the appraisal or ever received the report. Rather, Plaintiffs stated they relied upon representations made in the offering documents. They made no connection between the appraisal and the offering documentation. Blake also complained the SAC lacked certainty. It was unclear what facts supported any cause of action regarding Blake. It noted the seventh cause of action suffered from the same defects. It failed to name Blake as a defendant and contained only vague and general allegations.
In their opposition, Plaintiffs asserted the SAC was sufficient to survive a demurrer. It conceded that if more facts were needed, it could add the following facts to the complaint: (1) Blake's appraisal was attached to the PPM; and (2) Blake knew Plaintiffs investing in the property would be "intended recipients of the appraisal." Plaintiffs argued Blake's rental projections and "'as is' valuation" were "untenable" because both "completely disregarded the impact of the [h]ighway [w]idening and the damage which would be caused by the reduction of available parking for the tenants." Plaintiffs noted the complaint alleged Blake "knowingly or recklessly disregarded" material information necessary for preparing an accurate appraisal, which amounted to a "material non-disclosure."
Blake prepared a reply stating Plaintiffs did not allege why the appraisal was defective for failing to take into account the highway widening. It noted Plaintiffs made "an interesting new factual statement in their opposition" by referring to Blake's appraisal as an "'as is' valuation." Recognizing this allegation was not in the SAC, Blake asserted it nevertheless supported the conclusion Plaintiffs knew the appraisal was an "as is" value rather than a hypothetical future value or "subject to completion value" based on a proposed and uncompleted city works highway project. The SAC alleged that at the time the appraisal was made the city works project was still undergoing an approval process. Thus, the appraisal reflected the estimated value on that particular day, when the property was not yet affected by the highway widening project. "Nothing was undisclosed, hidden[,] or concealed."
Blake argued there were other problems with the complaint. The SAC did not say the appraisal was part of the offering or PPM. And it did not provide any facts to support the contention Blake knew Plaintiffs would receive the appraisal. In addition, Blake argued there were no facts to support the allegation Blake aided and abetted other defendants in committing fraud. The SAC did not allege Blake gave "'substantial assistance'" to others or suggest who was aided. Finally, no facts or allegations supported Blake's role in the alleged fraud by concealment.
Judge Andler sustained Blake's demurrer to the SAC, without leave to amend (in addition to ruling on the other 49 motions). Judge Andler did not specifically discuss the highway widening issue when sustaining the multiple demurrers without leave to amend. Instead, Judge Andler made several general comments about the nature and history of the 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 case 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.) Plaintiffs challenge this ruling on appeal, maintaining their claims against Blake were not uncertain and fraud was pled with adequate specificity.
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 SAC
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, 173-174.) "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 Blake or the fraud-related highway widening 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 argued the court erred in concluding the SAC 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 SAC 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 SAC contained ample specific facts to support both theories of recovery. We disagree.
A careful comparison between the original and SAC reveals Plaintiffs made only minor changes in attempting to comply with Judge Andler's prior directions. For example, the original complaint's factual summary Plaintiffs alleged "information on the [h]ighway [w]idening was available to due diligence professionals related to the Property." The SAC narrowed the scope of possible due diligence professionals to be "the ARGUS Defendants and BLAKE Defendants." However, the term ARGUS Defendants was defined in the complaint as a shorthand way to refer to 13 different entities and individuals who allegedly orchestrated the entire investment scam. The "Blake Defendants" encompassed Blake and "Does 41-60." This change did little to achieve the specificity requested by the trial court.
The same is true for the allegations made in the SAC's sixth cause of action for intentional misrepresentation. While it is true Plaintiffs specifically alleged Blake "aided and abetted" the ARGUS Defendants by preparing an appraisal report, this statement cannot be read in a vacuum. The cause of action also alleged the appraised valuation of the property itself was a "false statement." Plaintiffs maintained Blake knew the representations in the appraisal would be "disseminated to Plaintiffs" as part of the offering and "would be provided to [the bank] in making the [l]oan for the [p]roperty [a]cquisition." These statements support the conclusion Plaintiffs were also proceeding on a theory of direct liability for intentional misrepresentation.
Further confusing the matter is the very next paragraph, containing a vague statement of direct liability of other misrepresentations: "As described above, the Defendants knew the forgoing representations concerning the unrelated seller paid commission markup of the Property purchase price scheme in the PPM and related offering documents were false and/or misleading at the time made and that the representation was material to Plaintiffs who were tax advantaged and motivated investors who would justifiably rely thereon." The phrase "foregoing representations" could relate to highway widening issue discussed in the sentence above, however, it is followed by a statement referring to a different misrepresentation, i.e., the purchase price markup. In any event, it is reasonable to infer Blake was lumped in with the group of defendants directly liable for the purported price markup misrepresentations because next several paragraphs shifted the focus away from Blake and contained allegations concerning CBRE's, LaSalle's, Burch's, and Hirschler's roles in aiding and abetting the ARGUS Defendants in various ways and concerning other alleged misrepresentations.
Thus, contrary to Plaintiffs' argument on appeal, the SAC does not "sufficiently distinguish" between direct and aider and abettor liability. Additionally, we note that in the final few paragraph of this cause of action, Plaintiffs twice used the phrase, "Defendants made such representations or aided and abetted their dissemination" without specifying which category Blake (or any other defendant) fell into. (Italics added.) These ambiguous allegations are identical to the ones contained in the original complaint. We conclude Plaintiffs did not address the uncertainty and lack of specificity issues with respect to this cause of action. A. Aiding and Abetting Fraud
We turn next to Plaintiffs' assertion there were sufficient facts to support the theory Blake was liable for aiding and abetting the ARGUS Defendants' tort of intentional misrepresentation. They offer no argument suggesting Blake directly made an intentional misrepresentation to the investors. Rather, they devote much of the argument repeating specific allegations supporting the conclusion that the ARGUS Defendants made many different intentional misrepresentations in connection with the overall real estate scam. After reviewing the complaint, we agree with the trial court's conclusion the complaint lacked the required specificity to support Blake's liability for this purported tort.
"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 National 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 underlying 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. Blake is a corporation, not an individual, yet there are no allegations identifying who knowingly assisted in the ruse. It is merely alleged Blake, the entity, prepared an "as is" real estate appraisal used by a bank/lender and which was also referred to in the offering documents. On the other hand, 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 profited due to its purported role in defrauding the Plaintiffs.
Plaintiffs argue the complaint alleged or could be amended to say Blake had "actual knowledge" the appraisal would be given to the Plaintiffs and that Blake knew the financial impact of the highway expansion was concealed. These are tangential allegations, insufficient to revive a claim based on an aiding and abetting theory. 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). In this case, the SAC alleged the fraudulent scheme involved multiple layers of intricate misrepresentations reaching far beyond the contents of the appraisal. Moreover, the complaint was silent as to the relationships between the appraiser and others in this complex transaction. How did Blake learn its appraisal would be given to and relied on by others in addition to the bank? The allegation Blake "recklessly disregarded" information about the highway widening is at absolute odds with the theory Blake actually knew the highway plans were being concealed from potential investors. Blake cannot knowingly withhold information it may have recklessly failed to discover. We conclude the pleadings in the SAC 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 seventh 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 phrases aiding and abetting or vicarious liability. In addition, Plaintiffs contend the SAC sufficiently alleged Blake had an "[a]ffirmative [d]uty" to disclose the financial impact of the highway widening project in its "as is" appraisal. Blake's disregard of information about the highway when valuing the property meant the "appraisal concealed material facts"
We agree the 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, "[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 cautioned Plaintiffs to stop simply suing anyone who had anything to do with the transaction. Apparently this warning went unheeded. The sixth seventh cause of action simply pleads all defendants concealed all the same facts, making "the disclosures deceptive."
We recognize the seventh cause of action refers to facts described in paragraphs 1 to 217 of the SAC, which provided more details about the perceived real estate scam. Within this lengthy factual summary, a subheading titled, "The Misrepresentations and Material Non-disclosures," containing paragraphs 107 to 128 devoted to discussing several different instances of misconduct. Blake's name is mentioned one time in paragraph 115, and Plaintiffs maintain this reference satisfies the specificity requirements to support their theory Blake was directly liable for fraudulent concealment. We disagree.
In paragraph 115, Plaintiffs alleged the following: "The PPM and Offering failed to disclose that the Property building . . . fronts a section of Texas State Highway 183 (SH183) was slated for widening (the 'Highway Widening') which would materially and adversely impact the value of the Property and ergo the investment." (Italics added.) Plaintiffs alleged information about the highway widening "was available" to Blake and the ARGUS Defendants when the investment was made. They refer to a 1999 TxDOT study, a series of public hearing from 1999-2005 concerning engineering and environmental matters, and presentations at a City Council meeting on April 28, 2005. The SAC alleged the PPM was dated August 4, 2005, but did not include the date the highway widening project was actually approved by city officials or scheduled to begin. Plaintiffs did not unequivocally assert the "due diligence professionals" actually knew about the city works project and intentionally withheld the information, rather they allege the professionals either "knew or recklessly disregarded information" regarding the highway widening project. Finally, Plaintiffs offered no explanation as to why these specific professionals owed Plaintiffs the duty of due diligence or to report on a proposed highway widening project.
We conclude the "who," "when," and "where" allegations were not sufficiently pled. The SAC does not identify how Blake allegedly made a misrepresentation to Plaintiffs. Who at the corporation directly made the false representation? How did Plaintiffs see the appraisal, and what were they told about it?
On appeal, Plaintiffs claim they could add to their complaint allegations the appraisal was attached to the PPM. We note the appraisal was not previously attached to the PPMs presented to, and accepted by, the trial court or this court via judicial notice requests. And more importantly, showing the appraisal was attached to the ARGUS Defendant's PPM does not solve the specificity problems. The SAC stated the appraisal was prepared for and used by the lender (LaSalle). It can reasonably be inferred from these allegations Blake was hired to create an appraisal to assist the bank in its evaluation of the risks in lending money and using the Property as security. We are left guessing as to what relationship between Plaintiffs and Blake would support the vague allegation Blake also owed these 19 potential investors a duty to perform due diligence as part of the "as is" appraisal. Plaintiffs do not suggest they also hired Blake to assist them in valuing the property before investing. Significantly, there is no indication how Blake knew Plaintiffs would receive a copy of the appraisal. 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].)
The complaint also lacks specificity with respect to the elements of actual and justifiable reliance. "'The causation aspect of actions for damage for fraud and deceit involves three distinct elements: (1) actual reliance, (2) damage resulting from such reliance, and (3) right to rely or justifiable reliance.' [Citation.] Thus, there are two causation elements in a fraud cause of action. First, the plaintiff's actual and justifiable reliance on the defendant's misrepresentation must have caused him to take a detrimental course of action. Second, the detrimental action taken by the plaintiff must have caused his alleged damage." (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1062 (Beckwith).)
"To allege actual reliance with the requisite specificity, '[t]he plaintiff must plead that he believed the representations to be true . . . and that in reliance thereon (or induced thereby) he entered into the transaction. [Citation.]' [Citation.]" (Beckwith, supra, 205 Cal.App.4th at p. 1063.) To allege the reliance was justifiable, "[t]here must be more pled than a simple statement plaintiff justifiably relied on the statements. [Citation.] The complaint must contain 'allegations of facts showing that the actual inducement of plaintiffs . . . was justifiable or reasonable. [Citations.]' [Citation.]" (Id. at pp. 1066-1067.) Blake points to allegations in the original complaint where Plaintiffs admitted the highway widening was publically available news when Plaintiffs invested in the Property. Blake argues deletion of these allegations from the SAC was a transparent attempt to breathe life into a defective complaint.
We agree it is significant Plaintiffs deleted from the original complaint a paragraph stating the Property, fronting the highway, "had well known bottleneck issues" and was "slated for widening." This allegation suggests a concession the 1.4 billion dollar city works project was a familiar public news event by the date of Plaintiffs' investment in late 2005. As noted in the SAC, the Texas Department of Transportation proposed the roadwork as early as 1999, and there were public hearings held for the next six years (including a City Council meeting). Plaintiffs made no effort to explain why they would be legally excused from discovering matters of public knowledge.
"Under the sham pleading doctrine, plaintiffs are precluded from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment. [Citations.] A noted commentator has explained, 'Allegations in the original pleading that rendered it vulnerable to demurrer or other attack cannot simply be omitted without explanation in the amended pleading. The policy against sham pleadings requires the pleader to explain satisfactorily any such omission.' (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2005) ¶ 6.708, p. 6-142.1.)" (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425-426.)
Plaintiffs provide no explanation for why the allegation was omitted from the SAC. Nor do Plaintiffs allege they were prevented from learning about the well-known highway expansion plans. As noted by Blake, the SAC asserts the information was readily available to anyone, and even the most superficial diligence regarding the Property would have revealed it would lose parking if the highway project was approved.
We find inadequate the vague allegations that a group of defendants owed Plaintiffs a special "duty" to conduct due diligence on their behalf. Plaintiffs do not describe any relationship creating such a duty. As mentioned, Plaintiffs do not assert they hired Blake or why they would reasonably anticipate Blake would conduct the appraisal to protect Plaintiffs' financial interests. Additional and specific allegations would have been required to raise the inference the entity preparing this type of appraisal also owed each individual (who were merely potential investors) a duty to predict the Property's value if a proposed highway project was approved and if the city's plans negatively impacted the Property. And we find telling Plaintiffs' opposition (and argument on appeal) conceded Blake prepared an "as is" valuation for the bank before the highway project was officially approved. Plaintiffs do not explain why an "as is" appraisal must disclose unapproved city construction plans. Additional facts were required to establish such a specific and unusual duty between the Plaintiffs and bank's appraiser. We conclude the pleadings in the SAC were insufficient to support a fraudulent concealment cause of action against Blake. III. Questions of Fact in the SAC
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 abetting the costs misrepresentations . . . and the court offered no discussion on the [highway] expansion 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 highway widening 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 Gee I, supra, G050844.
Plaintiffs argue Judge Andler improperly sustained demurrers to their UCL (Bus. & Prof. Code, §17200 et seq.) claim asserted in the original 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 SAC and was not subject to Blake's demurrer to the SAC. Blake did not demur to the original complaint and it was not the basis for the trial court's ruling dismissing Blake from the case. Blake concludes the argument is moot.
In the beginning of their opening brief, Plaintiffs appear to concede this point. They state "There was no final determination against any cause of action in the first amended complaint relevant to this appeal. The SAC is the operative complaint here." Along the lines of this statement, 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 original complaint 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 original 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. Respondent shall recover its costs on appeal.
O'LEARY, P. J. WE CONCUR: BEDSWORTH, J. MOORE, J.