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David Duncan et al v. the Mccaffrey Group

October 28, 2011

DAVID DUNCAN ET AL., PLAINTIFFS AND APPELLANTS,
v.
THE MCCAFFREY GROUP, INC. ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Fresno County. Howard R. Broadman, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) (Super. Ct. No. 08CECG04136)

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

CERTIFIED FOR PUBLICATION

OPINION

Plaintiffs David Duncan, Lynne Y. Duncan, Michael V. Fillebrown, Gerald Lung, Jeannie Lung, the Lung Family Revocable Trust, Richard Marino, Angela Marino, Weldon K. Schapansky, individually and as the sole beneficiary of the Grabe, Schapansky, Moss, Levy & Julian DDS PC 401 Retirement Plan, Noah Sever, Linda Washington, Carl D. West, and Chung C. Faulkner (hereafter collectively, plaintiffs) appeal from the judgment entered after the trial court sustained the demurrers filed by defendants The McCaffrey Group, Inc., McCaffrey Home Realty, Robert A. McCaffrey, McCaffrey Development LP, Bullard Grantland No. 1, Inc., and Ron Pottorff (hereafter collectively, defendants)*fn1 to plaintiffs' sixth amended complaint.

Defendants are the developers of a tract of land marketed as the Treviso Custom Home Development (hereafter the Development). Plaintiffs are individuals who purchased lots from defendants with the intent to build custom homes on each lot, with some having completed construction on their homes.

The complaint alleged, in essence, that plaintiffs paid a premium price for their lots because the Development was marketed as one that would be limited to custom homes with at least 2,700 square feet of living space. Plaintiffs alleged that, unbeknownst to them, defendants at all times intended to build tract homes on some of the lots that would be much smaller than 2,700 square feet of living space. As a result of the construction of smaller tract homes, plaintiffs alleged the value of their lots plummeted.

In the various versions of their complaint, plaintiffs have alleged numerous causes of action attributable to the purchase of the lots. As we understand plaintiffs' argument, they contend only that the trial court erred in sustaining the demurrer to their causes of action for alleged unfair competition, in violation of Business and Professions Code section 17200, false advertising, in violation of Business and Professions Code section 17500, and fraud. In addition, plaintiffs challenge the trial court's order granting defendants' motion for summary adjudication on their causes of action for breach of fiduciary duty and constructive fraud.

The primary basis for the trial court's order sustaining defendants' demurrers was that the parole evidence rule precluded any testimony about facts inconsistent with the contract between the parties and the purchase and sale agreement (hereafter the Agreement) and therefore there was no factual basis for any of plaintiffs' claims. As we shall explain, the trial court was correct that the fraud cause of action lacked any factual support because the parol evidence rule precluded the evidence on which plaintiffs relied. The trial court erred, however, in sustaining the demurrer to the causes of action for false advertising and unfair competition because the allegations on which plaintiffs relied were not offered to vary, alter, or add to the terms of the Agreement, and thus the parol evidence rule was inapplicable.

We also conclude the trial court erred in granting the motion for summary adjudication. Plaintiffs alleged that defendant McCaffrey Home Realty acted as their real estate agent in the purchase transaction and therefore owed them a fiduciary duty, which was breached by various acts of defendants. The trial court concluded that the Agreement established that defendant McCaffrey Home Realty acted as a broker only for defendants and therefore there was no fiduciary relationship between plaintiffs and defendants. As we shall explain, we conclude the Agreement was ambiguous and therefore a triable issue of fact exists as to the meaning of the contract, which may require extrinsic evidence to resolve. Therefore, the order granting summary adjudication also must be reversed.

FACTUAL AND PROCEDURAL SUMMARY

Sixth Amended Complaint

We begin with the sixth amended complaint (SAC) because that was the operative pleading at the time judgment was entered. As relevant to the issues we must decide, the SAC alleged plaintiffs were the owners of lots in the Development. The lots were purchased between July 28, 2006, and August 8, 2007. Defendants were corporate entities or partnerships doing business in the state of California, primarily the development, construction, and sale of new residential homes, except for Ron Pottorff, who was an employee of defendants.

Plaintiffs' first cause of action alleged defendants committed acts of unfair competition, in violation of Business and Professions Code section 17200. According to plaintiffs, defendants authored and caused to be recorded a declaration of covenants, conditions, and restrictions (CC&R's) applicable to the Development. As initially recorded, and at the time plaintiffs bought their lots, the CC&R's required each home built within the Development to be at least 2,700 square feet and "'architecturally compatible with each other.'"

In addition, Pottorff told plaintiffs Richard Marino and Angela Marino that the Development contained the only custom home lots in that area. The sales office for the Development exhibited numerous pictures and architectural plans for custom homes built at defendants' other developments and that were similar to the Development's.

After each plaintiff had purchased his or her lot, defendants, without notice, caused the CC&R's to be amended to reduce the minimum size of each residence built in the Development to 1,700 square feet. Approximately one month later, defendants caused the CC&R's to be amended a second time without notice, this time reducing the minimum size of a residence built in the Development to 1,400 square feet.

After each plaintiff had purchased his or her lot, defendants began selling tract homes on lots within the Development. The price for some of these tract homes was essentially the same as the price paid by plaintiffs for their undeveloped lots. As a result of defendants' construction of tract homes, the Development no longer was a custom home development. Defendant Robert A. McCaffrey admitted to plaintiffs that the Development never was intended to be limited to custom homes.

These actions allegedly violated Civil Code sections 1567*fn2 (freedom of consent), 1572*fn3 (fraud), 1573*fn4 (constructive fraud), 1575*fn5 (undue influence), 1667*fn6 and 1668*fn7 (contracts contrary to law), 1670.5*fn8 (unconscionable contracts), 1709*fn9 and 1710*fn10 (deceit), and Business and Profession Code sections 11012*fn11 (unlawful material change in setup), 11018.7*fn12 (unlawful amendment of the CC&R's), 11019*fn13 (order prohibiting violations), 11022*fn14 (false or misleading advertising), and 17530*fn15 (misleading publications). The SAC alleged that these statutory violations constituted unlawful business acts within the meaning of Business and Professions Code section 17200 et seq., the Unfair Competition Law (UCL). Because plaintiffs actually and reasonably relied on defendants' representations, defendants' acts also constituted fraudulent business practices within the meaning of the UCL and false advertising within the meaning of Business and Professions Code sections 11022, 17200, and 17500. Finally, the SAC alleged that each plaintiff was damaged as a result of defendants' unlawful conduct.

The second cause of action sought rescission and restitution because defendants failed to notify the Real Estate Commissioner of the amendments to the CC&R's as required by Business and Professions Code sections 11012, 11018.7, and 11019. In addition, defendants allegedly violated Business and Professions Code section 11012, 11018.7, 11019, and 11022 by building and marketing a limited number of models of tract homes. Plaintiffs also alleged the tract homes were not reviewed by the architectural control committee, as required by the CC&R's. These facts allegedly constituted a material change in the Development without notice to the Department of Real Estate, resulting in violation of the identified code sections entitling plaintiffs to rescission and restitution.

The third cause of action (false advertising) alleged that defendants falsely advertised the Development as limited to custom homes with the intent to induce plaintiffs to purchase lots, in violation of Business and Professions Code section 11022, subdivision (a). As a result of defendants' conduct, plaintiffs each suffered substantial damages.

The fourth cause of action (trespass) alleged that defendants trespassed on the lots owned by plaintiffs Lung, Marino, Schapansky, and Washington, causing damage to the lots and decreasing their value.

Defendants' Demurrer to the SAC

In response to the SAC, defendants, as they had to each preceding complaint, filed a demurrer and motion to strike certain portions of the pleadings. Defendants argued that plaintiffs could not recover for any alleged unfair competition because any reliance on the alleged misrepresentations was unreasonable as a matter of law. Defendants pointed out that paragraph 9(a) of the Agreement specifically permitted defendants to change the "product, development plan ... and marketing methods"*fn16 for the Development.

Defendants argued that plaintiffs could not recover on the second cause of action because any material change to the setup and offering that may have occurred at the Development occurred after plaintiffs had purchased their lots. According to defendants, since they were in compliance with the Subdivided Lands Act (Bus. & Prof. Code, § 11000 et seq.) at the time of the sale, there were no grounds for rescission or restitution.

Finally, defendants argued that plaintiffs could not recover on the third cause of action because the alleged misrepresentations were directly contradicted by paragraph 9(a) of the Agreement, which gave defendants the right to alter the Development. Therefore, any alleged misrepresentations were barred by the parol evidence rule. In addition, defendants argued that even if the alleged misrepresentations were considered, plaintiffs could not recover because the statements were true at the time they were made.

Trial Court's Ruling

The trial court sustained the demurrer to the first cause of action on several grounds. To the extent plaintiffs were alleging that defendants acted fraudulently, the trial court concluded that plaintiffs did not plead actual reliance on the alleged fraudulent statements contained in the SAC. To the extent plaintiffs were alleging that defendants acted in an unfair manner, the trial court concluded that the contract was not unfair as a matter of law. To the extent plaintiffs were basing this cause of action on statutory violations, the trial court concluded that plaintiffs failed to identify any statutory violation that could form the basis of an unfair competition cause of action.

The trial court sustained the demurrer to the second cause of action as it concluded there was nothing to indicate that the public report was invalid or illegal. Instead, the trial court concluded the report prepared by defendants was valid.

The trial court sustained the demurrer to the third cause of action because plaintiffs improperly sought monetary damages, a remedy not available under the statute. In addition, the trial court concluded that any allegation of false advertising on which plaintiffs might rely would be inadmissible under the parol evidence rule as the claimed false statements directly contradicted the written agreement, specifically paragraph 9(a) of the Agreement.

The trial court also granted defendants' motion to strike specific items in the SAC. The trial court ordered stricken allegations that (1) defendants engaged in unfair competition by including in the CC&R's a paragraph requiring each residence to be at least 2,700 square feet, (2) plaintiffs actually and reasonably relied on defendants' allegedly deceptive practices and false advertising, and (3) plaintiffs were entitled to recover monetary damages for alleged violations of the Subdivided Lands Act. The trial court ruled that the first item was precluded by the parol evidence rule, the second item was irrelevant, and the third item was improper because violations of the Subdivided Lands Act did not permit monetary recovery.

Prior Rulings by the Trial Court

The SAC was preceded by six pleadings that attempted to state various causes of actions against defendants. Each complaint was attacked by defendants through a demurrer and/or a motion to strike. The trial court's rulings on these motions were similar to the above ruling.

The ruling on the motions directed at the original complaint sustained demurrers to several causes of actions based on allegations that defendants advertised and promoted the Development as requiring each residence constructed to be a custom home of at least 2,700 square feet. The trial court concluded that such allegations were barred by the parol evidence rule because the Agreement specifically allowed defendants to build other types of homes. The trial court also sustained demurrers to fraud causes of action because plaintiffs did not plead reasonable reliance. The trial court concluded it was unreasonable to rely on representations made by defendants that directly were contradicted by the written documents. The arguments of the parties and the reasoning of the trial court were similar on the motions directed at the subsequent complaints filed by plaintiffs.

Judgment

The trial court granted plaintiffs leave to amend the complaint. When plaintiffs failed to do so, defendants moved for judgment in their favor. Judgment was entered accordingly and plaintiffs appealed.

DISCUSSION

I. Introduction

Standard of Review

"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.) We review a ruling sustaining a demurrer de novo, independently determining whether the complaint states a cause of action as a matter of law. (Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115.)

Documents

Defendants assert that many of plaintiffs' allegations may not be considered because they contradict the terms of the Agreement and the CC&R's.*fn17 These documents were attached to each of the complaints filed by plaintiffs. Three paragraphs from these documents form the basis for defendants' arguments.

Defendants first point to paragraph 9(a) of the Agreement, which states in relevant part:

"Buyer acknowledges that Seller may, in its sole discretion, change its pricing, product, development plan, incentive program and marketing methods. Without limitation, Seller may elect to sell residences or lots in this phase of the project, or in future phases, under terms and conditions which are more favorable than those set forth in this Agreement .... Seller may elect not to build residences on each lot of this phase or future phases of the project, or may elect to build a different type or size of residence on a smaller or larger lot .... Any of the foregoing events may adversely affect the value of the Property. Nothing herein shall be interpreted as an express or implied warranty or representation that the Seller will refrain from any pricing program, product design program, development strategy or marketing plan which in any manner adversely affects the value of the Property, and Buyer acknowledges that no sales representative has made ...


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