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Satrap Properties Ii, LLC et al. v. Pc Real Estate

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FOUR


December 30, 2010

SATRAP PROPERTIES II, LLC ET AL. PLAINTIFFS AND APPELLANTS,
v.
PC REAL ESTATE, INC. ET AL., DEFENDANTS AND RESPONDENTS.

(Solano County Super. Ct. No. FCS029484)

The opinion of the court was delivered by: Sepulveda, J.

Satrap Properties II v. PC Real Estate

CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

A buyer of rental properties alleged he was deceived about the terms of the underlying leases and sued his real estate agent and the seller. The buyer charged the seller with negligent misrepresentation and fraud in concealing, or failing to disclose, the lease terms and charged his real estate agent with professional negligence, breach of fiduciary duty, and constructive fraud for failing to verify the accuracy of the seller's representations. The trial court granted summary judgment to the real estate agent on statute of limitations grounds.

The court found that the buyer knew or should have known about the agent's alleged negligence no later than January 2006, when a dispute over the lease terms arose, and exceeded the two-year statute of limitations in waiting until April 2008 to sue the agent for negligence. (Code Civ. Proc., § 339.) The court further held that professional negligence was the gravamen of all causes of action and applied the two-year statute of limitations to all of the buyer's causes of action. The buyer appeals. He denies discovery of the agent's negligence until May 2006, less than two years before he sued the agent. Alternatively, the buyer argues that his claims for breach of fiduciary duty and constructive fraud are distinct from his negligence claim and timely even if negligence was discovered more than two years before bringing suit against the agent.

We conclude that the trial court was correct in determining that the negligence cause of action is untimely but erred in barring other causes of action that are distinct from negligence and have longer limitation periods. We reverse the judgment with directions to grant summary adjudication on the negligence causes of action alone.

I. facts

Plaintiffs are Eugene E. Satrap and Satrap Properties II, LLC (collectively, Satrap). In the summer of 2005, Satrap hired defendant PC Real Estate, Inc. (PC) to act as his real estate broker in the purchase of residential, income-producing rental properties. Defendant Robert Baker was employed by PC as a real estate agent. Satrap informed Baker that he was looking for properties with triple net leases, where the tenant paid not only rent but also taxes, insurance, and maintenance. Baker identified two Stockton properties for Satrap which, according to the Multiple Listing Service (MLS) report, had an existing tenant with triple net leases. According to the MLS report, the tenant was paying $5,000 a month in rent under a triple net lease for each property. Both properties were owned by MIM, LLC (MIM), and rented to the same tenant. The tenant was a business entity that Satrap believed ran halfway houses for recent prison parolees. In November 2005, Satrap entered into two contracts with MIM to purchase the properties. Escrow closed on the properties in December 2005.

In January 2006, the tenant failed to pay its monthly rent in full and disputed the existence of a triple net lease on the properties. The tenant denied any obligation to pay insurance or taxes. For purposes of this appeal, we assume that the tenant was correct, and the leases do not require payment of insurance and taxes, because Satrap alleged, in his action against the agent and seller that "the property was not leased pursuant to a triple net lease" and that the seller misrepresented the lease terms in stating otherwise.

A January 25, 2006 letter written by Satrap to the tenant's chief executive officer (CEO) memorialized a meeting between Satrap and the CEO concerning the lease dispute. In the letter, Satrap noted that the CEO said he did "not understand what a triple net obligation is" and that he had been "misrepresented by the past owner of the property as to [his] obligation for the lease." Satrap stated his suspicion that the MLS was "false" and that the seller was guilty of fraud. Satrap also threatened the tenant with eviction for failing to pay rent. At some point, Satrap commenced eviction proceedings, and the eviction was completed on May 1, 2006.

In April 2007, Satrap filed a complaint against the seller for breach of contract, negligent misrepresentation, and fraud. Satrap did not sue his real estate broker and agent (PC and Baker) at that time. Satrap did not sue them until he filed his third amended complaint on April 25, 2008, which was more than two years after close of escrow and initiation of the dispute over lease terms.

In March 2009, Satrap filed his fifth amended complaint. In that complaint, Satrap charged PC and Baker with negligence, breach of fiduciary duty, and constructive fraud. Among other things, Satrap alleged that PC and Baker failed to (1) obtain an estoppel certificate from the tenant confirming the lease terms or advise Satrap about a certificate, (2) review the leases or advise Satrap about the leases, (3) investigate zoning and other regulations governing the property or advise Satrap about regulations, and (4) investigate or confirm the seller's MLS representations or advise Satrap about the representations. Satrap also alleged that Baker was inexperienced and that PC failed to train Baker sufficiently to handle the transactions at issue.

Defendants PC and Baker moved for summary judgment or, in the alternative, summary adjudication in April 2009. Defendants maintained that all of plaintiff Satrap's causes of action were based on alleged negligence and that they were barred by the two-year statute of limitations because Satrap suspected negligence soon after escrow closed, which was more than two years before Satrap sued PC and Baker. (Code Civ. Proc., § 339.) Following receipt of opposition papers and after a hearing was held, the court issued an order granting PC and Baker summary judgment on August 5, 2009. Satrap filed a notice of appeal on October 2, 2009.*fn1

Ii. discussion

"On appeal after a motion for summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citation.] Under California's traditional rules, we determine with respect to each cause of action whether the defendant seeking summary judgment has conclusively negated a necessary element of the plaintiff's case, or has demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial, such that the defendant is entitled to judgment as a matter of law." (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.)

As noted above, the trial court here found that Satrap knew or should have known about agent Baker's alleged negligence no later than January 2006, when a dispute over the lease terms arose, and exceeded the two-year statute of limitations in waiting until April 2008 to sue Baker and his employer for negligence in failing to investigate the seller's representations about the leases. (Code Civ. Proc., § 339.) The court further held that professional negligence was the gravamen of all causes of action and applied the two-year statute of limitations to all of Satrap's causes of action. We conclude that the trial court was right on the first point but not the second.

A. The cause of action for negligence is barred by the statute of limitations

Satrap charged real estate broker PC and agent Baker with negligence for, among other things, failing to obtain an estoppel certificate from the tenant confirming the lease terms and failing to investigate the seller's representations concerning the lease. The statute of limitations applicable to claims of professional negligence is two years. (Code Civ. Proc., § 339, subd. 1; Slavin v. Trout (1993) 18 Cal.App.4th 1536, 1539.)

A statute of limitations begins to run when the "cause of action accrues." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.) "Generally speaking, a cause of action accrues at 'the time when the cause of action is complete with all of its elements.' [Citations.] 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." (Id. at pp. 806-807.)

"Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that [his or] her injury was caused by wrongdoing, that someone has done something wrong to [him or] her." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110.) As the California Supreme Court has emphasized, "[a] plaintiff need not be aware of the specific 'facts' necessary to establish the claim . . . . Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, [he or] she must decide whether to file suit or sit on [his or] her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; [he or] she cannot wait for the facts to find [him or] her." (Id. at p. 1111.) "While resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts established through discovery are susceptible of only one legitimate inference, summary judgment is proper." (Id. at p. 1112.)

Here, plaintiff discovered, or had reason to discover, the negligence cause of action against his real estate broker and agent no later than January 2006, when Satrap learned that the rental properties he bought were not subject to triple net leases. Satrap had informed Baker when he hired him that he was looking for properties with triple net leases in which the tenant is responsible for paying taxes, insurance, and maintenance in addition to rent. Baker identified two properties for Satrap which, according to MLS reports, had an existing tenant with triple net leases. Satrap bought the properties. Escrow closed in December 2005. In January 2006, the tenant failed to pay its monthly rent in full and disputed the existence of a triple net lease on the properties. The tenant denied any obligation to pay insurance or taxes. A January 25, 2006 letter written by Satrap to the tenant's CEO memorialized a meeting between Satrap and the CEO concerning the lease dispute. In the letter, Satrap stated his suspicion that the MLS was "false" and that the seller was guilty of fraud in misrepresenting the lease terms.

While Satrap acknowledges these undisputed facts, he argues that they did not alert him to any wrongdoing by his broker and agent, only the seller. The argument is untenable. Baker was allegedly hired with explicit instructions to obtain rental properties with triple net leases. In January 2006, it was clear that the directive had not been fulfilled. Moreover, even if Baker's responsibility for the mishap was uncertain in January 2006, sufficient facts were known to put Satrap on inquiry notice. "[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. 808-809.) A plaintiff cannot establish a theory of delayed discovery without showing "that, despite diligent investigation of the circumstances of the injury, he or she could not have reasonably discovered facts supporting the cause of action within the applicable statute of limitations period." (Id. at pp. 808-809.) Plaintiff Satrap suspected wrongful injury in January 2006 from fraudulent MLS representations. A reasonable investigation of all potential causes of that injury would have led him to Baker's alleged negligence in failing to investigate the seller's MLS representations.

Satrap argues that even if he discovered or should have discovered Baker's negligence in January 2006, the cause of action did not actually accrue until May 2006, when the tenant was evicted, and Satrap's damages were fixed and certain. It is true, of course, that "[t]he mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm--not yet realized--does not suffice to create a cause of action for negligence." (Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446, 452.) But "[i]t is the fact of damage, rather than the amount, that is the relevant consideration. [Citation.] Consequently, the [plaintiff] may suffer 'appreciable and actual harm' before he or she sustains all, or even the greater part, of the damages occasioned by the professional negligence." (Ibid.) Plaintiff Satrap was injured at the close of escrow in December 2005 when he acquired rental property with less favorable lease terms than the seller represented. Satrap, rather than the tenant as promised, became liable for all taxes, insurance, and maintenance costs. Satrap suffered appreciable and actual harm at the close of escrow when he became liable for those costs.

The trial court properly concluded that the statute of limitations on the negligence cause of action against the real estate broker and agent began to run no later than January 2006, when a dispute over the lease terms arose. The filing of that cause of action more than two years later, in April 2008, was untimely.

B. The causes of action for breach of fiduciary duty and constructive trust are timely

Real estate brokers and agents who provide exclusive representation in real estate purchase transactions owe a fiduciary duty to their clients. (Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App. 4th 555, 562; Loughlin v. Idora Realty Co. (1968) 259 Cal.App.2d 619, 629; see generally 2 Miller & Starr, Cal. Real Estate (3d ed. 2000) Agency § 3.25, p. 119.) "[A] broker's fiduciary duty to his client requires the highest good faith and undivided service and loyalty." (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18, 25.) " '[T]he broker has a fiduciary duty to investigate the material facts of the transaction, and he cannot accept information received from others as being true, and transmit it to the principal, without either verifying the information or disclosing to the principal that the information has not been verified.' " (Salahutdin, supra, at p. 562.) An agent may be sued for both breach of fiduciary duty and constructive fraud, which " 'is a unique species of fraud applicable only to a fiduciary or confidential relationship.' " (Ibid.)

"[T]he statute of limitations for actions involving a fiduciary obligation is normally triggered on the date the plaintiff discovers, or should have discovered, the negligence." (Field v. Century 21 Klowden-Forness Realty, supra, 63 Cal.App.4th at p. 25.) A cause of action based on a breach of fiduciary duty is sometimes likened to fraud with a three-year statute of limitations but there is other authority applying the four-year statute of limitations for general tort claims. (2 Miller & Starr, Cal. Real Estate, supra, Agency § 3.34, p. 205.) Plaintiff Satrap discovered, or should have discovered, Baker's alleged misconduct by January 2006. His fiduciary duty claims were filed in April 2008, making them timely if either the three-year or four-year statute of limitations applies.

Defendants persuaded the trial court that a shorter, two-year statute of limitations applicable to negligence causes of action must be applied to plaintiffs' fiduciary claims because, according to defendants, the gravamen of all causes of action is professional negligence. As a preliminary matter, we note that " 'a breach of fiduciary duty is a species of tort distinct from a cause of action for professional negligence.' " (Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1534.) We also note that a plaintiff is generally permitted to allege different causes of action--with different statutes of limitations--upon the same underlying facts. (See Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1021 [considering whether three different statutes of limitations had run for three causes of action based on same wrong]; Wilshire Westwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 743-744 [statutes of limitations had run as to some, but not all, causes of action in connection with soil contamination on buyer's property].) However, a plaintiff is not permitted to evade the statute of limitations by artful pleading that labels a cause of action one thing while actually stating another. California courts therefore look to the gravamen of the cause of action. "To determine the statute of limitations which applies to a cause of action it is necessary to identify the nature of the cause of action, i.e., the 'gravamen' of the cause of action. [Citations.] '[T]he nature of the right sued upon and not the form of action nor the relief demanded determines the applicability of the statute of limitations under our code.' " (Hensler v. City of Glendale (1994) 8 Cal.4th 1, 22-23.)

The trial court determined that the gravamen of Satrap's breach of fiduciary duty and constructive fraud causes of action was actually negligence. We disagree. It is true that plaintiff Satrap alleged essentially the same facts in all causes of action by employing the common practice of stating allegations in one cause of action (negligence) and then incorporating those allegations in subsequent causes of action (breach of fiduciary duty and constructive fraud). This pleading practice does not establish that all causes of action sound in negligence. As noted above, the same basic underlying facts may give rise to several distinct causes of action. Here, a key fact distinguishing the negligence claim from the fiduciary claims is that, as alleged in the operative complaint, defendants "[b]y virtue of their positions as Plaintiffs' real estate broker and agent . . . were fiduciaries to Plaintiffs . . . and thus owed fiduciary duties to Plaintiffs." Plaintiff Satrap further alleged that facts previously stated in the complaint to support the negligence cause of action breached fiduciary duties as well. The specific allegations of misconduct demonstrate that the nature of the right sued upon is, indeed, breach of a fiduciary duty and not simple negligence. For example, Satrap alleged that defendants failed to verify the seller's MLS representation of the lease terms, which implicates defendants' fiduciary duty. As noted above, " 'the broker has a fiduciary duty to investigate the material facts of the transaction, and he cannot accept information received from others as being true, and transmit it to the principal, without either verifying the information or disclosing to the principal that the information has not been verified.' " (Salahutdin v. Valley of California, Inc., supra, 24 Cal.App.4th at p. 562.) The gravamen of plaintiffs' fiduciary claims is not negligence but breach of fiduciary duty and constructive fraud by a fiduciary.

Defendants rely upon Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145 (Hydro-Mill) for their argument that the gravamen of plaintiff's claims is actually negligence, and thus time barred under the two-year statute of limitations. In that case, the court held that the gravamen of plaintiff's breach of fiduciary duty cause of action against its insurance broker for failing to obtain requested coverage was negligence, and that plaintiff could not "prolong the limitations period by invoking a fiduciary theory of liability." (Id. at p. 1159.) The case is readily distinguishable. Hydro-Mill concerned an insurance broker, not a real estate broker. The Hydro-Mill court noted that "it is unclear whether a fiduciary relationship exists between an insurance broker and an insured." (Id. at p. 1156.) " '[T]he relationship between an insurance broker and its client is not the kind which would logically give rise to such a duty. The duty of a broker, by and large, is to use reasonable care, diligence, and judgment in procuring the insurance requested by its client . . . .' " (Id. at p. 1157.) The court therefore concluded that the "causes of action, regardless of appellation, amount to a claim of professional negligence." (Id. at p. 1159.)

In contrast to Hydro-Mill, we are concerned here with the relationship between a real estate broker and its client, which is clearly a fiduciary relationship. (Loughlin v. Idora Realty Co., supra, 259 Cal.App.2d at p. 629.) "It is well settled in this state that the law imposes on a real estate broker the same obligation of undivided service and loyalty that it imposes on a trustee in favor of his beneficiary." (Ford v. Cournale (1973) 36 Cal.App.3d 172, 180.) The law also imposes on a real estate broker " 'a fiduciary duty to investigate the material facts of the transaction' " (Salahutdin v. Valley of California, Inc., supra, 24 Cal.App.4th at p. 562), and the allegation that defendants here failed to do so gives rise to a claim for breach of fiduciary duty, not simply negligence. In Hydro-Mill, the plaintiff attempted to "prolong the limitations period by invoking a fiduciary theory of liability" when no such fiduciary duty existed. (Hydro-Mill, supra, 115 Cal.App.4th at p. 1159.) Here, a fiduciary duty plainly existed and plaintiffs' averments of misconduct sufficiently raised allegations of breach of that fiduciary duty. Hydro-Mill is inapplicable. (See Betz v. Trainer Wortham & Co. (9th Cir. 2007) 236 Fed. Appen. 253, 255 [finding Hydro-Mill inapplicable in breach of fiduciary duty claim against securities broker where fiduciary duty exists and is implicated by plaintiff's allegations].)

Iii. disposition

The judgment is reversed. The case is remanded to the trial court with directions to deny the summary judgment motion of defendants PC Real Estate, Inc. and Robert Baker, and to grant summary adjudication on the negligence causes of action alone (seventh and eight causes of action of the fifth amended complaint). The parties shall bear their own costs incurred on appeal.

We concur: Ruvolo, P.J. Reardon, J.


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