Date: 05-02-2008

Case Style: Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC

Case Number: H029980

Judge: Rushing

Court: California Court of Appeal, Sexith Appellate District on appeal from the Superior Court of Santa Clara County

Plaintiff's Attorney: Ron Rossi and Susan Reischl, Rossi, Hamerslough, Reischl & Chuck, San Jose, California

Defendant's Attorney: Susan Harriman and Steve Hirsch, Keker & Van Nest, San Francisco, California

Description: The primary question in this case is whether a realtor who represented the lessee in a complex commercial lease transaction had a duty to inform the lessor, after the lease was signed but before the lessee took possession, that the lessee's ability to perform the conditions of the lease was jeopardized by its deteriorating financial condition. The trial court held that the lessor had failed to plead facts sufficient to establish any duty on the realtor's part to disclose this information. We find no error in this determination. Nor do we find any error in the trial court's refusal to award attorney fees to the lessor based upon its defeat of the realtor's claims for unpaid commissions. Since these determinations render the realtor's cross-appeal moot, we will dismiss it and affirm the judgment.

BACKGROUND

Appellant MF Downtown Sunnyvale, LLC, is described in the pleadings as a limited liability company owning certain real property in Sunnyvale. At issue in this action are two buildings, known as Buildings 2 and 3, situated on that property. Appellant Mozart Development Co. is described as the agent for MF Downtown Sunnyvale, LLC, for purposes of leasing and managing the property. Both entities are apparently affiliated with John Mozart, who is not a party to this matter. We will join the parties in referring to appellants collectively as "Mozart."

Mozart alleges in its cross-complaint that in early 1999, it entered into a written commission agreement with Commercial Property Services (CPS) by which it engaged CPS and two affiliated individuals to act as its listing broker and agent in securing a lease of the premises for a specified commission. Inferentially, the buildings had "not yet been constructed or completed," but awaited execution of a lease so that they could be completed or improved to the tenant's specifications. Under the agreement, the first half of the commission would be "due and payable upon full lease execution and the second half . . . upon rent commencement."

In early 2001, Mozart entered into written leases with Handspring, Inc., for buildings 2 and 3. The leases contemplated delivery of the premises in August and September, 2002, with both parties working in the interim to prepare the buildings for occupancy in accordance with Handspring's needs. Their respective rights and obligations in connection with these efforts were set forth in "[w]ork [l]etter[s]" attached to the leases. Under the work letters, Handspring was required to secure its performance by providing letters of credit in the aggregate amount of some $23 million. Additional letters of credit or security deposits may have been required to secure Handspring's obligations under the leases.

Respondent Blickman Turkus, LP, doing business as BT Commercial Real Estate (BTC), through its agent Tom Snider, represented Handspring in the lease transaction. BTC later contended that it was the "procuring agent" entitled to a commission under the commission agreement between Mozart and CPS. Mozart acknowledged this assertion in its cross-complaint, and while denying it, also adopted it hypothetically as a basis for recovery against BTC should it be sustained by the court. (See pt. I(G), post.)

Mozart alleged that from October 2001 through "at least" July 2002, Snider and BTC were "advised by Handspring that [it] was having financial difficulties," that "its projected growth was not as fast as [it] had originally thought," and that it was "considering possible exit strategies" from the leased buildings, including a negotiated termination of the leases and reducing Handspring's financial risk. Mozart alleged that it did not learn of these matters until mid-August, 2002, when another agent contacted it to negotiate a termination of the leases. Mozart alleged that as a result of the delay in its learning of these matters, it sustained damage. (See pt. I(D), post.) Mozart and Handspring eventually negotiated a termination of the leases.

This action was commenced on January 28, 2003, not by Mozart, but by BTC, which filed a complaint against Mozart and Handspring in which it alleged that as the procuring agent in the lease transaction, it was a third party beneficiary of Mozart's commission agreement with BTC and thus entitled to the commission there specified. It alleged that Mozart had paid the first half of the commission as called for in the agreement, but had refused to pay the second half. As eventually amended, the complaint asserted claims for breach of the commission agreement by Mozart, breach of the covenant of good faith and fair dealing, breach by both Mozart and Handspring of an "implied promise to complete the lease transactions," and tortious interference by Handspring with BTC's economically advantageous relationship with Mozart.

Mozart successfully attacked BTC's complaint by motions for summary adjudication and judgment on the pleadings. BTC successfully demurred to Mozart's cross-complaint, with the court ultimately dismissing the third amended cross-complaint without leave to amend. The court entered a judgment by which neither party took anything. Mozart moved to vacate the judgment and for an award of attorney fees incurred by it in opposing BTC's complaint. The court denied both motions. Mozart filed a notice of appeal from the judgment of dismissal on its crosscomplaint.

BTC filed a cross-appeal from (1) the summary adjudication of its claims, and (2) an order denying sanctions under Code of Civil Procedure section 128.5. Mozart filed a separate notice of appeal from the order denying its motion to vacate the dismissal of its cross-complaint and the order denying its motion for attorney fees.

DISCUSSION

I. Dismissal of Cross-Action

A. Standard of Review

"On appeal from a judgment of dismissal following the sustaining of a demurrer without leave to amend, the appellant ‘has the burden to show either [that] the demurrer was sustained erroneously or that to sustain the demurrer without leave to amend constitutes an abuse of discretion.' [Citation.]" (Smith v. County of Kern (1993) 20 Cal.App.4th 1826, 1829-1830 (Smith).) Because a general demurrer raises only a pure question of law - whether the facts set forth in the challenged pleading are sufficient to constitute a cause of action - a reviewing court considers it without deference to the trial court. (Leko v. Cornerstone Building Inspection Service (2001) 86 Cal.App.4th 1109, 1114 (Leko); see Code Civ. Proc., § 430.10, subd. (e).) In doing so it examines the allegations of the challenged pleading, as supplemented by matters of which judicial notice is taken. (Leko, supra, 86 Cal.App.4th at p. 1114.) The court must accept as true all well-pleaded allegations of material fact, "but not contentions or conclusions of fact or law." (Berry v. City of Santa Barbara (1995) 40 Cal.App.4th 1075, 1082.)

With respect to the second question - the trial court's failure to grant leave to amend - a reviewing court must defer to the trial court's ruling unless the appellant demonstrates "a manifest abuse of discretion." (Smith, supra, 20 Cal.App.4th at p. 1830.) "Ordinarily it is an abuse of discretion to sustain a general demurrer to a complaint without leave to amend if there is a reasonable possibility [that] the defect in the complaint can be cured by amendment." (Ibid.)

B. Duty to Disclose

The gist of Mozart's claim is that for a period of some 10 months, BTC wrongfully failed to disclose information - Handspring's precarious financial condition - knowledge of which would have enabled Mozart to avoid some of the injury it allegedly suffered when Handspring finally approached it to negotiate a termination of the leases. A central issue, as the parties seem to recognize, is whether it appears from the facts alleged in the cross-complaint that BTC was, during those 10 months, under any duty to disclose those facts to Mozart. It goes without saying that no one can be liable in tort for causing injury to another unless he, or someone whose conduct is attributed to him, was legally obligated to act differently. Liability cannot arise from silence unless the law commands the defendant to speak.

A duty to speak may arise in four ways: it may be directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; and it may arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent.

Here, Mozart points to no statute obligating BTC to warn it of Handspring's weakened financial condition. As for a contractual duty to disclose, Mozart has alleged a number of evidentiary facts apparently intended to show that BTC expressly or impliedly assumed certain ongoing contractual obligations in connection with the lease transaction. However it does not allege that these obligations included any specific obligation to warn or advise Mozart. The cross-complaint may be understood to allege - if only inferentially - that BTC was under a continuing obligation of an arguably contractual nature to inform its "client" of matters relevant to a transaction.1 But with one qualification discussed below (see pt. I(G), post), there is no hint that Mozart was, or ever viewed itself as, BTC's "client." Indeed, the cross-complaint does not assert any contractual relationship between Mozart and BTC. It cannot be understood to posit a contractual duty to disclose.

This leaves us with the possibilities that a duty to disclose arose from a relationship between Mozart and BTC, or from conduct by BTC obligating it to speak. Mozart contends that BTC owed such a duty (1) as the agent for Handspring; (2) hypothetically, as an agent for Mozart itself; or (3) by virtue of statements by BTC that obligated it to speak when they ceased to be correct.

C. Concealment: Elements

Mozart's first cause of action asserts "concealment" against Snider and BTC in that they (1) breached a duty of full and fair disclosure they owed to Mozart as the real estate agents for Handspring; and (2) made representations at the time of Mozart's entry into the lease agreement that obligated them to speak when they learned that Handspring might be unable to perform that agreement. As reflected in the immediately preceding discussion, these are two quite distinct legal theories, which we will address separately. (See pts. I(E), I(F), post.) First, however, we will review general principles governing the tort of concealment.

Concealment is a species of fraud or deceit. (See Civ. Code, §§ 1710, subd. (3), 1572, subd. (3); Lovejoy v. AT & T Corp. (2004) 119 Cal.App.4th 151, 158 (Lovejoy).) "[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage." (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613; Lovejoy, supra, 119 Cal.App.4th at pp. 157-158.)

The parties have focused their attention almost exclusively on the second element, i.e., whether Mozart has alleged facts from which a duty to disclose would arise. They also devote considerable attention to the question whether such duty, assuming it arose at the time of the lease execution, persisted thereafter so as to require the disclosures whose absence forms the basis for the claim. Before reaching those questions, however, we must note the deficiencies attending Mozart's attempt to plead several other elements of the tort.

D. Fraudulent Intent, Causation, Damage

As noted above, liability for concealment requires that the defendant have "suppressed the fact with the intent to defraud the plaintiff." (Marketing West, Inc. v. Sanyo Fisher (USA) Corp., supra, 6 Cal.App.4th at p. 613.) It must also appear, as with any other tort, that the defendant's wrongful conduct was a legal or proximate cause of harm to the plaintiff. These are two distinct elements. It is not enough that the misstatement (or concealment) actually harmed the plaintiff; it must have been made by the defendant with the intent to induce action (or inaction) by the plaintiff. Similarly, an intent to deceive the plaintiff is legally meaningless unless the deception caused injury.

In the context of fraud by affirmative false statements, the mental element is commonly stated in terms of intent to induce " ‘reliance.' " (E.g., Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, italics added.) In the context of fraud by concealment, the more precise formula is probably intent to induce conduct - action or inaction - that differs from what the plaintiff would have done if informed of the concealed fact. (See Southern California Dist. Council, Assemblies of God v. Shepherd of Hills Evangelical Lutheran Church (1978) 77 Cal.App.3d 951, 959, fn. 5 (Assemblies of God) [fraud causes of action appeared "imperfectly pleaded" where "plaintiff never alleges in so many words that defendants' statements were made for the purpose of inducing the sale"].)

Here the only attribution of intention to BTC and Snider, for purposes of Mozart's first cause of action, appears as follows: "The aforementioned conduct of BTC and Snider was an intentional concealment of material facts known to them with the intention on their part of procuring a commission without fulfilling their duties and obligations, as a real estate broker and salesperson, to advise Cross-complainants of all material facts regarding Handspring and all knowledge they had regarding Handspring which was despicable conduct that subjected Cross-complainants to cruel and unjust hardship in conscious disregard of their rights so as to justify an award of punitive damages." This allegation fails to assert that cross-defendants intended to induce action or inaction on the part of cross-complainants. For that reason alone, no cause of action for concealment is stated.

The quoted allegation suffers from other infirmities, including its failure to satisfactorily convey that any omission by cross-defendants in fact induced crosscomplainants to engage in conduct differing from that in which they would otherwise have engaged. Typically a claim of this type rests on the straightforward premise that the defendant's concealment of facts led the plaintiff to enter into a transaction he would not otherwise have entered, or on terms he would not have accepted; or to forego an opportunity he would otherwise have taken. The pleading here does not suggest that BTC fraudulently induced Mozart to enter into the leases with Handspring. Mozart plainly and explicitly bases its claims on conduct and events occurring after the execution of those leases.

Mozart does make an attempt to allege that it was induced to forego more profitable opportunities, but it affirmatively appears from the cross-complaint that Mozart was not in a position to pursue these opportunities. Thus Mozart alleges, "Crosscomplainants are informed and believe and thereon allege that if they had learned of the true facts in October, 2001, that [sic] they could have mitigated damages at that time and re-leased Buildings 2 and 3 at a time when commercial rents were higher than they were when the Termination Agreement was executed in January 2002, and at a time when they are higher than they are in the present market." But as the cross-complaint affirmatively alleges, Mozart had already leased the premises to Handspring. It could not have "released" the buildings so long as it remained bound by its leases with Handspring.

Nothing in the cross-complaint suggests that it could have unilaterally freed itself from those obligations. Nor can it be supposed that Handspring would have consented to or acquiesced in such conduct at any time before the parties actually negotiated their voluntary termination of the leases. Mozart affirmatively alleges that as late as July 2002 - about a month before Handspring approached Mozart about negotiating a termination - Handspring was still hoping to sublease all or part of the subject buildings, or at any rate was believed by Snider to be so.2 So long as that remained true, it is far from apparent - and far from likely - that knowledge of Handspring's financial situation could have made any difference to Mozart.

Nor does it appear that Mozart had any "damages" to "mitigate" unless and until Handspring failed or refused to perform its obligations under the lease. Indeed, given Mozart's eventual agreement to terminate the leases, it appears highly doubtful - and the cross-complaint cannot be understood to adequately allege - that the posited concealment proximately caused any injury to Mozart. Again Mozart's allegations are perplexing:

"As a direct and proximate result of the concealments of Cross-defendants BT[C] and Snider, as previously set forth, Cross-complainants have been damaged in the amount of the commission already paid to BT[C] by the listing broker in the transaction, Commercial Property Services, in the approximate amount of $850,873.22. Additionally, Handspring never commenced the payment of rent for Buildings 2 and 3 and terminated its Leases with Cross-complainants. Despite diligent efforts by Cross-complainants to lease said buildings they have been unable to lease a majority of the space. As a result, they have been damaged due to the conduct of BT[C] and/or Snider in the amount of the loss of the rent they could have obtained and other payments to be made by Handspring pursuant to said Leases in the excess of $100 million." We fail to see how any plausible causal connection could ever be established between allegedly tortious nondisclosures beginning in October 2001, and a payment of commissions apparently occurring some eight months earlier. It is even more difficult to see how the concealment alleged in the cross-complaint could have caused Mozart to lose rent payments by Handspring under the lease. If Handspring had been otherwise able to perform its obligations under the lease, no conduct attributed to BTC by Mozart could have reduced that capability. Instead of holding Handspring to those obligations, however, Mozart renegotiated their relationship, apparently receiving very considerable sums of money in the process.3 But even if that had not occurred, neither the cross-complaint nor anything else in this record supports the notion that earlier knowledge of Handspring's finances could have somehow preserved the original lease arrangement. The allegations of damage, causation, inducement, and fraudulent intent are all woefully deficient. These deficiencies, however, did not form a basis for BTC's challenge to the cross-complaint, and are not cited by it in defending the judgment on appeal. This raises at least the theoretical possibility that Mozart might have been able to cure these allegations by further amendment. Therefore, rather than predicate affirmance on these defects, we will turn to the question to which the parties devote most of their attention: whether the facts alleged in the cross-complaint placed cross-defendants under a duty to disclose.

E. Duty of Buyer's Agent to Disclose to Seller

As noted, Mozart's first cause of action appears to predicate a duty to disclose on two distinct theories. The first is set forth as follows: "At all times, as a real estate agent representing Handspring, Snider owed a duty to be truthful and honest and disclose material facts to Cross-complainants as he has admitted at his deposition in this action."4 (Italics added.) The legal premise for this theory, as nearly as we can discern, appears in the statement in Mozart's brief that every real estate licensee has a "fundamental duty . . . to deal honestly and fairly with all parties in the transaction, not just his or her own principal. (Earp v. Nobmann (1981) 122 Cal.App.3d 270 [(Earp)]; Norman I. Krug Real Mozart objected to this evidence as irrelevant, but did not dispute its accuracy. We do not rely on it in assessing the sufficiency of the cross-complaint, but we do take notice of it in considering whether the court abused its discretion by denying leave to amend.

Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35, 42-43 [(Krug)]; Hale v. Wolfsen (1969) 276 Cal.App.2d 285 [(Hale)]; Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735 [(Lingsch)].)"

None of these cases sustains Mozart's claim that BTC owed it a duty to disclose changes in Handspring's financial condition arising after the parties executed the lease. In Earp, supra, 122 Cal.App.3d 270, (disapproved on another point in Silberg v. Anderson (1990) 50 Cal.3d 205, 219), a broker who acted as the go-between in an attempted real estate purchase performed his professional duties so poorly that the seller denied the existence of a contract and tried to sell the property to another, while the buyer insisted that a contract was formed, sued the seller for specific performance, and thus thwarted the subsequent sale. (See Earp, supra, 122 Cal.App.3d at p. 280.) In the seller's cross-action, the broker was held to have acted negligently toward the seller in numerous respects, including his failure to inform the buyer that the offer presented on the buyer's behalf did not satisfy the basic criteria originally put forward by the seller. (Id. at p. 291.) The court did not characterize this as concealment or the breach of any duty to disclose; indeed, it never used the terms "disclose," "conceal," "suppress," "fraud," or "deceit." Nor did the court find it necessary to determine the nature of the relationship between the broker and the two parties. (See id. at p. 290.) Rather the court viewed the broker's deficient communications with the buyer as but one instance of the "negligent behavior" the court found "pervasive." (Id. at p. 291.) As relevant here, the broker's liability was predicated on negligence. (Id. at pp. 276, 277-278, 281, 289, 290.)

The case has no apparent bearing here beyond the general proposition that a broker may be liable to those foreseeably injured by his negligence. We will discuss the applicability of that concept here in part I(I), post. For present purposes it is enough to conclude that Earp provides no authority for holding that a buyer's (or lessee's) agent has any duty of disclosure, as such, toward a seller (or lessor).

In Krug, supra, 220 Cal.App.3d 35, 40, the seller of an apartment building told his realtor about an unrecorded deed of trust he had given to a creditor. The realtor thereafter sold the building without advising the creditor of the sale, or the buyer of the encumbrance. (Ibid.) The creditor sued the realtor for wrongfully causing the extinguishment of his security interest. The matter "proceeded to trial on a number of theories," but the trial court "rendered judgment for [the creditor] strictly on negligence grounds." (Ibid.) On appeal the realtor denied that he owed any duty to the creditor, noting the absence of privity or a special relationship between them. (Id. at pp. 41-42.) While the court's analysis of this issue is germane to Mozart's general negligence theory (see pt. I(I), post), the decision is irrelevant to any duty of disclosure owed by a buyer/lessee's realtor to a seller/lessor.

In Hale, supra, 276 Cal.App.2d 285, a realtor cooperating with the sellers' agent sued for a commission after the sellers withdrew from a purchase agreement upon discovering that the plaintiff realtor had fraudulently misrepresented the condition and value of a property to be conveyed to them under the agreement. (See id. at p. 291.) Not surprisingly, the trial court ruled that the realtor's misrepresentations vitiated the sellers' obligations not only to perform the purchase agreement but to pay a commission to the realtor. The court also found that the realtor "was a subagent of [the sellers] and owed them a duty of utmost good faith, which she breached by failing to ascertain all of the pertinent facts about the [exchange] property and by making statements and representations to them that she did not know were true." (Id. at pp. 289-290.) On appeal the realtor unsuccessfully attacked the latter finding (id. at pp. 290-291) and the finding that the she had breached her fiduciary duties to the sellers (id. at pp. 291-292).

Mozart apparently cites the case for its passing dictum that "real estate brokers are under a duty to deal fairly with all parties and be well informed on current market conditions." (Id. at p. 292.) Again, the case has no tendency to show the existence of any particular duty of disclosure on the part of a buyer/lessee's agent toward a seller/lessor.

In Lingsch, supra, 213 Cal.App.2d 729, 732-733, the trial court sustained a demurrer by the sellers' broker to a complaint by buyers who alleged that the defendants had sold them a building without disclosing, among other things, that the building had been condemned. The broker contended that no cause of action was stated because the form purchase agreement recited that the property was purchased as is and that no extrinsic representations had been made. (Id. at p. 734.) The reviewing court narrowed the issue to whether the buyers could state a claim based upon "mere nondisclosure . . . occurring between parties not in a confidential relationship." (Ibid.) The court then cited the judicially developed rule that "where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer." (Id. at p. 735.) "Failure of the seller to fulfill such duty of disclosure constitutes actual fraud." (Id. at p. 736.) It then noted that a similar duty rests upon the seller's agent: "Where such agent or broker possesses, along with the seller, the requisite knowledge according to the foregoing decisions, whether he acquires it from, or independently of, his principal, he is under the same duty of disclosure. He is a party connected with the fraud and if no disclosure is made at all to the buyer by the other parties to the transaction, such agent or broker becomes jointly and severally liable with the seller for the full amount of the damages." (Ibid.) The court held that the complaint did not sufficiently state a cause of action under this theory, but could probably be amended to do so. (Id. at pp. 739-740.) Of the four cases cited by Mozart, Lingsch is the only one imposing a duty of disclosure, as such, on one who was not the plaintiff's agent at the time of the alleged concealment. The holding there rested on a duty peculiarly imposed upon the seller's agent to disclose inobvious facts affecting the value of the property. The case was later cited for the proposition that "where a real estate broker or agent, representing the seller, knows facts materially affecting the value or the desirability of property offered for sale and these facts are known or accessible only to him and his principal, and the broker or agent also knows that these facts are not known to or within the reach of the diligent attention and observation of the buyer, the broker or agent is under a duty to disclose these facts to the buyer." (Cooper v. Jevne (1976) 56 Cal.App.3d 860, 866 (Cooper), citing Lingsch, supra, 213 Cal.App.2d at pp. 735-736.) (Italics added.) This "Cooper- Lingsch rule" was later held to implicitly obligate the agent for a residential seller to disclose "reasonably discoverable defects" to the buyer, and to "conduct a reasonable investigation" to that end. (Easton v. Strassburger (1984) 152 Cal.App.3d 90, 99, 100; see id. at p. 102 ["affirmative duty to conduct a reasonably competent and diligent inspection" and to disclose facts affecting value to buyer].) This holding was ultimately codified in Civil Code section 2079, subdivision (a), which declares that a broker who is engaged by a seller, or who acts in cooperation with a broker engaged by a seller, has a duty "to a prospective purchaser of residential real property . . . to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to that prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal . . . ."

Here the duty imposed by these authorities never came into existence because (1) Mozart was a seller (lessor), not a buyer; (2) BTC represented a buyer, not a seller; (3) the transaction involved commercial, not residential, property; and (4) the matter allegedly concealed went not to the value of the property, or even the desirability of the transaction, but to facts learned by the broker after the transaction had been consummated, at least to the extent of executing an agreement binding on the parties.

Nor do we see any reason to extend the duty described above to the situation before us. As the Easton court observed, the primary purposes of burdening a seller's broker with disclosure duties running to the buyer are "to protect the buyer from the unethical broker and seller and to insure that the buyer is provided sufficient accurate information to make an informed decision whether to purchase." (Easton, supra, 152 Cal.App.3d at p. 99.) The duty is justified not only by the broker's likely superior knowledge of facts affecting the value of the property, but by the risk that the residential purchaser will suppose the broker to be adequately representing his interests. Thus the court observed that "in residential sales transactions the seller's broker is most frequently the best situated to obtain and provide the most reliable information on the property and is ordinarily counted on to do so." (Id. at p. 100, italics added.) " ‘The real estate broker's relationship to the buyer is such that the buyer usually expects the broker to protect his interests.' " (Ibid., quoting Comment, A Reexamination of the Real Estate Broker-Buyer-Seller Relationship (1972) 18 Wayne L.Rev. 1343, 1343; see Easton, supra, 152 cal.App.3d. at p. 101, fn. omitted ["Not only do many buyers in fact justifiably believe the seller's broker is also protecting their interest in securing and acting upon accurate information and rely upon him, but the injury occasioned by such reliance, if it be misplaced, may well be substantial"]; id. at p. 101, fn. 5, quoting Sinclair, The Duty of the Broker to Purchasers and Prospective Purchasers of Real Property in Illinois (1981) 69 Ill.Bar.J. 260, 263-264 [" ‘In the typical residential real estate transaction . . . , the buyer, in particular, may be intentionally or inadvertently led . . . to believe the broker will represent his interest even where he is aware the broker has a listing agreement with the seller. Since the broker's commission is generally paid as a percentage of the sales price, the broker's interest is more closely identified with that of the seller than of the buyer. Where the buyer is unappreciative of the potentially divided loyalty of the broker, he may be lulled into relying on the broker to his significant detriment. Misplaced reliance by the buyer can extend beyond the issue of price to questions regarding quality of title, condition of the premises, and proration of closing costs, property taxes, recording fees, and other expenses' "].) Indeed the Easton court expressed doubt that any such duty should be imposed in commercial transactions, writing, "Unlike the residential home buyer who is often unrepresented by a broker, or is effectively unrepresented because of the problems of dual agency [citations], a purchaser of commercial real estate is likely to be more experienced and sophisticated in his dealings in real estate and is usually represented by an agent who represents only the buyer's interests. [Citation.]" (Id. at p. 102, fn. 8, italics added.)

Here there is no allegation that Mozart was ever led to believe, or did believe, or rationally could have believed, that BTC was representing its interests. On the contrary, recognition pervades the cross-complaint that each party in the transaction was represented by its own agent - Mozart by CPS, Handspring by BTC. Thus Mozart affirmatively alleged that Snider and BTC represented Handspring, not Mozart, in the lease transaction, i.e., Snider was BTC's "authorized agent representing Handspring in the transaction," and that he made statements to Mozart "on Handspring's behalf, and as a representative of BT[C]." Mozart further alleged that it shared the understanding with CPS that the latter would "continue to act on [Mozart's] behalf, with respect to any leases to be executed, until such time as the duties and obligations of [Mozart] and any tenant were fulfilled," that BTC similarly understood that it would "continue to represent [its] client until such time as the building(s) is/are finished, tenant improvements complete, and rent is to commence," that Mozart expected and intended CPS, and any cooperating broker or procuring agent, to "continue to represent their respective clients after the Leases were executed, until such time as rent commenced," and that CPS and BTC understood as between themselves "that they would continue to represent their respective clients until rent commenced . . . ."

Nor does Mozart allege any conflict of interest tempting BTC to perniciously favor Handspring's interests over Mozart's. If anything both stood to lose from a termination of the lease agreement - Mozart would lose its expectation of rents and other payments called for by that agreement, while BTC would lose the second half of its commission, or at least a clear claim to that sum. Nowhere does the cross-complaint suggest any facts comparable to the natural alignment between broker and seller arising from the correlation between sale price and commission.

The record suggests no basis for any expectation by Mozart that BTC would disclose matters regarding Handspring other than as its "respective client[]," Handspring, might direct. The only factor in common with Easton is BTC's presumably superior knowledge of its client's financial condition. But so far as this record indicates, BTC only had that knowledge by virtue of its confidential relationship with Handspring. Mozart alleges that beginning in late 2001 and continuing to mid-2002, "Snider and BT[C] were advised by Handspring" of various matters, including "that Handspring was having financial difficulties and that its projected growth was not as fast as Handspring had originally thought." If the possession of superior knowledge so gained were enough to trigger a duty to disclose, every agent of any kind could be required to disclose information obtained in confidence from his principal so long as it appeared potentially germane to the interests of another party to a proposed transaction. This would of course make it impossible for any principal to conduct negotiations through an intermediary without disclosing every fact that might improve the bargaining position of the other party. Nothing known to us would justify such a revolution in the law governing business transactions.

In sum, none of the cases cited by Mozart, and no other authority known to us, supports the imposition of a duty on a lessee's agent in a commercial real estate transaction to disclose to the lessor information, acquired after execution of a lease, concerning the buyer's finances. Mozart has offered no reason to impose such a duty. We therefore decline to do so. Insofar as Mozart's cross-complaint rested upon such a duty, it failed to state facts sufficient to constitute a cause of action.

F. Duty Arising from Prior Statements

A duty to disclose can arise from the making of affirmative representations with knowledge of undisclosed facts that " ‘materially qualify the facts disclosed, or . . . render [the disclosed facts] likely to mislead . . . .' " (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132 (Linear Technology), quoting Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.) Mozart seeks to invoke this theory, but the allegation on which this attempt rests does not supply an adequate foundation for it: "Prior to Handspring's entering into the Leases for Buildings 2 and 3, Snider, on Handspring's behalf, and as a representative of BT[C], had made affirmative representations to Cross-complainants regarding Handspring's ability to pay the rent into the future. At all times, as a result, he not only had a duty to disclose all material facts known to him as a real estate agent, but also a duty to correct any information which, if previously true, had become false or had changed. These duties continued as long as Snider and BT[C] continued to act as agent and broker in the transaction, including following execution of the Leases." (Italics added.) This allegation, and the cross-complaint as a whole, fail to identify any statement that was rendered false or inaccurate, then or later, by any failure of disclosure. Instead the pleading is pregnant with potentially fatal ambiguity. It asserts that Snider made unspecified statements on an identified topic - "Handspring's ability to pay rent in the future."

Concealment is a species of fraud, and "[f]raud must be pleaded with specificity." (Linear Technology, supra, 152 Cal.App.4th at p. 132.) To plead tort liability based on false or incomplete statements, the pleader must set forth at least the substance of those statements. Mozart can hardly claim not to know what statements were made to it. We can conceive of no excuse for its failure to plead them "with specificity."

Indeed, Mozart seems to have retreated from the comparative specificity of an earlier version of the cross-complaint, which was itself challenged for vagueness. In its original cross-complaint Mozart alleged, "After February 18, 1999, and prior to February 14, 2001, cross-defendants' authorized agent, Thomas Snyder [sic], represented to John Mozart, either directly or through representations to Mozart's real estate agents . . . that Handspring was fully qualified as a tenant, financially stable, creditworthy, and otherwise willing and financially able to meet its obligations under the Leases . . . ." In its demurrer to this pleading, BTC attacked the quoted allegation as unduly vague. Mozart reiterated the allegation in its first amended cross-complaint. In demurring to that pleading, BTC did not renew its attack on this particular allegation, perhaps because, as stated in its supporting memorandum, counsel for Mozart had "recently advised BT[C] that they will be dropping their claims against BT[C] for fraud and negligent misrepresentation, as well as their claims for rescission based on fraud and concealment . . . ." In Mozart's second amended cross-complaint, the allegation appeared in its present form, i.e., Snider "made representations to cross-complainants regarding Handspring's financial and other qualifications as a tenant." In demurring to this pleading, BTC apparently overlooked this allegation, stating that "BT[C] and Snider are not alleged to have spoken at all to Mozart," and therefore "cannot be liable for active concealment." Similarly, in demurring to the third amended cross-complaint, BTC stated that it "cannot be liable for active concealment" because it was "not alleged to have had any communication at all with Mozart . . . ."

BTC's failure to acknowledge the quoted allegation cannot blind us to Mozart's conduct in the face of the original vagueness objection: After apparently expressing an intent to abandon the claim altogether, Mozart reasserted it in a far more nebulous form than the original. Whatever the history of this theory, the cross-complaint in its present form utterly fails to plead any affirmative representation on which a duty to disclose might be predicated.

Mozart does not directly assert otherwise. Instead it treats the pleading as if it contained such an allegation, nesting the relevant assertion within an assertion on some other point, perhaps to avoid a direct misstatement of the record. Thus Mozart writes that cross-defendants "knew their assurance that Handspring was a ready, willing and able tenant had changed." But no such assurance is alleged. Later they write, "BT[C] and Snider had a duty to correct their representation that Handspring was ready, willing and able to enter into the Leases when they discovered that information was no longer true." (Italics added.) But the only allegation of such a representation was abandoned two cross-complaints ago. In the closest thing to a direct assertion on this point, the concept of an affirmative statement suddenly gives way to something quite different: "BT[C] and Snider deliberately and systematically concealed from Mozart that the tenant they had procured and presented as a ‘ready, willing and able' lessee was actively working, with BT[C]'s assistance, to make sure that it was none of these things." (Italics added.) There is of course as much difference between "presenting" and "representing" as there is between "moving" and "removing," "porting" and "reporting," or "pressing" and "repressing." A would-be singer's agent who sends his client to an audition might be said to "present" her as an able musician, but if the impresario concludes otherwise the agent's conduct hardly constitutes fraud.

Nor do we see any evidence that Mozart could truthfully plead an affirmative representation by BTC if given yet another chance (their fifth) to do so. The centrality of the point to their theory of recovery can hardly be doubted. They refer to the concept of a "ready, willing and able" tenant at least 11 times in their opening brief. Yet nowhere do they flatly allege any representations by BTC, or for that matter Handspring itself, concerning the latter's financial condition, present or future. We may suppose that in a transaction of this magnitude some kind of financial data were provided to the lessor. But we must also suppose that Mozart was satisfied with those data, and indeed finds no fault with them now, since it has apparently never suggested that its entry into the leases was procured by fraud. Its apparent inability to attribute an affirmative representation to BTC is reflected in such constructions as its reference to the concealment of information that "contradicted the basic notion that Handspring was a ready, willing and able tenant." (Italics added.) It offers no authority for a theory of fraud by "basic notion." And like much of Mozart's presentation below and here, this statement seeks to blur the distinction between two critically different points of time: the point when the leases were executed, at which time all parties apparently believed Handspring was ready, willing, and able to perform; and the time beginning eight months later, when that supposition became clouded by doubt. The question is not what "basic notion" might have been shared by the participants at an earlier time, but whether Mozart has alleged facts sufficient to impose a duty of disclosure on BTC at the later time alleged in the cross-complaint. Insofar as Mozart seeks to predicate such a duty on statements initially made by BTC, the failure to actually plead such statements dooms its theory to failure.

Once again, however, the parties seem to have overlooked these rudimentary deficiencies in favor of more debatable issues - in this instance, whether Mozart's theory, if adequately pled, is viable as a matter of substantive law. The question then becomes whether, supposing BTC had affirmatively assured Mozart of Handspring's financial ability to perform its obligations, BTC would thereby become obligated to notify Mozart when, following execution of the lease, Handspring betrayed doubts about its ability to perform. We do not believe that any existing authority would impose a duty on BTC to, in Mozart's words, "correct" this information under the circumstances alleged by Mozart.5 Certainly none of the authorities cited by it requires, or in our view justifies, the imposition of liability here.

In Assemblies of God, supra, 77 Cal.App.3d 951, the representatives of a church, in selling real estate to another church, told the buyer that a driveway across an adjoining parcel would remain available for the buyer's use, and that such availability was required by city planners. However, when the local planning commission conditioned a related approval on the continuance of a driveway easement, the seller's representatives successfully objected, and the easement was extinguished. The buyer acknowledged being aware of the commission proceedings but denied knowledge that the initial ruling had been protested or scheduled for rehearing. The reviewing court reversed a summary judgment for the seller, holding that its failure to disclose its efforts to eliminate the easement breached the covenant of good faith and fair dealing. (Id. at p. 956.) The court observed that "knowledge of what was going on "would have provided [the buyer] with a clear basis for rescinding its contract to buy parcel 2 and prevented whatever damage [it] can prove as arising from the fact that the purchase agreement became executed four full years before [it] became aware of any problem." (Ibid.) The seller denied any duty to disclose, but the court found a triable issue of fact "with respect to the existence of a confidential relationship" between the parties. (Ibid.) The court noted allegations that none of the buyer's representatives were "experienced in real estate dealings" and that they "placed complete confidence" in the seller's representatives, who included "an experienced real estate broker . . . ." (Ibid.) The buyer also insisted that it had viewed the selling church as " ‘a recognized and established Christian church organization worthy of trust and belief and represented by persons of integrity.' " (Ibid.) Given the presence of a triable issue concerning the nature of the parties' relationship, it was immaterial whether the cause of action were viewed as sounding in contract or in tort, i.e., fraud. (Id. at p. 957.)

The situation here differs from that in Assemblies of God in at least four material respects. First, the defendant there gave affirmative assurances and then acted affirmatively to alter the subject matter of those assurances. Second, the direct and voluntary contractual relationship between the parties generated a duty of good faith and fair dealing that made the defendant's conduct (not its mere failure to disclose) potentially tortious. Third, the plaintiff presented evidence to suggest that it reasonably vested trust and confidence in the defendant to deal with it squarely. Finally, it was apparent that a timely disclosure would have permitted the plaintiff to protect itself.

Here, even if Mozart were to allege that BTC made affirmative assurances to it, there is no suggestion that BTC did anything to cause the failure of those assurances. Nor does Mozart allege any contractual relationship between the parties; rather, it alleges that BTC had contractual relationships with Mozart's agent, as well as with Handspring, whose interests it represented. Third, there is no hint of any special trust placed by Mozart in BTC, or of any factual basis for such trust. Nor is there any coherent suggestion that earlier disclosure would have done Mozart any good, since it had already bound itself to the leases with Handspring when the occasion for disclosure allegedly arose.

In Koch v. Williams (1961) 193 Cal.App.2d 537 (Koch), two couples who purchased subdivision homes sued the developer over a drainage easement that he granted to the local government while the properties were in escrow. As relevant here, the opinion states, "One who learns that his statements, even if thought to be true when made, have become false through a change in circumstances, has the duty before his statements are acted on to disclose the new conditions to the party relying on his original representations." (Id. at p. 541, italics added.) This rule applied there because the effect of the nondisclosure was to deprive the plaintiffs of "the opportunity to reject the proposal or sale of the property under these conditions." (Ibid.) Thus, "[h]ad [the buyers] known of [the sellers'] act in the placing of record an easement across the properties in dispute, they might have elected to rescind the escrow and purchase agreement which clearly indicated the property was not subject to such an easement." (Id. at p. 542.) Here there is no suggestion that BTC should or could have made clarifying disclosures at a time when Mozart might yet "reject the proposal" or unilaterally rescind the lease agreement. Once that agreement was signed, whatever damage might be done was - so far as the cross-complaint shows - done. Mozart's vague suggestion that post-execution disclosure might have permitted it to "mitigate" its supposed injuries in some unspecified manner hardly brings the case within the rationale of Koch.

Similar divergences preclude application here of Kretzschmar v. Janns Inv. Co. (1932) 126 Cal.App. 698. There the plaintiff buyers secured an option to purchase a lot from the defendant sellers. Two months later the sellers dedicated a strip of land crossing the lot to the county flood district. The next day the buyers and sellers entered into a formal purchase agreement. Some two years later, flood control authorities constructed a storm drain that bisected the lot with a 100-foot wide fenced ditch. Noting that the map reflecting the easement had been recorded "but a few hours before this contract was [signed]," the court observed, "It would seem that in common justice . . . appellants should have at this time by some act on their part directed respondents' attention to the material change that had been made in the lot by the dedication of this easement. . . . The property covered by the option did materially change in character and appellants had knowledge of this change, but failed to call it to the attention of respondents and so deprived them of the right to withdraw from the purchase. . . . [Citation.] The instant case differs from those cases where a deed is given as the closing incident of a purchase of land and constitutes an expression of the terms of the agreement reached in the transaction by the parties. Here the contract, in so far as an agreement of the parties upon the subject-matter had been reached, was evidenced by the option made some months before the contract of sale was delivered. The respondents were justified in relying upon this option and a duty rested upon the appellants to inform them of any material changes in the subject matter which had taken place subsequent to the option." (Id. at pp. 702- 703, italics added.) Here there was nothing comparable to the unilateral right conferred under an option to forego the contemplated transaction. Instead Mozart was already bound by the lease when BTC first learned of the facts on whose nondisclosure Mozart's claim depends.

In Dyke v. Kaiser (1947) 80 Cal.App.2d 639, the lessee of an amusement center brought an action to rescind the lease after the center was essentially closed by the police.

The trial court found that the lessor had made certain representations about the income from the premises, that these statements were intended and understood to mean "that there existed no reason known to said defendant why the business should not continue to operate profitably in the future," that the lessee was induced by these statements to enter into the lease, and that the statements were "false and fraudulent in that defendant knew that said representations were untrue and knew that law enforcement officers of the County of San Diego contemplated and intended, within a period of twenty-four hours after the execution of said lease, to compel the closing of a substantial portion of the business . . . ." (Id. at p. 644.) Among the lessor's contentions on appeal was that the lessee had failed to prove that the lessor knew of the impending police action at the time the parties orally agreed on the lease, as distinct from the time of its formal execution several days later. (Id. at p. 648.) In rejecting this contention, the court observed that at the time of execution, the lessee "was [still] relying upon [the lessor's] representations, and that . . . incidents had transpired rendering the representations no longer true. [The lessor] knew that conditions had changed which materially affected the desirability of the property and he knew that [the lessee] was unaware of the changed conditions. Under these circumstances, his silence, together with the other circumstances related, would constitute fraud." (Id. at p. 654.) Despite the parties' having reached an oral understanding as to terms, the lessor knew that if the lessee were informed of the impending police action, he "would not execute the lease at all." (Ibid.)

In Black v. Shearson, Hammill & Co. (1968) 266 Cal.App.2d 362, a stock brokerage house and its senior partner were held liable to certain customers to whom they sold stock in a corporation in which the partner was also a director. The sales had been induced by glowing reports of the corporation's prospects when, as known to the partner, internal communications described its situation as " ‘drastic.' " (Id. at p. 365.) On appeal the defendants argued that the evidence failed to show that the partner knew any statement by him was false when made. (Id. at p. 367.) The court rejected this premise, but went on to declare that even if it were sustained, scienter would be adequately established by his having "permitted [the statements] to stand after he learned the truth and before respondents relied on them." (Ibid., italics added.)

In all of these cases (1) a seller made affirmative representations concerning the condition or value of property; (2) the seller knew of (in three cases he actively brought about) changed circumstances that rendered his representations deceptive; (3) the seller was aware of the changed circumstances at a time when the buyer could have declined to complete the purchase; (4) other circumstances justified the buyer's reliance on the seller to correct the misimpression it had created; and (5) the seller remained silent, thereby depriving the buyer of the opportunity to forego the purchase. Comparing these factors to the present case reveals the incoherence of Mozart's "duty to correct" theory. Mozart stands in the position of a seller, not a buyer, and the representations had nothing to do with the value of the property. More essentially, the harm for which Mozart seeks compensation is not its entry into the lease with Handspring, but its failure to withdraw from that agreement some time after executing it. As we have said, this assumes the undemonstrated and highly doubtful proposition that Mozart could have withdrawn from that agreement in any manner other than the one it ultimately chose: a mutual agreement with the other contracting party. It may be theoretically conceivable that the supposed delay in disclosure caused it some injury. But this is nowhere competently alleged and, more to the immediate point, none of the cited decisions rests a duty to disclose on such a slender reed.

Mozart fails to plead a cause of action on a theory of affirmative statements giving rise to a duty to disclose. Because it also fails to adequately allege a duty of disclosure arising from BTC's status as Handspring's agent, the trial court did not err by sustaining the demurrer to Mozart's first cause of action without leave to amend.

G. Hypothetical Allegation of Dual Agency

Mozart's second cause of action rests on the hypothesis that although BTC primarily represented Handspring in the lease transaction, it was also a procuring or cooperating agent and thus an agent of Mozart's, bound as such to disclose to Mozart all facts known to BTC that might be relevant to Mozart's dealings with Handspring. This theory presents analytical challenges not because such an allegation is inherently difficult; on the contrary, realtors often find themselves in an "dual agency" relationship whereby they represent, and thus owe fiduciary duties to, both the seller and the buyer. (See 2 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 3.12, pp. 64-69.) The difficulty arises from the contingent and hypothetical nature of Mozart's claim of the agency, coupled with circumstances indicating that the contingency cannot now occur.

In its cross-complaint Mozart does not simply allege, even in the alternative, that BTC was in fact its agent. This may reflect the flat denial of such a relationship in Mozart's answer to BTC's complaint.6 Rather than contradict this denial in its crosscomplaint, Mozart there alleges that BTC has claimed to be a procuring or cooperating agent, and then hypothesizes that if the court were to sustain this claim, it would follow that BTC owed Mozart, as its principal, a duty of disclosure.7 This hypothetical mode of pleading presents ample difficulties of its own, but the plot is thickened still further by the fact that the trial court has dismissed BTC's claims against Mozart, thus seemingly placing beyond possibility of realization the hypothesis on which the second cause of action rests, i.e., that BTC might be found to be Mozart's agent. However, BTC has cross-appealed from the dismissal of its complaint. Were we to reverse that ruling, reinstating BTC's claims, the possibility would again arise that BTC might be found a procuring or cooperating agent, thereby restoring to the realm of possibility the hypothesis on which Mozart's second cause of action depends. This would seem to invite us to decide BTC's cross-appeal before attempting to assess the viability of Mozart's second cause of action. But this presents a conundrum, because BTC has designated its cross-appeal "conditional," urging us to "consider" the same "only if [we are] inclined to grant some aspect of Mozart's appeal . . . ." (Italics in original.)

The parties thus seem intent on thrusting us into a rather dizzying paradox.

Mozart asserts a cause of action that depends on BTC's successful pursuit of at least a part of its claims; but those claims stand adjudicated adversely to BTC, and thus to Mozart's hypothesized cause of action; but that adjudication is exposed to reversal by BTC's cross-appeal; but BTC asks us to contemplate such a disposition only if we find some part of Mozart's appeal meritorious. The upshot of this logical merry-go-round seems to be that in order to trigger the condition on which the second cause of action depends - or more precisely, to leave the door open for that condition to be triggered - we would have to first find that some part of Mozart's appeal is meritorious, and then sustain BTC's cross-appeal (or enough of it that a finding of agency would again be possible).

This reasoning apparently precludes us from relying on the posited impossibility of the condition as a basis to affirm the judgment on the cross-complaint. We must therefore conduct a closer examination of the allegations of the second cause of action. Confined to their literal meaning and logical effect, they certainly do not set out the factual foundation for a cause of action. In essence they say that if the court makes a particular finding, Mozart will make a particular argument. Such a statement may be appropriate in a trial brief, but it is ineffectual in pleading a cause of action because it asserts no facts that would subject the defendant to liability. At its core it expresses nothing more than the pleader's intent to assert a particular theory under specified conditions. That is hardly the same thing as stating a claim.

The more difficult question is whether this deficiency is such that Mozart could not have cured it by amendment. BTC pointed out the deficiency in the trial court, though on different terms. It quoted the above allegation and wrote, "That is not an allegation of fact; it is a mere legal conclusion." However, instead of analyzing its sufficiency in terms of the law of pleading, BTC went off on the substantive soundness of the proposition that a procuring or cooperating agent is the subagent of the listing agent with a fiduciary duty to the seller. BTC correctly observed that such a relationship does not necessarily arise, and that the payment of compensation, or an agreement to pay, is not necessarily determinative of the existence of an agency relationship or the fiduciary duties attending it. (See Civ. Code, § 2079.19; 2 Miller & Starr, Cal. Real Estate, supra, §§ 3.5, 3:10, pp. 22, 44.)

But an allegation of agency is deemed an allegation of ultimate fact. (Skopp v. Weaver (1976) 16 Cal.3d 432, 437, 439.) BTC acknowledged this rule below but implied that it was inapplicable because "where the essential facts are not contested, the question whether an agency relationship existed may be decided as a matter of law." This is a rule applicable to the assessment of evidence, not to determining the sufficiency of a pleading. In the latter context, the existence of an agency relationship is the "essential fact[]," and where alleged must be accepted as true. (See Id. at pp. 436-437.) BTC also asserted that Mozart "has not alleged the requisite agency relationship between itself and BT/Snider, but has instead alleged that its agent was CPS, while BT/Snider represented Handspring. Those facts do not show an agency relationship between BT/Snider and Mozart - much to the contrary." This assertion rests on the premise that one cannot "represent" one party in a real estate transaction and still be an agent for the other party. If that were true this case would be very easy indeed. But it is not true. (See 2 Miller & Starr, Cal. Real Estate, supra, § 3.12, pp. 64-69.)

Thus if the cross-complaint unequivocally alleged that BTC acted as the agent of Mozart, we would have no difficulty in holding this an adequate pleading of such a relationship. Instead, however, Mozart has elsewhere denied any such relationship, and alleges in the cross-complaint only that if the court finds such a relationship to have existed, in despite of Mozart's denial, then Mozart will contend that a duty of disclosure arose. This is, so far as we know, a novel mode of pleading. But it does not necessarily follow that it is improper. In substance, Mozart attempted to plead that BTC claims to have been a procuring or cooperating agent; that Mozart denies the existence of such a relationship; that if it did exist, then BTC was Mozart's agent and fiduciary; that BTC thus owed Mozart a duty of disclosure; and that BTC breached that duty by failing to inform Mozart of Handspring's financial difficulties. Although we know of no precedent for hypothetical pleading of precisely this type, it resembles the pleading of mutually inconsistent bases of liability or defense, which the law permits so long as the differing grounds are separately stated and free of self-contradiction. (See Steiner v. Rowley (1950) 35 Cal.2d 713, 718-719.) Tolerance for such pleading rests on the principle that uncertainty as to factual details or their legal significance should not force a pleader to gamble on a single formulation of his claim if the facts ultimately found by the court, though diverging from those the pleader might have considered most likely, still entitle him to relief.

The same rationale applies here: Mozart denies that BTC ever became its agent, but acknowledges BTC's contrary assertion, and asserts that if this claim is borne out, then BTC was Mozart's agent and fiduciary. In principle we see no reason to bar Mozart from pleading such a claim. For purposes of our analysis, therefore - and in light of BTC's failure to challenge the cross-complaint on the precise ground we have noted - we will assume that the cross-complaint can be amended to plead such a theory, such that if the pleading is otherwise sufficient, the trial court erred by denying leave to amend.

H. Duty of Agent with Conflicting Obligations

We have already noted several dubieties in Mozart's claims that it suffered compensable harm as a result of BTC's failure to disclose Handspring's financial condition. In particular we have observed that the cross-complaint affords no basis to suppose that an earlier disclosure of those matters would in fact have spared Mozart the harm, if any, it ultimately sustained. So long as Mozart remained bound by the lease, Handspring was entitled to explore, as it did, alternative means of extricating itself from the financial burdens imposed by the lease. Earlier notice might have enabled Mozart to threaten and bluster; it might have placed it in a different bargaining position in a renegotiation of the parties' relationship; but the premise that Mozart could actually establish these or any other liability-producing hypotheses of causation and damage is not supported by anything alleged in the cross-complaint or otherwise brought to our attention.

BTC, however, has not objected to the pleading on this ground. Rather, its chief contention is that, assuming its role as procuring agent engendered an agency relationship between it and Mozart, that relationship terminated upon the presentation of a qualified buyer. This argument delineates a chief subject of contention between the parties. The cross-complaint contains page after page of allegations intended to support the conclusion that BTC's role in the transaction was understood by all parties to continue beyond the execution of the lease at least until construction reached the agreed stage at which Handspring would commence the payment of rent.

In our view this issue is largely, if not entirely, beside the point. BTC's argument conflates the duration of an agency relationship with the persistence of the duties arising from such a relationship. While an agent's duty of disclosure ordinarily ends upon termination of the agency relationship, this is by no means automatic; the agent may remain under such a duty "when it is foreseeable to the agent that the principal will continue to rely on the agent for information and the agent does not inform the principal that no further information will be provided." (Rest.3d, Agency, § 8.11, com. c., p. 376) "For example, if an agent arranges a transaction on behalf of a principal that is ongoing at the time their agency relationship ends, it may be foreseeable to the agent that the former principal will continue to rely on the agent to provide information relevant to the ongoing transaction." (Ibid.) Here Mozart has alleged precisely such a situation, and if it has neglected to allege foreseeable continued reliance by it, the defect could presumably be cured by amendment.

The second cause of action fails, however, for a clearer reason: it rests on the erroneous supposition that if BTC was Mozart's agent, then BTC was obligated ipso facto to disclose information to Mozart. This is incorrect. It appears from the face of the cross-complaint that the information in question was acquired by BTC in confidence from Handspring. It is also alleged unequivocally that whatever BTC's relationship to Mozart, it was an agent of, and to, Handspring. Therefore disclosure of Handspring's confidential information to Mozart, without Handspring's consent, would unquestionably have constituted a breach of BTC's fiduciary duties to Handspring. (See Rest.3d, Agency, § 8.05(2).)8

Mozart's second cause of action erroneously supposes that BTC was obliged to disclose Handspring's confidential information to it even if doing so would violate BTC's duties to Handspring. In fact BTC's duty in such a situation would be to withdraw from one, and perhaps both, agency relationships. (See Rest.3d, Agency, § 8.03, com. b, illus. 3.)9 It might be supposed that BTC's failure to withdraw could itself form the basis of a cause of action, but we are unable to conceive of an adequate allegation of damage and causation. BTC's posited withdrawal from the posited agency relationship with Mozart would have had no discernible effect, since so far as this record shows BTC was neither actively representing Mozart in any transaction nor providing it with any sort of counseling or similar services. Conceivably BTC would also have been obligated to withdraw from its relationship with Handspring, though this proposition appears difficult if not impossible to substantiate. Even accepting it, we are again at a loss to see how BTC's withdrawal would have averted any harm otherwise suffered by Mozart.

Handspring would presumably have engaged others to provide the services BTC was providing. Mozart might well learn of the termination of that relationship, but for all it would necessarily know, BTC and Handspring might simply have had a falling out. For all these reasons we agree that with the trial court that the second cause of action fails to state facts sufficient to constitute a cause of action. Nor can we say that the court abused its discretion in denying leave to further amend that cause of action.

I. Negligence

Mozart's third cause of action seeks to predicate liability on the breach of several duties apparently not claimed to arise from any principal-agent relationship. Although the cause of action is entitled "Negligence Against Cross-Defendants BT Commercial and Thomas Snider," the quoted allegations do not confine themselves to a generalized duty of care but also assert duties of diligence, honesty, good faith and fair dealing, and investigation and disclosure.10 No reliance is placed on these latter allegations, however, and so far as we can discern they add nothing to the allegations elsewhere in the crosscomplaint. We will therefore confine ourselves to the question whether Mozart alleged facts sufficient to establish negligence, i.e., a breach of a general duty of due care, by BTC.

Again our task is complicated by the fact that the parties do not join battle over the basic question whether the elements of the cause of action are adequately set forth in the pleading but choose instead to debate questions we consider secondary, if not peripheral.

This problem seems to originate, once again, with BTC's misreading of the crosscomplaint.

In its demurrer, BTC characterized the third cause of action as resting on its allegedly having "concealed" information "negligently" rather than "intentionally." BTC went on to argue that this was a distinction without legal significance, and that the court should sustain the demurrer because the third cause of action "mirrors [the] first cause of action for concealment and is duplicative." This is not a ground on which a demurrer may be sustained. (See Code Civ. Proc., § 430.10.) A quarter-century ago the code authorized a motion to strike "irrelevant and redundant" matter from a pleading. (Former Code Civ. Proc., § 453, repealed 1982.) But the parallel provision now empowers the court only to "[s]trike out any irrelevant, false, or improper matter inserted in any pleading." (Code Civ. Proc., § 436, subd. (a).) The elimination of the reference to redundancy may have rested on the irreproachable rationale that it is a waste of time and judicial resources to entertain a motion challenging part of a pleading on the sole ground of repetitiveness. (See Civ. Code, § 3537 ["Superfluity does not vitiate"].) This is the sort of defect that, if it justifies any judicial intervention at all, is ordinarily dealt with most economically at trial, or on a dispositive motion such as summary judgment.

BTC also challenged the third cause of action on the ground that BTC owed no duty to Mozart at the time of its alleged breach "because the leases had been executed when the alleged breach occurred." But once the premise is accepted that the crosscomplaint alleges an arguably negligent omission, it seems highly doubtful that the duty on which such allegation depends can be categorically declared to have been extinguished or terminated by Mozart's execution of the lease. If it was foreseeable that Mozart could be harmed by the posited nondisclosure, and the facts are otherwise conceded to support a claim for negligence, it is difficult to see how we could categorically conclude that BTC and Snider ceased to owe Mozart a duty of care merely because Mozart had signed a contract with another party.

Again, however, it seems to us that the cross-complaint suffers from far more fundamental defects. The essence of negligence is carelessness or inadvertence. (See Solv-All v. Superior Court (2005) 131 Cal.App.4th 1003, 1010 [" ‘negligence' implies a careless, but unintentional, failure to act with due care"]; Davis v. Hearst (1911) 160 Cal. 143, 172 ["Negligence necessarily implies an absence of intent or purpose," or is at least independent of either"]; Chetwood v. California Nat. Bank (1896) 113 Cal. 414, 422 [allegation that defendant bankers allowed cashier to run bank so as to render it insolvent charged conduct "not . . . committed inadvertently or carelessly, which would amount to negligence pure and simple, but to have been wrought against the corporation through contrivance and collusion, with a design to injure it, - a charge which establishes that the pleader must have considered that he was dealing with a case of willful tort, partaking of the nature of a fraud"].)

The cross-complaint alleges no conduct that appears, or is alleged to be, careless or inadvertent. There is no suggestion that BTC forgot to disclose the subject information to Mozart, or tried but failed to do so, or supposed that someone else had done so, or supposed that Mozart had no interest in the information. Such an allegation could scarcely be taken seriously since Mozart alleges with painful prolixity that BTC closely communicated with Handspring over some nine or 10 months about its anticipated difficulties in performing its obligations under the lease. The premise that BTC neglected to inform Mozart of these facts, as distinct from choosing to so behave, seems highly implausible to say the least. In any event it is not alleged.

Nor do the facts alleged resemble those on which courts have imposed liability for negligence in comparable situations. In Earp, supra, 122 Cal.App.3d 270, the court pervasively referred to the defendant broker's conduct as negligent. (See id. at pp. 277- 278, 276 ["negligence as a real estate broker"], 281 [trial court's finding of negligence], 289 ["breach of an oral contract and . . . negligence"], 290 ["negligent interference with economic advantage"].) But the gist of that case was a kind of realtor malpractice. As most pertinent here it involved not the withholding of information but a series of incompetent judgments about what to communicate, how, and to whom. Most pertinently, the defendant neglected to tell the buyer that his offer did not meet the minimum conditions the seller had said he was willing to accept. The defendant compounded this error by encouraging the buyer to stand on a nonexistent contract. Nothing like this is alleged in Mozart's cross-complaint.

The case most nearly supportive of Mozart's attempt to state a negligence cause of action is Krug, supra, 220 Cal.App.3d 35, 40, where a realtor was held liable to the holder of an unrecorded deed of trust for causing its extinguishment in the course of a sale of the encumbered property. The court noted that a realtor is under a "fundamental duty" to "deal honestly and fairly with all parties in the sale transaction." (Id. at p. 42.) It then noted that defining the reach of that duty in a given case depends on "weighing a number of factors, including the extent the transaction was intended to affect the third party, the foreseeability of harm, the degree of certainty the third party suffered injury, the moral blame attached to the broker's conduct, and the policy of preventing future harm." (Id. at p. 42.) It noted that the imposition of a duty to disclose an unrecorded security interest was "supported by standards already existing in the industry." (Ibid.) It then observed, "The most important step in determining if a broker owes a duty of care to a third party is to examine ‘whether a reasonable person would have foreseen an unreasonable risk of harm to the third person and whether in view of such risk the broker exercised ordinary care under the circumstances.' [Citation.]" (Id. at pp. 42-43.) The imposition of a duty of care on the realtor there was justified because, among other things, he knew or should have known that there was a significant risk that the plaintiff's security would be destroyed if the sale went through without its disclosure to the buyer. (Id. at p. 43.)

Here only one of the factors identified in Krug appears from Mozart's crosscomplaint: it was certain that the "transaction" in question - whether viewed as the lease itself, or Handspring's contemplated withdrawal from it - would affect Mozart. However, it was far from certain or foreseeable that BTC's silence would harm Mozart.

As we have already observed, Mozart failed to coherently allege that it was harmed by BTC's conduct. In the absence of a sound allegation to that effect, it is impossible to say whether any harm was foreseeable. Nor do the facts alleged instill confidence that this deficiency might be cured through amendment. Certainly it was foreseeable that Mozart would be harmed if Handspring defaulted on the lease. But this is not what occurred, or was contemplated, and had it been otherwise there is no basis to suppose that any disclosure to Mozart by BTC could have prevented it. BTC was evidently enlisted by Handspring to assist in finding a way out of the lease with minimal damage. The pleadings offer no basis to suppose that BTC could expect Mozart to be harmed more by Handspring's quietly exploring its options and developing a strategy for terminating the lease than it would have been if BTC had, in breach of its clear fiduciary obligations to Handspring (see pt. I(H), ante), notified Mozart prematurely of Handspring's efforts.

The cross-complaint fails to allege facts establishing a breach by BTC of a general duty of due care.

J. Negligent Supervision

In its fourth cause of action, Mozart alleges that BTC negligently supervised Snider, its agent, by "allowing him to commit fraud and conceal the facts previously set forth from Cross-complainants including but not limited to his knowledge of facts which became available to him after the leases were signed including his knowledge of Handspring's financial condition, financial stability, and ability to honor the Lease agreements and abide by their terms; his knowledge that Handspring was considering either subleasing the buildings and/or terminating their leases; his knowledge that Handspring was interviewing brokers to negotiate a termination, and all of the information within his possession, custody and control from October, 2001 through July, 2002, previously set forth." We have already concluded that the fraud on which this cause of action rests is not adequately alleged. This cause of action therefore necessarily fails as well.

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http://www.courtinfo.ca.gov/opinions/documents/H029980.PDF

Outcome: The judgment is affirmed. The order denying attorney fees is affirmed. The appeal from the order denying the motion to vacate is dismissed. The cross-appeal is dismissed.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None