Case law

16
Sep

The recent decision in Pulte Homes Corporation v. Williams Mechanical, Inc. (Aug. 9, 2016) 2 Cal.App.5th 267 was arose from a claim by Pulte for “$69,576 based on Williams’s allegedly negligent performance of a subcontract for the installation of plumbing in two residential construction projects.”

The advance sheets contained the entire opinion.  When the decision was published in the Official Reports, an important statement by the court was omitted.  Here’s the omitted portion:

“The issue is complicated by the fact that a corporation can be suspended in two ways: It can be suspended by the Franchise Tax Board for failure to pay taxes or failure to file a tax return (Rev. & Tax. Code, §§ 23301, 23301.5), or it can be suspended by the Secretary of State for failure to file an annual statement of information. (Corp. Code, §§ 1502, 2205.)

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“The parties have not mentioned Revenue and Taxation Code section 23561, although it has some bearing on the issue.  It provides, as relevant here:

‘No decree of dissolution shall be made and entered by any court, nor shall … the Secretary of State file any such decree, or file any other document by which the term of existence of any taxpayer shall be reduced or terminated … if the corporate powers, rights, and privileges of the corporation have been suspended or forfeited by the Franchise Tax Board for failure to pay the tax, penalties, or interest due under this part.’

“This appears to mean that, if a corporation is suspended for failure to pay taxes, it cannot dissolve.”

Comment – I’m relieved that this part was not included in the published opinion.  But it is certainly worrisome.

Pulte Homes Corporation v. Williams Mechanical, Inc. (Aug. 9, 2016) 2 Cal.App.5th 267

Category : Case law | Developments | Blog
5
Sep

The law of payment systems has interested this writer for many years.  It is an area of law filled with arcane and technical rules, most of which are never encountered in day-to-day transactions.

Think of it.  Millions of checks are processed each day, yet it is a rare occurrence when a legal issue arises involving a check.  The law of payment systems, then, operates smoothly and mostly invisibly.

But when a legal issue does arrive, the customer often learns of some harsh rules that favor the bank.  Such is the case in Taylor Anderson, LLP v. U.S. Bank N.A., 2014 U.S. Dist. LEXIS 43667 (D. Colo. Mar. 31, 2014), where the customer learned that the phrase “the check has cleared” does not also mean “the bank cannot charge this item back to you at a later time.”

Here are the facts.  Plaintiff Taylor Anderson fell prey to some version of the Nigerian scam.  In September 2012, plaintiff deposited a $191,000 cashier’s check into its client trust account.  On October 1, after deducting a $2,000 fee, plaintiff informed the bank that it planned to wire the remaining $189,000 in check proceeds to its “client” in Japan.

By email, a firm employee asked whether the check “had cleared.”  A bank employee followed up an hour later in an email stating that the check “was drawn on Chase, and has cleared.”  Based thereon, plaintiff initiated the wire transfer to Japan.

Several days later, Chase Bank determined that the check was fraudulent.

Note: This really shouldn’t happen under payment system law.  It should be difficult for a fraudulent cashier’s check to enter the system, particularly in this amount.  Plaintiff would have been better served to obtain payment directly from Chase Bank as an “on us” item.

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Thereafter, U.S. Bank (the holder of the trust account) charged-back the $189,000 against Taylor Anderson.  The law firm filed an action sounding in theories of breach of contract, negligent misrepresentation, fraud, and negligence.

This quote tells you where the court is going with the case.  Buried in the customer account agreement, the court found a provision which “explicitly states a second time the just because a deposit has ‘cleared,’ it does not follow that the funds are definitively in the account or that the crediting of those funds is not subject to reversal.”

Note: That’s certainly not the analysis that most bank customers were expect.  According to the court, you need to confirm that the check (i) “has cleared” and that (ii) there is no continuing “right of reversal.”

The court held that there was no misrepresentation, finding that:

“This Court sees no representation from U.S. Bank establishing that the check had both cleared and that the credit in the account was not subject to reversal. Rather, all the representations in the record demonstrate that U.S. Bank stated only that the check had ‘cleared’ …

“Contrary to Taylor Anderson’s contentions, U.S. Bank did not provide false information to Taylor Anderson – it merely provided information that was accurate and faithful to the Agreement, but which Taylor Anderson did not fully appreciate.”

Note: There are your magic words.  If you ask the bank whether the check has “cleared,” you also need to confirm that the check “is not subject to reversal.”  Otherwise, you will be exposed to a chargeback.

Having found for the bank on the breach of contract theory, the court ruled against plaintiff on all three remaining counts by application of the “economic loss” rule, another technical “rule” that can sneak up on an unsuspecting plaintiff.

Explained the court,

“Next, Taylor Anderson advances negligence, negligent misrepresentation, and fraud claims against Defendants.  All three of these claims are predicated on Taylor Anderson’s allegation that the Defendants’ ‘voluntarily investigated the origins and validity of the check in question and either fraudulently or negligently reported what they had determined to Defendants.’

“These claims are all barred by the Economic Loss Rule … Broadly speaking, the economic loss rule is intended to maintain the boundary between contract law and tort law …

“The rule prohibits a party suffering only economic loss from the breach of an express or implied contractual duty to assert a tort claim for such a breach absent an independent duty of care under tort law …

“Taylor Anderson attempts to argue around the force of the Economic Loss Rule by suggesting that defendants incurred allegedly ‘independent duties’ by allegedly agreeing to investigate the validity of the check.  But that is just another way of saying that the defendants were performing their contractual duty.”

That’s tough sledding for plaintiff – a pair of gotchas did in the law firm.

Taylor Anderson, LLP v. U.S. Bank N.A., 2014 WL1292804, 2014 U.S. Dist. LEXIS 43667 (D. Colo. Mar. 31, 2014).

Category : Case law | Developments | Blog
16
Aug

There’s an old saying – “You can’t fight city hall.”  In the case of a homeowners association, the saying should be, “You can’t afford to fight a homeowners association.”  Because the deck is stacked against the homeowner.

In the recent case of Rancho Mirage Country Club Homeowners Ass’n v. Thomas B. Hazelbaker (Aug. 8, 2016) ___ Cal.App.4th ___, the stakes for the homeowner were dramatically low.  “Defendants made improvements to an exterior patio, which plaintiff Rancho Mirage Country Club Homeowners Association contended were in violation of the applicable covenants, conditions and restrictions (CC&Rs).”

What was the original dispute? “The agreement called for defendants to make certain modifications to the patio, in accordance with a plan newly approved by the Association; specifically, to install three openings, each 36 inches wide and 18 inches high, in a side wall of the patio referred to as a ‘television partition’ in the agreement, and to use a specific color and fabric for the exterior side of drapery.”

It seems the defendants had a burr under their saddle regarding the modifications.  “Subsequently, the parties reached [a modified] agreement … instead of three 36-inch-wide openings, two openings of 21 inches, separated by a third opening 52 inches wide, were installed in the wall, and a different fabric than the one specified in the mediation agreement was used for the drapery.”

Oy vey.  Someone went to court over this issue?  “While the lawsuit was pending, defendants made modifications to the patio to the satisfaction of the Association.  Nevertheless, the parties could not reach agreement regarding attorney fees.”

In the end, the fight was over attorney’s fees.  Here’s a big hint – never go to trial if the only issue in dispute is attorney’s fees.  Figure out how to settle.

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According to the court, the Association prevailed in the litigation.  “The analysis of who is a prevailing party [ ] focuses on who prevailed on a practical level by achieving its main litigation objectives … The Association wanted defendants to make alterations to their property to bring it in compliance with the applicable CC&Rs, specifically, by installing openings in the side wall of the patio, and altering the drapery on the patio.  The Association achieved that goal.”

Another hint – The homeowner, as a practical matter, will never achieve a complete victory in litigation.  Any relief to the Association tips the attorney’s fees statute to the Association.

Held the court, “Once the trial court determined the Association to be the prevailing party in the action, it had no discretion to deny attorney fees.  The magnitude of what constitutes a reasonable award of attorney fees is, however, a matter committed to the discretion of the trial court.  As noted above, in reviewing for abuse of discretion, we examine whether the trial court exceeded the bounds of reason.”

And, to rub salt in the wound, “The Association correctly asserts that if it prevails in this appeal it is entitled to recover its appellate attorney fees …

“The judgment [for $18,991 in attorney fees, plus $572 in costs] is affirmed.  The Association is awarded its costs and attorney fees on appeal, the amount of which shall be determined by the trial court.”

Rancho Mirage Country Club Homeowners Ass’n v. Thomas B. Hazelbaker (Aug. 8, 2016) ___ Cal.App.4th ___

Category : Case law | Developments | Real Property | Blog
21
Jul

The recent decision in Janice H. v. 696 North Robertson, LLC (July 14, 2016) ___ Cal.App.4th ___ addressed the always difficult question of premises liability.  More specifically, When is the operator of real property liable for an injury to a guest in a unisex bathroom?  The court’s answer – a resounding, It depends.

The facts were somewhat lurid, or as we might say, Only in LA.  “On a Sunday in March 2009, Plaintiff drank with a friend at bars in Pasadena and then in West Hollywood.

“Plaintiff went to Here Lounge to wait for her friend. At the time, Here Lounge was a very popular West Hollywood dance club and bar … Here Lounge also fostered a sexually charged atmosphere by permitting bartenders to wear nothing but underwear.”

Comment – The Dept of Alcoholic Beverage Control later closed the club, which was described as a gay bar, based on “allegations of lewd conduct by go go dancers.”

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From the Here Lounge (now closed).

Explained the court, “Here Lounge designed the bar to have a common restroom area accessible to both men and women.  On busy nights, a long line of patrons waited to use the restrooms …

“Plaintiff went into an ADA restroom stall and shut the door.  As was common among patrons of Here Lounge, Plaintiff did not lock the door.”

Comment – How in the world was this fact proven – That it was “common” for patrons at the club to leave the door to the bathroom stall unlocked?

While in the bathroom stall, plaintiff was assaulted by a “man [ ] later identified as Victor Cruz, a bus boy at Here Lounge … The assault, which caused Plaintiff to lose her virginity, lasted about five minutes and ended with Victor ejaculating on Plaintiff’s dress.”

The jury found in favor of plaintiff, and awarded $5.42 million in damages.  The verdict was affirmed on appeal, because, frankly, jury verdicts are always affirmed on appeal.

Here’s how the court handled the issue of premises liability.  “The issue is whether Here Lounge owed a duty to use reasonable care in securing the restrooms for its patrons … A possessor of land owes a duty to an invitee to make the property reasonably safe for the intended use by the intended user.  Thus, the property holder only has a duty to protect against types of crimes of which he has notice and which are likely to recur if the common areas are not secure.”

The club owner argued that it was not liable because there had been no prior assaults.  This argument was unavailing.  “Here Lounge argues it has no duty unless and until it experiences a similar criminal incident.  We disagree.  While a property holder generally has a duty to protect against types of crimes of which he is on notice, the absence of previous occurrences does not end the duty inquiry.  We look to all of the factual circumstances to assess foreseeability.”

Comment – Great.  It’s always a “facts and circumstances” question.

“In this case, Here Lounge promoted a sexually charged atmosphere and designed an open restroom area allowing unrestricted entry for men and women.  It designed the larger ADA stalls with full length walls shielding the occupants from view.

“Here Lounge knew that sexual activity in the restrooms and elsewhere in the club was an ongoing issue … There was testimony that sexual activity in the club increased towards the end of the night and tended to occur in the ADA bathroom stalls, like the stall where Plaintiff was raped, because the full length doors shielded the occupants from view.  The owner also admitted that an employee once observed a woman performing oral sex on a man at the club and ignored it …

“This evidence [ ] made the risk of harm to intoxicated and vulnerable patrons reasonably foreseeable, regardless whether the club was on notice of a prior similar incident.  Knowing the potential serious harm of non-consensual sex, a reasonable person managing the property would have posted a guard in the restroom area whenever the club was open to the public, even when attendance tapered off.

“The burden for monitoring the restroom area during business hours was small, requiring only a change in policy to eliminate the guards’ individual discretion to leave the restroom area and roam the premises when patronage dwindled.”

Result – Judgment for plaintiff affirmed.

Janice H. v. 696 North Robertson, LLC (July 14, 2016) ___ Cal.App.4th ___

Category : Case law | Developments | Real Property | Blog
29
Jun

The remedy of unlawful detainer is available in three situations under California law, most commonly when a tenant holds over after termination of the lease, or when the tenant continues to occupy the property after breach of the lease.

Less commonly, unlawful detainer is available to an owner “against an employee, agent, or licensee whose relationship is terminated,” and in the third situation, to a purchaser at a foreclosure sale against the former owner and other occupants.

In Taylor v. NU Digital Marketing, Inc. (2016) 245 Cal.App.4th 283, the parties entered into a hybrid contract.  Although styled a contract for sale, the court held that the contract actually was a lease, seemingly tied to an option to purchase, such that the remedy of unlawful detainer was available to the owner.

Note to potential purchasers: An unrecorded “contract of sale” that does not include a deed from the owner to the purchaser is an invitation for trouble.  The court will want to fit the contract into one of its traditional modes of analysis.  As the following decision shows, the court might view the document as a lease, with potentially disastrous consequences to the purchaser.  Be careful when you try to be creative in making a grant of real property.

Now to the facts.  In August 2012, the parties entered into an agreement entitled “Contract of Sale Residential Property.”  The contract provided that “plaintiffs (designated ‘Seller’ in the agreement) agreed to sell a piece of property to defendant (designated ‘Buyer’ therein) for $1.25 million subject to the following terms and conditions:

“Paragraph 1 required defendant to ‘consummate’ the purchase ‘within 60 months of the execution date of the agreement’ by making ‘payment’ of the purchase price, i.e.,  $1.25 million through [escrow].”

Comment: That sounds like an option, exercisable in 60 months.  An option to purchase is not the same a contract for sale.  The option must be exercised by act of the grantee, while the contract for sale is enforceable per se.

“Paragraph 2 purported to divide the purchase price into five components: (1) a grant of equity in defendant corporation (referred to as the ‘Equity Grant’); (2) payment of all property taxes and insurance costs from the move-in date; (3) payment of all homeowners association fees and any related penalties or special assessments; (4) the ‘Down Payment’; and (5) ‘Probationary Installment’ payments of $2,300 per month for 60 months (also referred to as ‘Probationary Payments’).”

The dispute arose when “the probationary installment payments increased to $4,216.48 in accordance with the provision allowing for an upward adjustment of such payments to match plaintiff’s adjustable rate mortgage payment.”

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Now the conflict comes into sharper focus.  If you “rented” a property, with a fixed purchase price, and paid 100% of the owner’s mortgage payments plus property taxes plus homeowners association fees, then you might believe you had purchased the property.  But this court did not agree – “In addition to awarding possession to plaintiffs, the court awarded damages in the amount of $31,683.68 and declared the agreement forfeited.”

The court started by explaining that “Unlawful detainer actions are authorized and governed by state statute.  The statutory scheme is intended and designed to provide an expeditious remedy for the recovery of possession of real property … Unlike the foregoing situations, a vendee in possession of land under a contract of sale who has defaulted in the payment of an installment of the purchase price, is not subject to removal by the summary method of unlawful detainer.”

Held the court, “The relationship created by the agreement must be characterized by reference to the rights and obligations of the parties and not by labels … While defendant also agreed to purchase the property within the lease term, possession of the property was conditioned upon payment of the probationary installments, which entitled defendant only to continued possession, and were therefore rent.”

“Probationary payments” in a real estate contract?  I never heard of such a thing, and neither had the court.  Taylor v. NU Digital Marketing, Inc. (2016) 245 Cal.App.4th 283

Category : Case law | Developments | Real Property | Blog
26
May

Sometimes a court provides a clear statement of the law.  Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486 is one such opinion, providing a definite and authoritative answer to the issue of whether a trust is an entity – it is not.

From the opinion.

“Courts often speak of the alter ego doctrine as if it applied to a trust as an entity.  But a distinction must be made between a trust and a trustee.  The general rule that a trust is a relationship is universally recognized by U.S. cases and statutes, and is consistent with the prevailing norms of the entire common-law world.  The fundamental nature of this relationship is that one person holds legal title for the benefit of another person.

“Thus, in actuality, a trust is not a legal person which can own property or enter into contracts.  It is the trustee or trustees who hold title to the assets that make up the trust estate … Because a trust is not a legal entity, it cannot sue or be sued, but rather legal proceedings are properly directed at the trustee …

“As recognized in California: Unlike a corporation, a trust is not a legal entity.  Legal title to property owned by a trust is held by the trustee.  A trust is simply a collection of assets and liabilities.  As such, it has no capacity to sue or be sued, or to defend an action …

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“Because a trust is not an entity, it’s impossible for a trust to be anybody’s alter ego.  That’s because alter ego theory, which is simply one of the grounds to ‘pierce the corporate veil,’ is inescapably linked to the notion that one person or entity exercises undue control over another person or entity.  However, a trust’s status as a non-entity logically precludes a trust from being an alter ego.

“But while applying alter ego doctrine to trusts is conceptually unsound, applying the doctrine to trustees is a different proposition.  Trustees are real persons, either natural or artificial, and, as a conceptual matter, it’s entirely reasonable to ask whether a trustee is the alter ego of a defendant who made a transfer into the trust.  Alter-ego doctrine can therefore provide a viable legal theory for creditors vis-à-vis trustees.

“Thus, in the present case, Greenspan properly sought to add Moti Shai, the trustee of the Shy Trust, as a judgment debtor.  If Moti Shai is the alter ego of Barry Shy, then Barry may be considered the owner of the Shy Trust’s assets for purposes of satisfying the judgment.  The trial court erred in concluding that the alter ego doctrine could not be used to reach the assets of a trust.”

That’s a breath of fresh air, hopefully forever ending any argument that a trust is an entity.  Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486

Category : Case law | Trusts and estates | Blog
12
May

The decision in Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935 reminds us that all opinion testimony must be supported by reasonable foundation.  The underlying complaint was based on an allegation “the bank breached an agreement to postpone the trustee sale and, by reason of that breach, plaintiffs lost their equity in the property.”

The court “explained that a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under [Civil Code] section 1698.  This is because the oral promise had not been executed by the parties, as required by section 1698.”

The homeowners did not prevail because they “produced no evidence showing that they refrained from bringing their loan current in reliance on the June 18 sale date because they had no ability to do so … Plaintiffs did nothing to substantially change their position before their home was sold, and they intended to do nothing other than to seek another postponement.”

More significantly, “Wachovia is entitled to summary judgment for the additional reason that plaintiffs failed to present sufficient evidence of injury.”  The court’s analysis is as follows.

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“[Plaintiff] claimed that the $555,000 sale price was substantially below the current market value of the home due to demolition conducted by the seller.  The trial court sustained Wachovia’s objection to that opinion testimony for lack of foundation …

“An owner’s right to testify regarding the value of real property under [Evidence Code] section 813 is not absolute … A property owner is bound by the same rules of admissibility as any other witness regarding the value of real property.  (Evid. Code, § 814 [requiring a foundation for real property value opinion based on information ‘of a type that reasonably may be relied upon by an expert in forming an opinion as to the value of property.’]”

Lacking proper foundation – in other words, a factual basis for his opinion of value – the owner was barred from stating his opinion regarding the value of his property.  “A foundation must be laid indicating the other property sold was sufficiently similar to the property in litigation to indicate the price realized for the other land may fairly be considered as shedding light on the value of the land in question.  It must also appear that the other sale was genuine and sufficiently voluntary to be a reasonable index of value and that the price was actually paid or substantially secured.”

Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935

Category : Case law | Real Property | Blog
30
Apr

Let me be up front – this author does not particularly care for homeowners’ associations.  In my opinion, they have too much power, which is often wielded with a heavy hand.

Now comes the decision in Almanor Lakeside Villas Owners Ass’n v. Carson (April 19, 2016) __ Cal.Rptr.3d __, which only reinforces this view.  Here is a synopsis of the facts:

The homeowners’ association sought to impose fines under CC&Rs against defendants.  “Almanor sought to impose fines and related fees [ ] for alleged rule violations related to the Carsons’ leasing of their properties as short-term vacation rentals.”

Defendants paid some of the fines, but disputed others.  More specifically, “The Carsons disputed both the fines and Almanor’s authority to enforce those rules, which the Carsons viewed as unlawful and unfair use restrictions on their commercially zoned properties.”

At trial, the homeowners’ association sought $54,000 in damages.  Defendants disputed this amount.  “The trial court determined that it would be unreasonable to strictly enforce the absolute use restrictions against the Carsons …

“Of the fines imposed in 2010, 2011, and 2012, the court concluded only the fines pertaining to the non-use of Almanor’s boat decals were reasonable.  Those fines amounted to $6,620, including late charges and interest.”

That’s right – the trial court awarded $6,620 solely for “non-use” of the Association’s “boat decals.”

Then, to pile on, the trial court awarded $98,535 in attorneys fees and $3,267 in costs, for a total award of attorneys fees and costs in the amount of $101,803.

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On appeal, the court held that such determination was “reasonable.”  The court of appeal held that the homeowners’ association was the “prevailing party” within the meaning of the Davis-Sterling Act, and expressly held that the award of attorneys fees were “reasonable” within the meaning of Civil Code section 5975.

If you are practicing attorney, this case makes it difficult to advise a homeowner ever to contest any charge by the homeowners’ association, the matter what the merits.

In Almanor Lakeside Villas Owners Ass’n v. Carson, the homeowners’ association sought $54,000 at trial, and was awarded $6,600.  The appellate court established the following principle – if any amount is awarded to the homeowners’ association, then the association is the “prevailing party” and is entitled to recover its attorney’s fees “as a matter of right.”

To this end, the court of appeal ruled that, “after resolving the threshold issue of the prevailing party, the trial court had no discretion to deny attorneys fees.”

Almanor Lakeside Villas Owners Ass’n v. Carson represents a growing dichotomy in California.  This state is home to some fabulously wealthy people, in a few geographic areas.  Here we see the court applying a distorted economic viewpoint (Who on earth thought it was worth spending more than $100,000 in attorneys fees to seek $50,000 in court?) to achieve a shocking result.  “Reasonableness,” like beauty, is in the eye of the beholder.

Almanor Lakeside Villas Owners Ass’n v. Carson (April 19, 2016) __ Cal.Rptr.3d ___

Category : Case law | Real Property | Blog
25
Apr

Civil Code section 3346 authorizes an award of treble damages for “wrongful injuries to timber, trees, or underwood upon the land of another, or removal thereof.”  The defendant in the recent case of Salazar v. Matejcek (Mar. 10, 2016) 245 Cal.App.4th 63 learned that this statute can support very substantial damages.

The dispute concerned “a 10-acre piece of rural property near Covelo, California. The property was completely undeveloped except for a small cabin.”  The defendant was not able to obtain an adequate source of water.  According to the court, he “destroy[ed] an estimated 225 trees to build the road and clear the surrounding area to house his water storage devices.”

Argued the defendant “the trial court failed to consider that the area to be restored was approximately two-thirds of one acre out of the 10-acre parcel.”

Stated the court, “Under the circumstances of this case, we find a holistic approach to be reasonable.  Plaintiffs had never sought to develop any portion of their parcel.”

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And what of the damages?  “At trial, Mr. Salazar testified he is saddened by the damage done to his property and he remains nervous about visiting it … Mr. Salazar testified that if he did receive an award of damages, he would use the money to restore the trees defendant had removed.”

Comment – Time will tell.  I’ll bet the money goes right into plaintiff’s pocket.

“Mrs. Salazar testified that the dispute with defendant has affected her physically and mentally.  She has felt powerless and belittled. She has anxiety and her sleep has been affected.  She does not enjoy going to the property anymore and feels as though the land was violated.”

How to calculate damages?  “Such damages are generally determined as the difference between the value of the property before and after the injury.  But diminution in market value is not an absolute limitation; several other theories are available to fix appropriate compensation for the plaintiff’s loss …

“One such alternative measure of damages is the cost of restoring the property to its condition prior to the injury, and a plaintiff may recover these costs even if they exceed diminution in value if there is a ‘personal reason’ for restoration.”

“At trial an arborist named John Phillips testified for plaintiffs.  He prepared a tree replacement plan designed to remedy the effects of defendant’s encroachment.  He estimated that 225 trees will need to be planted to restore the property … Phillips estimated the total tree remediation cost would be $67,500.

“The court accordingly trebled the $67,500 award of compensatory damages for tree removal pursuant to Civil Code section 3346 and Code of Civil Procedure section 733, resulting in an award of $202,500 … The total judgment awarded, including costs, is $262,987.”

Ouch.  The damages to this parcel of undeveloped property, out in the middle of nowhere, greatly exceed the total value of the property.  Seems like a windfall to me.

One more point of pleading.  A generic defense interposing the statute of limitations does not set forth a valid defense.  Explained the court, “defendant filed a general denial that includes a broadly worded affirmative defense asserting all of plaintiffs’ claims ‘are barred by all applicable statutes of limitation contained in Code of Civil Procedure sections 312 to 366.3.’”

Explained the court, defendant “failed to articulate any specific statute of limitations argument in his denial or in his pretrial statement … There are two ways to properly plead a statute of limitations: (1) allege facts showing that the action is barred, and indicating that the lateness of the action is being urged as a defense and (2) plead the specific section and subdivision.”

“Here [the defendant] did neither … Raising the defense in the trial brief is [in]sufficient.  The failure to properly plead the statute of limitations waives the defense.”

Comment: Sounds like piling on.

Salazar v. Matejcek (Mar. 10, 2016) 245 Cal.App.4th 63

Category : Case law | Real Property | Blog
15
Apr

In a lawsuit based on a contract, one party can seek relief based on the theory of rescission.  Rescission can be considered an equitable judicial remedy.  Under California Civil Code section 1689, rescission supports “extinction” of the obligation.

Rescission can be pled as a basis for affirmative relief, or it can asserted as defense to a claim based on contract.  Which is what happened in Ferguson v. Yaspan (2015) 233 Cal.App.4th 676 – the defendant asserted rescission as a defense to a contract lawsuit.

The dispute in Ferguson v. Yaspan arose between an attorney (defendant) and his former client (plaintiff).  In 1995, the plaintiff sold defendant an interest in a London flat owned by plaintiff.  Later, the Fergusons sought to set aside the written agreement.

rescission

Here’s the interesting part of the decision.  The court opined on rescission as a defense, holding that such a defense was not subject to the statute of limitations.  Explained the court

“The invalidity of a contract may be asserted either as a basis for affirmative relief or as a defense.  When a litigant seeks affirmative relief, her claim may be barred if filed outside the statute of limitations period.

“However, where invalidity is raised solely as a defense, there is no limitations period because statutes of limitations are designed to ‘act as a bar to actions or proceedings’ –  not to individual claims or defenses.”

Thus, a defense based on a claim of rescission is not subject to being struck as pled outside the statute of limitations.

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