Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court No. 06CC08435 of Orange County, Daniel J. Didier, Judge.
The Law Offices of Gary E. Mastin & Associates and Gary E. Mastin for Plaintiffs and Appellants.
James T. Stalter for Defendant and Respondent.
OPINION
FYBEL, J.
INTRODUCTION
In 2005, plaintiffs Hoan and Thanh Nguyen (the buyers) purchased real property in Garden Grove (the City); the property contained 14 residential units. Defendant Alan Van de Vort & Associates (defendant), through its principal Alan Van de Vort (Van de Vort), acted not only as the buyers’ agent in the purchase of the property but also as the sellers’ agent. One year after the buyers purchased the property, the City required the demolition of one of the units and the restoration of a duplex on the property to a single unit.
As pertinent to the issues presented in this appeal, the buyers sued defendant for fraud, negligent misrepresentation, and breach of fiduciary duty. Following a bench trial, the trial court found the buyers’ claims did not have merit and entered judgment in favor of defendant. The trial court issued a statement of decision explaining its findings and reasoning; no party filed objections.
The buyers contend the trial court erred by applying an inapplicable standard of fraud in deciding the case. They argue the statement of decision shows the trial court analyzed whether defendant was liable for intentional misrepresentation as opposed to constructive fraud, the latter of which does not require an intent to defraud. The buyers also argue the trial court erroneously determined the scope of defendant’s fiduciary duty was limited to the disclosure of known material facts and did not include the duty to investigate. They further contend the record shows defendant breached its fiduciary duty to the buyers as a matter of law.
We affirm. The first amended complaint (which is the operative complaint) and the buyers’ trial brief repeatedly assert the buyers’ contention defendant intentionally or negligently misrepresented and withheld the material information that two of the units on the property were in violation of relevant codes or permit requirements. Neither the first amended complaint nor the buyers’ trial brief assert the theory of “constructive fraud.” The buyers do not cite any portion of the record in which they asked the court to decide whether defendant engaged in constructive fraud. Thus, the trial court did not err by analyzing whether the evidence supported a claim for intentional or negligent misrepresentation. In any event, the trial court found defendant had not breached its fiduciary duty to the buyers, and thus, as explained post, any claim for constructive fraud necessarily fails.
Furthermore, the statement of decision shows the trial court concluded defendant had not breached its fiduciary duty to the buyers because it both fulfilled its obligations to disclose material information and conduct a reasonable investigation of the property. Substantial evidence supports the court’s finding defendant fulfilled its fiduciary duty to the buyers.
This fact summary is based on the trial court’s findings as contained in the statement of decision.
In 1997, defendant, through Van de Vort, acted as the agent for James and Monica Naegle (the Naegles) in their purchase of real property, containing 14 residential units, located at 10101-10121 Lampson Avenue in Garden Grove (the property). During that transaction, Van de Vort learned that that there was a “nonconforming use” on the property, a term which typically means the property violated standard code or permit requirements in some respect. But there was no patent evidence of the nature of the nonconforming use on the property.
Van de Vort investigated the nonconforming use issue by checking the City’s records. He determined the units were constructed before the City had been incorporated and that no permits could be found. In fact, the City did not have any permits for any structures built before it had been incorporated. Defendant was told by a representative from the City the permits were either lost in transit when they were transferred from the county to the City upon the City’s incorporation, lost by the county, or lost by the City. The representative told Van de Vort, however, that any nonconformity would likely be “grandfathered in.” From 1997 until 2004, the property was operated as containing 14 separate units.
In April 2004, the buyers responded to a newspaper advertisement publicizing the Naegles’ sale of the property for the purchase price of $1,650,000; the property was identified as a 14-unit residential property. Van de Vort served in the dual role of agent for both the buyers and the sellers (the Naegles). Van de Vort testified that he told the buyers that when the Naegles had purchased the property in 1997, it had then been disclosed that there was a nonconforming use on the property. At the buyers’ request, defendant gave the buyers a copy of a document referred to as a “set-up sheet” that had been prepared by the broker who had sold the property to the Naegles in 1997. The set-up sheet contained the phrase “nonconforming use.” Defendant explained to the buyers the significance of the term nonconforming use. He told them about how he had learned from the City that the permits for the property had been lost. He also told the buyers that he had been told that in all likelihood, the nonconforming use would be grandfathered in. He encouraged the buyers to have a thorough inspection of the property conducted.
The buyers purchased the property for $1,610,000. The buyers, who had previously purchased six commercial properties which included apartments, residences, and a “strip-center, ” did not hire a property inspector as Van de Vort had recommended but instead opted to “self-inspect the property.”
Plaintiff Thanh Nguyen served as the property manager of the buyers’ investment properties.
One year after the buyers purchased the property, they sought from the City a low income housing designation for the property. The City notified them that there were significant code and permit problems with two of the units on the property. The City required that one of the units be demolished and a duplex on the property be restored to a single unit.
PROCEDURAL HISTORY
In the first amended complaint, the buyers alleged claims against defendant for breach of contract (first cause of action), fraud (second cause of action), negligent misrepresentation (third cause of action), and breach of fiduciary duty (fourth cause of action). On the first day of trial, the court granted the buyers’ motion to dismiss the breach of contract claim.
In their original complaint, the buyers named the Naegles as defendants. In an unpublished opinion (Nguyen v. Van De Vort (Mar. 19, 2008, G038741) [nonpub. opn.]), we affirmed the trial court’s dismissal of the case against the Naegles following the buyers’ failure to timely serve an amended complaint following the court’s order sustaining the Naegles’ demurrer to the complaint.
Following a bench trial, the trial court found in favor of defendant on all three remaining claims, and, on its own motion, issued a statement of decision. No party filed any objections to the statement of decision. Judgment was entered in favor of defendant. The buyers appealed.
DISCUSSION
The buyers argue the statement of decision shows the trial court erred by (1) concluding the buyers could not establish fraud and negligent misrepresentation without proving actual intent to defraud or gross recklessness; (2) concluding defendant’s fiduciary duty to the buyers solely consisted of the duty to disclose and not also the duty to conduct a reasonable investigation; and (3) failing to conclude defendant breached its fiduciary duty to the buyers as a matter of law. As we explain in detail post, the buyers’ arguments are without merit.
I.
The Trial Court Did Not Apply an Incorrect Standard in Deciding the Buyers’ Fraud Claim.
The buyers argue paragraph eight of the statement of decision shows the trial court erroneously concluded the fraud and negligent misrepresentation claims failed because defendant, through its principal Van de Vort, neither knew its representations were false nor made them recklessly without regard for their truth or without reasonable grounds to believe they were true. Citing Michel v. Moore & Associates, Inc. (2007) 156 Cal.App.4th 756, 762-763, the buyers contend that because defendant assumed the dual role as agent for both the buyers and the sellers, defendant was liable under a constructive fraud theory which does not require proof defendant “acted maliciously, intentionally or grossly negligent, [but] only that as a fiduciary he had a duty to disclose a material fact to his principal which might affect the principal’s decision.” Hence, the buyers contend, the court erred by failing to consider the evidence in light of the theory of constructive fraud.
The statement of decision states: “The second and third causes of action have similar elements. Both require a representation that an important fact was true. Here, of course, the fact is the number of units contained on the properties. Seller represented this as 14-units and Defendant, as buyer’s agent, included this number in his preparation of the offer as 14 units [citation]. This was not a false representation at the time, as it is undisputed that the property had been purchased by the sellers in 1997 as 14 units, 14 units were on the property along with 14 tenants, gas meters, etc. The issue, however, is whether Defendant knew it was false at the time, made the representation recklessly without regard for its truth, or had no reasonable grounds to believe it was true. Court finds Defendant’s testimony to be the more credible. Defendant had a reasonable belief in the accuracy of the statement. He had a history with this property, acting as the agent for the buyers [the Naegles’] in 1997. At the time, it was disclosed, as part of that transaction, that there was a ‘non-conforming use’ on the property. There was no indication as to what was the non-conforming use. Defendant went to the City of Garden Grove in 1997 to investigate. He determined that the properties were essentially constructed prior to city incorporation, that no permits could be found. Either the permits were lost in transit f[ro]m the county to the city or the city had lost them. The City representative indicated that any non-conformity would likely be grandfathered. This was taken into consideration by Defendant with the fact that 14 units, tenants, rent rolls, gas meters, and other accoutrements existed to justify the fact of 14 units were viable on the property, including an appraisal and loan for 14 units. The property had 14 rental units since anyone could remember.”
The buyers’ argument the trial court erred by considering fraud in the form of an intentional or negligent misrepresentation is puzzling in light of the allegations of the first amended complaint and the arguments made in the buyers’ trial brief. As to the buyers’ intentional misrepresentation claim, the first amended complaint alleges: “At the time of the purchase, defendants made material and intentional misrepresentations, namely that the property... w[as] legally approved as a [14]-unit property and failed to disclose known, or what should have been known building code violations.” The first amended complaint further alleges: “Defendants knew the representations they made to plaintiffs were false and therefore rushed the plaintiffs in closing escrow on said property because defendants had never secured approval for erecting a [14]-unit property.” As to the negligent misrepresentation claim, the first amended complaint alleges defendant “negligently misrepresented to plaintiffs and mislead [sic] plaintiffs into believing that the subject property was legally approved as a [14]-unit dwelling and further failed to notify plaintiffs that there existed various building code violations.”
Under the heading “Plaintiffs Position, ” the buyers’ trial brief states: “It is beyond dispute that the non-conformity of a unit or units would be material information that the buyers were entitled to know-yet was never disclosed in the contract. Hence, it is Plaintiffs’ position this was more than negligence-but rather was intentionally misrepresented or would be construed to be a willful or grossly negligent action on behalf of an agent for his princip[al].” The buyers’ trial brief also states: “‘[T]he elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.’ [¶] In the case at bar, it is Plaintiffs’ contention that Defendants’ conduct satisfies all of the elements of fraud.”
The buyers’ trial brief further states: “Clearly, it minimally would be a negligent misrepresentation of the agent and, if jury finds that given the circumstances they believe that Defendant purposely avoided disclosure of a material fact so as to insure the deal would go through-all to the detriment of the buyers, then they could determine that it warranted a finding of fraud against him.” (Italics added.)
Therefore, the trial court’s analysis of intentional and negligent misrepresentation in the statement of decision was responsive to the same controverted issues alleged in the first amended complaint and argued in the buyers’ own trial brief and thus does not demonstrate error. Furthermore, the buyers did not object to the statement of decision on the ground the court failed to address the theory of constructive fraud. (See Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 59-60 [“If the party challenging the statement of decision fails to bring omissions or ambiguities in it to the trial court’s attention, then, under Code of Civil Procedure section 634, the appellate court will infer the trial court made implied factual findings favorable to the prevailing party on all issues necessary to support the judgment, including the omitted or ambiguously resolved issues”].)
Although the statement of decision does not expressly reference the buyers’ theory of constructive fraud, any such theory was necessarily defeated by the trial court’s finding defendant did not breach its fiduciary duty to the buyers. In Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 415, the appellate court stated: “Breach of a real estate agent’s fiduciary duty to his or her client may constitute negligence or fraud, depending on the circumstances of the case. [Citation.] Additionally, a real estate agent, as a fiduciary, is also ‘“... liable to his principal for constructive fraud even though his conduct is not actually fraudulent. Constructive fraud is a unique species of fraud applicable only to a fiduciary or confidential relationship.” [Citation.] [¶] “[A]s a general principle constructive fraud comprises any act, omission or concealment involving a breach of legal or equitable duty, trust or confidence which results in damage to another even though the conduct is not otherwise fraudulent. Most acts by an agent in breach of his fiduciary duties constitute fraud. The failure of the fiduciary to disclose a material fact to his principal which might affect the fiduciary’s motives or the principal’s decision, which is known (or should be known) to the fiduciary, may constitute constructive fraud. Also, a careless misstatement may constitute constructive fraud even though there is no fraudulent intent.” [Citation.]’ [Citations.]”
As discussed in the Discussion section, part III, post, substantial evidence supports the trial court’s finding defendant did not breach its fiduciary duty to the buyers. We find no error.
II.
The Trial Court Did Not Conclude Defendant’s Fiduciary Duty Consisted Solely of the Duty to Disclose.
The buyers argue: “In its statement of decision, the trial court acknowledged ‘the dual agency in this case’, but then, nevertheless, went on to hold that the fiduciary duty owed by [defendant] to [the buyers] consisted only of a duty to disclose.” The buyers further argue “that such is an erroneous standard for the fiduciary duty real estate brokers owe to their clients in that said duty is broader than one of mere disclosure.”
In Field v. Century 21 Klowden Forness Realty (1998) 63 Cal.App.4th 18, 25, the appellate court stated: “‘[T]he broker as a fiduciary has a duty to learn the material facts that may affect the principal’s decision. He is hired for his professional knowledge and skill; he is expected to perform the necessary research and investigation in order to know those important matters that will affect the principal’s decision, and he has a duty to counsel and advise the principal regarding the propriety and ramifications of the decision. The agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material and information. [¶]... [¶] The facts that a broker must learn, and the advice and counsel required of the broker, depend on the facts of each transaction, the knowledge and the experience of the principal, the questions asked by the principal, the nature of the property and the terms of sale. The broker must place himself in the position of the principal and ask himself the type of information required for the principal to make a well-informed decision. This obligation requires investigation of facts not known to the agent and disclosure of all material facts that might reasonably be discovered.’ [Citations.]”
Here, the statement of decision shows the trial court concluded defendant had not breached its fiduciary duty after the court analyzed not only the disclosures defendant made to the buyers but also its past investigation of the property. The statement of decision states: “As to breach of fiduciary duty, court recognizes the dual agency in this case. Defendant certainly had a duty to disclose. [Citation.] He did disclose the non conforming use, both orally and by reference to Ex. 101, the ‘set-up’ sheet from the 1997 transaction, which was given to Plaintiffs. It was further disclosed in Ex. 104 ¶12(B): ‘purchased by seller as 14 units, ’ an indication that the non conformance was discussed with Plaintiffs. Defendant acted reasonably with reference to disclosure of the number of units on the parcels. As noted, above, Defendant had a history with this parcel. He had previously investigated and independently verified the non-conformity to his satisfaction in the 1997 transaction. No observable information present in 2004 could have predicted the actions of the city in 2005. Defendant acted in good faith and as a reasonably careful real estate broker would have acted under the same o[r] similar circumstances. Fiduciary duty was not breached.” (Italics added.)
Furthermore, as discussed ante, the buyers did not file any objections to the statement of decision challenging it on the grounds it omitted findings or contained ambiguous findings. (See Fladeboe v. American Isuzu Motors, Inc., supra, 150 Cal.App.4th at pp. 59-60.) Nothing in the record shows the trial court was laboring under any misunderstanding of the law. We find no error.
III.
The Buyers’ Argument Defendant Breached Its Fiduciary Duty as a Matter of Law Is Without Merit.
The buyers argue that because defendant was aware the property had a nonconforming use problem, it was “on notice that further inspection of public records of permits concerning the current status and use of the property was warranted.” Substantial evidence supports the trial court’s finding that defendant acted reasonably in its disclosures regarding and investigation of the property. The record shows that in 1997, after defendant learned that the property had a nonconforming use issue, he conducted an investigation by searching the City’s records. He was told that all relevant records had been lost, but that nonconforming use problems that predated the City’s incorporation would likely be grandfathered in. Defendant disclosed all of this information to the buyers before they purchased the property and explained the meaning of the term nonconforming to them. He urged the buyers to have a professional inspector inspect the property. The buyers chose not to heed defendant’s advice and instead opted to self-inspect the property. That defendant might have conducted a second or more thorough investigation of the nonconforming use issue does not render its actions less than reasonable as a matter of law.
This case is therefore distinguishable from Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 559 (Salahutdin), in which the plaintiffs retained the defendant broker to purchase a piece of property in a particular area which the plaintiffs would be able to at some point subdivide to leave to their two children. One of the defendant’s employees, a real estate agent, informed the plaintiffs that only property in the area that was larger than one acre could be subdivided. (Ibid.) The agent then found a piece of property on a multiple listing sheet which was described as having a lot size of “‘1acre+.’” (Ibid.) (The multiple listing sheet simply reported the sellers’ statement to their listing agent that the property exceeded one acre in size.) (Ibid.) In addition, “[t]here were no obvious indications the sellers’ representation was incorrect. In fact, at the time the property was placed on the market it was surrounded by a perimeter fence enclosing more than one acre.” (Ibid.) The agent visited the property and confirmed that the southern boundary line was demarcated by an old fence. (Ibid.)
The agent told the plaintiffs that the subject property met their requirements. (Salhutdin, supra, 24 Cal.App.4th at p. 560.) After the plaintiffs reiterated the importance of their ability to subdivide the property that they purchased, the agent assured them the property exceeded one acre in size and thus could be subdivided. (Ibid.) The agent did not inform the plaintiffs that he was solely relying on the multiple listing sheet and “had done nothing more to determine the size of the property than ‘eyeball’ it and accept the seller’s agent’s representations. He did not inform plaintiffs that he had not independently confirmed whether they could subdivide the property. Nor did he advise them that he had not conducted any investigation to determine if the fence lines he represented to be the boundary lines were so in fact.” (Ibid.) Unfortunately, after the plaintiffs purchased the property, they learned the property consisted of only.998 acres and could not be subdivided within a reasonable certainty. (Ibid.)
Following a bench trial, the trial court in Salahutidin, supra, 24 Cal.App.4th at page 561 found, inter alia, that the agent’s actions fell below the standard of care (and constituted constructive fraud) “by representing to [the] plaintiffs that the lot was greater than one acre in size, that it could be subdivided and that the fence marked the south boundary of the property without confirming the accuracy of such representations and without advising plaintiffs that he had done nothing to establish the accuracy of this information.” The appellate court held substantial evidence supported the court’s findings the agent breached his fiduciary duty and committed constructive fraud, stating, inter alia, “[a]s a fiduciary, [the agent] had a duty to his clients to refrain from advising them that the parcel was more than an acre, that it could therefore be subdivided, and that the fence represented the southern boundary of the property where he did not know that to be the case and where he knew these facts were material to plaintiffs’ decision to purchase the property. While he was not required to investigate the sellers’ representations or the truth of the description contained in the multiple listing service sheet before showing the property to plaintiffs, [the agent] was at least required to tell plaintiffs that he had not verified the information he was passing on to them; that he was simply relying upon the description provided by the sellers.” (Id. at p. 563.)
Here, unlike the defendant broker and its agent in Salahutdin, supra, 24 Cal.App.4th 555, defendant, through its principal Van de Vort, disclosed to the buyers all it knew about the property, the extent of its investigation of the property, and the sources of the information it received. Defendant warned the buyers that there was an unknown and unresolved “nonconforming use” issue with the property before they purchased the property. The buyers decided to proceed with the purchase of the property. The trial court did not err by finding the buyers’ breach of fiduciary duty claim meritless.
DISPOSITION
The judgment is affirmed. Respondent shall recover costs on appeal.
WE CONCUR: MOORE, ACTING P. J., ARONSON, J.