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Charles Gunn et al v. Kerrie Moravec

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Siskiyou)


August 30, 2011

CHARLES GUNN ET AL., PLAINTIFFS AND APPELLANTS,
v.
KERRIE MORAVEC, DEFENDANT AND RESPONDENT.

(Super. Ct. No. SCCVCV081295)

The opinion of the court was delivered by: Duarte ,j.

Gunn v. Moravec

CA3

NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Charles and Jerene Gunn (the Gunns) brought suit against multiple parties, alleging they were induced to purchase a defective house by fraudulent misrepresentations. One of the defendants, Kerrie Moravec (Moravec), successfully demurred to the various causes of action against her. The Gunns appeal from the subsequent judgment of dismissal. They also appeal from a postjudgment award of attorney fees to Moravec.

As we will explain, we hold that the Gunns failed to state a cause of action against Moravec and the trial court properly awarded her attorney fees. We shall affirm.

PROCEDURAL BACKGROUND

I

Original Complaint

In the fall of 2008, the Gunns filed suit against various defendants, including Moravec and her husband, Gary. Also named as defendants were Gary Moravec's sole proprietorship GM Construction, David and Frances Zuckswert and David Zuckswert's sole proprietorship, River Valley Construction, and Cornerstone Foundation Investments LLC (Cornerstone), a limited liability company of which the Moravecs and David Zuckswert were managers. The complaint referred to all these defendants collectively as "Defendant Owner-Builders." Various realtors and an engineering firm were also named as defendants.

The complaint alleged that the Gunns closed escrow on a retirement residence in the summer of 2006. The residence was a 1,900 square foot house at the base of a hill overlooking a golf course, constructed by Defendant Owner-Builders. The purchase contract named David and Frances Zuckswert as owners, although the Moravecs were equal owners of the property. Days before the property was transferred by grant deed to the Gunns, "Defendant Owner-Builders removed their individual names from the property and transferr[ed] ownership into their LLC," Cornerstone.

The complaint alleged there were several problems with the house. The fireplaces were inadequate for heating, although David Zuckswert had represented they were adequate to heat up to 1,600 square feet. There were problems with the eaves and the retaining wall, neither of which complied with the rules of the Lake Shastina Property Owners Association (the Association). In addition, the retaining wall had not been built to code. Additional construction issues were outstanding.

The final factual allegation was that "[o]n August 5, 2008, all of the named parties or their representatives participated in mediation conducted by Retired Judge John Letton in Mt. Shasta, California. No offers to settle or make any repairs were extended thereafter to the Plaintiffs."

The complaint set forth 14 causes of action and included multiple exhibits. Moravec was named as a defendant in 10 causes of action, related to her alleged failure to disclose material facts, fraud, residential construction defects, negligence per se, breach of implied warranties, and breach of contract. In addition to damages, the complaint sought attorney fees.

For purposes of this appeal, the only relevant cause of action in the original complaint is the first, which was labeled "Breach of Duty to Disclose Material Facts" and "Violation of Civil Code section 1102.1." It alleged that Civil Code section 1102.1, subdivision (a) provided that parties to a real estate contract have an obligation to disclose any fact materially affecting the value and desirability of the property. Defendant Owner-Builders failed to disclose that the property contained merely decorative propane fireplaces and the property and improvements had not obtained final approval from the Association. The only allegation specific to Moravec was that the property title listed her as one of the owners of the property. Exhibit 3 to the complaint, the purchase contract, shows that only David Zuckswert signed the contract as seller.

Moravec demurred to this complaint on the basis that it failed to state a cause of action and was uncertain. Before this demurrer was heard, the trial court ruled on a demurrer brought by the realtor defendants. The court found Civil Code section 1102.1 was only a statement of legislative intent and did not create a cause of action. It sustained the realtors' demurrer to the first cause of action without leave to amend.

Before the court ruled on Moravec's demurrer, the Gunns filed a first amended complaint. The court found Moravec's demurrer was moot because the original complaint had been superseded by the first amended complaint.

II

First Amended Complaint

The first amended complaint was substantially similar to the original complaint, except that it deleted the first cause of action for violation of Civil Code section 1102.1 and the 10th cause of action against the engineering company. It continued the same blanket reference to the Moravecs, the Zuckswerts, their construction companies, and Cornerstone as "Defendant Owner-Builders."

Moravec demurred on the basis that the first amended complaint failed to state a cause of action against her and it was uncertain.

In opposition, the Gunns argued Moravec committed tortious acts before the property was transferred to Cornerstone. If required, the Gunns intended to show that Cornerstone was used as an alter ego rather than as a separate entity.

The court ruled the categorical reference to several defendants as owner-builders was uncertain; there were no allegations that Moravec did any work on the residence. The court sustained the demurrer as to all causes of action against Moravec with leave to amend.

III

Second Amended Complaint

The second amended complaint separated the defendant builders from the defendant sellers. Moravec was named as a defendant seller, along with her husband, the Zuckswerts, and Cornerstone. There were no allegations that Cornerstone was the alter ego of any individual defendant.

The second amended complaint alleged "defendants engaged in a conspiracy, common enterprise and common course of conduct, the purpose of which is and was to engage in the violations of the law alleged in this Complaint."

Moravec was named as a defendant in three causes of action. The second cause of action was labeled "Fraud" and a violation of Civil Code section 1710. It alleged David Zuckswert intended to induce the Gunns to purchase the property by deceiving them as to the heating capacity of the fireplaces. It further alleged the defendant sellers intended to induce the Gunns to purchase the property by not disclosing the absence of Association approval.

The fourth cause of action was labeled "Negligent Misrepresentation" and a violation of Civil Code section 1572.*fn1 In addition to quoting the provisions of Civil Code section 1572, the fourth cause of action incorporated the previous factual allegations, including those in the fraud count, and alleged that David Zuckswert had no reasonable ground for believing his assertion about the heating capacity of the propane fireplaces because he was the builder and had control over the units. As such, he had access to the manufacturer's specifications which indicated the units would heat only 600 to 800 square feet and then only at sea level. The prayer sought compensatory damages for this cause of action.

The 10th cause of action was for breach of contract. It alleged the purchase agreement provided that the property would be available for investigations, with utilities turned on, and provided for a final inspection before the close of escrow. Defendant sellers breached the purchase agreement by forbidding the Gunns from conducting a pre-closing walkthrough. They further breached the purchase agreement because the fireplaces were not operable for inspection by the Gunns prior to purchase.

Moravec again demurred on the grounds of failure to state a cause of action and uncertainty.

The court found that pleading Moravec as a defendant seller was not supported by the alleged facts and created uncertainty. The fourth cause of action contained no allegations as to any defendant except David Zuckswert. The court sustained the demurrer to the fourth and 10th causes of action as to Moravec without leave to amend as she was not a seller or a party to the purchase agreement. The court sustained Moravec's demurrer to the second cause of action for fraud with leave to amend. It found insufficient facts were pled as to Moravec--although the Gunns asserted she was an equal owner of the property, the grant deed to the Gunns was from Cornerstone and she was not on the purchase agreement.

IV

Third Amended Complaint

The third amended complaint again named Moravec as a defendant seller and included the general allegation about a conspiracy. In addition, the second cause of action for fraud alleged "[f]or monetary gain, the Defendant Sellers named herein formed and operated a conspiracy to induce the Plaintiffs to purchase the subject defective residence." It then alleged certain acts in furtherance of the conspiracy.

Moravec's demurrer to the fraud cause of action was sustained without leave to amend. The court found the Gunns alleged that defendants conspired with each other and then simply restated the allegations against David Zuckswert.*fn2

A judgment of dismissal was entered in favor of Moravec.

V

Motion for Attorney Fees

Moravec sought attorney fees of $21,176 under the purchase agreement and pursuant to Civil Code section 1717.

The purchase agreement is a standard form of the California Association of Realtors. Paragraph 22 provides: "In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 17A." Paragraph 17A provides in part: "A. MEDIATION: Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action. . . . If, for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action." The motion for fees stated the parties had attended mediation.

The court granted Moravec attorney fees of $10,588. It granted only one-half of the amount requested, finding that Moravec was not counsel's only client in this matter (the same counsel also represented Gary Moravec, as to whom causes of action remained).

DISCUSSION

I

The Cause of Action for Breach of Duty

The Gunns contend the trial court erred in finding no cause of action for breach of the duty to disclose material facts under Civil Code section 1102.1. The trial court made this finding in ruling on the demurrer of the realtor defendants. Based on this ruling, the Gunns withdrew this cause of action against Moravec in the first amended complaint.

Relying on Singhania v. Uttarwar (2006) 136 Cal.App.4th 416 (Singhania), Moravec responds that the sufficiency of an entirely superseded pleading is not subject to review. We agree.

In Singhania, plaintiffs' notice of appeal stated they were appealing from the final judgment, orders sustaining demurrers to the fourth amended complaint with and without leave to amend, and a non-statutory motion for judgment on the pleadings as to the third amended complaint. (Singhania, supra, 136 Cal.App.4th at p. 424.) The court dismissed all appeals except the appeal from the final judgment and considered only the sufficiency of the fourth amended complaint. (Singhania, supra, at p. 425.) Regarding the ruling on the motion for judgment on the pleadings as to the third amended complaint, the court found plaintiffs waived any claim of error by amending their complaint. (Id. at p. 436.)

"'It is well established that an amendatory pleading supersedes the original one, which ceases to perform any function as a pleading. [Citations.]' [Citation.] 'Such amended pleading supplants all prior complaints. It alone will be considered by the reviewing court. [Citations.]' [Citation.]" (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 884.)

This rule, however, does not always apply in the context of rulings on demurrers. (See Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 209, superseded by statute on another point as stated in Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 228.) In certain cases, a ruling on a demurrer to part of a superseded complaint may be "open on appeal," where the appeal is from the final judgment on the subsequent complaint. "The following orders shall be deemed open on appeal where an amended pleading is filed after the court's order: [¶] (1) An order

sustaining a demurrer to a cause of action within a complaint or cross-complaint where the order did not sustain the demurrer as to the entire complaint or cross-complaint." (Code Civ. Proc., § 472c, subd. (b).) For example, had the court made an order sustaining Moravec's demurrer to the first cause of action in the original complaint, that order would be "open on appeal" and could be reviewed on appeal from the final judgment on a subsequent complaint. (See County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 312 [ruling on demurrer to cause of action in second amended complaint open on appeal notwithstanding that amended pleading filed thereafter].)

In this case, however, the court never ruled on Moravec's demurrer to the original complaint because, before the court could rule, the Gunns filed an amended complaint, which did not include the cause of action for breach of the duty to disclose. Nor did the Gunns appeal from the order sustaining the demurrer to this cause of action by the realtors, who are not parties to this appeal. Since the Gunns did not appeal from an order sustaining a demurrer to this cause of action and there is no such order as to Moravec, there is nothing for us to review as to the cause of action for breach of the duty to disclose material facts.

II

The Cause of Action for Breach of Contract

The Gunns contend the trial court erred in sustaining without leave to amend Moravec's demurrer to the 10th cause of action for breach of contract in the second amended complaint.*fn3

The breach of contract claim against Moravec relies upon her designation in the second amended complaint as a defendant seller. But there is no specific allegation that Moravec was a party to the contract. Exhibit 3 to the complaint, the purchase agreement, shows that only David Zuckswert signed the contract as seller. The grant deed transferring the property to the Gunns indicates the transferor is Cornerstone. Further, the second amended complaint recognizes that only the Zuckswerts are named in the purchase agreement as sellers.

"For purposes of a demurrer, we accept as true both facts alleged in the text of the complaint and facts appearing in exhibits attached to it. If the facts appearing in the attached exhibit contradict those expressly pleaded, those in the exhibit are given precedence. [Citation.]" (Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 567-568.)

Recognizing that none of the documents available as exhibits show Moravec as a seller, the Gunns contend they "believe David Zuckswert was acting as Respondent's authorized agent when he signed the Contract." They contend agency is established by the fact that Moravec was shown as a part owner of the property, along with her husband and the Zuckswerts, on the title report. If David Zuckswert had signed the purchase agreement as Moravec's actual agent, the facts in the exhibit would not contradict those alleged in the complaint. But he did not do so. Thus, any allegation of agency contained in the complaint (or in the Gunns' briefing, for that matter), is contradicted by the facts appearing in Exhibit 3, which we give precedence.

The Gunns then contend Zuckswert's agency was ostensible. "An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him." (Civ. Code, § 2300.) Ostensible authority must be established through the acts or declarations of the principal and not the acts or declarations of the agent. (People v. Surety Insurance Co. (1982) 136 Cal.App.3d 556, 562.) The second amended complaint contains no allegations of acts or declarations by Moravec to cause the Gunns to believe David Zuckswert was her agent. Indeed, it does not allege that she knew of, approved of, was involved in, or benefitted from the sale.

Nor does the second amended complaint allege Moravec's status as a seller due to her connection with Cornerstone, the ultimate seller of the property. It alleges that Cornerstone is a limited liability company and that Moravec was a "manager" of Cornerstone. As a limited liability company, Cornerstone's articles of organization may provide that its business and affairs shall be managed by one or more managers who need not be members. (Corp. Code, § 17151, subd. (a).) Therefore, simply alleging that Moravec is a manager of Cornerstone fails to allege that she is a member of the limited liability company.

Moreover, a limited liability company "has a legal existence separate from its members. While members actively participate in the management and control of the company, they have limited liability for the company's debts and obligations to the same extent enjoyed by corporate shareholders. [Citations.]" (Kwok v. Transnation Title Ins. Co. (2009) 170 Cal.App.4th 1562, 1571.) Members are subject to liability under the same circumstances and to the same extent as corporate shareholders under common law principles governing alter ego liability (Corp. Code, § 17101, subd. (b)), but the second amended complaint has no allegations that Cornerstone is an alter ego of any individual.

Because the only allegation that Moravec was a seller and thus a party to the purchase agreement was contradicted by exhibits attached to the complaint, the trial court did not err in sustaining the demurrer to the cause of action for breach of contract.

III

The Fraud Counts

The Gunns contend the trial court erred in sustaining Moravec's demurrers to the fourth cause of action in the second amended complaint and the second cause of action in the third amended complaint. As discussed ante, although the fourth cause of action is labeled negligent misrepresentation, the allegations are of fraud, so we shall follow the lead of the parties (AOB 24-31, RB 23-25) and consider these two causes of action together as fraud claims.

"In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.]" (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) "The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." (Lazar v. Superior Court, supra, 12 Cal.4th at p. 638.)

Neither cause of action contains a specific allegation of a misrepresentation by Moravec. Instead, the alleged misrepresentations were made by either David Zuckswert or the defendant sellers. In sustaining the demurrer to the breach of contract claim, the court properly determined Moravec was not a seller, so there are no allegations that she made a misrepresentation.

The Gunns seek to cure this lack of a specific allegation against Moravec by alleging she, as a defendant seller, was part of a conspiracy and thus has vicarious liability for the wrongs committed by her co-conspirators. To plead a conspiracy cause of action, one must plead facts showing (1) the formation and operation of the conspiracy, (2) the wrongful acts done pursuant thereto, and (3) the damage resulting from such acts. (Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 316.)

The Gunns allege, "For monetary gain, the Defendant Sellers named herein formed and operated a conspiracy to induce the Plaintiffs to purchase the subject defective residence." This allegation is insufficient to plead formation of a conspiracy. First, Moravec was not a seller and thus not part of the conspiracy. Second, the pleading does not allege the formation of a conspiracy because it does not allege an agreement to commit a civil wrong. A conspiracy alone is not actionable: "'The long-established rule that a conspiracy, in and of itself, however atrocious, does not give rise to a cause of action unless a civil wrong has been committed resulting in damage [citation] requires a determination of whether the pleaded facts show something was done which, without the conspiracy, would give rise to a right of action.' [Citations.]" (Tietz v. Los Angeles Unified School District (1965) 238 Cal.App.2d 905, 913.) The conspiracy allegation alleges only that defendants conspired to induce the Gunns to purchase a defective house, which alone is not an actionable wrong. While the third amended complaint alleges that David Zuckswert and other defendant sellers induced the Gunns by committing fraud in the form of misrepresentations, there is no allegation that Moravec knew about the misrepresentations or agreed to them. There is no allegation that Moravec agreed to misrepresent material facts about the

property to induce the Gunns to purchase it or that she otherwise intended to defraud the Gunns.

Because there were no specific allegations of fraud against Moravec, either directly or through a conspiracy, the court did not err in sustaining the demurrers to the fraud claims.

IV

Attorney Fees

The Gunns contend the trial court erred in awarding Moravec attorney fees under the terms of the purchase agreement and Civil Code section 1717. They do not dispute the amount of the fee award or that Moravec could recover fees although not a party to the contract.*fn4 Rather, they contend Moravec is not entitled to attorney fees because she failed to attend mediation and the award is premature because Moravec "remains liable to the Appellants in her individual capacity as the alter ego of Cornerstone."

On appeal, we review the determination of the legal basis for an award of attorney fees de novo as it is a question of law. (Leamon v. Krajkiewcz (2003) 107 Cal.App.4th 424, 431.)

The standard form real estate purchase agreement requires mediation before a party may recover attorney fees. Mediation "is a condition precedent to the recovery of attorney fees by

the party who initiates the action." (Johnson v. Siegel (2000) 84 Cal.App.4th 1087, 1101 original italics [interpreting identical provisions in real estate purchase contract].) Further, a party refusing a request to mediate a dispute that ripens into litigation may not recover attorney fees at the conclusion of the litigation, even if that party is the prevailing party. (Frei v. Davey (2004) 124 Cal.App.4th 1506, 1520.)

Moravec did not initiate the action; the Gunns did. As the defendant, Moravec had no duty under the attorney fee provisions of the purchase agreement to seek mediation. (Van Slyke v. Gibson (2007) 146 Cal.App.4th 1296, 1299 [defendant who dismissed cross-complaint against plaintiff not required to seek mediation to obtain attorney fees].)

The Gunns contend Moravec refused their request for mediation. On the contrary, Moravec did participate in mediation through her counsel. The Gunns admitted as much in their pleadings. The third amended complaint alleged that on a certain date, "all of the named parties or their representatives participated in mediation conducted by retired Judge John Letton in Mt. Shasta, California." Parties are bound by admissions in their pleadings. (Heater v. Southwood Psychiatric Center (1996) 42 Cal.App.4th 1068, 1079-1080, fn. 10.) Citing Witkin on

California procedure, the Gunns argue that a mediator usually

deals directly with the parties. (See 6 Witkin, Cal. Procedure (5th ed. 2008) Proceedings Without Trial, § 486, p. 942.) They present no authority, however, that a party's personal attendance at mediation is required under the purchase agreement in order to recover attorney fees.

The Gunns fare no better in their argument that an award of attorney fees is premature because they may yet seek to pierce the corporate veil and hold Moravec personally liable for any judgment against Cornerstone. Although the Gunns raised the alter ego issue as a possibility in arguing against Moravec's demurrer to the first amended complaint, they never amended their pleadings to allege that Cornerstone was the alter ego of any individual. Nor did they assert the alter ego theory in opposition to Moravec's motion for attorney fees. Under the well-established doctrine of theory of the case, a new theory for or against recovery of attorney fees cannot be raised for first time on appeal. (Planned Protective Services, Inc. v. Gorton (1988) 200 Cal.App.3d 1, 12-13, disapproved on another ground in Martin v. Szeto (2004) 32 Cal.4th 445, 451.)

The trial court did not err in awarding Moravec attorney fees as the prevailing party.

DISPOSITION

The judgment is affirmed. Moravec shall recover costs and attorney fees on appeal.

We concur: RAYE , P.J. NICHOLSON ,J.


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