Court Opinion

ID: 9918356
Source: CourtListenerOpinion
Date Created: 2024-01-12 18:02:33.681342+00
Date Added: 2024-06-11T08:02:38.725524
License: Public Domain

Filed 1/12/24 Sunset Group Realty v. A. Rideau & Associates CA2/7
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                        SECOND APPELLATE DISTRICT

                                     DIVISION SEVEN

SUNSET GROUP REALTY, INC. et                                        B327620
al.,
                                                                    (Los Angeles County
         Plaintiffs and Appellants,                                 Super. Ct. No. 22STCV28976)

         v.

A. RIDEAU & ASSOCIATES, INC.,

         Defendant and Respondent.

      APPEAL from an order of the Superior Court of
Los Angeles County, Michael L. Stern, Judge. Affirmed.
      Law Office of Michael D. Kolodzi and Michael D. Kolodzi
for Plaintiffs and Appellants.
      Lewis Brisbois Bisgaard & Smith, Jeffry A. Miller, Ernest
Slome, and Joseph C. Campo for Defendant and Respondent.
                                ________________________
                       INTRODUCTION

      Sunset Group Realty, Inc. (SGR) and Edward Sergio
Romero (Romero) appeal from the trial court’s dismissal with
prejudice of their complaint against A. Rideau & Associates, Inc.
dba Assistance Insurance Agency (AIA). Romero, a licensed real
estate broker, and SGR, his real estate brokerage company, sued
AIA alleging causes of action for fraud and breach of fiduciary
duty based on wrongful conduct by one of AIA’s insurance agents
relating to the procurement of a fidelity bond for SGR. SGR and
Romero filed their complaint after the California Department of
Real Estate (the Department) concluded its investigation finding
the policy AIA procured had insufficient coverage. The complaint
alleged the lack of a sufficient fidelity bond had devastating
financial consequences for SGR and Romero. The trial court
sustained a demurrer to the complaint and dismissed without
leave to amend because the complaint was barred by the
three-year statute of limitations applicable to claims sounding in
fraud. We affirm because the facts SGR and Romero alleged
demonstrate they were on inquiry notice of the allegedly
fraudulent conduct before the Department concluded its
investigation.

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     FACTUAL AND PROCEDURAL BACKGROUND1

A.     AIA Procures an Insurance Policy for SGR
       SGR is a real estate brokerage firm owned by Romero, a
licensed real estate broker. At its height, SGR employed
30 agents under Romero’s broker license.
       To comply with “guidelines and recommendations” from the
Department, SGR maintained workers’ compensation coverage
for its agents and carried “a fidelity bond, in the event an
employee commits a dishonest act, such as theft or forgery—
occurrences that are not normally covered by general liability
insurance.”2
       Romero became acquainted with Andre Jules Olivier, a
licensed insurance agent and vice-president of AIA, because their
children attended the same school.3 Olivier offered to procure
SGR’s insurance policies, including workers’ compensation
coverage and the fidelity bond. In September 2016, Romero and

1     The facts are taken from the complaint, which we assume
are true for purposes of our review. (See City of Dinuba v. County
of Tulare (2007) 41 Cal.4th 859, 865.)
2      “Fidelity bonds . . . are two-party contracts between an
insurer and an employer that protect against employee
dishonesty. It is generally recognized that fidelity bonds
resemble traditional contracts of insurance.” (Cates Construction,
Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 46 [a “fidelity bond
‘is essentially one of indemnity for the personal loss to the
employer’”].)
3     SGR and Romero also sued Olivier, but the record is
unclear whether he was served with the complaint. In any event,
Olivier is not a party to this appeal.

                                3
Olivier discussed SGR’s insurance coverage. Olivier tried to
persuade Romero that SGR did not need workers’ compensation
insurance because its agents were independent contractors.
Romero “knew this statement” was “false” because the California
Association of Realtors requires real estate brokers to have such
insurance for their agents. He directed Olivier to the appropriate
website, told him to forget about workers’ compensation coverage
(as SGR would stay with its current insurer), but Romero asked
Olivier to procure a fidelity bond.
       In October 2016, Olivier delivered to SGR a business
liability and property insurance policy. Olivier explained to
Romero what the policy covered, and stated the policy was “in
fact, a fidelity bond plus added coverage.” Romero trusted Olivier
and accepted the policy, as he had with his prior insurance agent.
The complaint alleges Olivier “did not procure a fidelity bond for
SGR, but instead secured only a general liability insurance
policy.”

B.     SGR and Romero Suffer an Employee Theft in 2017
       Insufficiently Covered By the Policy Olivier Procured
       In “July 2017,” an SGR escrow agent stole approximately
$7,000 from SGR’s broker trust account. This was the first time
SGR or Romero had experienced such a theft. Romero contacted
Olivier, who explained to Romero that SGR was fully covered
under the policy he procured, with $25,000 coverage for employee
theft. Olivier directed Romero to someone else in AIA to handle
the claim.
       Romero alleges the policy Olivier procured only covered
$5,000 for employee dishonesty, and that as a result, SGR’s trust
account was short on funds to cover upcoming escrow closings.

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Romero was thus compelled to deposit his own personal funds
into SGR’s trust account to cover the closings and avoid damage
to real estate clients. As a result of this forced commingling,
Romero self-reported to the Department and the Legal Hotline
for Realtors because he believed it was the right thing to do.
      Based on these facts, “in 2018” the Department audited
SGR. Romero had Olivier speak to the Department’s auditor at
SGR’s offices. Olivier represented to the auditor the policy he
procured was a proper fidelity bond. The auditor stated she
would send the disputed policy to the Department for its review.
      On July 18, 2019, the Department concluded its findings
and filed a report against Romero and SGR, including the
infraction of commingling. “As expected, the [Department]
determined SGR did not have the proper insurance coverage to
cover the July 2017 employee theft, in contravention of Olivier’s
representations and/or assurances. [¶] The [Department]
commingling infraction thereafter appeared on Romero’s public
real estate broker license, which is essentially a death sentence
for any licensee.” (Italics and capitalization omitted.)
      For the next 16 months, from July 18, 2019 to November
2020, “Romero appealed and provided evidence to the DRE that
having the wrong insurance was never Romero/SGR’s intent; and,
but for the actions of Olivier, Romero/SGR would have had the
proper insurance coverage to cover the employee theft.” (Italics
and capitalization omitted.) During this time, SGR lost five or
six agents, and Romero was unable to sell SGR due to the
infraction. In November 2020, the Department granted his
appeal and removed the commingling infraction from his public
license. Romero paid approximately $10,000 in audit and legal
fees.

                               5
      SGR and Romero filed their complaint on September 6,
2022 alleging causes of action for fraud and breach of fiduciary
duty against AIA and Olivier. Romero alleged that as a result of
Olivier’s actions, SGR lost substantial business revenue, and
Romero—who had a “spotless and impeccable DRE record”—
incurred mental suffering, insult, humiliation, and
embarrassment. SGR and Romero sought $1 million in damages.

C.    The Trial Court Dismissed the Complaint Against AIA
      Without Leave to Amend Because It Was Barred By the
      Statute of Limitations
      AIA filed a demurrer, arguing the causes of action for fraud
and breach of fiduciary duty were each barred by the three-year
statute of limitations in Code of Civil Procedure section 338,
subdivision (d). AIA argued the statute of limitations accrued in
July 2017, when Romero learned the policy Olivier procured was
inadequate. SGR and Romero argued the complaint was timely
because the limitations period accrued in July 2019 when the
Department determined SGR did not have the proper insurance
coverage to cover the July 2017 employee theft. The trial court
ruled that a three-year statute of limitations period applied,
sustained AIA’s demurrer without leave to amend, and dismissed
the complaint against AIA.4

4     The court’s minute order states the demurrer is “sustained
without leave to amend,” but the signed order of dismissal
entered the same day suggests AIA is dismissed “without
prejudice.” (Capitalization omitted.) The parties do not contend
the signed order of dismissal meant SGR and Romero were free
to amend the complaint, and all parties deemed AIA’s dismissal
to be without leave to amend.

                                6
      SGR and Romero timely appealed.

                          DISCUSSION

A.     Standard of Review
       “On appeal from a judgment dismissing an action after
sustaining a demurrer without leave to amend, the standard of
review is well settled. 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. [Citations.]
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.” (City of Dinuba v. County
of Tulare (2007) 41 Cal.4th 859, 865; accord, T.H. v. Novartis
Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162; Ward v. Tilly’s,
Inc. (2019) 31 Cal.App.5th 1167, 1174.)
       “‘The burden of proving such reasonable possibility is
squarely on the plaintiff.’” (Zelig v. County of Los Angeles (2002)
27 Cal.4th 1112, 1126 (Zelig), quoting Blank v. Kirwan (1985)
39 Cal.3d 311, 318.) “‘If we find that an amendment could cure
the defect, we conclude that the trial court abused its discretion
and we reverse; if not, no abuse of discretion has occurred. . . .
The plaintiff has the burden of proving that an amendment
would cure the defect.’” (Modisette v. Apple Inc. (2018)

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30 Cal.App.5th 136, 155 (Modisette); see Schifando v. City of Los
Angeles (2003) 31 Cal.4th 1074, 1081 (Schifando).)
      Our review is de novo. (See McCall v. PacifiCare of
California, Inc. (2001) 25 Cal.4th 412, 415; accord, Zelig, supra,
27 Cal.4th at p. 1126.)

B.     The Trial Court Properly Sustained AIA’s Demurrer
       Because the Statute of Limitations Barred the Fraud and
       Breach of Fiduciary Duty Causes of Action
       1.     The Applicable Statute of Limitations Is Three Years,
              Subject To the Delayed Discovery Rule
       AIA contends, SGR and Romero do not dispute, and we
agree the applicable statute of limitations governing the fraud
and breach of fiduciary duty claims in the complaint is three
years.5 (See Code Civ. Proc., § 338, subd. (d) [claims sounding in
“fraud or mistake” subject to three-year statute of limitations];
Miller v. Bechtel Corp. (1983) 33 Cal.3d 868, 875 (Miller).)
       Code of Civil Procedure section 338, subdivision (d), further
provides that “[t]he cause of action . . . is not deemed to have
accrued until the discovery, by the aggrieved party, of the facts
constituting the fraud or mistake.” Under this “‘delayed
discovery rule’ . . . the accrual date of a cause of action is delayed
until the plaintiff is aware of his or her injury and its cause. The
plaintiff is charged with this awareness as of the date he or she
suspects or should suspect that the injury was caused by

5     The breach of fiduciary duty cause of action is based on the
same factual allegations as the fraud cause of action, and further
alleges that “a cause of action for breach of fiduciary duty can be
based on fraud.”

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someone’s wrongful act. The period of limitations, therefore, will
begin to run when the plaintiff has a ‘suspicion of wrongdoing’; in
other words, when he or she has notice of information of
circumstances to put a reasonable person on inquiry.”
(Brandon G. v. Gray (2003) 111 Cal.App.4th 29, 35 (Brandon G.),
citing Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1109-1111.)
If plaintiffs “became aware of facts which would make a
reasonably prudent person suspicious,” they have “a duty to
investigate further,” and are “charged with knowledge of matters
which would have been revealed by such an investigation.”
(Miller, supra, 33 Cal.3d at p. 875.)

      2.     The Complaint Was Filed After the Statute of
             Limitations Had Expired and Is Not Made Timely By
             the Delayed Discovery Rule
      Whether SGR and Romero’s complaint is barred by the
statute of limitations depends on when the fraud and breach of
fiduciary duty causes of action accrued. The trial court’s minute
order did not explain its reasoning, but in essence accepted AIA’s
argument the September 2022 complaint was untimely because it
was filed more than three years after July 2017, when SGR and
Romero learned the insurance policy Olivier procured was
insufficient to cover the employee theft. We agree we must
examine if the delayed discovery rule saves the complaint;
otherwise, the complaint is time barred because it should have
been filed within three years of July 2017, which is when the
complaint alleges that SGR and Romero were injured as a result

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of AIA’s alleged fraud. (See Code Civ. Proc., § 338, subd. (d);
Miller, supra, 33 Cal.3d at p. 875.)6
       As noted above, even under the delayed discovery rule the
statute of limitations “begin[s] to run when the plaintiff has a
‘suspicion of wrongdoing’; in other words, when he or she has
notice of information of circumstances to put a reasonable person
on inquiry.” (Brandon G., supra, 111 Cal.App.4th at p. 35.) SGR
and Romero argue that under the delayed discovery rule the
three-year limitations period “began to accrue on July 18, 2019—
the date the DRE officially determined that SGR did not have the
proper insurance coverage . . . which settled the key dispute
between SGR/Romero and Olivier, and thus proved Olivier’s
wrongful actions in the procurement of a proper fidelity bond.”
(Capitalization and underlining omitted.) SGR and Romero
further contend that until the Department’s final decision,
Olivier “swore that the fidelity bond he had procured for SGR was
appropriate. Thus, Romero had no way of resolving the dispute”
until the Department issued its ruling because that was when
“Romero learned, as a fact, that SGR did not have the proper
coverage.” (Capitalization and underlining omitted.)
       Reading the factual allegations in the complaint liberally
(as we must) and even with the benefit of the delayed discovery
rule, we are unpersuaded. It is undisputed that SGR and Romero
knew in July 2017 that the policy AIA procured did not fully

6      SGR and Romero do not argue the statute of limitations
was equitably tolled during the Department’s investigation. (See
Saint Francis Memorial Hospital v. State Department of Public
Health (2020) 9 Cal.5th 710, 724 [outlining elements for equitable
tolling while plaintiff pursues administrative remedy].)

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cover the loss from the employee theft as promised by Olivier,
and that Romero was forced to commingle almost $2,000 of his
own assets with SGR as a result. “[A] cause of action accrues and
the statute of limitations begins to run when the plaintiff has
reason to suspect an injury and some wrongful cause, unless the
plaintiff pleads . . . that a reasonable investigation at that time
would not have revealed a factual basis for that particular cause
of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th
797, 803.) The complaint falls short of what is necessary to
invoke the delayed discovery rule because SGR and Romero did
not need the Department’s investigation to be completed before
they became aware of their injury and that it was caused by
AIA’s conduct.
       Indeed, the complaint alleges that when the Department
concluded its investigation, it merely confirmed what SGR and
Romero already knew: “As expected, the DRE determined SGR
did not have the proper insurance coverage.” And even accepting
as true the allegations that Olivier maintained the policy was
“appropriate” while the Department investigation was pending, it
is undisputed that SGR and Romero knew that since July 2017
the policy AIA procured did not provide full coverage for the
employee theft loss. The gravamen of the complaint is not that
the particular label attached to the policy AIA procured itself
caused SGR and Romero injury (that is, whether it was a fidelity
bond or not), but rather that SGR and Romero were injured by
the policy’s insufficient coverage, which was contrary to Olivier’s
representations. More fundamentally, the complaint does not
allege facts, nor do SGR and Romero explain, why the
Department needed to conclude its investigation before they were
on notice of AIA’s fraudulent conduct. Once SGR and Romero

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knew that the policy AIA procured would not fully indemnify
them for the employee theft, they were on inquiry notice to
investigate further rather than await the results of the
investigation by the Department.7
       SGR and Romero’s primary argument on appeal is that it
was “improper” for the trial court to sustain the demurrer
because the complaint “on its face, asserted July 18, 2019, to be
the accrual date.” But on demurrer the trial court was not bound
by legal conclusions contained in the complaint. (See City of
Dinuba v. County of Tulare, supra, 41 Cal.4th at p. 865 [on
demurrer we “do not assume the truth of contentions, deductions
or conclusions of law”]; accord, People ex rel. Lungren v. Superior
Court (1996) 14 Cal.4th 294, 300-301.)
       SGR and Romero argue for the first time on reply that “the
proper accrual date and/or application of the delayed discovery
rule is a question of fact” incapable of resolution on demurrer due
to the parties’ “differences in opinion” regarding the accrual date.
The contention is forfeited because it was not raised in the
opening brief. (Dameron Hospital Assn. v. AAA Northern
California, Nevada & Utah Ins. Exchange (2022) 77 Cal.App.5th
971, 982 [“‘An appellant . . . forfeits an issue by failing to raise it

7     Indeed, other allegations in the complaint suggest SGR and
Romero should have been on notice that representations from
AIA or Olivier warranted further evaluation. For example, the
complaint alleges that in September 2016 Olivier tried to
persuade Romero he had no need for workers’ compensation
coverage because his real estate agents were “‘independent
contractors,’” but Romero “knew this statement to be false”
because he was required by the California Association of Realtors
to have such coverage for his agents.

                                  12
in his or her opening brief’”], quoting Doe v. California Dept. of
Justice (2009) 173 Cal.App.4th 1095, 1115.) But even considering
the argument on its merits, the accrual date is based not on
“differences of opinion” but rather on the allegations in the
complaint. And the complaint demonstrates SGR and Romero
knew or should have known they were injured by AIA’s conduct
in July 2017 when the policy AIA procured would not cover in full
the loss from the employee theft.8

C.    The Trial Court Did Not Abuse Its Discretion by Denying
      Leave To Amend.
      Before the trial court, SGR and Romero asked for leave to
amend, a request they do not renew on appeal. The trial court
did not err by denying leave to amend because SGR and Romero
did not explain what additional facts they could allege that would
make timely their untimely complaint. (See Modisette, supra,
30 Cal.App.5th at p. 155 [“‘The plaintiff has the burden of proving
that an amendment would cure the defect.’”]; accord, Schifando,
supra, 31 Cal.4th at p. 1081.)

8     We need not reach SGR and Romero’s argument the
complaint is timely when considering the tolling provided by
Judicial Council Emergency Rule No. 9. Even assuming the
emergency rule applied and tolled the limitations period between
April 6 and October 1, 2020, the complaint would still be
untimely by over a year because it was filed in September 2022.

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                         DISPOSITION

      The order of dismissal is affirmed. AIA is entitled to its
costs on appeal.

                                      MARTINEZ, J.

We concur:

      FEUER, Acting P. J.

      EVENSON, J.*

*     Judge of the Alameda County Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

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