Filed 11/7/18 Davis v. Coldwell Banker Doug Arnold Real Estate Inc. CA3

NOT TO BE PUBLISHED

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Yolo)

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In September 2005 plaintiffs Paul Davis and Ann Haas (collectively Davis) purchased a newly built home from Lynda Fletcher and Tim Huber. In December 2011 Davis filed a first amended complaint against several defendants including the real estate broker in the transaction, defendant Coldwell Banker Doug Arnold Real Estate (Coldwell Banker), asserting various claims including unfair business practices, breach of fiduciary duty, and negligence. The trial court sustained Coldwell Banker’s demurrer to Davis’s second amended complaint without leave to amend. Davis appeals, challenging the trial court’s finding that the statute of limitations barred their complaint and the court erred in denying leave to amend. We shall affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The Purchase

Lynda Fletcher, an agent with Coldwell Banker, and her husband Tim Huber were involved in divorce proceedings at the same time they were involved in the purchase of a home. They filed for divorce in June 2005 and on September 2, 2005, closed escrow on a house constructed by Price Construction Company (Price). Davis, searching for a house to buy, retained Fletcher’s services.

Within a week of obtaining title, Fletcher showed Davis the house she and her husband had constructed. Fletcher told Davis “she and her husband Huber had the home built as their ‘dream home’, but they had irreconcilable differences and were divorcing one another.” Davis made an offer on the house on September 9, 2005. The offer listed Coldwell Banker as the real estate broker.

Davis closed escrow on October 18, 2005. The grant deed from Fletcher and Huber to Davis was recorded the same day.

Davis moved into the house in November 2005, “thinking, based on the representations of Fletcher and her broker [Coldwell Banker] that this home was of a condition and quality worthy of being her ‘dream home’, given up only as a result of her subsequent divorce from Huber.” Davis erred.

Davis began to “note and question various conditions which they believed to be defective. Their levels of concern increased and they engaged in a series of attempts to work with Price for the purpose of having repairs completed.” In 2007 Davis discovered “construction defects in the home they purchased in 2005.”

Davis discovered the defects by February 19, 2007. The defects included cracks in the interior sheet rock and exterior stucco caused by improper installation and soil movement. Windows and doors, roof materials and stucco cladding, water proofing and guard rails on the deck were defectively installed in a way that allowed water intrusion into the house causing damage.

The construction deficiencies were reported and a claim was submitted to Price. In response, Price inspected the property but failed to provide a timely offer or proposal for repairs. Davis sued.

Davis contends the home that Fletcher represented had been custom built for her and her husband as their “dream home” had been built by Price as a “spec” home. Unbeknownst to Davis, Fletcher had a business relationship with Price and negotiated with Price to obtain title only a week before showing Davis the house. Nor was Fletcher selling the home because her marriage was ending; the couple had begun dissolution proceedings months before taking title. Fletcher took title under a deal with Price and was selling the home to “flip it,” making a rapid resale and splitting the profits with Price.

Original Complaint

Davis filed a complaint against Price and Does 1 through 200 on February 19, 2010, alleging the defendants “developed, planned, improved, designed, constructed, promoted, marketed, advertised, and sold homes within the Development to individual members of the public.”

Causes of action for negligence and strict liability sought recovery for defective construction. A cause of action for alleged unfair business practices was based on alleged representations to the general public and building officials that the house was built in accordance with building codes and local building ordinances. The defendants failed to design and construct the home in conformance with building codes. Price answered and cross-complained against subcontractors.

On August 4, 2011, Davis filed a “First Doe Amendment to Plaintiffs’ Complaint Substituting True Names for Fictitious Name of Doe Defendants No. 1, 2, 3, & 21-24.” Fletcher was identified as Doe No. 1, Huber as Doe No. 2 and Coldwell Banker as Doe No. 3. The remaining Doe defendants were subcontractors. The amendment was served on the parties in the case, but was not served on the newly named defendants.

First Amended Complaint

On December 15, 2011, Davis filed a first amended complaint adding Fletcher, Huber, Coldwell Banker, and subcontractors as defendants. The amended complaint set forth nine causes of action. The fifth cause of action alleged unfair business practices under Business and Professions Code section 17200, the eighth cause alleged breach of fiduciary duty, and the ninth cause of action alleged negligence.

Coldwell Banker demurred to the fifth, eighth, and ninth causes of action of the first amended complaint, arguing the causes of action were barred by the applicable two- and four-year statutes of limitations. According to Coldwell Banker, the causes of action were all based on actions that occurred at the latest by the close of escrow on October 18, 2005. The demurrer also asserted the relation back doctrine was inapplicable because Davis knew of Coldwell Banker’s identity as the brokerage firm when they filed their original complaint. The demurrer challenged the unfair business practices allegations as uncertain. The trial court sustained the demurrer with leave to amend.

Second Amended Complaint

Davis filed a second amended complaint on March 26, 2012, alleging causes of action for unfair business practices, breach of fiduciary duty, and negligence against Coldwell Banker.

Davis stated they became aware of the September 2, 2005 notice of completion and deed from Price to Fletcher and Huber “on April 22, 2010 by a review of the records maintained by the Yolo County Recorder.” Davis learned in December 2011, by ordering county records, that Fletcher and Huber filed for divorce in June 2005, more than three months before Davis purchased the property from Fletcher and Huber.

The unfair business practices cause of action alleged Fletcher, Coldwell Banker, and “seller defendants” owed statutory obligations to Davis under Civil Code sections 1102 through 1102.7 and Civil Code sections 2079 through 2079.24. These included an obligation to conduct “a reasonable inspection of the property” and to disclose “material facts affecting Plaintiffs’ decision to purchase the Subject Property . . . which said Defendants failed to perform.” Also, Coldwell Banker “while acting as purchasing agent for Plaintiffs, failed to inform and disclose to Plaintiffs that Fletcher, their agent, had an ongoing business relationship with Defendant Price, that Fletcher had a general contractor’s license and that Fletcher purchased the subject residence for the purpose of flipping it, and splitting the profits with Defendant Price.”

Davis further alleged that “Realtor, Broker, and Seller Defendants marketed and sold the property representing the property to be built in conformity with the law, that they had inspected the property in conformity with the requirements of Civil Code section 1102.6, and that all material facts regarding the transaction were to be disclosed in good faith pursuant to Civil Code section 1102.7.” In addition, Davis contended the realtor, broker, and seller represented that the property was Fletcher and Huber’s “dream home,” when in actuality it was nothing more than a business venture. Finally, these defendants “represented to the general public, through the Department of Real Estate, that they were competent, licensed, real estate sales persons and real estate brokers knowledgeable in all applicable rules and laws controlling brokers and sales persons . . . .”

The second amended complaint’s causes of action for breach of fiduciary duty and negligence were based on these allegations. Davis alleged Coldwell Banker owed a duty to disclose the existence of a prior business relationship between Fletcher and Price, to disclose whether the home had been properly constructed, and verify the accuracy of their representations regarding the quality of the home and the motivation for the sale. Coldwell Banker also owed a duty to disclose that Fletcher purchased the home less than one month before the sale and that contrary to it being a dream home sacrificed because of a divorce, it was a business proposition between Fletcher and Price.[1]

The breach of fiduciary duty cause of action also alleged Coldwell Banker failed to investigate and disclose the actual condition of the home. Coldwell Banker’s conduct caused Davis damage.

Coldwell Banker demurred to the second amended complaint, again raising the statute of limitations as a bar and asserting the allegations of the complaint were uncertain and failed to state a claim. The demurrer asserted the causes of action were based on events occurring by the close of escrow on October 18, 2005. Therefore, the original complaint, filed on February 19, 2010, was untimely under the longest applicable limitation period of four years.

In opposition, Davis acknowledged they were aware of defects in the house by 2007, but insisted the statute of limitations was tolled until actual discovery of the relationship between Price and Fletcher in September 2011. Davis also requested leave to amend.

Following a hearing, the trial court sustained the demurrer without leave to amend. The court, citing Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797 (Fox), held “Plaintiffs have still failed to allege facts showing their ‘inability to have made earlier discovery [of Ms. Fletcher’s 2005 acts, omissions, and relationships] despite reasonable diligence.’ ” Davis filed a timely notice of appeal.

DISCUSSION

I

The function of a demurrer is to test the sufficiency of the complaint by raising questions of law. We give the complaint a reasonable interpretation and read it as a whole with its parts considered in context. A general demurrer admits the truth of all material allegations. We are not concerned with the plaintiff’s ability to prove the allegations or with any possible difficulties in making such proof. We are not bound by the construction placed by the trial court on the pleadings; instead, we make our own independent judgment. (Herman v. Los Angeles County Metropolitan Transportation Authority (1999) 71 Cal.App.4th 819, 824.)

Where the trial court sustains the demurrer without leave to amend, we must decide whether there is a reasonable probability the plaintiff can cure the defect with an amendment. If we find that an amendment could cure the defect, we must find the court abused its discretion and reverse. If not, the court has not abused its discretion. The plaintiff bears the burden of proving an amendment would cure the defect. (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1153 (Gomes).)

II

The limitations period for a cause of action under the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.) is four years. (Bus. & Prof. Code, § 17208.) The limitations period is three years for both a cause of action for deceit, and a cause of action for breach of fiduciary duty where the gravamen of the claim is deceit. A cause of action for negligence in the form of a failure to meet a standard of reasonable care on the part of a real estate broker is two years. (Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 963.) A cause of action based on Civil Code section 2079, duty of inspection and disclosure, is two years from the date of possession where the claim is based on negligence. (Civ. Code, § 2079.4; Williams v. Wells & Bennett Realtors (1997) 52 Cal.App.4th 857, 861-862.)

“The general rule is that an amended complaint that adds a new defendant does not relate back to the date of the filing of the original complaint and the statute of limitations is applied as of the date the amended complaint is filed, not the date the original complaint is filed. [Citations.] A recognized exception to the general rule is the substitution under [Code of Civil Procedure] section 474 of a new defendant for a fictitious Doe defendant named in the original complaint as to whom a cause of action was stated in the original complaint.” (Woo v. Superior Court (1999) 75 Cal.App.4th 169, 176 (Woo).)

The relation back doctrine under Code of Civil Procedure section 474 requires that: (1) a cause of action must have been stated against the fictitiously named defendant; (2) the plaintiff was truly ignorant of the identity of the fictitiously named defendant; and (3) the new defendant in an amended complaint must be substituted for an existing fictitious Doe defendant named in the original complaint. A plaintiff may not take advantage of section 474 and later substitute a person in place of the fictitious defendant unless these requirements are met. (Woo, supra, 75 Cal.App.4th at pp. 176-177; Kerr-McGee Chemical Corp v. Superior Court (1984) 160 Cal.App.3d 594, 597.)

At issue in the present case is the requirement of Code of Civil Procedure section 474 that the plaintiff be genuinely ignorant of the defendant’s identity at the time the plaintiff filed the original complaint. (Woo, supra, 75 Cal.App.4th at p. 177.) Where the defendant’s identity was known to the plaintiff when the action was filed, relation back may apply if the plaintiff was initially unaware of the defendant’s true relationship to the injuries upon which the action was based, or if a change in the law indicates a person not originally named might be held liable. (Miller v. Thomas (1981) 121 Cal.App.3d 440, 444-445.)

Davis argues the facts alleged in the second amended complaint do not show that when they filed the original complaint they knew all the material facts necessary to support the causes of action. “To the contrary, the complaint shows that when plaintiffs sued in February 2010 they were unaware that Fletcher had hoodwinked them into buying a house rife with defects by, among other things, misrepresenting that it had been built for her and her husband as their dream house and they had to sell because they were divorcing. [Coldwell Banker] does not take issue with the allegations that plaintiffs did not learn that these representations and inducements to purchase were untrue until September 2011, when their attorney was able for the first time to speak directly with Price.

“Although plaintiffs had discovered by the time they sued that the house had serious construction defects, and they knew that Fletcher had sold them the house as an agent for [Coldwell Banker], the complaint does not allege facts showing that they knew that Fletcher and [Coldwell Banker] were guilty of fraud and breach of fiduciary duties. For all that appears on the face of the complaint, plaintiffs could reasonably believe that she and her husband, Huber, had indeed intended the house to be their dream home but had the misfortune to hire an inept contractor to build it.”

However, when they filed the original complaint, Davis knew Price was the builder, Fletcher was the seller and real estate agent, and that Coldwell Banker was the broker. Fletcher told Davis the home had been built as a dream home for Fletcher and her husband. Davis had also discovered at the time of the original complaint that the house suffered from numerous defects, contrary to the “dream home” moniker or the representation that the house was a good quality custom home.

A plaintiff is “ignorant of the name of a defendant” under Code of Civil Procedure section 474 when the plaintiff knew the identity of the person, but was ignorant of the acts giving the plaintiff a cause of action against that person, or knew all the facts but was unaware the law provided a cause of action and discovered that right through decisions rendered after the commencement of the action. (Hazel v. Hewlett (1998) 201 Cal.App.3d 1458, 1464 (Hazel).)

The allegations of the complaint do not support a finding that at the time of the filing of the original complaint Davis was ignorant of the facts giving them a cause of action against Coldwell Banker. They may not have known all of the details of Fletcher and Price’s relationship, but they knew the purported “dream home” had construction defects. To argue they had no basis to sue Coldwell Banker “when they filed this action before learning of Fletcher’s duplicity,” is to ignore their knowledge of the facts central to their cause of action. “ ‘A plaintiff must actually be ignorant of the facts giving him a cause of action against a defendant. Ignorance of the facts is the critical issue.’ ” (Hazel, supra, 201 Cal.App.3rd at pp. 1464-1465.)

III

Davis also argues the causes of action against Coldwell Banker did not accrue more than four years prior to the filing of their complaint. According to Davis, the premise that all of Coldwell Banker’s wrongs were committed before escrow closed in October 2005 is correct, but “the conclusion that all the elements of the causes of action existed when escrow closed is wrong.”

In general, a cause of action accrues at the time when the cause of action is complete in all its elements. An important exception to the general accrual rule 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. A plaintiff has reason to discover a cause of action when he or she has reason to suspect the factual basis for its elements. Under the discovery rule, suspicion of one or more elements of a cause of action, in addition to knowledge of the remaining elements, will generally trigger the statute of limitations period. We consider whether the plaintiff has reason to at least suspect some sort of wrongdoing has injured them. (Fox, supra, 35 Cal.4th at pp. 806-807.) Breach of fiduciary duty and professional negligence claims are subject to the discovery rule. (Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1424-1425.)

The discovery doctrine is not available to avoid the consequences of one’s own negligence. California law recognizes a general, rebuttable presumption that plaintiffs have knowledge of the wrongful cause of their injury. To rebut this presumption a plaintiff whose complaint on its face is barred by the statute of limitations must specifically plead facts to show: (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. In assessing the sufficiency of the allegations of delayed discovery, the plaintiff bears the burden of showing diligence. Conclusory allegations will not withstand a demurrer. (Grisham v. Philip Morris U.S.A., Inc. (2007) 40 Cal.4th 623, 638.)

Davis asserts the discovery rule applies, arguing the UCL and breach of fiduciary claims did not accrue until the actual discovery as pled in the second amended complaint, when their counsel reviewed public records and spoke with Price. These events led to Davis learning of the nondisclosures related to the house being a spec house not a dream home, the house had defects and was not built to code, and Fletcher’s true motivation in selling the property—her relationship with Price. This discovery also applied to the negligence cause of action.

After granting Coldwell Banker’s demurrer to the first amended complaint, the trial court granted leave to amend, citing Fox, supra, 35 Cal.4th 797. However, the second amended complaint alleges no facts establishing an inability to have made earlier discovery despite reasonable diligence. Rather it sets forth the discovery of recorded documents showing the property transfer from Price to Fletcher and Huber, the date Fletcher and Huber’s divorce was filed, and their attorney’s interview of Price. The information came from accessible public records and an interview with the original defendant. Davis acknowledges that a title search revealed Fletcher’s purchase from Price approximately a month before Davis closed escrow. The second amended complaint stated Fletcher and Huber’s divorce records were accessible as public records.

In response, Davis argue the fiduciary relationship between the parties required only that they plead actual discovery, citing Eisenbaum v. Western Energy Resources, Inc. (1990) 218 Cal.App.3d 314. “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 plaintiff’s burden of discovery is reduced and he is entitled to rely on the statements and advice provided by the fiduciary.’ ” (Id. at p. 324.) However, “a plaintiff need not establish that due diligence was exercised to discover the facts within the limitations period unless a duty existed to inquire, and the circumstances were such that failure to inquire would be negligent.” (Id. at p. 325.)

As Davis notes, “The facts giving rise to a duty to inquire did not exist until at least when damage to the house resulting from the defects was ‘sufficiently appreciable to give a reasonable man notice that he has a duty to pursue his remedies.’ ” Here, Davis in 2007 became aware of construction defects in the home purchased in 2005. Davis knew the identities of the parties involved. Once the defects became known, Davis was on notice to pursue their remedies. The trial court did not err in sustaining Coldwell Banker’s demurrer to the second amended complaint.

IV

Finally, Davis argues the trial court abused its discretion in sustaining the demurrer without leave to amend. Where the trial court sustains a demurrer without leave to amend, we must decide whether there is a reasonable probability the plaintiff can cure the defect with an amendment. If not, the court has not abused its discretion. (Gomes, supra, 192 Cal.App.4th at p. 1153.)

Here, Davis bears the burden of proving an amendment would cure the defects. (Gomes, supra, 192 Cal.App.4th at p. 1153.) Davis contends “To the extent plaintiffs must allege additional facts supporting application of the delayed discovery rule, there is no apparent reason why the complaint cannot be amended to state more clearly when the construction defects caused ‘noticeable damage’ and to describe the nature of the damage.” Davis also argues leave to amend should be granted to allow them to show their inability to have discovered all of their causes of action earlier because of their trust and reliance on Coldwell Banker to faithfully discharge its duties.

However, in sustaining Coldwell Banker’s demurrer to the first amended complaint with leave to amend, the trial court specifically pointed out the necessity of establishing the elements of delayed discovery by citing Fox, supra, 35 Cal.4th 797. Given that opportunity and failing at the attempt, the trial court could reasonably conclude Davis was unable to remedy the deficiencies. We find no abuse of discretion in not granting Davis leave to amend.

DISPOSITION

The judgment is affirmed. Coldwell Banker shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

RAYE , P. J.

We concur:

HULL , J.

MURRAY , J.