Opinion
D072109
03-16-2018
JAMES HOLLIDAY et al., Plaintiffs and Appellants, v. STEWART TITLE OF CALIFORNIA, INC., Defendant and Respondent.
Law Office of Joe Sandbank and Joseph Clifford Sandbank for Plaintiffs and Appellants. Best Best & Krieger and Robert J. Hanna, Ellen P. Head 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 37-2016-00005827-CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Eddie C. Sturgeon, Judge. Affirmed. Law Office of Joe Sandbank and Joseph Clifford Sandbank for Plaintiffs and Appellants. Best Best & Krieger and Robert J. Hanna, Ellen P. Head for Defendant and Respondent.
Appellants James Holliday, Steven Tratner, and Karen Tratner appeal from a judgment entered following the court's order sustaining a demurrer to their first amended complaint without leave to amend. The court concluded their various claims were time- barred. We agree and affirm the judgment. Appellants fail to show it is reasonably possible that they could amend the complaint to avoid the statutes of limitations.
FACTUAL AND PROCEDURAL BACKGROUND
In setting out the facts, we accept as true the well-pleaded and material allegations of appellants' pleadings, reasonable inferences that may be drawn from their allegations, and facts that may properly be judicially noticed. (Williams & Fickett v. County of Fresno (2017) 2 Cal.5th 1258, 1264; Coker v. JPMorgan Chase Bank, N.O.A. (2016) 62 Cal.4th 667, 671; In re Insurance Installment Fee Cases (2012) 211 Cal.App.4th 1395, 1402.)
In 2005, appellants entered into separate agreements to purchase two condominium units in Mexico that were being built near Tijuana (at times, the project). The purchase agreements specified that the condominiums were expected to be delivered in September 2007. Holliday wired $111,625 and the Tratners wired $297,810 to separate escrow accounts managed by defendant Stewart Title of California, Inc. (Stewart Title). Under the purchase agreements, Stewart Title was required to disburse the appellants' escrow funds to a third-party company, which would pay for materials, labor and other expenses for the condominium construction.
Appellants allege that in 2008, the developer informed them that construction was halted because the "project had run out of money due to the economic situation." Appellants further allege that from 2007 through 2013, the developer "repeatedly disseminated information to buyers, assuring buyers, including [them], that the [c]ondo [p]roject would be completed." In August 2015, appellants learned that the lenders foreclosed on the development project, and that Stewart Title, by making unauthorized distributions and having separate escrow agreements, had harmed appellants.
In February 2016, appellants filed a complaint against Stewart Title. In September 2016, they filed the operative first amended complaint, alleging as to all causes of action that Stewart Title knowingly or recklessly caused the disbursement of funds from their escrow accounts to persons who were not entitled to receive those funds; Stewart Title disbursed their escrow funds to others for nonconstruction related expenses of the project and without lien release in violation of the provisions of appellants' purchase agreements; and Stewart Title disbursed their escrow funds to others for claims, costs, or expenses unrelated to the project. Appellants further alleged Stewart Title did not disburse funds according to the escrow instructions contained in their purchase agreements; instead, Stewart Title disbursed funds pursuant to a separate set of instructions that appellants knew nothing about. Stewart Title concealed the existence of these separate instructions from plaintiffs. Based on the above, appellants alleged causes of action for breach of implied-in-fact contract, breach of implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, negligent misrepresentation, fraud/intentional misrepresentation, fraudulent concealment, and unfair business practices (Bus. & Prof. Code, § 17200 et seq.).
Stewart Title demurred to the first amended complaint, arguing that each cause of action was time-barred under the applicable statute of limitations and appellants did not state facts sufficient to support the causes of action. Appellants opposed the motion and requested leave to amend without specifying any grounds in their opposition papers.
After a hearing, the court sustained the demurrer without leave to amend. It ruled appellants' claims were time-barred, pointing out that the purchase agreement required the project to be completed in 2007, and appellants had failed to allege which specific violation of the escrow instructions applied. The court ruled that under the purchase agreement, Stewart Title was not required to contact appellants upon disbursing the funds. Moreover, it concluded, they "were informed the project ran out of money in 2008. There are no allegations Stewart Title made any assurances to [them] or that [they] made any attempt to contact Stewart Title regarding their escrow account. All of the causes of action arose in 2008, and there are insufficient facts to support tolling the statute of limitations as to Stewart Title."
DISCUSSION
Appellants contend the trial court improperly sustained the demurrer without leave to amend. They do not dispute that different statutes of limitations are applicable to their different causes of action. Specifically, the statute of limitations for causes of action for breach of implied-in-fact contract, breach of implied covenant of good faith and fair dealing, and negligence, is two years. (Code Civ. Proc. § 339, subd. (1); Thompson v. California Brewing Co. (1961) 191 Cal.App.2d 506, 508; Thomson v. Canyon (2011) 198 Cal.App.4th 594, 606.) The statute of limitations of causes of action for breach of fiduciary duty and unfair business practices is four years. (§ 343; Thomson, at p. 606; Bus. & Prof. Code, § 17208.) The statute of limitations of negligent misrepresentation or fraudulent or intentional misrepresentation and fraudulent concealment is three years. (§ 338, subd. (d); Thomson, at p. 606; Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412, 437.)
Undesignated statutory references are to the Code of Civil Procedure unless otherwise stated.
As in the trial court, appellants rely on Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915 for their contentions that their claims were not time-barred because the delayed discovery rule applied, Stewart Title's fiduciary duties relaxed appellants' duty to investigate, and Stewart Title engaged in fraudulent concealment. Appellants further contend that the court abused its discretion in denying leave to amend the complaint.
On defendants' demurrer, our review standard is settled. We assess the allegations of the operative complaint de novo, and may consider matters that have been judicially noticed. (Apple Inc. v. Superior Court (2013) 56 Cal.4th 128, 156; Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) "We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law." (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.)
A plaintiff "discovers the cause of action"—i.e., the latest date on which any related claim accrues—"when he at least suspects a factual basis, as opposed to a legal theory, for its elements, even if he lacks knowledge thereof—when, simply put, he at least 'suspects . . . that someone has done something wrong' to him." (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.) In this context, " 'wrong' [is] being used, not in any technical sense, but rather in accordance with its 'lay understanding.' " (Id. at pp. 397- 398.) In short, a cause of action accrues when the plaintiff "has reason at least to suspect a factual basis for its elements." (Id. at p. 398.) We conclude that under the relevant statutes of limitations, appellants' claims accrued in August 2008, when they learned the construction was halted. The purchase agreement provided that the units were to be delivered to appellants by September 2007. That date had passed. Moreover, the escrow funds were specifically designated for constructing the project. Given that the project ran out of funds after the project delivery date, plaintiffs should have been put on notice that their injury had occurred. The statutes of limitations began to run from that date. "Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued." (§ 312.) Therefore, appellants' claims were time-barred because the complaint was filed after the statutes of limitations had expired.
Appellants' arguments regarding delayed discovery lack merit. "The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action. . . . In other words, plaintiffs are required to conduct a reasonable investigation after becoming aware of an injury, and are charged with knowledge of the information that would have been revealed by such an investigation." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807-808.) Appellants have not shown that they conducted a reasonable investigation regarding their escrow funds once they knew about the construction stoppage in 2008, or at any time before they filed their complaint. The developer's reassurances did not exempt appellants from a duty to investigate the separate issue of Stewart Title's handling of their escrow funds.
Appellants contend the court should have granted them leave to amend their complaint to add certain "clarifying facts:" First, numerous other condominium projects stalled during the 2008 worldwide financial crisis; therefore, plaintiffs had no reason to believe the developer or Stewart Title had committed any wrongdoing. Second, appellants knew the escrow funds were for construction costs; therefore, even if they had learned in 2008 or later that their deposit monies had been fully disbursed, they would not have been alerted regarding any wrongdoing. Third, Stewart Title concealed from appellants the existence of secret escrow instructions under which the escrow deposits were disbursed, and that concealment continued beyond 2008, such that a reasonable investigation in 2008 or later would not likely have revealed any wrongdoing. Fourth, appellants were unable to discover Stewart Title's wrongdoing without taking the extraordinary steps of contacting a newspaper reporter and establishing a website to solicit information from other investors.
When a demurrer is sustained, " 'the plaintiff must be given leave to amend his or her complaint when there is a reasonable possibility that the defect can be cured by amendment. [Citations.] "The burden of proving such reasonable possibility is squarely on the plaintiff." [Citation.] [¶] "To satisfy that burden on appeal, a plaintiff 'must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.' [Citation.] The assertion of an abstract right to amend does not satisfy this burden." [Citation.] The plaintiff must clearly and specifically state "the legal basis for amendment, i.e., the elements of the cause of action," as well as the "factual allegations that sufficiently state all required elements of that cause of action." ' " (Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1118-1119.)
Appellants have failed to meet their burden. Their proposed amendments are unavailing because they have not shown how the amendments would change the legal effect of the pleading. The complaint does not allege, and the purchase agreement does not provide, that the escrow instructions required Stewart Title to notify appellants of its disbursements. Further, the purpose of the escrow deposit was to defray the construction costs; therefore, Stewart Title likely disbursed those funds by 2008. By that date, appellants were on notice that they risked losing their fairly substantial escrow deposits. Nonetheless, appellants waited eight more years before suing Stewart Title and they provide no reasonable justification for the delay.
Appellants' reliance on Lee Escrow, supra, 210 Cal.App.3d 915 is unavailing. In that case, despite the fact the escrow instructions specifically provided that "no notice of demand or change of instructions shall be of any effect in this escrow unless given in writing by all parties affected thereby" (id. at p. 921, capitalization omitted), the escrow company allegedly disbursed funds pursuant to an unwritten amendment. The court concluded the plaintiff had no duty to inquire about the escrow company's disbursement unless he was aware of facts that would make a reasonably prudent person suspicious. (Ibid.) Here, the escrow account did not contain a similar provision requiring the parties' notification. Moreover, appellants do not allege that Stewart Title violated any specific escrow instruction. Although appellants allege Stewart Title disbursed their funds pursuant to a secret document, they fail to explain their decision to wait until 2016 to bring their lawsuit, despite their knowing in 2008 that the project had stalled for lack of funds.
DISPOSITION
The judgment is affirmed.
O'ROURKE, J. WE CONCUR: McCONNELL, P. J. HALLER, J.