State v. Superior Court

Opinion

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, Meramente, 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.

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.

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

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.) Pe

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, Cal. 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, ...” (Italics added.)^[5] We agree.

Plaintiffs argue further that Business and Professions Code section 10176 is intended to protect against the risk of injury they suffered, to wit, the unlawful appropriation of funds by a licensee. Once again, we agree.

One of the purposes of the Real Estate Act, of which Business and Professions Code section 10176 is a part, is to insure, as far as possible, that real estate licensees will be honest and truthful in their dealings with members of the public. (Brown v. Gordon (1966) 240 Cal.App.2d 659 , 667 [ 49 Cal.Rptr. 901 ]; Buckley v. Savage (1960) 184 Cal.App.2d 18 , 31-32 [ 7 Cal.Rptr. 328 ].) Investigations required by Business and Professions Code section 10176 serve to initiate a process by which dishonest acts of real estate licensees can be discovered. Section 10176 therefore intends to protect members of the public, such as plaintiffs, from what happened to them: the dishonest appropriation of funds of a client by a real estate licensee.

Finally, plaintiffs contend the commissioner’s failure to investigate the Robinson complaint was the lawful proximate cause of their loss. It is at this point that our path diverges from plaintiffs’. Unlike Robert Frost, however, we take the path more travelled by.

The limited nature of the commissioner’s duty to “investigate,” and its relationship to proximate cause, distinguish this case from S. A. Empresa de Viacao Aerea Rio Grandense (Varig Airlines) v. United States (9th Cir. 1982) 692 F.2d 1205 (cert. granted sub nom. United States v. S. A. Empresa de Viacao Aerea Grandense (Varig Airlines) (1983) 461 U.S. 925 [ 77 L.Ed.2d 296 , 103 S.Ct. 2084 ]) and United Scottish Insurance v. United States (9th Cir. 1982) 692 F.2d 1209 (cert. granted sub nom. United States v. United Scottish Insurance Co., et al. (1983) 461 U.S. 925 [ 77 L.Ed.2d 296 , 103 S.Ct. 2084 ]), relied upon by plaintiffs.^[9] For present purposes, we assume, arguendo, the cases were correctly decided.

In both cases plaintiffs brought suit against the United States under the Federal Tort Claims Act ( 28 U.S.C. § 2671 et seq.) for damages following

In S. A. Empresa, supra, 692 F.2d 1205 ,^[10] the Ninth Circuit concluded that the F.A.A. had undertaken the inspection and certification of a civilian aircraft, that the Federal Aviation Act of 1958 provided for mandatory certification of design and performance characteristics of aircraft so inspected (see 49 U.S.C. § 1423 ), that the F.A.A. had promulgated design criteria for certification of aircraft, and that the plane in question had been certified for flight even though it contained design components that violated F.A.A. regulations. (S. A. Empresa de Viacao Aerea Rio Grandense v. United States, supra, 692 F.2d at pp. 1207-1208.) Had the design defects been known, the plane would have been “grounded.” (Ibid.) Accordingly, in S. A. Empresa, had the F.A.A. inspection been done with due care and the design defects disclosed, the plane could not have been lawfully certified for flight and could not have gotten off the ground. There was therefore no question but that the F.A.A.’s negligent inspection and certification of the plane was a proximate cause of the plane’s crash landing.

Here the commissioner’s mandatory duty to investigate Stuart’s actions is arguably comparable to the F.A.A.’s duty to inspect. However, as we have seen, the commissioner has no duties corresponding to the F.A.A.’s duties of mandatory certification or grounding. The commissioner’s statutory duty to inquire into Stuart’s activities may not be equated with a duty to “certify” Stuart’s honesty. Nor did the commissioner have any duty to “ground” Stuart in the event an investigation disclosed evidence of Stuart’s wrongdoing.

We conclude the commissioner’s failure to investigate cannot be a lawful proximate cause of plaintiffs’ injuries. (Whitcombe v. County of Yolo, supra, 73 Cal.App.3d at pp. 707-708.) Therefore, the trial court acted in excess of its jurisdiction in overruling petitioner’s demurrer to plaintiffs’ fourth cause of action.

Petitioner also contends its demurrer should have been sustained as to plaintiffs’ fifth cause of action. There, plaintiffs allege the commissioner

As we pointed out in part I, ante, we are aware of no “enactment” that placed a mandatory duty on the commissioner to take action following an investigation. Our Supreme Court has recently addressed the scope of liability of public entities for their alleged negligent failure to aid or warn a citizen in two cases in which no “enactment” placed a duty on the public entity to take such action.

In Davidson v. City of Westminster, supra, 32 Cal.3d 197 , plaintiff, a woman, was stabbed in a laundromat that was under police surveillance. Her complaint alleged that police officers knew of other stabbings in the same or nearby laundromats, knew that plaintiff was in the laundromat, and identified a man on the premises as a likely perpetrator of a stabbing that occurred the evening before. As officers watched, the suspect entered and left the laundromat several times. The officers neither intervened nor warned plaintiff, and she was stabbed. Her complaint alleged causes of action for intentional and negligent infliction of emotional distress, negligent investigation, failure to protect, and failure to warn. Concluding the officers owed no duty to plaintiff, the court held her complaint stated no causes of action for negligence. (P. 209.)^[11]

In Williams v. State of California, supra, 34 Cal.3d 18 , plaintiff filed a complaint alleging she was injured when a heated brake drum from a passing truck was propelled through her windshield and hit her. She further alleged that unnamed agents of the state who investigated the accident were negligent in failing to test the heat of the brake drum, failing to secure the identification of witnesses, and failing to attempt investigation of the owner or occupant of the truck whose brake drum had caused her injuries. The Supreme Court held that judgment on the pleadings was properly entered for the state but that plaintiff should be allowed an opportunity to amend in light of the misunderstanding of all participants in the trial court as to the applicable law. (P. 28.)

Both Davidson and Williams recognize that an analysis of the possible liability of a public entity for failure to aid or warn a citizen starts