Welcome to Abbott & Kindermann, Inc.’s July Real Estate Law Action News. This summary provides brief updates on recent environmental cases, legislation, and administrative actions in 2020. The case names of the newest decisions start with Section 3 and are denoted by bold italic fonts.
- PREVIOUS MONTH’S UPDATE
To read the June 2020 Environmental Action News post, click here: https://blog.aklandlaw.com/2020/06/articles/ak-news/land-use-law-blog-june-monthly-real-estate-law-action-news/.
- CASES PENDING AT THE CALIFORNIA SUPREME COURT
There is one case pending at the California Supreme Court. The case and the Court’s summary are as follows:
Weiss v. People ex rel. Dept. of Transportation, S248141. (G052735; 20 Cal.App.5th 1156; Orange County Superior Court; 30-2012-00605637.) Petition for review after the Court of Appeal reversed the judgment in a civil action. This case presents the following issue: Can the procedure permitted by Code of Civil Procedure section 1260.040 be used in an inverse condemnation action to determine in advance of a bench trial whether a taking or damaging of private property has occurred?
- Bridge Aina Le’a, LLC v. State Land Use Comm’n (9th Cir. 2020) 950 F.3d 610.
In 2011, the State of Hawaii’s Land Use Commission reverted 1,060 acres on the Big Island of Hawaii from a conditional urban land use classification to the prior agricultural use classification. Plaintiff Bridge Aina Le’a, LLC, a landowner at the time of reversion, challenged the reversion’s legality and constitutionality in a state agency appeal, later filing suit in federal district court. After the trial, the jury decided that there was a unconstitutional regulatory taking of the plaintiff’s property pursuant to Lucas and Penn Central. The district court entered a judgment for the plaintiff, awarded $1 million in nominal damages, and denied the State’s renewed motion for judgment as a matter of law (“JMOL”). The state appealed the denial of the JMOL.
The Ninth Circuit held that the district court erred in denying the State’s renewed JMOL because plaintiff’s evidence did not establish a taking under Lucas or Penn Central. The conditions for the Lucas test were not met because the land retained substantial residual value in its agricultural use classification which still allowed the plaintiff to use the land in economically beneficial ways. The Court concluded that the State was entitled to judgment as a matter of law under Lucas.
Applying the Penn Central factors, the Court concluded that the jury could not reasonably find for the plaintiff. The Court held that the valuation evidence weighed strongly against a taking pursuant to the first factor which considers the extent of the economic loss suffered by the landowner as a result of the action, usually measured by diminution in market value, and rejected the plaintiff’s assertion that the disruption of a land sales agreement showed economic impact. The Commission’s reversion order did not interfere with the plaintiff’s reasonable investment backed expectations at the time of acquisition because the plaintiff had committed to build 385 housing units and had failed to complete them. Hawaii law expressly authorized the Commission to impose this condition. The Court held that plaintiff’s own evidence established a diminution in value that was too small, and the reversion did not interfere with the plaintiff’s reasonable investment-backed expectations for the land. The Court then reversed the district court’s denial of the State’s renewed JMOL motion on the Penn Central test as well.
- Ruiz v. County of San Diego (2020) 47 Cal.App.5th 504
The Court of Appeal reversed the trial court’s determination that a homeowner could claim redress by inverse condemnation against a county if their private drainage system allowed for flow of public water. The Court of Appeal considered whether privately owned drainage on private property allows for homeowner remedies by inverse condemnation if the water in the private pipeline is for public use. Plaintiff/Appellee Ruiz (“Ruiz”), claimed that because the developer offered the County of San Diego (“County”) a dedicated easement to allow for public drainage in 1959 and the County turned down the easement, Ruiz could recover for water damage as a result in the pipeline leaking on Ruiz’s property. Ruiz claimed that the County’s use of the drainage system as part of the Valley drainage system constituted an acceptance of the drainage easement offered in 1959. The Court of Appeal, citing Locklin v. City of Lafayette, 7Cal.4th 327 (1994), held that the County’s use of the Ruiz pipe did not meet the requirements for inverse condemnation since the County needed to exert minimal control and maintenance over the watercourse near the Ruiz property since the County would be liable for damage caused by streamflow. The Court of Appeal found Ruiz’s arguments unpersuasive since the County did not control continually nor own any portion of the private pipeline. The Court stated the Ruiz lacked substantial evidence to prove that the County had taken their private property for a public use. The Court reversed the award of attorney’s fees to Ruiz and held that each party should bear their own attorney’s fees on appeal.
B. GENERAL REAL ESTATE
- Constellation-F, LLC v. World Trading 23, Inc. (2020) 45 Cal.App.5th 22
A commercial lease set rent to increase 150 percent if the tenant stayed past a certain date. The date passed but the tenant refused to pay the increased rent. Plaintiffs, a commercial landlord (“Constellation”), filed a breach of contract action against defendants corporations (“World Trading” and “World Tech Toys”) seeking damages for past due rent, late fees, interest, failure to maintain and repair, costs for not being able to use the premises, and holdover rent. Constellation alleged that World Tech Toys was an alter ego of World Trading. The trial court rejected the theory of alter ego liability and held the defendants liable for all damages except the holdover rent, finding it to be an unenforceable penalty. World Trading and World Tech Toys were held liable to Constellation and its successors for $27.196.74. Constellation appealed and defendants cross appealed.
The Court of Appeal reversed the judgement denying Constellation holdover rent. The court held that the holdover rent was not an unlawful penalty. The court affirmed the remainder of the judgment, including the trial rejection of alter ego liability. The Court of Appeal explained that holdover rent, or “a graduated rental provision”, in commercial provisions are enforceable even if the increased rent is much greater than the base. To qualify as an unenforceable penalty, defendants must prove that the provision amounted to an illegal liquidation of damages. Here, the defendants failed to show that Constellation had market power to set the rate, and the defendants could have easily avoided higher rent by leaving the premise. Therefore, the trial court should have enforced the holdover agreement.
Further, the defendants argued that the penalty could be avoided under section 1671 of the Civil Code. However, the Court of Appeal held that section 1671 was inapplicable because the case did not involve a question of penalty or liquidated damages. While the evidence showed unity of interest and ownership, which is required to invoke the alter ego doctrine, there was insufficient evidence to prove that treating defendants as separate entities would promote injustice. The court dismissed the defendant’s cross-appeal and appeal from the order after judgement.
The dissenting Justice argued that the liquidated damages provision, which established the holdover rent at 150 percent of base rent, was an unenforceable penalty. The Dissent argued that the majority’s new test allows contracting parties to bypass tethering a liquidated damages provision to estimated anticipated loss, and instead requires a challenger to analyze each contracting party’s respective market power and persuade a court that there was enough of an imbalance between parties to invalidate the damages provision.
- Matson v. S.B.S. Trust Deed Network (2020) 46 Cal.App.5th 33
Plaintiffs Matthew Matson and Matson SDRE Group, LLC (“Matson”) contested the deed of trust purchased in a foreclosure auction after learning the lien was second in position with a lower fair market value than the auction price. Matson’s complaint alleged that the terms of sale were unconscionable, and they relied on a mistake of fact when purchasing the deed of trust. The trial court granted summary judgment to defendants, S.B.S. Trust Deed Network (“SBS”) stating that there was no irregularity, unfairness, or fraud during the acquisition. The trial court further reasoned that a judicial remedy was not appropriate where plaintiff failed to read through a title report to discover the value and position in the chain of title. Plaintiffs appealed. The Court of Appeal affirmed.
The court reasoned that plaintiffs were not entitled to relief because there was no unilateral mistake allowing for a remedy since plaintiffs bore the risk of their mistake not to fully read the title report. The transaction was complete when plaintiffs accepted the final bid at auction and there was no legal effect of rejecting the title after plaintiffs learned the deed of trust was second in priority to another deed. For this reason, the court held that plaintiffs failed to produce evidence to warrant judicial remedy by rescission. Also, the court reasoned that because plaintiffs were aware of the risks they bared through the complete title report, they were not entitled to relief.
- Jeppson v. Ley (2020) 44 Cal.App.5th 845
Among one of the more colorful neighbor disputes in 2020, the Court of Appeal affirmed the trial court’s decision to deny redress to Appellant, Jeppson, since there was no issue of “public interest” involved in a neighborhood feud where appellant’s cat was killed by appellee’s dog. The Court evaluated whether Jeppson’s claims arose from protected activity and then measured the likelihood of success on each claim as part of Jeppson’s summary judgment motion. A protective activity would grant relief to plaintiff in connection with an issue within the public interest. § 425.16, subd. (e)(3). The Court evaluated six criteria outlined in Rand Resources, LLC v. City of Carson (2019) 6.Cal.5th 610; Rivero v. American Federation of State, County and Municipal Employees, AFL-CIO (2003) 105 Cal.App.4th 913; Weinberg v. Feisel (2003) 110 Cal.App.4th 1122; Workman v. Colichman (2019) 33 Cal.App.5th 1039; Abuemeira v. Stephens (2016) 246 Cal.App.4th 1291; FilmOn.com Inc. v. DoubleVerify Inc. (2019) 7 Cal.5th 133, to determine if the Jeppson’s claims were in fact within the “public interest.” The criteria were as follows:
- Statements or conduct concerning a person or entity in the public eye,
- Conduct that could directly affect a large number of people,
- A topic of widespread public interest,
- Whether the issues affect only those directly involved,
- Gathering ammunition for a private controversy, and
- Where issues are too remotely connected to the public conversation to assert the issue within the public interest.
The Court reasoned that the claims at issue between Jeppson and Ley did not meet the criteria outlined in any of the above categories, thus the Jeppson claims did not constituted issues of public interest. The Court stated, “Feuds can metastasize into the Hatfields and McCoys or the Montagues and Capulets. This tiff, though bitter, remained strictly local: a private affair and not a matter of “public interest.” The Court affirmed the trial court’s ruling in favor of Lay and awarded costs on appeal to Jeppson.
- Kelly v. House (2020) 2020 Cal.App.LEXIS 277 (modified for partial publication, April 1, 2020)
The Court of Appeal awarded statutory attorney’s fees to Appellant for the trespass and conversion on to Appellant’s agricultural property because the damaged land resulted in loss of organic certification status and prevention of prospective buyers. Plaintiffs, the Houses, appealed the decision of the trial court on their claims for attorney’s fees against the Fosses for trespass and conversion of their property. The Court of Appeal considered whether the Fosses entering the Houses property and spraying pesticide jeopardized the fragile organic farming certification held by the Houses and whether such claims gave rise to an award of attorney’s fees for both claims. Statute Section 1021.9 provides: “In any action to recover damages to personal or real property resulting from trespassing on lands either under cultivation or intended or used for the raising of livestock, the prevailing plaintiff shall be entitled to reasonable attorney’s fees in addition to other costs, and in addition to any liability for damages imposed by law.” The Court held that the Houses could recover attorney’s fees under the statute because the statute was intended to protect farmers from illegal trespasses to their land. Defendant claimed that the Houses could not recover under Section 1021.9 for attorney’s fees because the majority of their fees related back claims other than the trespass claims. The Court remanded the case to the trial court to determine the amount of reasonableness of the Houses attorney’s fees under Section 1021.9 as it relates to the trespass claim only.
C. COMMON INTEREST DEVELOPMENTS
- Coley v. Eskaton, 2020 Cal.App. LEXIS 629 (June 11, 2020), certified for partial publication
The trial court held that (i) directors of a homeowners association breached their fiduciary duties when they apportioned costs while acting under a conflict of interest, precluding the use of the best business judgement rule, and (ii) that the directors were not liable in their personal capacities. The Court of Appeal affirmed in part, reversed in part, and remanded. Since the directors did not engage in transactions with the association, the common law standard of inherent fairness was more appropriate than the statutory standard of a just and reasonable transaction. However, requiring the directors to show that the transaction was just and reasonable was not an error because this standard closely resembles the common-law standard. It also held that the trial court erred by not finding the directors liable in their personal capacities because they breached their fiduciary duties by apportioning costs and expenses which were inconsistent with their governing duties and resulted in damages.
2. Aldea Dos Vientos v. CalAtlantic Group, Inc. (2020) 44 Cal.App.5th 1073
In a construction defect case before the Court of Appeal, the Court reversed the trial court’s confirmation of the arbitrator’s award for a condominium association (‘association”). The Court of Appeal concluded that the association’s governing documents require a majority vote of members to bind arbitration, and that the arbitrator failed to obtain a vote of the association constituting an “unreasonable servitude” under the statute. As the Court reasoned, the arbitrator’s award violated the plain language of the statute. The Court reversed the trial court’s decision and awarded costs to the appellant.
D. REAL ESTATE CONTRACTS & TRANSACTIONS
- Harris v. University Village Thousand Oaks, CCRC, LLC (2020) 49 Cal.App.5th 847.
The Court of Appeal reversed a trial court decision stating that residents of a continuing care retirement community were protected under the continuing care contracts entered into by the retirement community. Residents of a retirement community appealed an arbitrator’s award denying statutory protections to elders. Defendant argued that the basic protections did not apply to the residents since the award was made in arbitration and not in litigation. The Court of Appeal reversed, holding that the plain language of Civil Code sections 1940 and 1953 applies to all continuing care contracts regardless of the stage in litigation or related court proceedings. As the Court stated, because residents paid fees to be protected by the terms of their living agreement the residents were entitled to receive the benefits of the fully executed residential contract.
The Court acknowledged that although retirement community contracts have fundamental differences from a standard residential unit contract, the protections received under both types of contract are no different. The Court reasoned that when fees are paid to confer benefits to all residents and as long as an exchange of money occurs allowing for benefits to be conferred to tenants, then the facility is obligated to honor those benefits under the landlord’s duty of care. Lastly, the Court held that the “the legislative purposes of both the landlord-tenant laws and the continuing care contract laws are best served by applying the arbitration prohibition to the housing component of continuing care contracts.” The Court remanded the case to the trial court with instructions.
- Moore v. Teed (2020) 48 Cal.App.5th 280.
The Court of Appeal affirmed the holding of the trial court for allowing “benefit-of-the-bargain” damages to plaintiff for all detrimental actions taken by defendant resulting from plaintiffs botched remodel. Plaintiff (“Moore”) brought suit against defendant (“Teed”) when Teed advised Moore to purchase a $4.8 million home in San Francisco with significant structural and foundation issues. Teed further agreed to act as the intermediary between the contractors restoring the home and directed Moore to pay him directly rather than the contractors. The home repairs were not made properly, and Moore paid Teed a significant amount of money before ultimately filing a complaint against Teed. At trial, an expert witness testified that the home repairs would have cost $4.477 million with at least $620,000 to be spent, specifically on the foundation. A jury found for Moore stating that Teed had fraudulently induced Moore into purchasing and restoring the home while falsely claiming repairs would only amount to $900,000. The jury granted a damages award of $2,144,434 plus $104,498 in “benefit-of-the-bargain” damages. Teed conceded to the claims against him for fraudulent inducement but appealed on the “benefit-of-the-bargain” damages.
The Court of Appeal held first that the trial court did not err in instructing the jury to award alternative damages to Moore since false misrepresentation allowed for multiple means of recovery. The Court stated, “a ‘broader’ measure of damages may be awarded than simply ‘out-of-pocket’ losses.” Second, the Court held that the “benefit-of-the-bargain” damages could be awarded in real property transactions. As the Court held, a person who was defrauded out of the financial benefit of real property can collect broader damages including “benefit-of-the-bargain” damages. Third, The Court held that the damages award was not speculative because tort damages fully compensate an injured party and the jury would have determined the same jury award regardless of using “benefit-of the-bargain” as a measure for damages. Fourth, the Court pointed out that the award was not duplicative because the jury issued a jury award significantly lower than the $3,842,160 requested by Moore. The Court affirmed the ruling of the trial court and awarded attorney fees on appeal to Moore.
- Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337.
On appeal, the Court of Appeal reversed the lower court’s denial of Appellant, Jaman Properties 8 LLC (“Jaman”), moving papers for arbitration under the Federal Arbitration Act (“FAA”). Victrola 89, LLC (“Victrola”) brought suit Jaman in superior court alleging undisclosed and unrepaired defects in a real property transaction. Under the real estate purchase agreement between parties, Jaman moved for arbitration under the Federal Arbitration, which the trial court denied finding that the California Arbitration Act (“CAA”) controls arbitration between the parties. The Court held that the FAA preempts procedural provisions otherwise controlled by the CAA if the purchase agreement between the parties incorporates FAA on its face. The real estate purchase agreement between the parties on its face specified that the FAA would control. The Court held that Victrola’s piecemeal arguments of which sections of the CAA should control and which of the FAA should control in arbitration were unpersuasive. The Court reasoned that the lack of specificity in the contract for which claims should be arbitrated under the CAA and under the FAA is immaterial since the FAA controls over all claims by federal preemption. Lastly, the Court held that Victrola must arbitrate its claims under the FAA unless Jaman is estopped by the trial court from doing so. The Court overturned the trial court’s decision and remanded the case back to the trial court to determine whether Jaman is estopped from arbitration under the FAA.
E. EASEMENTS, ADVERSE POSSESSION, DEDICATIONS, & BOUNDARY DISPUTES
- Gamerberg v. 3000 E. 11th St., LLC (2020) 44 Cal.App.5th 424
The Court of Appeal reversed a trial court ruling holding that irrevocable licenses tied to a 1950 parking affidavit do not survive transfers of the property to different owners without notice. The dispute between parties arose when it became unclear who had a right to eight parking spaces on lot between two commercial business owners. Plaintiff, Gamerberg, filed a complaint in the trial court alleging that he held an irrevocable license over eight spaces in the lot based on a 1950 parking affidavit grandfathering his use of the spaces between owners. The Court examined whether the 1950 affidavit created an irrevocable license binding on subsequent purchasers who had no notice of the affidavit. The Court determined that the lack of recordation of the 1950 affidavit meant that the document did not bind subsequent purchasers who had no actual notice of the provisions in the document. Since the prior owners failed to record the parking affidavit, binding subsequent purchasers to the affidavit was irrelevant. The Court reversed the trial court’s ruling and awarded costs to 3000 E. 11st St., LLC.
- Madani v. Rabinowitz (2020) 45 Cal.App.5th 602
In a suit based on claims of trespass and negligence when defendant, Rabinowitz, erected a fence on plaintiff, Madani’s, property and continually parked inoperable cars in Madani’s property, the Court of Appeal affirmed that the fence and parked cars were continuing encroachments. The Court held that since the fence and parked cars were a continuing encroachment that the statute of limitations did not apply, and the Court could review the case subject to independent review of the facts. The Court agreed with the lower court that costs to move the fence were not sufficient to warrant leaving the fence as a permanent structure. The Court noted that Rabinowitz replaced the fence in 2015 and could move the fence for a modest cost. The Court further held that Madani could not recover costs because they did not present sufficient evidence to justify a damages award. The Court reasoned that the trial court granted injunctive relief, and that was sufficient to deny an award of monetary damages. The Court affirmed the trial court’s ruling and ruled both parties shall split costs.
William Abbott, Diane Kindermann, Glen Hansen, and Daniel Cucchi are attorneys at Abbott & Kindermann, Inc. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, Inc. at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, Inc., or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.