The Top Ten Real Property Cases of 2014
| Publication year | 2015 |
| Author | By Basil ("Bill") S. Shiber |
By Basil ("Bill") S. Shiber
©2015 All Rights Reserved.
As 2014 winds down (by the time you are reading this, 2015 will be in full swing), it is time to look back over the past year and identify those "Top Ten" cases that had the most widespread impact on the practice of real property law in California. Case law is often a barometer of social and economic changes, albeit a lagging one. This year has seen more bread-and-butter real property cases in areas such as easements and lien priorities, as well as more cases in the areas of land use and CEQA. That seems to indicate a more stable real estate economy and the return of productive activity and development, which, in turn, generate disputes that percolate up to the courts. There are also issues that have been identified by the lower courts but not yet resolved by reviewing courts—for example, the standards applicable to government's efforts to leverage land use approvals to solve social ills, such as housing insecurity. We look forward to more activity in those areas in next year's batch of cases. As always, the list that follows is subject to the caveat that picking the top ten cases is more of an art than a science, and 2014 is no exception. Here then, are our Top Ten Real Property Cases for 2014.
A homeowners' association, on behalf of its members, sued an architectural firm that designed condominiums in an allegedly negligent manner. The trial court sustained a demurrer in favor of the defendant architectural firm, reasoning that an architect who makes recommendations but not final decisions on construction owes no duty of care to future homeowners with whom it has no contractual relationship. The court of appeal reversed that decision, finding a duty of care, and the California Supreme Court agreed.
The architects provided architectural and engineering services for construction of a condominium project and were paid more than $5 million for their work. In addition to their original design services, they played an active role throughout the construction process, including coordination, site visits and inspections, and monitoring compliance with design plans. However, all final decisions relating to construction rested with the owner, as is typical in the architect-owner relationship.
The California Supreme Court considered the familiar factors regarding foreseeability set forth in the seminal case of Biakanja v. Irving2 in determining whether the architects owed a duty of care to future homeowners with whom they had no privity. Building on the later decision in Bily v. Arthur Young & Co.,3 which applied the Biakanja analysis to determine what duty of care auditors owed to future third party investors in the audited company, the court focused on three considerations that it found to be dispositive: (1) the closeness of the connection between defendant's conduct and plaintiff's injury; (2) the limited and identifiable class of persons and transactions that defendant's conduct was intended to affect; and (3) the absence of private ordering options that would more efficiently protect homeowners from design defects and their resulting harm.
First, the court found that there was a close connection between defendant's conduct and plaintiff's injury, since the architectural firm was the architect on the job. Even if an architect does not actually build the project or make final decisions on construction, a property owner typically employs the architect in order to rely on the architect's training, technical expertise, and professional judgment. There was no suggestion that the owner or anyone involved in the project other than the architects had that special competence or capability. Second, the class of individuals to whom the architects owed the duty was not indeterminate, but was limited and readily identifiable—that is, future owners of the condominiums. Thus, there was no concern about potentially unlimited liability. Third, with respect to the prospect of private ordering of the transaction as an alternative to negligence liability, the court found that future owners and occupants of residences are more akin to a powerless consumer than the sophisticated investors impacted in the Bily case. The future owners rely completely on the architects' skill and competence in design and are "ill equipped with experience or financial means to discern" defects in the construction.4 Typically the home is not only a major investment for the buyer, but is also the only shelter the buyer has. Taking all these factors into account, the court concluded that the architects owed a duty of care to the subsequent buyers and were liable to those buyers for negligence in the performance of their services.
Comment: This case draws a distinction between imposing liability in transactions where the end users are essentially reliant on the professionals' expertise and judgment, versus those transactions (like the auditors in the Bily case) where the end user (sophisticated investors) has means at his or her disposal to vet and analyze the information provided. Here, the future homeowners were a clearly identifiable and foreseeable group that were relying on the competence of the architects when making a major investment that would provide their primary shelter. When the end users are in a vulnerable position with little means to protect themselves against the harm, the upstream professionals will owe them a duty of care.
Bonus related case: In Willemsen v. Mitrosilis,5 the court addressed the question of whether an appraiser hired by a lender to aid in underwriting the loan is liable to a buyer/borrower for alleged errors in the appraisal. Buyer Willemsen purchased vacant land. Following the purchase, he sued various parties involved in the sale, including the appraisal company hired by Willemsen's lender. Willemsen asserted that the appraised value was greater than the true value of the property, because the appraiser had failed to account for either an earthquake fault running through the property, or the loss of land that would be suffered when a local government entity constructed a planned road over the property. He contended that his reliance on the appraisal was a substantial factor in causing him monetary harm.
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The court of appeal affirmed the grant of summary judgment in favor of the appraiser, holding that the buyer had a full and adequate opportunity to independently investigate all aspects of the property, including the value, and there was no evidence to suggest that the lender's appraiser had prepared the appraisal for reliance by anyone other than the bank. The court distinguished Bily6 on the basis that the auditors in Bily intended to influence the potential investors in the audited company. The court distinguished Soderberg v. McKinney7 on the basis that the appraiser in Soderberg knew his appraisal would be used by a mortgage broker to solicit investments in deeds of trust. In contrast, the Willemsen appraisal expressly disclaimed reliance by anyone other than the bank on its contents, was addressed to the lender, and was not intended to influence the buyer in his purchase decision.8 This case is consistent with others declining to impose liability on a lender for making an ill-advised or insufficiently secured loan to a borrower.
2. Dolnikov v. Ekizian:9 Please Help Me Enjoy My EasementIn Dolnikov v. Ekizian, the court made two significant holdings: First, an easement—like any other contract—includes an implied covenant of good faith and fair dealing. Second, the refusal to acknowledge and confirm the easement rights to third parties—even absent physical obstruction—can constitute a breach of that covenant, entitling the easement holder to resulting damages.
The easement in question was for ingress and egress to undeveloped lots in the Hollywood Hills. The owner of the dominant tenement,10 Dolnikov, attempted to construct residences on those lots using the easement for access. Approval of the roadway by the owner of the servient tenement, Ekizian, was required by the building department, but Ekizian would not sign. He made various demands, including for a $200,000 payment, which Dolnikov viewed as extortion. This stymied Dolnikov's efforts at development, and litigation ensued. At trial, the jury found a breach of the implied covenant of good faith and fair dealing because Ekizian refused to sign the required document to allow development of the easement as a roadway.
The issue before the court of appeal was "whether an intangible act that did not physically invade the easement, such as a statement or refusal to sign documents, could constitute an [actionable] interference with the easement."11 The court of appeal found that it did. The easement for ingress and egress includes correlative rights to develop and construct a roadway, which Ekizian had prevented by his refusal to sign. Neither party to an easement can "unreasonably interfere with the other party's use of the property."12 Rather, both must cooperate so that the utility of the property to each is maximized. In this case, the refusal to sign the permit allowing development of the easement was just such an unreasonable interference, effectively rendering the easement unusable. In the eyes of the court, this was equivalent to a physical obstruction of Dolnikov's easement, which entitled Dolnikov to damages.
Comment: This decision puts teeth into efforts to enforce easement rights and treats an easement like other contracts that include a covenant of good faith and fair dealing. What distinguishes this case is that it did not involve a physical obstruction of the easement, rather, it involved the refusal to sign a document required by a governmental entity to confirm the dominant tenant owner's...
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