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Bernard Sandler, As Cotrustee, Etc., et al v. Carlos Manuel Sanchez

June 18, 2012


APPEAL from a judgment of the Superior Court of Los Angeles County, Mary Ann Murphy, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC402858)

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


Business and Professions Code section 10159.2*fn1 makes a licensed individual real estate broker who is the designated officer of a corporate broker "responsible for the supervision and control" of the corporate broker's employees. Can a designated officer's failure to supervise a corporate employee, without more, subject the officer to direct personal liability to third parties for harm caused by his or her failure to supervise? Apart from the officer's direct liability, can the designated officer be held vicariously liable under traditional agency principles for the tortious conduct of the corporate employees he or she is responsible for supervising?

The designated officer's duty to supervise codified in section 10159.2 is owed to the corporation, not to third parties. Accordingly, breach of that statute is grounds for administrative discipline against the designated officer by the licensing entity and perhaps an action by the corporation for indemnification, but not an action by third parties. Moreover, whether or not a designated officer may be, under traditional agency principles, vicariously liable for the tortious conduct of the employees he or she supervises in an appropriate circumstance, those circumstances are not, and cannot, be alleged here. Accordingly, we affirm the trial court's dismissal of this action against the designated officer of a real estate brokerage corporation after the trial court sustained without leave to amend his demurrer to the complaint.


1. The Complaint

Bernard Sandler and Linda Marie Sandler, as trustees of the Bernard Sandler and Linda Marie Sandler Revocable Intervivos Family Trust dated September 13, 1991, their adult daughter, Stacy Sandler, and Steven K. Ridgeway (collectively the Sandler parties), sued 765 South Windsor, LLC (South Windsor), Gold Coast Financial (Gold Coast), a real estate brokerage corporation, and Carlos Sanchez, Gold Coast's designated officer/broker. According to the allegations in the operative third amended complaint, Keith Desser, a real estate salesman, president and sole shareholder of Gold Coast and a principal of South Windsor, solicited the Sandler parties to loan $600,000 to South Windsor to finance improvements to an eight-unit apartment building for the purpose of converting the units to condominiums. Desser represented that, once the improvements were made and the condominium conversion completed, the property would be worth in excess of $5.5 million, more than enough, even with a first deed of trust of $2.75 million held by another lender, to secure the Sandler parties' loan. Desser, however, did not reveal $600,000 was woefully insufficient to finance the necessary repairs for the condominium conversion; the property did not have sufficient equity to provide collateral for a second trust deed securing the note; and the primary lender had refused to extend the first note, which was imminently due, resulting in foreclosure by the holder of the first trust deed and leaving the Sandler parties' note unsecured. In addition, Desser used $300,000 of the loan proceeds, which he obtained by amending the escrow instructions, for his personal expenses.

The complaint asserts a cause of action for breach of fiduciary duty against Sanchez.*fn2 Although the complaint does not allege Sanchez played any role in the transaction, or even knew of it, the Sandler parties allege he, as Gold Coast's designated officer, owed them a duty in accordance with section 10159.2 to supervise Gold Coast's employees, including Desser. Had Sanchez fulfilled his duty to supervise, he would have learned about Desser's material misrepresentations and either disclosed them to the Sandler parties or cancelled the loan transaction. Finally, the complaint alleges Desser was Sanchez's agent and Sanchez, as Desser's principal, is liable for Desser's tortious acts committed within the scope of that agency.

2. Sanchez's Demurrer and the Trial Court's Ruling

Sanchez demurred to the third amended complaint, arguing he owed no duty, as a fiduciary or otherwise, to the Sandler parties.*fn3 While a claim for breach of fiduciary duty would lie against Gold Coast and Desser, he asserted, there can be no liability against him as a matter of law absent allegations he authorized or personally participated in the wrongful conduct. He also argued he was not Desser's principal and, therefore, could not be held vicariously liable for Desser's misconduct. The trial court agreed and sustained Sanchez's demurrer to the third amended complaint without leave to amend. The court thereafter signed an order dismissing the action against Sanchez. (Code Civ. Proc., § 581d.)


1. Standard of Review

On appeal from an order dismissing an action after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) We may also consider matters that have been judicially noticed. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) We give the complaint a reasonable interpretation, "treat[ing] the demurrer as admitting all material facts properly pleaded," but do not "assume the truth of contentions, deductions or conclusions of law." (Aubry, at p. 967; accord, Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) We liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081; see Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116, 1120.)

"'Where the complaint is defective, "[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint."'" (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 970-971.) We determine whether the plaintiff has shown "in what manner he [or she] can amend [the] complaint and how that amendment will change the legal effect of [the] pleading." (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) "[L]eave to amend should not be granted where . . . amendment would be futile." (Vaillette v. ...

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