Pryor v. Nelson Shelton & Assocs.

 

 

 

 

 

 

 

 

Filed 11/8/13  Pryor v. Nelson Shelton & Assocs. CA2/5

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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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  This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.

 

 

 

 

 

IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

 

SECOND
APPELLATE DISTRICT

 

DIVISION
FIVE

 

 
>

WILL M. PRYOR, JR.,               Plaintiff and Appellant,               v.   NELSON SHELTON & ASSOCIATES,               Defendant and Respondent.

B243989         (Los Angeles County       Super. Ct. No. SC114123)

 

            APPEAL from
an order and judgment of the Superior
Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County, Richard A. Stone, Judge.  Reversed with directions.

            Omer Salik
for Plaintiff and Appellant.

            Gutierrez,
Preciado & House and Calvin House; and Glenn E. Stevens for Defendant and
Respondent.

 

 

 

 

 

 

 

 

I.  INTRODUCTION

 

            Plaintiff, William M. Pryor, appeals from a judgment
following a trial court’s order sustaining a demurrer without leave to
amend.  Plaintiff sued defendant, Nelson
Shelton & Associates, for contract and implied covenant href="http://www.mcmillanlaw.com/">breach and negligence.  On appeal, plaintiff argues he has pled a claim
for fiduciary duty breach even though the individual counts are denominated
otherwise.  Plaintiff alleges defendant
was aware one of its agents engaged in fraudulent activity but failed to notify
him which caused him harm.  Defendant
demurred, arguing plaintiff’s claim was barred as the statute of limitations
elapsed.  Defendant argued plaintiff knew
of the agent’s fraudulent activity by 2006 but did not file his lawsuit until
2011, after the four-year statute of limitations.  Plaintiff alleges he did not learn defendant
knew of its agent’s fraud until 2008.  We
reverse the order and remand. 

 

II.  BACKGROUND

 

A.  Plaintiff’s Allegations

 

            Plaintiff
filed his action on September 14, 2011.  On February
29, 2012, plaintiff filed his first amended complaint, the
operative pleading.  Plaintiff alleges
the following.

            Plaintiff
was the co-owner of a residential property located at 14739
Valleyheart Drive, in Sherman Oaks, California
(“the property”).  Defendant is a
licensed real estate company qualified to do business in California.  On May
23, 2005, plaintiff and defendant entered into a listing agreement
from May through December 2005.  Parties to
the agreement were also Ronald Nelson, who represented himself as an owner of
defendant, and Martha Panella, a senior broker. 
On May 23, 2005,
defendant, Mr. Nelson, and Ms. Panella introduced plaintiff to a contractor who
would perform $60,000 worth of renovations to increase the selling price of the
property.  On June 1, 2005, defendant presented an offer from a
couple for the price of $1.9 million. 
Defendant was the selling agent.  Plaintiff
was advised the buyers wanted him to provide $150,000 in improvements.  Plaintiff was told about the need for
improvements by Mr. Nelson and Ms. Panella.

            In July
2005, defendant, Mr. Nelson, and Ms. Panella presented another offer for almost
$500,000.  Characterized in the first
amended complaint as an investment offer, it entailed a return of $5 million and
the purchase and development of another property.    Around July 2005, defendant and Mr. Nelson
opened an escrow named The Lofts at Martel Limited Liability Company.  Plaintiff was the chief executive
officer.  Over $320,000 was to be deposited
in the escrow.  On September 22, 2005, plaintiff was advised Mr.
Nelson was forming another brokerage company in order to pursue real estate
investments with clients.  At this time,
plaintiff was unaware of any “firing,” fraud, and wrongdoing by defendants, Mr.
Nelson or Ms. Panella.  Plaintiff
believed the new entity was devised by defendant for investment and “REO”
listings.  Plaintiff believed defendant
was doing business as Duggan/Nelson & Associates.  Plaintiff believed Duggan Nelson &
Associates was formed for investment and “REO” listings.

            On October 1, 2005, defendant and Mr.
Nelson drafted a letter for plaintiff to send to Mark Shelton.  The letter stated plaintiff wanted to have
the property listed with Mr. Nelson’s new company, Duggan/Nelson &
Associates.  Defendant never made any
efforts to advise plaintiff anything illegal was occurring.  At this time, plaintiff believed Mr. Nelson
was defendant’s owner and agent and Ms. Panella was the senior broker.

            Mr. Nelson offered
to buy the property for $1,595,000. 
Plaintiff accepted the offer with some change in terms.  Mr. Nelson did not open an escrow, however,
but moved himself into the property.  In
June 2006, Mr. Nelson issued four forged and counterfeit checks into escrow
worth approximately $86,000.  Mr. Nelson
was later evicted and charged with four felony counts.  

            Around
March 2008, plaintiff filed a complaint with the Department of Real Estate (the
department).  The department at this time
believed Mr. Nelson was defendant’s owner. 
The department advised it had no record of Mr. Nelson’s employment
termination.  On May 31, 2008, “defendant”
was subpoenaed as a witness against Mr. Nelson. 
At this time, in March 2008, plaintiff first became aware that defendant
had fired Mr. Nelson.  Further, at this
time plaintiff first learned defendant was in fact aware of Mr. Nelson’s fraudulent
acts as early as July 2005.  Defendant
had informed the department Mr. Nelson had been terminated.  Mr. Nelson was convicted and his sentence
included $330,000 in restitution.  The
property was eventually foreclosed upon.  


            On December
1, 2008, the department sent a copy of its investigation report and defendant’s
statement.  In the report, dated November
22, 2008, defendant advised the department Mr. Nelson had been terminated.  But the department’s report relates that
defendant indicated it had not discovered Mr. Nelson’s fraud until after he was
terminated.  Plaintiff alleges he did not
uncover the nature of the fraud, “involvements” and concealment until around
December 1, 2008.  Plaintiff alleges
causes of action for:  contract breach; good
faith and fair dealing implied covenant breach; and negligence.    As
noted, on appeal he argues he stated a claim for fiduciary duty breach.

 

B.  Defendant’s Demurrer

 

            On April 5,
2012, defendant filed a demurrer. 
Defendant argued plaintiff was aware of Mr. Nelson’s wrongdoing on
September 22, 2005.  In his original
complaint, plaintiff had alleged defendant breached its contract on September
22, 2005.  Plaintiff later filed a
criminal complaint on July 12, 2006. 
Defendant argued under either September 22, 2005, or July 12, 2006,
plaintiff’s complaint, filed September 14, 2011, missed the four-year statute
of limitations for a written agreement
breach.  Defendant contended
plaintiff’s cause of action for breach of the covenant of good faith and fair
dealing and general negligence likewise failed. 
Defendant also asserted plaintiff’s pleadings were ambiguous and
uncertain in violation of Code of Civil Procedure section 430.10, subdivision
(f).  

 

 

C.  Trial Court’s Order

 

            On May 10,
2012, the demurrer hearing was held.  The
trial court concluded plaintiff’s causes of actions should be dismissed as
barred by the statute of limitations.   
The trial court relied upon an exhibit submitted by Commerce Escrow, a
defendant which had filed its own demurrer. 
In the trial court’s tentative ruling, it found, “Plaintiff was aware of
his injury as of 10-20-06, when he filed a formal administrative complaint with
the [Department] of Corporations against Commerce Escrow.”  Defendant sent notice of the trial court’s
order sustaining the demurrer on May 18, 2012. 
Plaintiff subsequently appealed.

 

III.  DISCUSSION

 

A.  Overview

 

            The trial
court’s order sustaining defendant’s demurrer without leave to amend is an
appealable judgment.  (Code Civ. Proc., §
904.1, subd. (a)(1); McAllister v. County
of Monterey (2007) 147 Cal.App.4th 253, 278.)  Our Supreme Court has held:  “‘The rules by which the sufficiency of a
complaint is tested against a general demurrer are well settled.  We not only treat the demurrer as admitting
all material facts properly pleaded, but also “give the complaint a reasonable
interpretation, reading it as a whole and its parts in their context. . . .  [Citation.]” 
[Citation.]  [¶]  If the complaint states a cause of action
under any theory, regardless of the title under which the factual basis for
relief is stated, that aspect of the complaint is good against a demurrer.  â€œ[W]e are not limited to plaintiffs’ theory of
recovery in testing the sufficiency of their complaint against a demurrer, but
instead must determine if the factual allegations of the complaint are adequate
to state a cause of action under any legal theory . . . .”  [Citations.]’”  (Yanting
Zhang v. Superior Court (2013) 57 Cal.4th 364, 370; accord >Barker v. Garza (2013) 218 Cal.App.4th
1449, 1454.)  We may also consider matters
which can be judicially noticed.  (>Evans v. City of Berkeley (2006) 38
Cal.4th 1, 6; Serrano v. Priest
(1971) 5 Cal.3d 584, 591.)  We review de
novo an order sustaining a demurrer.  (>Barker v. Garza, supra, 218 Cal.App.4th at p. 1454; Sprinkles v. Associated Indemnity Corp. (2010) 188 Cal.App.4th 69,
75.)

            Plaintiff
argues defendant breached its fiduciary duty to plaintiff by failing to notify
him of Mr. Nelson’s termination for fraud. 
The fiduciary duty derived from defendant and plaintiff’s listing
agreement.  Plaintiff asserts defendant
breached its fiduciary duty on September 22, 2005.  The alleged fiduciary duty breach occurred
when defendant fired Mr. Nelson for fraud but did not inform plaintiff.  However, plaintiff argues he did not discover
defendant’s alleged wrongdoing until December 1, 2008, when the department
issued its investigation report.  

 

B.  Statute Of Limitations

 

            Plaintiff
argues the trial court erred by finding the statute of limitations had
lapsed.    Plaintiff contends he stated a
valid claim for breach of fiduciary duty by constructive fraud.  We have held regarding constructive
fraud:  “[A] real estate agent, as a
fiduciary, is also ‘“. . . liable to his principal for constructive fraud even
though his conduct is not actually fraudulent. 
Constructive fraud is a unique species of fraud applicable only to a
fiduciary or confidential relationship.” 
[Citation.]  [¶]  “[A]s a general principle constructive fraud
comprises any act, omission or concealment involving a breach of legal or
equitable duty, trust or confidence which results in damage to another even
though the conduct is not otherwise fraudulent. 
Most acts by an agent in breach of his fiduciary duties constitute
constructive fraud.  The failure of the
fiduciary to disclose a material fact to his principal which might affect the
fiduciary’s motives or the principal’s decision, which is known (or should be
known) to the fiduciary, may constitute constructive fraud.  Also, a careless misstatement may constitute
constructive fraud even though there is no fraudulent intent.”
[Citation.]’  [Citation.]”  (Assilzadeh
v. California Federal Bank (2000) 82 Cal.App.4th 399, 415; see Civ. Code, §
1573.)          

The statute of limitations for a
breach of written agreement is four years.  (Code Civ. Proc., § 337; see >Amen v. Merced County Title Co. (1962)
58 Cal.2d 528, 532 [holding negligent performance of written contract is
subject to 4-year statute of limitations].) 
Our Supreme Court held:  “The
general rule for defining the accrual of a cause of action sets the date as the
time ‘when, under the substantive law, the wrongful act is done,’ or the
wrongful result occurs, and the consequent ‘liability arises . . . .’  [Citation.] 
In other words, it sets the date as the time when the cause of action is
complete with all of its elements . . . .” 
(Norgart v. Upjohn Co. (1999)
21 Cal.4th 383, 397; see Fox v. Ethicon
Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806-807 [same].) 
Our
Supreme Court held:  “An exception to the
general rule for defining the accrual of a cause of action — indeed, the ‘most
important’ one — is the discovery rule. 
[Citation.]  It may be expressed
by the Legislature or implied by the courts. 
[Citation.]  It postpones accrual
of a cause of action until the plaintiff discovers, or has reason to discover,
the cause of action.”  (>Norgart v. Upjohn Co., >supra, 21 Cal.4th at p. 397; see >Aryeh v. Canon Business Solutions, Inc.
(2013) 55 Cal.4th 1185, 1191 [same].) 
The discovery rule is as follows: 
“A plaintiff has reason to discover a cause of action when he or she
‘has reason at least to suspect a factual basis for its elements.’  [Citations.] 
Under the discovery rule, suspicion of one or more of the elements of a
cause of action, coupled with knowledge of any remaining elements, will
generally trigger the statute of limitations period. . . .  [¶]  . .
.  [¶] 
[I]n order to employ the discovery rule to delay accrual of a cause of
action, a potential plaintiff who suspects that an injury has been wrongfully
caused must conduct a reasonable investigation of all potential causes of that
injury.  If such an investigation would
have disclosed a factual basis for a cause of action, the statute of
limitations begins to run on that cause of action when the investigation would
have brought such information to light.” 
(Fox v. Ethicon Endo-Surgery, Inc.,
supra, 35 Cal.4th at pp. 807- 809;
see Aryeh v. Canon Business Solutions,
Inc., supra, 55 Cal.4th at p.
1192 [same]; Quarry v. Doe I (2012)
53 Cal.4th 945, 960 [same].)

            The trial
court found plaintiff was aware of defendant’s potential wrongdoing when he
filed a complaint with the Department of Corporations.  We take judicial notice of plaintiff’s
Department of Corporations complaint. 
(Evid. Code, § 452.)

On October 20, 2006, plaintiff filed a Department of
Corporations complaint against Commerce Escrow. 
Plaintiff made the following complaint: 
“Commerce Escrow, while acting as a neutral agent . . . was negligent
and their actions allowed Ronald J. Nelson to commit a fraud.  They transferred $320,000 from escrow . . .
to a . . . bank account in Ron Nelsons [sic] sole control.  Commerce Escrow took no precautions to insure
the proper handling of funds deposited and return to depositor.  Commerce Escrow was negligent in determing
[sic] signatures and never establishing contact with depositor and refused to
communicate with other than [Mr. Nelson.]”  


            Plaintiff
argues his Department of Corporations administrative complaint against Commerce
Escrow does not demonstrate his knowledge of defendant’s wrongdoing.    Our Supreme Court held:  “[W]e do not take a hypertechnical approach
to the application of the discovery rule. 
Rather than examining whether the plaintiffs suspect facts supporting
each specific legal element of a particular cause of action, we look to whether
the plaintiffs have reason to at least suspect that a type of wrongdoing has
injured them.”  (Fox v. Ethicon Endo-Surgery, Inc., supra, 35 Cal.4th at pp. 807-808; Nelson v. Indevus Pharmaceuticals, Inc. (2006) 142 Cal.App.4th 1202,
1206.)  No doubt, based on the Department
of Corporations administrative complaint, plaintiff reasonably suspected
Commerce Escrow of wrongdoing against him by October 20, 2006.  However, the administrative complaint does
not conclusively demonstrate plaintiff should have suspected >defendant of wrongdoing.

            Defendant
argues plaintiff realized Mr. Nelson had defrauded him in 2006.  That, according to defendant, is when
plaintiff knew it had not provided him with information.    Defendant contends plaintiff was
sufficiently on notice to investigate the circumstances of the fraud to
determine who may have contributed to his injury.  This argument does not address how plaintiff
had a reasonable suspicion that defendant had fired Mr. Nelson.  Our colleagues in Division Three of this
appellate district held:  “The question
when a plaintiff actually discovered or reasonably should have discovered the
facts for purposes of the delayed discovery rule is a question of fact unless
the evidence can support only one reasonable conclusion.”  (Ovando
v. County of Los Angeles (2008) 159 Cal.App.4th 42, 61 quoting >Jolly v. Eli Lilly & Co. (1988) 44
Cal.3d 1103, 1112.)  As noted, the
fiduciary duty breach claim is premised on defendant firing Mr. Nelson and not
informing plaintiff.  There are
allegations plaintiff believed Mr. Nelson was an owner of defendant.  Plaintiff first learned on May 31, 2008
defendant had fired Mr. Nelson and was aware of his fraudulent acts since July
2005.  Plaintiff did not uncover the
nature of the fraud, involvement, and concealment until the December 1, 2008 department
report.   A trier of fact could reasonably find
plaintiff would not have discovered defendant fired Mr. Nelson until at
earliest May 31, 2008.  Using either May
31, 2008 or December 1, 2008 as the discovery date, plaintiff’s complaint would
be timely filed.

            Defendant’s
arguments raised in its moving papers are also unpersuasive.  As noted, defendant argued plaintiff’s claim
accrued either September 22, 2005, when the firing occurred, or July 12, 2006,
when plaintiff filed a criminal complaint. 
Regarding the September 22, 2005 date, plaintiff alleged that is the
date of the breach but not the date when he discovered it.  The July 12, 2006 criminal complaint
indicated plaintiff was suspicious of Mr. Nelson.  It does not demonstrate plaintiff was
necessarily suspicious of facts related to his cause of action against
defendant.  As stated, a trier of fact could
find plaintiff acted reasonably because he believed Mr. Nelson was an owner of
defendant and received no contrary information until 2008. 

 

C.  Other Issues

 

            We
recognize the amended complaint raises other issues.  However, the sole issue raised by defendant
on appeal is the statute of limitations.  The sole ground for the order sustaining the
demurrer was the statute of limitations ground. 
But the amended complaint’s allegations, prepared by plaintiff in pro
se, are unclear.  Had other grounds been
litigated on appeal by defendant, perhaps the result would have been
different.  The ambiguous nature of the
amended complaint may lead plaintiff, who is now represented by counsel, to
seek leave to file a second amended fiduciary duty breach complaint.  On the other hand, the trial court may
determine to take action including exercising its authority to strike the
amended complaint with leave to amend on incomprehensibility grounds on its own
motion.  (Code Civ. Proc., § 436, subd.
(a); Coyne v. Krempels (1950) 36
Cal.2d 257, 262; Ferraro v. Camarlinghi (2008)
161 Cal.App.4th 509, 528.)  We express no
opinion as to how the trial court should react to any second amended
complaint.  Our ruling is limited to the
statute of limitations ruling and nothing else.

 

IV.  DISPOSITION

 

            The order sustaining
the demurrer and judgment are reversed. 
Upon remittitur issuance, the trial court may proceed as discussed in
part III(C) of this opinion.  No costs
are awarded on appeal.

                                                NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS

 

                                                TURNER,
P. J.

 

 

We concur:

 

            KRIEGLER,
J.                                              

 

            KUMAR, J.href="#_ftn1" name="_ftnref1" title="">*