MacManus v. A. E. Realty Partners

• Decision Date: 19 August 1983
• Citation: 194 Cal.Rptr. 567,146 Cal.App.3d 275
• Court: California Court of Appeals Court of Appeals
• Parties: , 1983-2 Trade Cases P 65,660 Frederick O. MacMANUS, et al., Plaintiffs and Appellants, v. A.E. REALTY PARTNERS, et al., Defendants and Respondents. Civ. 30250.

Page 567

194 Cal.Rptr. 567

146 Cal.App.3d 275, 1983-2 Trade Cases P 65,660

Frederick O. MacMANUS, et al., Plaintiffs and Appellants, v. A.E. REALTY PARTNERS, et al., Defendants and Respondents.

Civ. 30250.

Court of Appeal, Fourth District, Division 3, California.

Aug. 19, 1983.

Hearing Denied Oct. 26, 1983.

[146 Cal.App.3d 280] Frederick O. MacManus, San Diego, in pro. per., and A. Thomas Golden and Cheri L. Hubka-Sparhawk, San Diego, for plaintiffs and appellants.

Marvin A. Freedland, San Diego, for amici curiae on behalf of plaintiffs and appellants.

Gibson, Dunn & Crutcher, John J. Swenson, Mary Laura Davis and Charles J. Stevens, Los Angeles, for defendants and respondents.

OPINION

TROTTER, Presiding Justice.

Plaintiffs appeal a judgment of dismissal following the sustaining of a demurrer to their third amended complaint without leave to amend. We reverse the judgment holding the complaint states a cause of action for violations of Civil Code section 2995 and the Cartwright Act (Bus. & Prof.Code, § 16700, et seq.).

The complaint alleges the following facts which are presumed true for purposes of reviewing the order sustaining the demurrer. (Bohrer v. County of San Diego (1980) 104 Cal.App.3d 155, 158, 163 Cal.Rptr. 419.)

Frederick O. MacManus and Barbara-Helene Smith (plaintiffs) purchased a home in Westwind, a subdivision developed by A.E. Realty Partners (AERP) in San Diego County. AERP, doing business as Ponderosa Homes, is a major developer and seller of residential real estate in California. Its principal place of business is in Irvine. Realty Escrow, Inc. (REI) is owned and controlled by AERP and derives all of its business from that company. Its principal place of business is also in Irvine.

From 1976 through 1980, AERP gained an income of $591,000,000 from its sale of 6,404 homes. REI provided the escrow services for more than 99.9% of the conveyances and received fees totalling $2,045,343.

When plaintiffs decided to purchase their home, they were given a copy of the Real Estate Commissioner's Public Report which informed prospective buyers of AERP's financial interest in the escrow company to be used in the sale or lease of Westwind residences. After plaintiffs had read the report, an AERP sales agent prepared an Offer to Purchase (Agreement) for their signature. Among other conditions, the Agreement required the home buyer to sign escrow instructions on forms provided by AERP within 10 days after its acceptance of the buyer's offer. The buyer was further obligated to execute and deposit additional documents, including the escrow instructions, or be considered in default. Should the buyer default, AERP could cancel the Agreement and retain as liquidated damages any fees the buyer previously paid.

Before signing the Agreement, plaintiffs asked if changes could be made. They were told only AERP's Agreement form could be used, no changes could be made in the preprinted terms and, if changes were made, the Agreement would not be accepted by AERP.

Upon signing the Agreement, plaintiffs were furnished written notice of their right to choose a title insurance company. They selected, in writing, St. Paul Title Company. Plaintiffs then received escrow instructions identifying REI as the entity to provide escrow services for their conveyance.

Included in the instructions (attached as an exhibit to the complaint) was the following NOTICE OF INTEREST:

"ALL PARTIES TO THIS TRANSACTION ARE HEREBY ADVISED THAT REALTY ESCROW, INC., THE ESCROW AGENT ABOVE NAMED IS A CORPORATION WHOLLY OWNED BY AE REALTY PARTNERS, A GENERAL PARTNERSHIP BY AETNA LIFE INSURANCE COMPANY, A CONNECTICUT CORPORATION AND AE DEVELOPMENT GROUP, INC., A CONNECTICUT CORPORATION A WHOLLY OWNED SUBSIDIARY OF AETNA CASULTY [sic] SURETY COMPANY, AND FOR WHOM REALTY ESCROW, INC. PERFORMS ESCROW SERVICES AT A NEGOTIATED BULK RATE. ALL PARTIES TO THIS TRANSACTION ARE FURTHER ADVISED THAT THE SOLE STOCKHOLDER OF REALTY ESCROW, INC. IS ALSO THE SOLE STOCKHOLDER OF PONDEROSA BROKERAGE COMPANY, A CALIFORNIA CORPORATION AND FURTHER AE REALTY PARTNERS IS ENGAGED IN BUSINESS UNDER THE NAME AND STYLE PONDEROSA HOMES. ALL PARTIES AGREE THAT THE SERVICES OF ANY OF THE FOREGOING COMPANIES MAY BE USED IN CONNECTION WITH THIS TRANSACTION, THAT SUCH USE HAS NOT BEEN MADE A CONDITION OF THIS SALE BY ANY PARTY."

Plaintiffs signed and returned the escrow instructions as required by the Agreement.

The conveyance of the Westwind residence was completed in July 1979. Plaintiffs paid REI various closing fees totaling $319. Comparable escrow services in San Diego County were available at costs of $127.50 to $269.

From August 25, 1978 ¹ through July 16, 1980, ² AERP conveyed 386 lots in San Diego County containing single family residences. REI provided escrow services for all of the conveyances at costs $50 to $191.50 higher than those of local competitors. During the same period AERP also conveyed 2,080 lots of single family residences in other California counties. REI handled all but two of the closings and charged buyers inflated fees. The purchase of AERP properties was conditioned upon the procurement of REI escrow services.

Plaintiffs filed a class action on behalf of themselves and other buyers of AERP homes who were compelled to use the services of REI between August 25, 1978 and July 16, 1980.

DISCUSSION

Alleged Violation of Civil Code section 2995

Plaintiffs' first cause of action is predicated on Civil Code section 2995. ³ At the outset we must decide whether it is barred by section 340, subdivision 1 of the Code of Civil Procedure. ⁴ AERP and REI demurred on the ground plaintiffs filed the action more than one year after signing the Agreement and escrow instructions. Plaintiffs argue the action is subject to a three year statute of limitations (Civ.Proc., § 338, subd. 1) ⁵ and it did not accrue until the transfer of title to their residences. ⁶

Since the Legislature did not prescribe a period of limitations within section 2995, we must determine the applicable period. (See Huntington v. Attrill (1892) 146 U.S. 657, 13 S.Ct. 224, 36 L.Ed. 1123; Levy v. Superior Court (1895) 105 Cal. 600, 38 P. 965.) Our decision must depend upon whether the statute is characterized as "penal" or "remedial." (Ibid.) The distinction is rarely clear cut, for the same provision may be penal to the offender and remedial to the victim. (See Levy, supra, at pp. 607-608, 38 P. 965; Riggs v. Government Emp. Financial Corp. (9th Cir.1980) 623 F.2d 68, 72, citing Huntington v. Attrill, supra, 146 U.S. at p. 667, 13 S.Ct. at 227.) Nevertheless, to determine the applicable limitations period of section 2995, we examine its intent and language. (See Riggs v. Government Emp. Financial Corp., supra, 623 F.2d 68, 69-71.)

Its legislative history reveals residential buyers have often been forced to use an escrow entity in which the seller has an interest. Section 2995 was enacted as a remedial statute to protect the buyer against in-house escrow services. It was intended to assure the buyer's freedom to select an escrow entity and that entity's independence and neutrality.

Section 2995 provides recovery where use of a particular escrow is required as a condition precedent to the transfer of a single family residence. It is concerned with the effect of a buyer/seller agreement rather than the intent of the seller. Since liability is not dependent on some degree of culpability, recovery is construed as remedial in nature. (See Riggs, supra, at p. 71.)

Section 2995 also provides the aggrieved buyer shall receive treble damages, not less than $250.00. "That a portion of such damages is statutorily set, rather than being subject to proof like most remedial damages, does not necessarily make the statute penal." (Riggs, supra, at p. 71.) Further, the liquidated damage measure is consistent with a remedial purpose, for when a buyer is deprived of using comparable escrow services, the value of those services, or actual damages, may be difficult to ascertain. (Ibid.)

In light of the intent and language of section 2995 we characterize it as remedial, and a three year limitations period will be applied. (Civ.Code, § 338, subd. 1.)

Finally, plaintiffs' first cause of action accrued on July 18, 1979, the date escrow closed and fees were collected by REI, and not on the dates the Agreement or escrow instructions were signed. Section 2995 accords a right of action to the "purchaser" of the residence, i.e., one who has acquired title (see Anderson v. Badger (1948) 84 Cal.App.2d 736, 744, 191 P.2d 768) or to whom title has been "transferred." (See Civ.Code, § 1039.) Further, a plain reading of the statute shows there is no claim unless the party suffers injury as a result of a condition precedent, i.e., the use of a particular escrow entity. This can only arise when escrow closes and the fees are paid. Plaintiffs' cause of action is clearly not time barred.

The demurrer interposed by AERP and REI was sustained on the following grounds: "Insufficient facts are pleaded to support a requisite element of a claim under Civil Code Section 2995, namely, that A.E. Realty Partners conditioned the sale of Ponderosa Homes on the use of Realty Escrow's escrow services, and the escrow instructions ... expressly negate the existence of a conditioned sale." We disagree.

The elements constituting a claim under section 2995 appear on its face: (1) A real estate developer with a financial interest in a particular escrow entity, (2) who conditions the sale of a single family residence, (3) on the procurement of that escrow entity's services.

The complaint alleged AERP required buyers to use the services of REI, its wholly owned entity, as a condition precedent to acquiring title to single family residences. These allegations are supported in the complaint by specific facts rather than by conclusionary assertions. (See, e.g., People v. McKale (1979) 25 Cal.3d 626, 635, 159 Cal.Rptr. 811, 602...