A judge refused to dismiss what could become a class-action fraud lawsuit against Modesto’s PMZ Real Estate, but the firm expects to win in the long run, Chief Executive Officer Michael Zagaris said.
The lawsuit says a Concord company gave PMZ kickback payments in exchange for PMZ secretly using the Concord firm for natural-hazard reports in home transactions. PMZ concealed kickbacks by directing clients to deal with another firm – in reality, a shell company run by PMZ, plaintiffs claim.
“Prevailing law holds that a fiduciary’s earning secret profits can constitute constructive fraud,” Contra Costa Superior Court Judge Barry Goode said in a written tentative ruling. If allegations are true, Goode said, “there is ample basis to conclude that one or more (defendants) earned secret profits.”
According to the (lawsuit), Valley NHD owes its entire existence to the kickback conspiracy. All of its financial gains came about due to the conspiracy.
Barry Goode, Contra Costa Superior Court Judge
However, the judge released five PMZ agents as defendants from the lawsuit because none of the plaintiffs had used the agents when selling homes. That encouraged PMZ, Zagaris said in a statement issued Tuesday.
PMZ also contends that none of the plaintiffs has legal standing because none used Valley NHD, which the lawsuit claims is PMZ’s shell company.
“The judge said we may have a winning argument down the road, but because of the legal procedure he must follow he cannot consider those records at this very early stage of the lawsuit,” Zagaris said. “We are confident the judge will agree with our position once the facts are fully fleshed out.”
PMZ, the leading property firm in Stanislaus County, is the 38th-largest real estate company in the United States, its website says.
This lawsuit has no merit whatsoever and we will continue to aggressively defend ourselves. We anticipate we will be fully vindicated.
Michael Zagaris, PMZ chief executive officer
The Concord company, Disclosure Source, produces reports listing risks from floods, forest fires and earthquakes.
Three former PMZ clients from Stockton and another from Lodi used the Modesto firm to sell homes in 2009 and 2010. In theory, hundreds or thousands of PMZ’s former clients from Modesto and beyond could join the lawsuit if Goode, who specializes in complex civil litigation, eventually deems it worthy of class-action status.
The Modesto Bee on Tuesday was unable to reach La Jolla attorney Frank Bottini, who brought the lawsuit.
In his decision, Goode also rejected PMZ’s contention that the lawsuit should be dismissed because such claims must be brought within a four-year statute of limitations, while nearly five had passed.
The judge noted that former clients say they did not discover the claimed kickback scheme – a term quoted by Goode seven times in his ruling – until recently, because those accused of being conspirators “actively concealed it,” the judge said, quoting from the lawsuit.
Further proceedings are scheduled in April.
Garth Stapley: 209-578-2390