State of California v. Superior Court

• Decision Date: 11 January 1984
• Citation: 197 Cal.Rptr. 914,150 Cal.App.3d 848
• Court: California Court of Appeals Court of Appeals
• Parties: STATE of California, Petitioner, v. The SUPERIOR COURT OF SACRAMENTO COUNTY, Respondent, Mark PERRY et al., Real Parties in Interest. Civ. 22497.

Page 914

197 Cal.Rptr. 914

150 Cal.App.3d 848

STATE of California, Petitioner, v. The SUPERIOR COURT OF SACRAMENTO COUNTY, Respondent Mark PERRY et al., Real Parties in Interest.

Civ. 22497.

Court of Appeal, Third District, California.

Jan. 11, 1984.

As Modified Jan. 30, 1984.

George Deukmejian, Atty. Gen., Michael Franchetti, Chief Deputy Atty. Gen., Willard A. Shank, Chief Asst. Atty. Gen., John K. Van de Kamp, Atty. Gen., Nelson Kempsky, Chief Deputy Atty. Gen., Richard D. Martland, Chief Asst. Atty. Gen., Marvin Goldsmith, Asst. Atty. Gen., Seward L. Andrews, Jr. and James M. Schiavenza, Deputy Attys. Gen., for petitioner.

No appearance for respondent.

William D. Kopper, Davis, for real parties in interest.

SIMS, Associate Justice.

FACTUAL AND PROCEDURAL HISTORY

Petitioner State of California is a defendant in a civil action pending in respondent Superior Court of Sacramento County. ¹ In that action real parties in interest (hereafter "plaintiffs") are suing defendants George W. Artz, Meramonte, Inc., a California Corporation, and petitioner. Petitioner filed a general demurrer to the complaint on October 22, 1982, which was overruled by respondent court on December 14, 1982.

Petitioner thereafter filed this writ proceeding alleging that respondent acted in excess of its jurisdiction in overruling the demurrer. We issued an alternative writ of prohibition.

The complaint, filed by plaintiffs on behalf of themselves and a class, alleges as follows: ²

Defendant George W. Artz is president and principal stockholder of defendant Meramonte, Inc. Artz and Meramonte, Inc. operate a real estate business under a license issued by petitioner's Department of Real Estate. On or about June 7, 1979, defendant Artz entered into an agency agreement with Bruce Stuart, whereby Stuart would operate a property management business in Davis known as Rental Services. Rental Services was to be a subsidiary of Meramonte, Inc. Defendants Artz and Meramonte, Inc., provided Stuart with a branch license which Stuart posted on his wall. In December 1981, Stuart fraudulently told plaintiffs funds were needed for advanced maintenance and management fees to manage plaintiffs' rental properties, and in reliance on Stuart's misrepresentations, plaintiffs paid substantial sums of money to Stuart.

Before his death in February of 1982, Stuart converted to his own use funds which class members paid to him in trust. These funds were to be used for maintenance of class members' real property and to refund tenants' security and cleaning deposits.

Plaintiffs' claims against petitioner are set forth in their fourth and fifth causes of action.

In their fourth cause of action, plaintiffs allege as follows: In February of 1980, David Robinson filed a verified complaint with petitioner's Real Estate Commissioner and/or Department of Real Estate (hereafter collectively "commissioner") ³ alleging inadequate supervision by Artz and Meramonte of their agent, Stuart. Robinson's complaint also alleged irregularities in Stuart's trust accounts. Petitioner took no steps to investigate Robinson's allegations despite a statutory duty to do so. As a proximate result of petitioner's failure to investigate, plaintiffs lost all funds entrusted to defendants and Stuart.

In their fifth cause of action, plaintiffs allege: Nearly two years after the Robinson complaint, on November 2, 1981, Rebecca King filed a verified complaint with the commissioner making substantially the same allegations that Robinson had made. The commissioner then investigated and found the irregularities alleged but never informed plaintiffs of his findings, although he did inform defendants. Plaintiffs subsequently paid additional funds to defendants and Stuart, which were also converted by Stuart.

Plaintiffs plead that the commissioner had a duty to monitor Stuart's activities and to warn them of his findings regarding defendants' mishandling of trust funds and that their losses were the proximate result of the commissioner's negligent failure to perform these duties.

Petitioner demurred generally to plaintiffs' complaint, claiming that (1) the duty to investigate complaints against real estate brokers is discretionary, and failure to carry out discretionary acts is shielded by governmental immunity; (2) the commissioner's alleged failure to investigate plaintiffs' claims cannot be the proximate cause of plaintiffs' harm as a matter of law since it would be speculative to guess as to what, if any, action the commissioner would have taken against defendants following an investigation; and (3) the commissioner owes no duty to warn potential victims of improprieties revealed in his investigations; thus, a decision not to warn in a given instance is merely a discretionary act shielded by governmental immunity. The trial court overruled the demurrer, and this petition followed. We issue a peremptory writ of mandate directing the trial court to sustain the demurrer.

DISCUSSION

I

We first address petitioner's fourth cause of action, premised on the commissioner's failure to investigate Robinson's complaint. ⁴

Petitioner claims it is immune from liability by virtue of the Government Tort Claims Act of 1963. (Gov.Code, Tit. 1, Div. 3.6, §§ 810-996.6.) Petitioner notes that tort liability of public entities is now governed exclusively by statute. (Gov.Code, § 815; see Gonzales v. State of California (1972) 29 Cal.App.3d 585, 590, 105 Cal.Rptr. 804; Susman v. City of Los Angeles (1969) 269 Cal.App.2d 803, 809, 75 Cal.Rptr. 240; Datil v. City of Los Angeles (1968) 263 Cal.App.2d 655, 660, 69 Cal.Rptr. 788.) Government Code section 815 creates a general governmental immunity "Except as otherwise provided ...." One of the provisions "otherwise" creating an exception to the general rule of immunity is Government Code section 815.6, which provides: "Where a public entity is under a mandatory duty imposed by an enactment that is designed to protect against the risk of a particular kind of injury, the public entity is liable for an injury of that kind proximately caused by its failure to discharge the duty unless the public entity establishes that it exercised reasonable diligence to discharge the duty."

Government Code section 815.6 contains a three-pronged test for determining whether liability may be imposed on a public entity: (1) an enactment must impose a mandatory, not discretionary, duty (Morris v. County of Marin (1977) 18 Cal.3d 901, 907-909, 136 Cal.Rptr. 251, 559 P.2d 606); (2) the enactment must intend to protect against the kind of risk of injury suffered by the party asserting section 815.6 as a basis for liability (see Shelton v. City of Westminster (1982) 138 Cal.App.3d 610, 619-620, 188 Cal.Rptr. 205; Hecton v. People ex rel. Dept. of Transportation (1976) 58 Cal.App.3d 653, 656, 130 Cal.Rptr. 230); and (3) breach of the mandatory duty must be a proximate cause of the injury suffered. (See Whitcombe v. County of Yolo (1977) 73 Cal.App.3d 698, 707-708, 141 Cal.Rptr. 189; see generally Van Alstyne, California Government Tort Liability Practice (Cont.Ed.Bar 1980) §§ 2.41-2.48, pp. 93-107.)

Plaintiffs contend that a mandatory duty to investigate is established by Business and Professions Code section 10176, which provides in pertinent part that "The commissioner [of real estate] may, upon his own motion, and shall, upon the verified complaint in writing of any person, investigate the actions of any person engaged in the business or acting in the capacity of a real estate licensee within this state, ..." (Emphasis added.) ⁵ We agree.

Section 19 of the Business and Professions Code provides that, as used in that code, " 'Shall' is mandatory and 'may' is permissive." In Business and Professions Code section 10176, the Legislature has used the words "may" and "shall" in the same sentence, obviously to establish different duties on the part of the commissioner. Section 10176 clearly contemplates that the commissioner has a mandatory duty to investigate complaints that are submitted in writing and are verified but that the commissioner retains discretion whether to investigate in other circumstances. Here "the statutory language makes quite clear that the Legislature intended the statutory requirements to be obligatory rather than permissive ...." (Morris v. County of Marin, supra, 18 Cal.3d at p. 910, 136 Cal.Rptr. 251, 559 P.2d 606.) We hold that, where the commissioner receives a verified complaint in writing, Business and Professions Code section 10176 imposes a mandatory duty on the commissioner, within the meaning of Government Code section 815.6, to investigate the actions of any person accused in the complaint who is engaged in the business or acting in the capacity of a real estate licensee within this state.

The commissioner contends our holding contravenes Taliaferro v. Locke (1960) 182 Cal.App.2d 752, 6 Cal.Rptr. 813 and Ascherman v. Bales (1969) 273 Cal.App.2d 707, 78 Cal.Rptr. 445. Both cases hold a prosecutor has no mandatory duty to initiate a prosecution pursuant to Government Code section 26501, which provides in pertinent part: "The district attorney shall institute proceedings before magistrates for the arrest of persons charged with or reasonably suspected of public offenses when he has information that such offenses have been committed." (Emphasis added.) Taliaferro makes clear that the emphasized language of section 26501 refutes any legislative intent to impose a mandatory duty on a prosecutor: "[A]lthough Government Code section 26501 uses the sometimes mandatory 'shall' in defining the district attorney's duty to institute proceedings, the use is qualified by the ensuing clauses that imply that he, the district attorney, reasonably suspects a person charged with crime and has information to cause him to believe that an offense has been committed." (Taliaferro, supra, 182 Cal.App.2d at p. 757, 6 Cal.Rptr. 813.) Taliaferro 's reading of the...