Judge Gail Killefer, Case Number: 24STCV00828, Date: 2024-04-29 Tentative Ruling

TENTATIVE: Defendant Sultan’s demurrer is sustained with leave to amend. Plaintiff is granted 30 days leave to amend. The court sets the OSC RE: Amended Complaint for June 7, 2024, at 8:30 a.m. Defendant to give notice.

On January 1, 2024, Nicholas F. Sherman (“Plaintiff”) filed a Complaint against Ori Sultan (“Sultan”), AS Woodland Hills LLC (“AWH”) and Does 1 to 20. The Complaint alleges three causes of action: (1) Quiet Title, (2) Fraud, and (3) Recovery of Money Paid to Unlicensed Contractor.

On January 23, 2024, Defendant AWH filed an unlawful Detainer against Plaintiff.

On February 22, 2024, Defendant Sultan filed a demurrer to strike Plaintiff’s third cause of action. Plaintiff opposes the demurrer. The matter is now before the court.

Discussion

Where pleadings are defective, a party may raise the defect by way of a demurrer. (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters.¿ (CCP, § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In evaluating a demurrer, the court accepts the complainant’s properly pled facts as true and ignores contentions, deductions, and conclusory statements. (Daar v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Moreover, the court does not consider whether a plaintiff will be able to prove the allegations or the possible difficulty in making such proof. (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 604.)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿ The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

On May 19, 2019, Plaintiff purchased a property located at 22110 Providencia St. Woodland Hills, CA (the “Property”). (Compl. ¶¶ 1, 7.) Defendant Sultan was the neighbor of Plaintiff and owned a residence on the adjoining property. (Compl. ¶ 2.) In January 2020, Sultan began offering construction and loan services to Plaintiff and asserted that he had special knowledge of Calabasas real estate. (Compl. ¶¶ 10, 11.)

On January 15, 2020, Sultan pointed out that Plaintiff’s electrical panner was out of code and needed to be replaced and that Plaintiff had termites. (Compl. ¶ 15.) Plaintiff and Sulton reached an agreement wherein Plaintiff would pay for materials and labor and Sultan would not receive any profit for the work. (Compl. ¶ 12.) No written estimate was offered by Sultan and Plaintiff had to obtain a loan to finance the project due to his low credit, with Sultan being the co-signer. (Compl. ¶ 14.) Plaintiff initially obtained a loan for $20,000 but by April 2020, the scope of the project increased, and Plaintiff had accrued $200,000.00 in expenses. (Compl. ¶ 15.) In March 2020, the Construction project was halted due to COVID-19. (Compl. ¶ 18.)

Defendant Sultan encouraged Plaintiff to take advantage of the bank forbearance program to obtain additional capital for the construction project by increasing the construction project to include a 20-square-foot expansion for an increased kitchen size, modifying the guest bathroom, and adding a walk-in closet. (Compl. ¶ 18.) Sultan represented to Plaintiff that the project would be completed quickly. (Compl. ¶ 18.) Plaintiff believes that Defendant AS is an entity owned and controlled by Defendant Sultan. (Compl. ¶ 3.)

On July 1, 2020, Plaintiff and his family moved back into the Property. (Compl. ¶ 23.) Construction was not yet completed, and Plaintiff signed the title of a Mercedes Benz S550 over to Sultan as collateral to complete work on the master and guest closet shelves. (Compl. ¶ 24.) By January 2021, the construction project was about 75% to 80% completed. (Compl. ¶ 25.)

By April 2021, Plaintiff's attempts to refinance the Property had failed. (Compl. ¶ 26.) On June 10, 2021, Plaintiff sold the property to AWH for $850,000.00, which included back taxes and delinquent mortgage. (Compl. ¶ 28.) Plaintiff believes AWH is owned and controlled by Defendant Sultan. (Compl. ¶ 3.) Plaintiff asserts that he received no money from the sale of the property and, instead, Sultan paid the forbearance sum (11 months of mortgage payments) and $5,635 in delinquent taxes. (Compl. ¶ 28.)

Plaintiff asserts that the agreement was that Plaintiff would continue to make all payments concerning the Property and after Plaintiff fixed his credit, he would pay off the loan and at the end of the 5-year mortgage, title would transfer back to Plaintiff with equity for fair market value. (Compl. ¶ 28.)

On November 23, 2021, a rat infestation was discovered which Sultan blamed on the lack of shelves for dog food. (Compl. ¶ 30.) Plaintiff paid Sultan $5,000.00 to remodel the garage and install dog food shelving. (Compl. ¶ 30.) By July 10, 2022, Plaintiff was falling behind on payments, resulting in Plaintiff suffering a nervous breakdown and losing his job. (Compl. ¶¶ 31-34.) On October 10, 2023, Sultan told Plaintiff he would be evicted if he did not pay $7,500.00. (Compl. ¶ 35.) Plaintiff paid but on November 10, 2023, Sultan told Plaintiff he would be evicted if he did not pay $6,500.00. (Compl. ¶ 36.)

On January 11, 2024, Plaintiff brought this action against Defendants Sultan and AWH. Defendants Sultan and AWH now demur to the third cause of action.

B. Third Cause of Action – Recovery of Money Paid to Unlicensed Contractor

Bus. & Prof. Code § 7031(b) states: “Except as provided in subdivision (e), a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.” Section 7031 allows “any person who utilizes [the services of an unlicensed contractor] to bring an action for disgorgement of all compensation paid for the performance of any act or contract, even when the work performed is free of defects.” (San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th 266, 271 (San Francisco CDC.)

Defendants demur to the third cause of action on the basis that section 7031 has a one-year statute of limitations, and the Complaint alleges that Plaintiff sold the Property on June 26, 2021, and that November 23, 2021, is the last date construction services were provided related to installing shelving in the garage. (Compl. ¶¶ 28, 30.) However, Plaintiff did not file this action until January 11, 2024, more than one year after the construction services were provided and the Complaint makes no allegations that Defendants engaged in construction services within the one-year statute of limitations.

In Eisenberg Village of Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc. (2020) 53 Cal.App.5th 1201, the appellate court held that CCP § 340(a) governed section 7031 and that “the one-year statute of limitation, applies to disgorgement claims brought under section 7031(b),” and “the discovery rule does not apply to section 7031(b) claims.” (Id. at pp. 1212-1214.)

Subsequently, in San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th 266, the appellate court upheld the decision in Eisenberg and confirmed that “regardless of when the owner became aware of the lapse in license,” section 7031 requires that all claims be brought “within one year of completion of the work[.]” (62 Cal.App.5th 266, 279.) “We further agree that such claims accrue upon the completion or cessation of the performance of the act or contract at issue and are not subject to tolling under the delayed discovery rule.” (Id. at p. 280.)

Plaintiff’s opposition relies on the delayed discovery rule to argue that section 7031 remains valid, but case law holds that the doctrine does not apply to section 7031 claims. Therefore, Plaintiff must amend the Complaint to allege facts that show that Plaintiff is entitled to disgorgement for unlicensed construction work performed within the one-year statute of limitations.

Defendant Sultan’s demurrer is sustained with leave to amend. Plaintiff is granted 30 days leave to amend. The court sets the OSC RE: Amended Complaint for June 7, 2024, at 8:30 a.m. Defendant to give notice.

[1] Pursuant to CCP § 430.41, the meet and confer requirement has been met. (Halford Decl. ¶¶ 4-10.)