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Herscu v. Chapman, Bird, & Tessler, Inc.

California Court of Appeals, Second District, Second Division
Apr 30, 2024
No. B315817 (Cal. Ct. App. Apr. 30, 2024)

Opinion

B315817

04-30-2024

ROBERT HERSCU, Cross-complainant and Appellant, v. CHAPMAN, BIRD, & TESSLER, INC. et al., Cross-defendants and Respondents.

Klapach & Klapach, Joseph S. Klapach; Hamburg Karic Edwards &Martin, Gregg A. Martin and Ann S. Lee for Cross-complainant and Appellant. Manning & Kass, Ellrod, Ramirez, Trester, Fredric W. Trester, Daniel Knierim, and Mark R. Wilson for Cross-defendants and Respondents.


NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County, No. 20STCV13312, Richard L. Fruin, Jr., Judge.

Klapach & Klapach, Joseph S. Klapach; Hamburg Karic Edwards &Martin, Gregg A. Martin and Ann S. Lee for Cross-complainant and Appellant.

Manning & Kass, Ellrod, Ramirez, Trester, Fredric W. Trester, Daniel Knierim, and Mark R. Wilson for Cross-defendants and Respondents.

ASHMANN-GERST, J.

After he was sued by JTL Investor, LLC (JTL) for fraud-related claims, Robert Herscu (Herscu) filed a cross-action for equitable indemnity against JTL's business manager Chapman, Bird, &Tessler, Inc. (Chapman Inc.) and Terry Bird (Bird), a "professional business manager" and one of Chapman Inc.'s "shareholder[s], director[s] and/or officer[s]." Cross-defendants demurred, and the trial court sustained the demurrer without leave to amend. Herscu appeals, arguing that the trial court erred in (1) dismissing his claim for equitable indemnity, and (2) denying him leave to file an amended cross-complaint.

We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

"Because this matter comes to us on demurrer, we take the facts from [Herscu's operative cross-complaint], the allegations of which are deemed true for the limited purpose of determining whether [he] has stated a viable cause of action. [Citation.]" (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 885.) We also consider matters subject to judicial notice. (Code Civ. Proc., § 430.30, subd. (a).)

Herscu buys JTL's interest in 729 Seward, LLC (Seward)

In 2013, Herscu formed Seward to purchase property at 729 Seward Street in Los Angeles. Seward later acquired the adjacent commercial property.

Herscu was the manager and a minority owner of Seward. JTL was the majority owner of Seward; Janine Lowy (Lowy) was the owner of JTL. The members of Seward relied exclusively on Herscu for information about the property and Seward in general.

JTL retained Chapman Inc., a professional business management firm, to advise it about the sale of its membership interest in Seward to Herscu.

In November 2018, Herscu contacted Bird about purchasing JTL's interest in Seward, among other investments. Herscu had no direct discussions with Lowy; he only spoke with JTL's advisors.

Although Herscu's first amended cross-complaint (FACC) indicates that Herscu contacted Bird in November 2020, that was clearly a mistake as the date does not comport with other allegations of either JTL's complaint or the FACC, which placed the date of the sale of JTL's interests as some time in 2019.

On January 7, 2019, Bird asked Herscu to provide financial information about Seward. Herscu provided the firm with tax returns, profit and loss statements, and balance sheets for the prior three years. Bird performed her own independent valuation of the property in order to advise JTL about the value of its membership interest in Seward. Based on her review of the financial information provided by Herscu, Bird advised Lowy that "the numbers in [his] proposal [were] in line with" her own independent valuation.

During the negotiations with Bird and JTL, Herscu disclosed anticipated rental rates and the existence of leasing prospects. But, he did not disclose the identities of the leasing prospects despite being asked at least twice. He simply said that the identity of the new lessee "did not matter" to the value of the property.

At the conclusion of the negotiations, Bird represented to Herscu that JTL had received all the information it had requested or wanted.

On February 14, 2019, JTL offered to sell its interest in Seward to Herscu for approximately $4.2 million, based on a fair market valuation of the property at $17 million. Herscu accepted.

Alleged concealment of fact

Unbeknownst to JTL and cross-defendants, since approximately the time Herscu approached Lowy about purchasing JTL's interest in Seward, Herscu had been in negotiations with Netflix for a long-term lease of the property. Herscu tentatively agreed with Netflix to a rental rate of over 30 percent more than the prior lease. Despite being actively involved in negotiations with Netflix to lease the property during the pendency of the sale of JTL's interest to Herscu, Herscu never told JTL, Lowy, or Bird either that Netflix was a lease prospect or that he had already made a tentative deal with Netflix to lease the property at a higher rate.

JTL files action against Herscu

On April 3, 2020, JTL filed the instant lawsuit against Herscu, alleging claims of fraud, breach of fiduciary duty, and breach of contract.

Herscu's cross-action

In response, Herscu filed a cross-complaint against cross-defendants for equitable indemnity. Cross-defendants demurred, and the trial court sustained their demurrer with leave to amend.

On May 26, 2021, Herscu filed his FACC for equitable indemnity, alleging that cross-defendants "intentionally deceived Herscu into believing that JTL had all the information about future leasing prospects it requested or wanted and was satisfied with the information Herscu provided." Cross-defendants' "intentional fraudulent conduct, in whole or in part . . . contributed to and/or caused all damages to JTL from selling its membership interest to Herscu." Cross-defendants' demurrer

Cross-defendants demurred to the FACC, arguing that Herscu could not state a claim for equitable indemnity against cross-defendants because "'(1) under [Civil Code] Section 3372 the advisors have liability only to JTL, if they were sued by JTL (not the case here); (2) the advisors owed no duty to Herscu, and, therefore, cannot be sued by Herscu.' [Citation.] Despite including new allegations in the [FACC] concerning how Cross-Defendants are alleged to have carried out their duties owed to JTL, the [FACC] fails to allege any facts that establish either that JTL has sued Cross-Defendants, or that Cross-Defendants owed a duty to Herscu."

Herscu's opposition

Herscu opposed cross-defendants' demurrer. Alternatively, he requested leave to amend to add new claims for fraud and negligent misrepresentation against cross-defendants and to add new cross-defendants who allegedly made intentional misrepresentations and were therefore liable to Herscu.

Trial court order sustaining demurrer

The trial court sustained cross-defendants' demurrer without leave to amend, reasoning: "[JTL] asserts claims against [Herscu] for fraudulent inducement, negligent misrepresentations, breach of written contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty. To state a valid cross-complaint for equitable indemnity, [Herscu] still has to allege facts showing that he and moving cross-defendants . . . were jointly liable on one or more of [JTL's] causes of action. In an attempt to meet this standard, [Herscu] . . . alleges that [cross-defendants] either intentionally or negligently 'failed to request that [Herscu] disclose the identity of future leasing prospects, and thus [he] never refused to disclose that information . . .' In essence, [Herscu] is alleging that if he is found liable for failing to disclose the identity of future leasing prospects, then [cross-defendants] should bear the blame, because [Bird] participated in the allegedly knowingly false representation to JTL that it had all the information it requested or needed. The problem with these . . . allegations is that even if they are accepted as true for purposes of demurrer, they still don't demonstrate that . . . cross-defendants are 'co-tortfeasors' with [Herscu]."

Regarding the fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty causes of action, JTL's claim was that Herscu "misrepresented the value of the [potential] lease, and breached a fiduciary duty, by failing to tell [JTL] that [Netflix] was the prospective lessee for the property," and the FACC did not allege that cross-defendants made that misrepresentation to JTL "jointly with" Herscu. "Rather, [Herscu's] argument is that if he misrepresented the future leasing prospects to JTL, he was able to do so only because Cross-Defendants either misled JTL or gave it bad advice (by telling JTL it had all the information it needed, when in fact they had neglected to ask [Herscu] about future leasing prospects)."

The trial court found these allegations insufficient because "[t]he two purported wrongs ([Herscu] making a misrepresentation to [JTL], and [cross-defendants] giving misleading or bad advice to [JTL]) are entirely different. Even if the Court agree[d] that [Herscu] allege[d] facts showing that Cross-Defendants breached a fiduciary duty they owed to [JTL], they couldn't possibly be liable to [JTL] as 'co-tortfeasors' based on the breach of a different duty (i.e., one owed to JTL by [Herscu])."

Regarding the breach of contract and breach of implied covenant causes of action, JTL's "claim is that [Herscu] violated the terms of his agreement with cross-defendants when he allegedly misled them as to future leasing prospects for the subject property.... While somewhat vague, the argument seems to be that if [Herscu] misrepresented facts to JTL, then he only did so because [cross-defendants] either intentionally or negligently failed in [their] duty to ferret out those facts, and that but for such failure, he wouldn't have been able to make the misrepresentation to JTL, so [cross-defendants] should bear all or part of any liability for [Herscu's] conduct."

The trial court was unconvinced, noting "that comparative fault principles have 'no place in the context of ordinary business transactions.'" And, principles of equity dictated that Herscu could not shift liability to cross-defendants for claims that he committed an intentional tort.

After sustaining the demurrer without leave to amend, the trial court granted Herscu leave to file a noticed motion to file a second amended cross-complaint.

Herscu's motion for leave to amend

Following the trial court's order, Herscu filed a motion for leave to file a second amended cross-complaint. As summarized by the trial court, Herscu sought to file a new pleading with seven new causes of action and a new cross-defendant, Leo Grifka (Grifka).

The motion is not part of the appellate record.

The trial court denied his motion, reiterating its prior determinations: Herscu's claims against cross-defendants were indemnity claims, which were improperly filed against advisors to JTL. While cross-defendants owed a duty to JTL, they did not owe a duty to Herscu. The trial court also rejected Herscu's attempt to add Grifka for the same reasons it sustained cross-defendants' demurrer to the FACC and because Herscu had unreasonably delayed in filing his motion.

Appeal

Judgment was entered, and this timely appeal ensued.

DISCUSSION

I. Standard of review

"Our Supreme Court has set forth the standard of review for ruling on a demurrer dismissal as follows: 'On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed "if any one of the several grounds of demurrer is well taken. [Citations.]" [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend [only] if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. [Citation.]' [Citations.]" (Payne v. National Collection Systems, Inc. (2001) 91 Cal.App.4th 1037, 1043-1044.)

II. Relevant law

"Equitable indemnity is an equitable doctrine that apportions responsibility among tortfeasors responsible for the same indivisible injury on a comparative fault basis. [Citation.]" (Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th 1153, 1176-1177 (Fremont).)

"Indemnity may be defined as the obligation resting on one party to make good a loss or damage another party has incurred. [Citation.]" (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.) Equitable indemnity principles govern the allocation of loss or damages among multiple tortfeasors whose liability for the underlying injury is joint or several. (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 583, 595, 597-598, superseded by statute in part as stated in Miller v. Stouffer (1992) 9 Cal.App.4th 70, 82; see also Fremont, supra, 198 Cal.App.4th at p. 1177 ["[a] right to equitable indemnity can arise only if the prospective indemnitor and indemnitee are mutually liable to another person for the same injury"].)

"Joint and several liability is a prerequisite for equitable indemnity. [Citation.]" (Leko v. Cornerstone Bldg. Inspection Service (2001) 86 Cal.App.4th 1109, 1115 (Leko).) The application of joint and several liability does not turn on the relationship of the alleged tortfeasors to each other, but rather to their relationship to the plaintiff. (Ibid.; see also Jaffe v. Huxley Architecture (1988) 200 Cal.App.3d 1188, 1192 (Jaffe) ["There seems no logical reason why the application of [the equitable indemnity] doctrine should turn on the relationship of the tortfeasors to each other. What is important is the relationship of the tortfeasors to the plaintiff and the interrelated nature of the harm done"].)

III. The trial court properly sustained cross-defendants' demurrer

Applying these legal principles, we conclude that the trial court properly sustained cross-defendants' demurrer without leave to amend. In order to state a claim for equitable indemnity, Herscu was required to plead sufficient facts showing that cross-defendants breached a duty to JTL, the plaintiff in this action, even though JTL elected not to sue cross-defendants. Herscu did not do so. The thrust of his claim against cross-defendants is that they "intentionally deceived [him] into believing that JTL had all the information about future leasing prospects it requested or wanted and was satisfied with the information [he] provided." In other words, cross-defendants allegedly made a misrepresentation to Herscu. Because this alleged statement was not made to JTL (and Herscu does not allege that Bird made any other statements to JTL), it was not a theory that was available to JTL. (Jaffe, supra, 200 Cal.App.3d at p. 1192.) Thus, it cannot form the basis for equitable indemnity.

Cicone v. URS Corp. (1986) 183 Cal.App.3d 194 (Cicone) does not compel a different result. In that case, Cicone, an attorney, represented the Lucases in connection with the sale of their business to URS. (Cicone, supra, 183 Cal.App.3d at p. 198.) During negotiations, URS presented the Lucases with a proposed final agreement, which "provided in part that the sellers [the Lucases] warranted the accuracy of an unaudited balance sheet" including "a warranty that [the sellers' business] had no liabilities other than those shown on the balance sheet." (Id. at p. 199.) In a meeting regarding that proposed agreement, Cicone advised URS and its attorney that "the sellers [the Lucases] could not and would not guarantee the accuracy of the balance sheet. [URS's attorney] replied the buyer [URS] understood and . . . would deem the sellers to be guaranteeing the information in the balance sheet only to sellers' best knowledge." (Ibid.)

That representation was false; both URS and its attorney made that misrepresentation "without any intention of performing it, for [URS] intended to rely on the strict warranty contained in the written agreement. The promise was made for the purpose of inducing Cicone to rely on it and thereby to advise the sellers to follow through with the sale and to sign the final agreement." (Cicone, supra, 183 Cal.App.3d at p. 199.)

After consummation of the transaction, URS made a claim against the Lucases based on a statement in the balance sheet "of which the sellers had been unaware." (Cicone, supra, 183 Cal.App.3d at p. 199.) The Lucases settled with URS and then brought a legal malpractice claim against Cicone. (Ibid.) Cicone filed a cross-complaint against URS and its attorney. (Ibid.)

URS and its attorney demurred to the cross-complaint, and the trial court sustained their demurrer without leave to amend. (Cicone, supra, 183 Cal.App.3d at p. 199.) The Court of Appeal reversed. (Id. at p. 213.) First, it summarized the law regarding equitable indemnity: "The concept of joint tortfeasors for the purpose of indemnity is explained in the restatement as '. . . two or more persons who are liable to the same person for the same harm,'" even if they did not act in concert or in pursuit of a common design. (Id. at p. 212.) That was exactly the situation in Cicone: Cicone (the attorney) was allegedly liable to the Lucases for the negligent advice he provided based upon URS's misrepresentation. In other words, URS would be liable to the Lucases for the same reasons that Cicone was liable.

But that is not the situation here: Cross-defendants could not be liable to JTL for the same reasons that Herscu is allegedly liable to JTL. Herscu allegedly made intentional misrepresentations concerning the value of a subsequent lease and concealed the identity of the lucrative prospective lessee (Netflix) "in a blatant attempt to purchase JTL's membership interest at a bargain price." Cross-defendants allegedly had no part in that alleged fraud. As set forth above, they made no representations, let alone false representations, to JTL.

Furthermore, "Cicone [was] alleged only to have been negligent while [URS and its attorney were] alleged to have intentionally deceived Cicone and his client. Should this be proved at trial, then the entire liability may be shifted to [URS and its attorney]." (Cicone, supra, 183 Cal.App.3d at p. 213; see also Lacher v. Superior Court (1991) 230 Cal.App.3d 1038, 1047; Seamen's Bank v. Superior Court (1987) 190 Cal.App.3d 1485, 1492.)

In contrast, Herscu is not alleged only to have been negligent-he allegedly committed intentional torts against JTL. Under these circumstances, he cannot shift liability from himself to cross-defendants. (See Code Civ. Proc., § 875, subd. (d) ["There shall be no right of contribution in favor of any tortfeasor who has intentionally injured the injured person"].)

Herscu also alleges that cross-defendants failed to request the prospective lessees' identities from Herscu. But Herscu does not argue or explain how that allegation amounts to a breach of a duty owed to JTL such that Herscu can shift the blame for his misconduct to cross-defendants. At most, under these circumstances, cross-defendants would allegedly have been negligent for failing to request this information. But there are no allegations that cross-defendants engaged in intentional or fraudulent misconduct vis-a-vis JTL. (Gagne v. Bertran (1954) 43 Cal.2d 481, 487 ["those who sell their services for the guidance of others in their economic, financial, and personal affairs are not liable in the absence of negligence or intentional misconduct"]; Tribeca Companies, LLC v. First American Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1114 ["breach of fiduciary duty can be based upon either negligence or fraud, depending on the circumstances"].) Again, their alleged negligence is insufficient to support a claim for equitable indemnity here.

Presumably he cannot do so because he "never believed the identity of the prospective tenant-as opposed to the actual terms of the prospective lease-affected the value of the Property." If the identity of the prospective tenant did not matter, then how could cross-defendants be jointly liable to JTL for failing to obtain this information from Herscu? And if he were proven wrong (i.e., that information should have been disclosed), then Herscu, as Seward's manager, had a duty to disclose it to JTL and crossdefendants, who were advising JTL. (Corp. Code, § 17704.09.)

Herscu further contends that the trial court erred by purportedly requiring him to demonstrate that Bird owed him a duty of care. He similarly avers that the trial court erred in barring him from adding her as a party solely because she was not named as a party to the action by JTL. Herscu misconstrues the appellate record. As plainly set forth in its order sustaining cross-defendants' demurrer, the trial court based its decision on the lack of a breach of any duty by cross-defendants to JTL. Contrary statements made at the subsequent hearing on Herscu's motion for leave to file a second amended cross-complaint do not vitiate the propriety of trial court's order.

Finally, Herscu argues that the trial court erred "in holding that equitable indemnity is available only for those who act 'jointly' with the defendant in causing harm to the plaintiff." We agree that "'joint and several liability in the context of equitable indemnity is fairly expansive. We agree it is not limited to "the old common term 'joint tortfeasor' ...." It can apply to acts that are concurrent or successive, joint or several, as long as they create a detriment caused by several actors. [Citation.] [¶] One factor is necessary, however. With limited exception there must be some basis for tort liability against the proposed indemnitor. [Citation.] Generally, it is based on a duty owed to the underlying plaintiff ....' [Citations.]" (Stop Loss Ins. Brokers, Inc. v. Brown &Toland Medical Group (2006) 143 Cal.App.4th 1036, 1050-1051 (conc. opn. of Pollak, J.); see also Leko, supra, 86 Cal.App.4th at p. 1115.) In other words, the theory upon which a putative indemnitee (Herscu) proceeds must be a theory that was available to the plaintiff (JTL) against the putative indemnitor (cross-defendants), and upon which the plaintiff would be successful. (GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 430; Bostick v. Flex Equipment Co., Inc. (2007) 147 Cal.App.4th 80, 131, fn. 17 (conc. opn. of Croskey, Acting P. J.) ["a right of equitable indemnity can arise only if the prospective indemnitor and indemnitee could be held liable to the plaintiff for the same injury"].) Such a theory does not exist in the FACC.

IV. The trial court did not abuse its discretion in denying Herscu leave to amend to file a second amended cross-complaint

As set forth above, when a demurrer is sustained, the "burden of demonstrating a reasonable possibility that the defect can be cured by amendment 'is squarely on the [cross-complainant].' [Citations.]" (McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal.App.4th 72, 78.) Herscu did not meet his burden in either his opposition to cross-defendants' demurrer or in his subsequent motion for leave to amend. Herscu's request for leave to amend was based upon his claim that Bird's representation to Herscu-that JTL had all the information it needed-was a misrepresentation that caused Herscu to enter into the agreement with JTL. In other words, he wanted to assert claims of intentional and negligent misrepresentation (not indemnity) against Bird.

This is the only argument that Herscu raises on appeal concerning the denial of leave to amend. He does not offer any argument, for example, as to why he should have been permitted to file a cross-complaint against Grifka.

But, as the trial court recognized, Herscu's proposed causes of action were little more than artfully pleaded indemnity claims. A court may "dismiss disguised or artfully pleaded claims for indemnity or contribution-i.e., causes of action purporting to state direct claims but which, in fact, seek only to recover derivative damages." (Norco Delivery Service, Inc. v. Owens-Corning Fiberglas, Inc. (1998) 64 Cal.App.4th 955, 964; see also Cal-Jones Properties v. Evans Pacific Corp. (1989) 216 Cal.App.3d 324, 326-328.) Because these proposed causes of action rely on the same fact (an alleged failure to inquire further about the identity of potential lessees) that the trial court already found insufficient, the trial court did not err in denying Herscu's motion.

Even if Herscu had been able to allege a claim against Bird for misrepresenting that JTL had all the information it needed, he could not allege justifiable reliance. (Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1194-1195.) Herscu was allegedly negotiating a long-term lease with Netflix, a fact that he did not disclose to anyone. He fails to explain how, under these circumstances, he could have reasonably relied upon her purported misrepresentation.

He likewise has not demonstrated how he could allege resulting damage from Bird's alleged misrepresentation. (Gil v. Bank of America, N.A. (2006) 138 Cal.App.4th 1371, 1381.) On appeal, he submits that he "suffered damages by being sued by [JTL] for fraud." This assertion is nothing more than confirmation that all Herscu seeks is indemnity. And, as set forth above, he cannot pursue such a claim against cross-defendants.

DISPOSITION

The judgment is affirmed. Cross-defendants are entitled to costs on appeal.

We concur: LUI, P. J., HOFFSTADT, J.


Summaries of

Herscu v. Chapman, Bird, & Tessler, Inc.

California Court of Appeals, Second District, Second Division
Apr 30, 2024
No. B315817 (Cal. Ct. App. Apr. 30, 2024)
Case details for

Herscu v. Chapman, Bird, & Tessler, Inc.

Case Details

Full title:ROBERT HERSCU, Cross-complainant and Appellant, v. CHAPMAN, BIRD, …

Court:California Court of Appeals, Second District, Second Division

Date published: Apr 30, 2024

Citations

No. B315817 (Cal. Ct. App. Apr. 30, 2024)