Seeley v. Rook

1

KENNETH R. SEELEY, Individually and as Trustee, etc. et al., Plaintiffs and Appellants, v. JAIME M. ROOK, et al., Defendants and Respondents.

D082261

California Court of Appeals, Fourth District, First Division

December 20, 2023

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Riverside County No. PSC1802622 Richard Oberholzer, Ronald Johnson and Randall White, Judges. Request for judicial notice denied; motion to take new evidence denied. Judgment reversed.

Apex Law and Thomas Neal FitzGibbon for Plaintiffs and Appellants.

Reisz Siderman Eisenberg, Frederick S. Reisz and Patrick Allen Maher for Defendants and Respondents.

DATO J.

Plaintiffs Kenneth R. Seeley and Eric McLaughlin agreed to sell their Intervention911 drug rehabilitation business, taking back notes and deeds of trust on three associated real properties in Palm Springs. They understood their deeds of trust would be recorded in first position, giving them adequate protection in the event of default. But after the initial purchasers, defendants Daryle Rutherford and Urwell Diversified Holdings, Inc. (collectively Urwell) assigned their rights to purchase the business and properties to Zenith Homes, LLC (Zenith), Zenith obtained a second loan from a different lender, Cardenas Three (Cardenas), secured by the same properties. As part of an alleged fraud involving Urwell, Zenith, Cardenas, and the escrow company (Integrity Escrow), the three Cardenas deeds of trust were recorded in first position, a fact plaintiffs did not discover until three months after escrow closed. At or about the same time Zenith began to default on its payment obligations. Cardenas eventually foreclosed on the three properties, leaving plaintiffs without any effective way to recover the amount of their loan.

Plaintiffs filed this action, suing the various defendants for fraud breach of contract, and related causes of action. They also brought claims for professional negligence and breach of fiduciary duty against Jaime M. Rook and PSP Ventures, Inc. (collectively, PSP), which acted as a dual broker for all parties in the real estate transaction. In effect, plaintiffs allege that PSP should have discovered indicators of the looming fraud in time to protect their interests. After plaintiffs failed to file timely opposition papers, the court granted PSP's motion for summary judgment, entering judgment in its favor.

Plaintiffs advance both procedural and substantive grounds for reversal. Procedurally, we conclude the trial court did not abuse its discretion in refusing to continue the summary judgment hearing or in declining to consider plaintiffs' late-filed evidence. Substantively, however, our independent review of the record on summary judgment leads us to conclude the trial court erred in granting summary judgment in favor of PSP despite the lack of opposition from plaintiffs. We therefore reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND^[1]

A. The Real Estate Purchase Transaction

According to the fourth amended complaint (the Operative Complaint), plaintiffs' sale of three Palm Springs properties in September 2017 was to be "part of an overall transaction negotiated in the summer and fall of 2017 in which it was intended that Urwell would acquire the business of Intervention911." The first part of Urwell's acquisition of Intervention911's business was to involve its purchase of the three properties used in the business, while the second part was to involve its purchase of the business itself. PSP acted as a dual agent for the parties, and assisted them in "negotiat[ing] and enter[ing] into the [various] written agreements" to effectuate the real estate portion of the business acquisition.

In late August 2017, plaintiffs entered into three separate purchase agreements with Urwell for the sale of the properties. These agreements provided that plaintiffs would supply seller financing for more than half of the total purchase price. Urwell was to place the balance into an escrow account prior to the close of escrow. The loans were to be paid back with interest set at a fixed rate of eight percent, and were due to be paid in full by April 2018. The purchase agreements specified that plaintiffs' security interest would "be in the first position."

Integrity Escrow prepared estimated closing statements that were sent to, among others, PSP, Urwell, and plaintiffs. The estimated closing statements indicated that the only financing in the transaction would be the seller financing, that plaintiffs would have title insurance for their deeds of trust securing the financing, and that the purchasers would be using cash for the remainder of the purchase price.

Just prior to closing the transaction, the escrow instructions were amended to reflect Zenith as the purchaser. According to plaintiffs, they were unaware that Urwell and Zenith had begun working with Cardenas to obtain additional financing to complete the purchase. Plaintiffs allege that Zenith submitted inaccurate and false documents to Cardenas, including "Sham Purchase Agreements" that purported to be between Urwell and Zenith, in order to obtain the Cardenas loans. Plaintiffs believe that Urwell and Zenith conspired with Integrity Escrow to keep any information about the Cardenas loans a secret from them.

Escrow on the sale of the Palm Springs properties from plaintiffs to Zenith closed on September 29, 2017. According to plaintiffs, the "Seller Closing Statements" provided to plaintiffs by Integrity Escrow did not reflect the existence of the Cardenas loans, nor did they reflect the "accurate substance of the sale and loan transactions." As part of the closing and unbeknownst to plaintiffs, the three Cardenas deeds of trust were recorded in first position, while plaintiffs' deeds of trust were recorded in second position. According to plaintiffs, they first learned in December 2017 that their security interest had not been recorded in first position.

According to Rook, he never saw any escrow instructions indicating that plaintiffs' secured position was to be second to that of Cardenas. Once it became clear that the Cardenas deeds of trust had been recorded in first position, Rook asked for a copy of the executed escrow instructions from Integrity Escrow, but it failed to provide them. Rook believed that what occurred was an" 'inexcusable mistake by escrow.'" Rook "continued investigating [what occurred and] demand[ed] a higher up at Integrity be brought in," but he was never able to talk with someone other than the escrow agent.

Only a few months after the transaction closed, Zenith defaulted on its payments toward plaintiff's promissory notes. In addition, Zenith failed to pay the full amount of the loan when it came due in 2018. Apparently Zenith also failed to pay on the promissory notes it had executed in favor of Cardenas beginning in late 2017.

On March 23, 2018, Cardenas recorded a "Notice of Default and Election to Sell under Deed of Trust" as to each of the three properties. Plaintiffs filed this action on May 4, 2018, and twice the following July sought a temporary restraining order to stop the impending trustee's sale of the properties. The trial court denied both requests, and on July 20, 2018 Cardenas foreclosed on the properties, obtaining title to them through the trustee's sale.

B. Procedural History

In the Operative Complaint, plaintiffs alleged causes of action for professional negligence, breach of fiduciary duty, and the violation of Business &Professions Code section 17200 et seq. (the Unfair Competition Law (UCL)) against PSP. These causes of action are based on alleged breaches of the standard of care owed by a real estate professional- specifically the "fail[ure] to discover or fail[ure] to inform" plaintiffs that: (1) Zenith was obtaining financing from Cardenas, which was not approved by plaintiffs; (2) Integrity Escrow was not following the escrow instructions, and was instead issuing inconsistent instructions that would improperly allow the unauthorized subordination of plaintiffs' deeds of trust; (3) Zenith could not satisfy its obligations to repay plaintiffs; and (4) Integrity Escrow was not following through to obtain the promised title insurance for plaintiffs' deeds of trust.

After the parties engaged in discovery, PSP filed a motion for summary judgment, or in the alternative, summary adjudication in October 2021. Plaintiffs failed to file a timely opposition to the motion, and the trial court denied their request to continue the hearing on the motion.^[2] The court proceeded with the summary judgment hearing on January 6, 2022, and, with no opposition having been filed, granted the motion. Three weeks later, the court entered a formal written order granting summary judgment.^[3]Judgment was entered in favor of PSP on February 4, 2022.^[4]

DISCUSSION

Plaintiffs' arguments on appeal can be characterized as those challenging the procedural decisions the trial court made prior to granting summary judgment in favor of the PSP, and those challenging the substantive conclusion that summary judgment was proper.

As to the procedural arguments, plaintiffs contend that the trial court abused its discretion in denying their ex parte request for a continuance, which was filed two days before the summary judgment hearing, and in declining to consider an expert declaration they submitted the day before the hearing.

With respect to the substance of PSP's summary judgment motion, plaintiffs argue that reversal is warranted due to PSP's failure to provide all of the evidence relevant to the issues raised in the motion, including plaintiffs' responses to form interrogatories. According to plaintiffs PSP failed to acknowledge that these discovery responses...