Stella v. Asset Management Consultants, Inc.
213 Cal. Rptr. 3d 850
Cal. Ct. App.2017Background
- From 2007–2009 Stella purchased units in seven limited partnerships formed and marketed by Asset Management Consultants, Inc. (AMC) via near-identical private placement memoranda (PPMs), subscription agreements and limited partnership agreements (LPAs).
- Each PPM disclosed a large payment described as a seller-paid “real estate commission” (amounts varied by offering) and also warned in "Risk Factors" that the seller would have sold for a lower price if not obligated to pay that commission.
- Each LPA contained a judicial-reference (Code Civ. Proc. § 638) dispute resolution clause requiring a court-appointed referee to decide disputes.
- Stella sued in 2013 (first complaint) and filed a 193‑page first amended complaint in 2015 alleging fraud, concealment, negligent misrepresentation, breaches of fiduciary duty, securities-related claims and UCL violations based on the claim that the “commission” was actually a markup borne by investors.
- Defendants moved for a general reference under § 638; a referee was appointed. Defendants then demurred on statute-of-limitations grounds; the referee sustained the demurrers without leave to amend, judgment was entered, and Stella appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stella's claims were tolled by the delayed discovery rule (statutes of limitations) | Stella: he did not discover the true nature of the commission until April 14, 2012 despite reasonable diligence, so limitations were tolled. | Defendants: PPM disclosures, which Stella read and relied on, put him on actual or inquiry notice at purchase; statutes therefore ran before suit. | Held: Demurrers sustained — PPM disclosures provided at least inquiry notice; delayed discovery rule does not apply; claims time‑barred. |
| Proper interpretation of PPMs on demurrer / whether court may consider attached exhibits | Stella: PPM language must be interpreted as he pleads; referee should not resolve competing interpretations at demurrer. | Defendants: PPMs were attached to the complaint and their plain disclosures control; courts may rely on exhibits to determine tolling/inquiry notice on demurrer. | Held: Because Stella attached the PPMs and relied on them, the court properly construed their plain language; exhibits prevail over conflicting pleading allegations. |
| Enforceability/scope of § 638 general reference clause and whether appointment of referee was error | Stella: clause is ambiguous or unconscionable; non‑signatory defendants cannot compel reference; fraud claims fall outside scope. | Defendants: LPAs contain valid, broad § 638 reference clauses; reference was appropriate. | Held: Even if appointment were erroneous, any error was harmless because the court reviews demurrer de novo and would reach same result. |
| Effect of alleged fiduciary relationship on duty to inquire | Stella: prior 20‑year relationship and fiduciary duties lowered his burden to investigate. | Defendants: Fiduciary status does not relieve a plaintiff of duty to inquire when disclosures put him on notice. | Held: Even assuming a fiduciary relationship, the PPM disclosures required inquiry; fiduciary status did not save timeliness. |
Key Cases Cited
- Beacon Residential Community Assn. v. Skidmore, Owings, & Merrill LLP, 59 Cal.4th 568 (explaining demurrer review and assumption of truth for properly pleaded facts)
- Loeffler v. Target Corp., 58 Cal.4th 1081 (demurrer standard; de novo review)
- Aryeh v. Canon Business Solutions, Inc., 55 Cal.4th 1185 (last‑element accrual rule for statute of limitations)
- Jolly v. Eli Lilly & Co., 44 Cal.3d 1103 (delayed discovery rule — plaintiff must sue once suspicious of wrongdoing)
- Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797 (plaintiff invoking discovery rule must plead inability to discover earlier despite reasonable diligence)
- WA Southwest 2, LLC v. First American Title Ins. Co., 240 Cal.App.4th 148 (PPM disclosures can trigger statutes of limitations; inquiry notice on demurrer)
- Fremont Indemnity Co. v. Fremont General Corp., 148 Cal.App.4th 97 (limits on taking judicial notice to resolve disputed contract interpretation at demurrer)
- Broberg v. The Guardian Life Ins. Co. of America, 171 Cal.App.4th 912 (distinguishing cases where disclaimers are inconspicuous and create factual issues about inquiry notice and reliance)