Isabel Huerta, et al. v. Alfonso Rivera, Jr., et al

Case Number

23CV05056

Case Type

Hearing Date / Time

Wed, 02/07/2024 - 10:00

Nature of Proceedings

Cross-Defendants Isabel Huerta and Martin Huerta’s Demurrer and to the First and Second Causes of Action in the Cross-Complaint of Alfonso Rivera, Jr. and Elizabeth Rivera

Tentative Ruling

For Plaintiffs and Cross-Defendants Isabel Huerta and Martin Huerta: Paul R. Burns and Solange D. Sanhueza 

For Defendants and Cross-Complainants Alfonso Rivera, Jr. and Elizabeth Rivera:

Mark T. Coffin and Scott A. Jaske

                                               

  

RULING

For the reasons set forth herein:

1. The demurrer of cross-defendants Isabel Huerta and Martin Huerta, to the cross-complaint, is overruled.

2. Cross-Defendants shall file and serve their answer to the cross-complaint no later than February 17, 2024.

The Case Management Conference of 3/20/24 is confirmed; please meet and confer prior to that hearing and provide the trial date you want for the case in your CMCS.

Background

This action commenced on November 15, 2023, by the filing of the complaint by plaintiffs and cross-defendants Isabel Huerta and Martin Huerta (collectively “Huertas”) against defendants and cross-complainants Alphonso Rivera, Jr. and Elizabeth Rivera (collectively “Riveras”) setting forth causes of action for: (1) Recission of contract; (2) Declaratory relief; (3) Intentional infliction of emotional distress; and (4) Negligent infliction of emotional distress.

As alleged in the complaint:

On June 2, 2005, Huertas purchased real property located at 816 Alberta Avenue, Units A and B, Santa Barbara, together with Riveras. (Complaint, ¶ 1.) At the time of purchase, title vested “Elizabeth Rivera and Alfonso Rivera, Jr., wife and husband, as joint tenants, as to an undivided 5% interest and Martin Huerta and Isabel Huerta, husband and wife, as joint tenants, as to an undivided 95%; all as tenants in common.” (Complaint, ¶ 2.)

Elizabeth Rivera is the Huertas’ daughter. (Complaint, ¶ 3.)

The purchase price for the property was $900,000.00, and the parties took out a joint purchase loan in the amount of $720,000.00. (Complaint, ¶ 4.) Huertas provided the $180,000.00 remaining on the purchase price. (Complaint, ¶ 5.)

Riveras resided continuously at the property, without payment of rent, from August 2009 until May 10, 2023, while the property was in active foreclosure. (Complaint, ¶ 6.) In addition to the unit occupied by Riveras, the property had a rental unit that rented for $1,550.00 to $2,400.00 per month, which was used to pay part of the monthly mortgage payment. (Complaint, ¶ 7.)

Riveras were permitted to live in the property, and collect the rents, in consideration of their promises to pay the collected rent and any additional amounts owed towards the monthly mortgage. (Complaint, ¶ 8.) Riveras collected rent for approximately 4 years and 8 months, collecting over $100,000.00, but did not make any mortgage payments during that period. (Complaint, ¶ 9.) Because of the failure to pay the mortgage, the property was subject to commencement of foreclosure proceedings. (Complaint, ¶ 10.)

As a result of Riveras taking the rents and failing to pay the mortgage, Huertas were compelled to sell the property under duress on May 10, 2023. (Complaint, ¶ 12.) During the close of the sale, Riveras represented to the IRS that the IRS was only entitled to recover 5 percent of the net sale proceeds in the amount of $31,988.77. (Complaint, ¶ 13.) The amount was paid to the IRS for the benefit of the Riveras. (Ibid.)

During the escrow for the May 10, 2023 sale, Riveras refused to sign documents to close the sale and avoid foreclosure unless Huertas agreed to sign a memorandum of understanding (“MOU”) that would allocate an additional 55 percent of the net sale proceeds to Riveras. (Complaint, ¶ 14.) Huertas signed the MOU under duress, coercion, and leverage imposed by Rivera. (Complaint, ¶ 15.)

The MOU provides, in part:

“3. The sale of the Real Property will go forward with Riveras receiving 5% of the proceeds, subject to IRS liens, and Huertas receiving 95% of the proceeds;

“4. After the sale of the Real Property, Riveras will file for bankruptcy relief, likely under Chapter 7, to obtain a discharge of debts;

“5. After Riveras" bankruptcy discharge, Huertas will pay to Riveras 60% of the net proceeds . . .” (Complaint, ¶ 20 & Exh. E.)

Riveras answered the complaint on January 3, 2024, asserting a general denial and setting forth 26 affirmative defenses.

Also on January 3, 2024, Riveras filed the cross-complaint that is the subject of the current demurrer.

As alleged in the cross-complaint:

On June 2, 2005, Riveras purchased real property located at 816 Alberta Avenue, Units A and B, Santa Barbara. (Cross-Complaint, ¶ 8.) Elizabeth Rivera is Huertas’ daughter. (Cross-Complaint, ¶ 9.)

Huertas agreed to co-sign the mortgage loan and, for that purpose, was put on title as holding a 95 percent interest as tenants in common and Riveras a 5 percent interest. (Cross-Complaint, ¶ 10.) The property was purchased for a total of $900,000 with Huertas loaning Riveras the money for the downpayment on the property. (Cross-Complaint, ¶ 11.) The parties jointly borrowed $720,000.00. (Ibid.)

On August 16, 2010, Huertas filed for Chapter 7 Bankruptcy and, in their bankruptcy petition, disavowed any ownership interest in the property. (Cross-Complaint, ¶ 12.) Also included in the Huertas’ bankruptcy petition was a letter executed by Riveras stating that Huertas had no interest in the property. (Cross-Complaint, ¶ 14.)

On July 24, 2019, Peak Foreclosure Services, Inc. (“Peak”) commenced foreclosure proceedings on the property by recording a Notice of Default against the property. (Cross-Complaint, ¶ 18.) On March 2, 2023, Peak recorded a notice of Trustee’s Sale against the property. (Cross-Complaint, ¶ 19.)

“On March 23, 2023, after consulting with realtor/attorney John Thyne, both Cross-Defendants and Cross-Complainants freely and willingly entered into a Memorandum of Understanding for Sale of Jointly Owned Real Property (“AGREEMENT”), which was prepared by Mr. Thyne which provided that Cross-Defendants would pay Cross-Complainants 60% of the net proceeds

of the sale of the PROPERTY.” (Cross-Complaint, ¶ 20 & Exh. G.)

At closing of the sale of the property, Huertas received reimbursement of their downpayment loan by they refused to comply with the other material terms and breached the agreement. (Cross-Complaint, ¶ 21.)

Huertas now demur to the first cause of action for breach of contract, and the second cause of action for fraudulent inducement, on the grounds that they fail to state facts sufficient to constitute causes of action and that each of those causes of action are based upon an illegal and unenforceable contract.

Analysis

Demurrer

“When any ground for objection to a complaint, cross-complaint, or answer appears on the face thereof, or from any matter of which the court is required to or may take judicial notice, the objection on that ground may be taken by a demurrer to the pleading.” (Code Civ. Proc., § 430.30, subd. (a).) “Our consideration of the facts alleged includes ‘those evidentiary facts found in recitals of exhibits attached to [the] complaint.’ [Citation.]” (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250.)

“[A] court must treat a demurrer as admitting all material facts properly pleaded, it does not, however, assume the truth of contentions, deductions or conclusions of law.” (Travelers Indem. Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 358, citing Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

“To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)

Both of Huertas’ arguments are based on the assertion that the MOU is an illegal and unenforceable contract meant to “defraud both the IRS and the Federal Bankruptcy Courts and the Rivera’s creditors.” (Demurrer, p. 8, ll. 23-24.) Huertas argue that this is a complete defense to the first and second causes of action. No other grounds for demurrer are stated.

“All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” (Civ. Code § 1668.)

With respect to contracts:

“That is not lawful which is:

“1. Contrary to an express provision of law;

“2. Contrary to the policy of express law, though not expressly prohibited; or,

“3. Otherwise contrary to good morals.” (Civ. Code § 1667.)

Huertas argue that 26 U.S.C. § 7201 applies to the MOU. That section provides: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

“The object of a contract must be lawful when the contract is made, and possible and ascertainable by the time the contract is to be performed.” (Civ. Code § 1596.)

The MOU at issue here, which is attached as Exhibit G to the Cross-Complaint, states in full:

“Memorandum of Understanding for Sale of Jointly Owned Real Property;

“Whereas, Alfonso Rivera Jr. and Elizabeth Rivera (collectively, “Riveras”) currently own a recorded 5% interest in and to 816 Alberta Avenue, Santa Barbara, CA 93101 (“Real Property”);

“Whereas, Martin and Isabel Huerta (collectively, “Huertas”) currently own a recorded 95% interest in and to the Real Property;

“Whereas the Real Property is subject to foreclosure due to arrearages on a lien owed to Shellpoint Mortgage;

“Whereas, the Real Property is encumbered by IRS tax liens for the Riveras;

“Whereas, the Parties hereto agree to list and sell the Real Property according to the following distribution of proceeds,

“NOW, THEREFORE, the following terms are agreed to between the parties:

“1. The parties (Riveras and Huertas) will cooperate with listing and selling the property for at least $l,400,000 by signing a Listing Agreement with Goodwin & Thyne Properties;

“2. The parties will cooperate with negotiating an extension of the foreclosure using the purchase agreement referenced above, but if no such extension is achieved, the Huertas will file an emergency Chapter 13 bankruptcy with Reed Olmstead in time to delay the foreclosure;

“3. The sale of the Real Property will go forward with Riveras receiving 5% of the proceeds, subject to IRS liens, and Huertas receiving 95% of the proceeds;

“4. After the sale of the Real Property, Riveras will file for bankruptcy relief, likely under Chapter 7, to obtain a discharge of debts;

“5. After Riveras’ bankruptcy discharge, Huertas will pay to Riveras 60% of the net proceeds calculated as:

     “1. Sale Price (estimated $l,400,000)

     “2. Less costs (estimated at $1,035,000):

          “1. Approximately $820,000 including sale expenses (broker fees, mortgage payoff, title fees, closing costs, fees for clearing title, bankruptcy fees as needed to stop escrow, etc.)

          “2. $180,000 down payment refund to the Huerta’s from the initial purchase

          “3. $35,000 payment to Huerta’s as reimbursements made to Unit A

     “3. Equals Net proceeds (estimated $365,000) to be split:

          “1. 60% will be paid to the Rivera’s (less the 5% already paid in escrow)

          “2. 40% will remain with the Huertas

     “4 . After the split, the Huerta’s will pay to the Riveras $18,000 (as repayment of a $20,000 loan from Elizabeth less a $2,000 loan that was borrowed from Isabel)”

Huertas’ do not provide any authority or evidence that the MOU is illegal or that, by the MOU, Riveras are willfully attempting to evade taxes. Huertas’ arguments are conclusory. The court has nothing before it showing that it is illegal to agree to make a post-bankruptcy payment to a party whose debts are discharged in bankruptcy. Further, it would require improper speculation to determine the intent of the parties for the agreed upon transfer. Issues of the parties’ intent and the purpose of the MOU language are more properly explored through discovery than challenged by way of demurrer.

Facially, nothing in the MOU conclusively shows that its purpose is tax evasion, nor does it include a requirement that any party make misrepresentations to the bankruptcy court. For purposes of demurrer, Huertas fail to meet their burden to show that the contract is unenforceable and that the language contained in the contract operates as a complete defense to the first two causes of action.

Even if the court had found that the post-discharge provisions of the MOU were facially illegal, it would not dispose of the entire cause of action. The contract contains facially enforceable provisions related to the sale of the property.

“Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest.” (Civ. Code § 1599.)

“ ‘Ordinarily, a general demurrer does not lie as to a portion of a cause of action and if any part of a cause of action, is properly pleaded, the demurrer will be overruled.’ ” (Elder v. Pacific Bell Telephone Co. (2012) 205 Cal.App.4th 841, 856, fn. 14.)

The demurrer is overruled.