Filed 9/4/15

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

WA SOUTHWEST 2, LLC et al.,

 Plaintiffs and Appellants,

v.

FIRST AMERICAN TITLE INSURANCE 

COMPANY et al.,

 Defendants and Respondents.

 G050445

 (Super. Ct. No. 30-2012-00613565)

 O P I N I O N 

Appeal from judgments of the Superior Court of Orange County, Kim 

Garlin Dunning, Judge. Affirmed.

Catanzarite Law Corporation, Kenneth J. Catanzarite and Eric V. Anderton 

for Plaintiffs and Appellants. 

Rutan & Tucker, Layne H. Melzer and Karen E. Scott for Defendant and 

Respondent First American Title Insurance Company.

Morgan, Lewis & Bockius, Robert Brundage, J. Warren Rissier and Jordan 

McCrary for Defendants and Respondents Trammell Crow Company and CBRE, Inc.

Lester & Cantrell, Mark S. Lester, David Cantrell and Colin A. Northcutt 

for Defendant and Respondent Hirschler Fleischer.
2

This lawsuit arose from the rubble of a failed multimillion dollar 

investment in commercial real estate. The trial court sustained a series of demurrers and 

entered judgments of dismissal as to numerous defendants. We affirm the three 

judgments of dismissal at issue here because the applicable statutes of limitations

foreclose recovery.

PROCEDURAL HISTORY

Plaintiffs

1

are seven investors in Southwest Corporate Center (the 

Property), a three-story office building in Tempe, Arizona. The 30 defendants played 

various roles in acquiring the Property and marketing ownership shares therein to 

plaintiffs.

Plaintiffs filed their initial complaint in November 2012. Three amended 

complaints followed in response to motion practice by defendants. This appeal does not 

involve the parties from whom plaintiffs actually purchased their investments, including 

defendant WA Southwest Acquisitions, LLC (Acquisitions). Instead, this appeal 

concerns three judgments of dismissal entered on May 15, 2014, in favor of four 

defendants (the respondents to this appeal) on the periphery of the transaction: (1) First 

American Title Insurance Company, which provided escrow and closing services in 

connection with the acquisition of the Property; (2) Hirschler Fleischer, a law firm that 

worked on the investment offering and prepared a tax opinion in connection therewith;

(3) Trammell Crow Company (Trammell Crow), which acted as real estate broker for the 

original seller of the Property and then entered into a property management and leasing 

 

1

Plaintiffs (and appellants) are (1) WA Southwest 2, LLC; (2) WA 

Southwest 15, LLC; (3) WA Southwest 19, LLC; (4) James Shee; (5) Jensen Enterprises, 

Inc.; (6) Thomas Olson; and (7) LaVonne Misner.
3

agreement with plaintiffs; and (4) CBRE, Inc. (CBRE), which acquired Trammell Crow 

and became its successor in interest.

2

For purposes of this appeal, the 13 causes of action listed in the third 

amended complaint can be boiled down to breach of fiduciary duty claims (against all 

respondents), fraud claims (against all respondents), a legal malpractice claim against 

Hirschler Fleischer, and a conversion claim against Trammell Crow and CBRE. 

FACTS

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 . . . .’” 

(People ex rel. Gallegos v. Pacific Lumber Co. (2008) 158 Cal.App.4th 950, 957.) 

By stipulation, the parties agreed to the authenticity of certain operative 

documents that were in plaintiffs’ possession at the time of their investments, including 

the confidential private placement memorandum and the purchase agreements signed by 

the plaintiffs. Plaintiffs did not object (below or here) to the use of these documents in 

connection with defendants’ demurrers. Like the trial court, we rely on these documents 

as if they were exhibits to the operative complaint. (See SC Manufactured Homes, Inc. v. 

 

2

Three other defendants were also dismissed from the action following 

successful demurrers, as discussed in a concurrently filed opinion. (Olson et al. v. 

Steckler & Wynns Insurance Services, Inc. et al. (Sept. 4, 2015, G050455) [nonpub. 

opn.].) It appears from a comment made by the court that at least some of the remaining 

defendants were in the process of arbitrating plaintiffs’ claims. 
4

Liebert (2008) 162 Cal.App.4th 68, 83 [“If the allegations in the complaint conflict with 

the exhibits, we rely on and accept as true the contents of the exhibits”].)3

Allegations of Wrongdoing

The essence of plaintiffs’ case is that they were misled (by a variety of 

misrepresentations and misleading statements) about the “sales load” of their investments 

(i.e., the fees, expenses, and commissions paid) and the risks they were required to incur 

as a result of their investments. According to plaintiffs, they would not have invested in 

the Property had they known that the total sales load percentage actually exceeded the 15 

percent capital gains tax they had sought to defer by making the investments. The

respondents to this appeal (i.e., an escrow company, a law firm, and two real estate 

broker/management firms) participated in the investment transactions and knew about 

plaintiffs’ sensitivity to the “sales load,” but did not warn or inform plaintiffs about the 

true nature of the investment.

Plaintiffs “had cash from a prior sale of real property with deferred long 

term capital gain on deposit with a qualifying intermediary which met the requirements 

of Internal Revenue Code Section 1031 . . . .” Syndicated tenancy-in-common 

acquisitions of real property (like the structure of the investment in the Property) can be 

“used to defer gain on ‘like-kind’ real property sales so the gain realized by the taxpayerinvestor . . . on a sale of real estate . . . can be invested on a tax deferred basis in a ‘likekind’ property . . . , here the fractional interest [i]n the Property.”

A particular alleged oral misrepresentation made by certain defendants was, 

in substance and effect, the following: “‘I recommend this Southwest Corporate Center 

 

3

Hirschler Fleischer’s request that we take judicial notice of the private 

placement memorandum is unnecessary, as the private placement memorandum and 

related documents are already in the record and were treated like exhibits to the third 

amended complaint by the trial court, without objection by plaintiffs.
5

tenant in common investment because it has been subjected to thorough due diligence 

review, is designed and structured by experts for the tenants in common, offers long term 

professional experienced management and leasing and will allow you to invest more of 

your money in income producing property because the sales loads are less than 10% 

while the taxes you will have to pay if you do not timely invest will be 15%.’”

From December 2005 to March 2006, plaintiffs collectively invested 

$5,050,000. But “[a]fter all undisclosed and misrepresented Sales Loads are considered, 

only $3,780,000 was available for investment, resulting in true Sales Loads that exceeded 

20%, i.e., a material increase” from the amount represented and “more than the 15% 

capital gains tax sought to be deferred.” This true sales load was supposedly hidden by 

way of a “double escrow.” Acquisitions acquired the Property in the first escrow, then 

sold it to plaintiffs in the second escrow. The purchase agreement represented that 

plaintiffs would each be responsible for only $3,500 in closing costs in connection with 

this second escrow. This disclosure about the closing costs at the second closing misled 

plaintiffs about the other components of the sales load they were actually paying.

A lender foreclosed on the Property on an unspecified date and the 

plaintiffs’ investment was lost. Plaintiffs allegedly discovered wrongdoing by defendants 

in September 2012 (just before the filing of the initial complaint in November 2012). 

The discovery occurred at this time because “experts in taxation and accounting reviewed 

the record related to the discharge of indebtedness issue presented only by the 

foreclosure.” Prior to this, plaintiffs “held no suspicion as to a possible fraud because 

they received the described interest in the [P]roperty, the represented cash flow and 

thought they had received the [Internal Revenue Code] Section 1031 benefit of deferred 

capital gain taxes. Plaintiffs had no cause to review the bona fides of [the] Section 1031 

deferred capital gains vehicle until the Property was foreclosed upon and plaintiffs sought 

counsel for the negative implications of the tax reporting for a discharge of indebtedness 

for the tax year of the foreclosure . . . .”
6

Information Disclosed to Plaintiffs at Time of Investment

Among other challenges to the third amended complaint, respondents

advanced a statute of limitations defense in their demurrers, based on the contention that 

written disclosures provided to plaintiffs at the time of their investment (in particular, the 

private placement memorandum) put plaintiffs on notice of the sales load and riskiness of 

the investment.

The first page of the private placement memorandum set forth the 

highlights of the investment offering. Acquisitions expected to purchase the Property 

from its prior owners for “$11,600,000, plus closing costs, financing costs, and related 

transactional costs.” Acquisitions offered investors the opportunity to purchase tenancyin-common ownership interests in the Property. A 1 percent interest consisted of $50,500 

of equity (i.e., cash), paired with a $81,200 share of debt. The maximum offering amount 

was $5,050,000 of equity and $8,120,000 of debt (in the form of a nonrecourse loan to be 

obtained by Acquisitions).

Obviously, the “Investment Cost” ($13,170,000 — $5,050,000 equity plus 

$8,120,000 debt) to be collected by defendants exceeded the purchase price of the 

Property ($11,600,000). The first page of the summary of offering terms in the private 

placement memorandum stated, “The Investment Cost consists of the purchase price of 

$11,600,000 payable to the seller plus the costs described herein, including: (i) the 

Acquisition Fee of $505,000 payable to Acquisitions for identifying and analyzing the 

Property, negotiating the contract to purchase the Property and assigning the purchase 

contract to the Purchasers; (ii) selling commissions and due diligence allowances; 

(iii) organizational and offering expenses; (iv) loan costs and fees payable to the Lender; 

(v) closing costs . . . ; (vi) working capital reserves . . . ; and (vii) $300,000 in reserves 

which Acquisitions expects the Lender will withhold from Loan proceeds.”

The private placement memorandum also included a detailed chart setting 

forth the estimated use of investment proceeds, including a scenario in which the full 
7

$5,050,000 of “equity” was raised (as happened here).

4

 In this scenario: $3,780,000 

(74.9 percent) would be used as a down payment on the Property;

5

$505,000 (10 percent) 

would be used to pay an acquisition fee to Acquisitions; $353,500 (7 percent) would be 

used to pay selling commissions; $138,800 (2.7 percent) would be held in reserve; 

$126,250 (2.5 percent) would be used to pay loan fees, loan costs, and closing costs; 

$95,950 (1.9 percent) would be used for organization and offering expenses; and $50,500 

(1 percent) would be allocated for marketing and due diligence expenses.

The chart did not, however, classify all of the expenses the same way. 

Three categories of expenses (amounting to 9.9 percent) were subtracted from the gross 

offering proceeds of $5,050,000, resulting in a line item (labeled “Available for 

Investment”) of $4,550,050. Below this line, the remaining fees and expenses were 

accounted for, including the down payment on the Property and the $505,000 fee paid to 

Acquisitions. A footnote to the chart, emphasized by plaintiffs at oral argument, stated: 

“Acquisitions will receive an Acquisition Fee of $505,000 (based on the Maximum 

Offering Amount) for identifying and analyzing the Property, negotiating the contract to 

purchase the Property, and assigning the contract to the Purchasers. . . . Acquisitions will 

defer any unpaid portion of the Acquisition Fee if the Maximum Offering Amount is not 

raised. Therefore, the value of the Property and the related proceeds to be raised in this 

offering should be considered increased by this additional cost.” (Italics added.) 

In the section of the private placement memorandum discussing risk 

factors, the following disclosure was made: “Acquisitions intends to purchase the 

Property for $11,600,000, plus closing costs, financing costs, and related transactional 

and offering costs. . . . The purchase price for the [investments] is determined 

 

4

We include a copy of this chart as an appendix to this opinion.

5

The $3,780,000 down payment, paired with the $8,120,000 loan, equals 

$11,900,000 (the $11.6 million purchase price, plus the $300,000 lender reserve 

mentioned above).
8

unilaterally by Acquisitions and [a related company]. The purchase price likely does not 

reflect the current market value of the Property and is not based on an arms length 

negotiation with the [investors] or supported by an appraisal of the Property. In fact, the 

total purchase price for the [investments] will be significantly higher than the price to be 

paid by Acquisitions in its acquisition of the Property from the Seller. Based on the 

foregoing, the [investors] should not, therefore, anticipate or expect that the price paid for 

their investment is reflective of the fair market value of the Property on a stand-alone 

basis. The [investors] are, however, acquiring their [investments] based on the existence 

of the financing and the Management Agreement and the management expertise provided 

thereunder by the Property Manager. Nevertheless, there is no evidence that such 

additional rights support the increase in the purchase price.”

By signing their purchase agreements, plaintiffs acknowledged their receipt 

and review of the confidential private placement memorandum, which made clear the 

investment was only being offered to accredited investors. The confidential private 

placement memorandum repeatedly warned potential investors about the risks inherent to 

an investment in the Property. We quote a few representative examples. “THE 

INTERESTS AND INVESTOR UNITS OFFERED HEREBY ARE HIGHLY 

SPECULATIVE. AN INVESTMENT IN THE INTERESTS OR INVESTOR 

UNITS INVOLVES SUBSTANTIAL INVESTMENT AND TAX RISKS.” “THE 

PURCHASE OF INTERESTS AND INVESTOR UNITS INVOLVES 

SIGNIFICANT RISKS. INVESTORS MUST READ AND CAREFULLY 

CONSIDER THE DISCUSSION SET FORTH BELOW IN ‘RISK FACTORS.’” 

“PURCHASE OF THE INTERESTS AND INVESTOR UNITS IS SUITABLE 

ONLY FOR PERSONS OF SUBSTANTIAL MEANS WHO HAVE NO NEED 

FOR LIQUIDITY IN THEIR INVESTMENT.”
9

DISCUSSION

The court sustained the demurrers at issue on statute of limitations grounds. 

Our de novo review of the orders “is limited to issues which have been adequately raised 

and supported in [appellants’ opening] brief.” (Reyes v. Kosha (1998) 65 Cal.App.4th 

451, 466, fn. 6; see McGettigan v. Bay Area Rapid Transit Dist. (1997) 57 Cal.App.4th 

1011, 1016, fn. 4.) 

Applicable California statutes of limitations in this case range from one to 

four years. (See Code Civ. Proc., §§ 338, subds. (c) [conversion, three years], (d) [fraud, 

three years], 340.6 [action against attorney, one year after discovery or four year limit],

343 [claim not provided for, including nonfraudulent breach of fiduciary duty, four 

years].) To the extent they might apply, Arizona statutes of limitations are within the 

same range. (See Ariz. Rev. Stat. § 12-543 [three years, fraud]; Mohave Elec. Coop. v. 

Byers (Ariz.Ct.App. 1997) 189 Ariz. 292, 310 [two years, breach of fiduciary duty].) 

Plaintiffs’ briefs do not identify the applicable statutes of limitations or contest the notion 

that the longest potentially applicable statute of limitations in this case is four years.

Plaintiffs purchased their interests in the Property in late 2005 to early 

2006. The initial complaint was not filed until November 2012. The only argument 

plaintiffs make on appeal is that the court should have applied the delayed discovery rule 

to postpone accrual of the statute of limitations. “By their reliance on the ‘discovery 

rule,’ plaintiffs concede by implication that, without it, their claims are barred by one or 

more statutes of limitations.” (McKelvey v. Boeing North American, Inc. (1999) 74 

Cal.App.4th 151, 160, superseded by statute on other grounds as stated in Grisham v. 

Philip Morris U.S.A., Inc. (2007) 40 Cal.4th 623, 637, fn. 8.) Unless the discovery rule 

applies, the statute of limitations began running when plaintiffs made what they now 

deem to be unsuitable investments, paid what they now deem to be an unreasonable (and 

undisclosed) “sales load,” and had in their possession documents disclosing the 
10

downsides of the investment (e.g., the risks of the investment and the expenses beyond 

the acquisition price of the Property). As stated in their reply brief, plaintiffs “do not 

argue that an injury was not suffered when [they] made their investment.”

6

“An important exception to the general rule of accrual is the ‘discovery 

rule,’ which postpones accrual of a cause of action until the plaintiff discovers, or has 

reason to discover, the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 

Cal.4th 797, 807.) “The discovery rule only delays accrual until the plaintiff has, or 

should have, inquiry notice of the cause of action.” (Ibid.) A plaintiff relying on the 

discovery rule must plead “‘(1) the time and manner of discovery and (2) the inability to 

have made earlier discovery despite reasonable diligence.’” (Id. at p. 808.) Plaintiffs 

have an obligation to plead facts demonstrating reasonable diligence. (Ibid. 

[“‘conclusory allegations will not withstand demurrer’”].)

“Where a fiduciary obligation is present, the courts have recognized a 

postponement of the accrual of the cause of action until the beneficiary has knowledge or 

notice of the act constituting a breach of fidelity. [Citations.] The existence of a trust 

relationship limits the duty of inquiry. ‘Thus, when a potential plaintiff is in a fiduciary 

relationship with another individual, that plantiff’s burden of discovery is reduced and he 

is entitled to rely on the statements and advice provided by the fiduciary.’” (Eisenbaum 

v. Western Energy Resources, Inc. (1990) 218 Cal.App.3d 314, 324.) But, even assuming 

for the sake of argument that each of the respondents had a fiduciary duty to plaintiffs,

 

6

Receipt of investment disclosures can trigger the statute of limitations in 

appropriate cases. (See, e.g., Dodds v. Cigna Securities Inc. (2d Cir. 1993) 12 F.3d 346, 

347 [“when an investor is provided prospectuses that disclose that certain investments are 

risky and illiquid, she is on notice for purposes of triggering the statute of limitations that 

several such investments might be inappropriate in a conservative portfolio”]; Calvi v. 

Prudential Secs. (C.D.Cal. 1994) 861 F.Supp. 69, 71 [“the statute of limitations begins to 

run when a plaintiff should have discovered the alleged fraud, and . . . the receipt of a 

prospectus disclosing risks puts a plaintiff on notice of any misrepresentations or fraud 

concerning those risks”].)
11

this does not mean that plaintiffs had no duty of inquiry if they were put on notice of a

breach of such duty. (See Miller v. Bechtel Corp. (1983) 33 Cal.3d 868, 874-875.) 

Plaintiffs argue the statute of limitations only began running when they 

consulted with tax and accounting experts in September 2012. The problem with this

position is that the private placement memorandum provided to plaintiffs prior to their 

investments clearly disclosed the fees, expenses, and commissions that would be paid out 

of their cash investments, as well as the risky nature of the investments. These were 

illiquid, unregistered securities, which were only made available to accredited investors. 

Reasonable diligence in such circumstances does not consist of ignoring a private 

placement memorandum received prior to making an investment. (See Casualty Ins. Co. 

v. Rees Investment Co. (1971) 14 Cal.App.3d 716, 719-720 [tenant plaintiff failed to 

plead reasonable diligence in discovering unfair terms of lease in its possession]; Marlow 

v. Gold (S.D.N.Y., June 13, 1991, No. 89 Civ. 8589) 1991 U.S.Dist. Lexis 8106, p. *27 

[“plaintiff abrogated his duty of inquiry of reasonable diligence by recklessly failing to 

familiarize himself with the prospectus”].) This is not a case in which the plaintiff 

“possessed no factual basis for suspicion.” (E-Fab, Inc. v. Accountants, Inc. Services

(2007) 153 Cal.App.4th 1308, 1326.) The information and disclosures in the private 

placement memorandum put plaintiffs on notice of the falsity of any communications 

they may have received about the sales load, tax advantages, or risk-free nature of the 

investments. The delayed discovery rule does not apply.

According to plaintiffs, there is an issue of fact as to whether they were on 

notice of the full sales load because of potentially misleading disclosures in the private 

placement memorandum.

7

 For instance, the chart in the private placement memorandum 

 

7

The case law cited by plaintiffs on this point (e.g., Boschma v. Home Loan 

Center, Inc. (2011) 198 Cal.App.4th 230, 249) addresses the question of whether parties 

sufficiently pleaded fraud. Plaintiffs do not cite authority holding that parties who ignore 

or misunderstand written warnings and thorough (if complex) disclosures in their 

possession may thereby delay the accrual of the statute of limitations.
12

estimating the use of investment proceeds does not classify the $505,000 fee paid to 

Acquisitions as a cost to investors in the same way as selling commissions or 

organization and offering expenses. And the footnote emphasized by plaintiffs can 

arguably be read to suggest that the $505,000 fee somehow increased the value of the 

Property, though this potential implication was specifically disclaimed elsewhere in the 

private placement memorandum. But it cannot be denied that the entire sales load, 

including the $505,000 fee, was disclosed to plaintiffs in the private placement 

memorandum. The payment of these fees was the alleged harm suffered by plaintiffs. 

One can certainly question, particularly in retrospect, the value of the services provided 

by Acquisitions and the reasonableness of the total sales load. But the only issue here is 

whether plaintiffs were on notice of the total sales load and the risks of the investment. 

They were.

Plaintiffs also point out that they did not receive a clear explanation of the 

“sales load” for their specific investment (i.e., a dollar breakdown), or even an 

explanation of the “sales load” for each one percent investment share. But the 

disclosures made clear that the total investment costs significantly exceeded the expected 

costs of acquiring the Property and set forth the percentage of the cash raised from 

investors that would be used for various expenses. This was sufficient to put plaintiffs on 

notice that the “sales load” exceeded the capital gains tax rate. This is not akin to a

situation in which a party relies on the statements of a fiduciary about, for instance, the 

legality of a complicated transaction. (Eisenbaum v. Western Energy Resources, Inc., 

supra, 218 Cal.App.3d at pp. 320, 324-325.) Plaintiffs only needed the private placement 

memorandum and a calculator to obtain the information they now deem essential.

In sum, plaintiffs failed in their effort to plead the applicability of the 

delayed discovery rule. Moreover, we see no viable way for plaintiffs to adequately 
13

plead the discovery rule. The court correctly sustained respondents’ demurrer to the third 

amended complaint without leave to amend.

8

DISPOSITION

The judgments are affirmed. Hirschler Fleischer’s request for judicial 

notice is denied. Defendants shall recover costs incurred on appeal.

IKOLA, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

ARONSON, J.

 

8

Each of the respondents’ briefs includes arguments in the alternative for 

affirming the judgments. As we agree with the court’s stated reason for sustaining the 

respondents’ demurrers, we need not address the respondents’ backup arguments.
14