Court Opinion

ID: 3154302
Source: CourtListenerOpinion
Date Created: 2015-11-12 21:02:19.846033+00
Date Added: 2024-06-11T12:01:13.237882
License: Public Domain

Filed 11/12/15 Zander v. Dowent Family CA2/7
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION SEVEN

DAVID ZANDER,                                                        B255333

         Plaintiff and Appellant,                                    (Los Angeles County
                                                                     Super. Ct. No. BC485043)
         v.

DOWENT FAMILY, LLC,

         Defendants and Respondents.

         APPEAL from an order of the Superior Court of Los Angeles County, Mark
Mooney, Judge. Reversed and remanded.
         Rosenbaum & Associates and Paul R. Rosenbaum for Plaintiff and Appellant.
         Carlson Law Group, Inc., Mark C. Carlson and Brandon P. Brousseau, for
Defendants and Respondents, David Wan, Mandarin Realty Corporation and Raymon J.
Wan.
                                         ________________________
       David Zander appeals from the order dismissing his first amended complaint as to
David Wan, Raymond J. Wan and Mandarin Realty Corporation (collectively selling
brokers) after the trial court sustained without leave to amend the selling brokers’
demurrer to the two causes of action (for breach of the covenant of good faith and fair
dealing and negligence) in which they were named as defendants. Zander contends the
court erred in ruling the selling brokers owed him no duty of care as the proposed buyer
of commercial real property and abused its discretion in concluding he had failed to
demonstrate how he could amend the pleading to state a cause of action against the
selling brokers. Although we agree the demurrer was properly sustained, we reverse the
order dismissing the action and remand for the trial court to determine whether Zander’s
proposed new allegations that the selling brokers made material misrepresentations
(either intentionally or negligently) to induce him to open and deposit funds into an
escrow account must be disregarded as sham pleadings.
                 FACTUAL AND PROCEDURAL BACKGROUND
       1. The Agreements for Sale of 3138-3148 West Pico Boulevard
       Dowent Family, LLC (Dowent) owned a three-unit commercial real estate
property located at 3138-3148 West Pico Boulevard, Los Angeles. Sahm Orh and
Michelle Orh are the owners and managing members of Dowent. In August 2011
Dowent entered into a listing agreement with the selling brokers to sell the West Pico
property.
       In early January 2012 Dowent entered into a contract to sell the West Pico
property to Efpar Development, LLC, for $3.8 million. Escrow was opened with a
deposit of $50,000 by Efpar and was initially scheduled to close within 90 days (no later
than April 7, 2012). Paragraph 8.8 of the Efpar purchase agreement provided, “The
Closing shall occur on the Expected Closing Date, or as soon thereafter as the Escrow is
in condition for Closing; provided, however, that if the Closing does not occur by the
Expected Closing Date and said Date is not extended by mutual instructions of the
Parties, a Party not then in default under this Agreement may notify the other Party,

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Escrow Holder, and Brokers, in writing that, unless the Closing occurs within 5 business
days following said notice, the Escrow shall be deemed terminated without further notice
or instruction.”
       Shortly before the April 7, 2012 deadline for closing escrow, Efpar and Dowent
entered into an addendum to their sale agreement that, among other provisions, modified
the purchase price to $3,635,000 and extended the escrow closing deadline 45 days to
May 22, 2012. Efpar was also given the right to extend the escrow closing deadline for
an additional 45 days upon deposit of another $50,000.
       On April 16, 2012 Zander entered into a purchase agreement and joint escrow
instructions for the West Pico property, expressly identified as “the 1st back up offer
subject to cancellation of [the Efpar] escrow #12-57810 with Commerce Escrow Co.”
The purchase price was $3,660,000 with an initial deposit into escrow of $100,000. The
Zander purchase agreement was initially signed by the selling brokers on behalf of
Dowent, not by either of the Orhs.
       The Efpar escrow did not close on May 22, 2012, and the closing date was not
extended by agreement of the parties. On May 24, 2012 the selling brokers sent an email
to Efpar’s broker that attached a form “Cancellation of Contract, Release of Deposit and
Joint Escrow Instructions” signed by Sahm Orh on behalf of Dowent. The cancellation
form was also delivered on the same day to Zander. However, the selling brokers told
Zander’s broker, notwithstanding the cancellation form, Dowent would wait a few days
for Efpar to perform. On May 25, 2012 the selling brokers told Zander’s broker escrow
could open on May 29, 2012.
       The Efpar escrow had not closed as of May 29, 2012. According to Zander, on
May 29, 2012, David Wan called Zander to his office and informed Zander and his
broker that the Efpar escrow had been cancelled and that Zander was the new buyer of
the West Pico property. Wan told Zander a “new offer” from Efpar had been received,
but assured him Dowent intended to move forward with Zander as the purchaser rather
than on the basis of Efpar’s new offer. At this point the Orhs had also signed the Zander

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purchase agreement and escrow instructions; a new escrow was opened; and Zander
deposited $100,000 into the escrow account.
         Approximately two weeks later Zander was informed that Dowent intended to
proceed with the sale of the West Pico property to Efpar, not Zander. From materials
filed in Dowent’s bankruptcy proceeding, which are part of the record on appeal, it
appears that Efpar and Dowent entered into a second amendment to their original sale
agreement on June 7, 2012, which provided for a new closing deadline of June 27, 2012.
         2. Zander’s Lawsuit
         On June 14, 2012 Zander filed an action against Dowent for specific performance
of his agreement to purchase the West Pico property. Zander recorded a lis pendens,
which prevented Dowent from completing the sale of the property to Efpar. On
September 28, 2012 the court denied Dowent’s motion to expunge the Zander lis
pendens. On November 29, 2012 the court denied a new motion to expunge filed by
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Efpar.
         On January 8, 2013 Zander moved for leave to file a first amended complaint.
The proposed new pleading added as defendants the selling brokers and Efpar and
alleged new causes of action for breach of contract, breach of the covenant of good faith
and fair dealing, negligence, intentional interference with contractual relations and
inducing breach of contract. The motion was granted, and the first amended complaint
was filed on May 2, 2013. Only the causes of action for breach of the covenant of good
faith and fair dealing and negligence named the selling brokers as defendants.
         As to the selling brokers the first amended complaint described the factual
background of the backup offer, the notice of cancellation of the Efpar escrow, the
opening of the Zander escrow and the subsequent notice that Dowent intended to proceed

1
       On July 24, 2012 Efpar filed its own lawsuit against Dowent and its principals, as
well as the selling brokers, seeking specific performance and damages for breach of
contract. Efpar also recorded a lis pendens further clouding title to the West Pico
property.
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with Efpar as the purchaser. Zander alleged, on information and belief, that Efpar had
threatened to sue Dowent after the Zander escrow was opened, which caused Dowent to
reverse its decision to sell the property to Zander. Zander also alleged that Dowent, in an
attempt to deny its legal obligation to sell the West Pico property to Zander, “used the
pretext that Seller Defendants never really meant to ‘cancel’ Efpar’s agreement; rather
the Seller Defendants now took the position that Seller Defendants were just trying to
‘warn’ Efpar that his escrow would be cancelled if Efpar didn’t close asap.” Zander
alleged, again on information and belief, “that the Seller Defendants’ pretext is a
fabrication made in bad faith.”
       With respect to the cause of action for breach of the covenant of good faith and
fair dealing, Zander alleged Dowent and the selling brokers unfairly interfered with
Zander’s right to receive the benefits of the Zander purchase agreement by acting both
independently and together to disrupt the contractual relationship between Zander and
Dowent. With respect to the cause of action for negligence, Zander alleged the selling
brokers owed him a duty of care in connection with the management and handling of the
Zander purchase agreement that they had breached.
       3. The Selling Brokers’ Demurrer
       The selling brokers demurred to the first amended complaint and the two causes of
action in which they were named. In their supporting papers the selling brokers argued
there was no contract between them and Zander and thus no basis for a claim of breach of
the covenant of good faith and fair dealing and, as brokers for Dowent, they did not owe
any duty of care to Zander as a potential buyer of the West Pico property.
       Following further briefing and a hearing on August 15, 2014, the court sustained
the demurrer without leave to amend. The court’s order, filed October 22, 2014, found
no contractual relationship existed between Zander and the selling brokers that would
support a cause of action for breach of the covenant of good faith and fair dealing and no
duty existed between them, and no resulting breach, to support the cause of action for
negligence.

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       Zander moved for reconsideration of the court’s order with respect to the cause of
action for negligence and requested leave to amend the operative complaint to add causes
of action for intentional and negligent misrepresentation against the selling brokers.
Specifically, Zander proposed adding allegations that Dowent and the selling brokers
considered the original purchase agreement and escrow with Efpar to be continuing in
effect on May 29, 2012, notwithstanding the May 24, 2012 cancellation notice, and
misrepresented to Zander that he was the new buyer, not simply a backup. In support of
these allegations Zander provided excerpts from the deposition testimony of Michelle
Ohr in which she confirmed the selling brokers had, together with their transmission of
the cancellation form to Efpar’s broker on May 24, 2012, included an email message that
stated, “Enclosed please find the cancellation from the seller. If your buyer [can’t] put
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the money this week to close the escrow on next [T]uesday,[ ] I still want your buyer to
buy this property. Let me know A.S.A.P.”
       The court denied the motion for reconsideration on December 16, 2013 and signed
and filed its order dismissing the action with prejudice on January 22, 2014. The
judgment was amended on February 10, 2014 to add an award of costs to the selling
brokers.
       4. The Dowent Bankruptcy
       On February 4, 2013, while Zander’s motion for leave to file his first amended
complaint was pending, Dowent filed a voluntary chapter 11 bankruptcy proceeding.
Dowent asked the bankruptcy court to authorize the sale of the West Pico property to
Efpar. The bankruptcy court denied that request and on May 7, 2013 ordered an auction
at which both Efpar and Zander would be permitted to bid. Zander was the successful
bidder, and sale of the West Pico property to Zander for $3.8 million ($140,000 more
than the backup offer) was approved on July 2, 2013. Escrow closed on August 1, 2013.

2
        May 24, 2012 was a Thursday. Tuesday, May 29, 2012, was the first business day
after the May 28, 2012 Memorial Day holiday.
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As a condition for bankruptcy court approval of the sale, Zander released all claims
against Dowent in connection with his acquisition of the West Pico property.
                                      DISCUSSION
       1. Standard of Review
       A demurrer tests the legal sufficiency of the factual allegations in a complaint.
We independently review the superior court’s ruling on a demurrer and determine de
novo whether the complaint alleges facts sufficient to state a cause of action or discloses
a complete defense. (Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1100; McCall v.
PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We assume the truth of the properly
pleaded factual allegations, facts that reasonably can be inferred from those expressly
pleaded and matters of which judicial notice has been taken. (Evans v. City of Berkeley
(2006) 38 Cal.4th 1, 20; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
We liberally construe the pleading with a view to substantial justice between the parties.
(Code Civ. Proc., § 452; Schifando, at p. 1081.)
       “‘Where the complaint is defective, “[i]n the furtherance of justice great liberality
should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily
constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is
a reasonable possibility that the defect can be cured by amendment. [Citations.]”’
[Citations.] This abuse of discretion is reviewable on appeal ‘even in the absence of a
request for leave to amend’ [citations], and even if the plaintiff does not claim on appeal
that the trial court abused its discretion in sustaining a demurrer without leave to amend.”
(Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 970-971; accord City of Dinuba v.
County of Tulare (2007) 41 Cal.4th 859, 865 [when a demurrer has been 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”].)

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       2. The Trial Court Properly Sustained the Demurrer to the First Amended
          Complaint
       Zander does not challenge the trial court’s order sustaining the demurrer to his
cause of action for breach of the covenant of good faith and fair dealing. However, he
argues the court erred in ruling a seller’s broker owes no legal duty to a prospective
buyer, citing to cases (many, but not all, involving sales of residential property) that hold
“where a real estate broker or agent, representing the seller, knows facts materially
affecting the value or the desirability of property offered for sale and these facts are
known or accessible only to him and his principal, and the broker or agent also knows
that these facts are not known to or within the reach of the diligent attention and
observation of the buyer, the broker or agent is under a duty to disclose these facts to the
buyer.” (Cooper v. Jevne (1976) 56 Cal.App.3d 860, 866, citing Lingsch v. Savage
(1963) 213 Cal.App.2d 729, 735-736; see Holmes v. Summer (2010) 188 Cal.App.4th
1510, 1520 [“real estate agents or brokers have been held to have a duty to disclose
matters that do not pertain to physical defects, but otherwise affect the desirability of the
purchase. . . . To impose a duty on the brokers here to disclose information alerting the
buyers that the sale was at high risk of failure would be to further the purpose of
protecting buyers from harm and providing them with sufficient information to enable
them to wisely choose whether to enter into the transaction”]; see also Norman I. Krug
Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35, 42 [a realtor is under
a “fundamental duty” to “deal honestly and fairly with all parties in the sale
transaction”].)
       This duty of disclosure, however, which is the foundation for an intentional
misrepresentation or fraudulent concealment claim (Blickman Turkus, LP v.
MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868; see Kaldenbach v.
Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 850), is quite different from
the duty of care alleged in Zander’s negligence cause of action. As pleaded, Zander
claims the selling brokers failed to properly manage the West Pico property transaction,
not that they misrepresented or knowingly concealed material facts. The trial court
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properly ruled Zander had not alleged any basis to impose such a duty of care on the
selling brokers, who acted only as Dowent’s agents in their dealings with Zander and
Efpar. Accordingly, it was not error to sustain the demurrer to the negligence cause of
action.
          3. Zander Should Be Permitted To Amend His Complaint To Allege Causes of
             Action for Fraud and Negligent Misrepresentation If He Adequately Explains
             the Inconsistency with His Prior Pleading
          In his motion for reconsideration in the trial court and again in his appellate briefs,
Zander has requested leave to amend his complaint to plead causes of action for fraud
and negligent misrepresentation. Specifically, if permitted to filed a second amended
complaint, Zander could in good faith allege, in effect, that on May 24, 2012, when the
Efpar escrow cancellation form was transmitted to Efpar’s broker and delivered to
Zander, Dowent in fact did not intend to cancel the Efpar sale agreement and escrow but
simply authorized sending the form to motivate Efpar to close escrow quickly; Dowent
apparently understood the cancellation form was not effective to terminate the sale
agreement unless it was countersigned by Efpar and believed Zander remained in the
position of backup purchaser; the selling brokers knew (for the cause of action for fraud)
or reasonably should have known (for the alternative cause of action for negligent
misrepresentation) of Dowent’s intentions and beliefs when they told Zander he was the
new buyer and encouraged him on May 29, 2012 to open the Zander escrow and to
deposit $100,000 into that escrow; but for the selling brokers’ misrepresentations and
omissions, Zander would not have continued with the transaction and incurred the costs
and expenses of the failed escrow and the ensuing litigation.
          Those allegations are sufficient to plead causes of action for fraud and negligent
misrepresentation against the selling brokers and, considered in isolation, provide an
appropriate basis for granting leave to amend. (See Schifando v. City of Los Angeles,
supra, 31 Cal.4th at p. 1081 [leave to amend should be granted when the plaintiff has
demonstrated a “reasonable possibility” that he or she can amend the complaint to state

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                          3
viable causes of action].) But they also directly contradict allegations in Zander’s first
amended complaint that Dowent’s claim it never meant to cancel the Efpar escrow was “a
fabrication made in bad faith” and that the decision to reengage with Efpar was only
made after the opening of the Zander escrow and in response to Efpar’s threat to file a
lawsuit. As such, it is arguable leave to amend was properly denied under the sham
pleading doctrine: “[T]he trial court has discretion to deny leave to amend when the
proposed amendment omits or contradicts harmful facts pleaded in a prior pleading
unless a showing is made of mistake or other sufficient excuse for changing the facts.
Absent such a showing, the proposed pleading may be treated as a sham.” (Sanai v. Saltz
(2009) 170 Cal.App.4th 746, 768; accord, Falcon v. Long Beach Genetics, Inc. (2014)
224 Cal.App.4th 1263, 1281, 1282 [“under the sham pleading doctrine, the trial court
may disregard amendments that omit harmful allegations in the original complaint or add
allegations inconsistent with it”; “[t]he trial court could reasonably conclude that any
amendment was inconsistent with plaintiffs’ theory of the case, and reject it on that
basis”]; see Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 836.)
       Before denying leave to amend by invoking the sham pleading doctrine, however,
Zander must be provided an opportunity to explain the proposed changes: “‘The sham
pleading doctrine is not “‘intended to prevent honest complainants from correcting
erroneous allegations . . . or to prevent correction of ambiguous facts.’” [Citation.]
Instead, it is intended to enable courts “‘to prevent an abuse of process.’” [Citation.]’
[Citations.] Plaintiffs therefore may avoid the effect of the sham pleading doctrine by
alleging an explanation for the conflicts between the pleadings.” (Larson v. UHS of

3
       That Zander proposes to add not only new factual allegations but also new legal
theories in an amended pleading is of no moment: “[T]he appeal of a judgment of
dismissal after sustaining of a demurrer without leave to amend requires the consideration
of whether the allegations state a cause of action under any legal theory. [Citation.]
Under these circumstances, new theories may be advanced for the first time on appeal.”
(Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 85; accord, Linda Vista
Village San Diego Homeowners Assn., Inc. v. Tecolote Investors, LLC (2015)
234 Cal.App.4th 166, 180.)
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Rancho Springs, Inc. (2014) 230 Cal.App.4th 336, 344; see Vallejo Development Co. v.
Beck Development Co. (1994) 24 Cal.App.4th 929, 934 [“any inconsistencies with prior
pleadings must be explained; if the pleader fails to do so, the court may disregard the
inconsistent allegations”]; see also Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408,
426 [“the party who made the pleadings must be allowed to explain the changes”].) The
determination whether Zander has a plausible explanation for the inconsistency between
his proposed amendment and his prior pleading is properly made by the trial court in the
first instance. Accordingly, we reverse the order of dismissal and remand for the trial
court to consider whether Zander should be allowed to file a second amended complaint
alleging causes of action against the selling brokers based on their intentional or
negligent misrepresentation or concealment of facts relating to Dowent’s cancellation of
the Efpar escrow or whether leave to amend is properly denied on the ground the
proposed new allegations should be disregarded under the sham pleading doctrine.
                                      DISPOSITION
       The order of dismissal is reversed, and the matter remanded for further
proceedings not inconsistent with this opinion. The parties are to bear their own costs on
appeal.

                                                  PERLUSS, P. J.

       We concur:

              ZELON, J.

              SEGAL, J.

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