The Top Ten Real Property Cases of 2013
| Citation | Vol. 32 No. 1 |
| Publication year | 2014 |
| Author | By Basil ("Bill") S. Shiber |
By Basil ("Bill") S. Shiber
©2014 All Rights Reserved.
It is time again to look back over 2013 and identify those "Top Ten" cases that had the most widespread impact on the practice of real property law in California. While many of the significant cases over the past few years reflected an unhealthy economy, this year's "Top Ten" picks include several land use cases, CEQA cases, condemnation cases, and other indices of an economic heartbeat. To be sure, there are still plenty of cases dealing with foreclosures, including the status of the electronic registry MERS,1 the seemingly chronic inability of lenders to locate mortgages actually signed by the borrowers, and the inevitable disputes over loan workouts and modification transactions that failed to satisfy one or more of the parties. However, the case law in 2013 may suggest more positive economic trends. Picking a list of the most noteworthy cases of the year is always a subjective exercise, and we may have included cases which do not warrant inclusion, or excluded cases which do. For that, to paraphrase the late David Fry's impression of the late President Nixon, we "take the responsibility but not the blame."2 Here then, are the Top Ten real estate cases for 2013.
1. Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass'n3
But you told me it said something else.
Overruling itself, the California Supreme Court held in Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass'n.4 that a party to a contract can make a claim for fraud based on the other party misrepresenting what the integrated contract says. The court overruled its 1935 decision, Bank of America National Trust & Savings Ass'n v. Pendergrass,5 that held a borrower may not state such a claim if the alleged misrepresentations contradicted the integrated written agreement. In the Riverisland court's own words, the now-defunct rule was an "aberration" and the Pendergrass decision's restriction of the fraud exception to the parol evidence rule was not supported by the relevant statutory or settled case law. However, by overruling Pendergrass, the court seems to have opened the door to a type of fraud claim that previously could gain little traction in litigation, which in so many words is: "they told me what it said so I didn't read it and it doesn't say what they told me it said."
In Riverisland, the borrowers claimed that two weeks before they signed a modification and forbearance agreement, they had met with a vice president of the bank who told them that the agreement was for a two-year period, and would require additional collateral of only two properties. In fact, the agreement they signed was of a much shorter duration, and included a pledge of eight additional properties as collateral.
Relying on Pendergrass, the trial court granted the lender's summary judgment motion. The court of appeal reversed, reasoning that Pendergrass was limited to cases of promissory fraud. Accepting the borrowers' allegation that the loan officer had misrepresented the contents of the agreement, the court of appeal considered them to be factual representations beyond the scope of the Pendergrass exclusion.
The California Supreme Court affirmed the court of appeal decision, but not on the basis that the lender's oral representations about the contents of the agreement were outside Pendergrass. Instead, the court noted that the facts of Pendergrass were virtually identical to the facts in the current case, but the court chose to overrule it. The court concluded that a representation of the anticipated contents of an agreement that would be prepared in the future, or a misrepresentation of the nature of the agreement the lender would agree to, is itself a form of fraud in the inducement that survives the execution of an integrated agreement. According to the court, the parol evidence rule6 permits evidence "relevant to the validity of an agreement"7 and specifically allows evidence of fraud.
The court emphasized that proof of promissory fraud entails more than proof of an unkept promise or mere failure of performance, or even a misstatement of intent to enter into an agreement. Rather, it requires an intent to mislead as to the contents of the actual agreement coupled with a showing of justifiable reliance.
Comment: This decision makes it much easier to assert a fraud claim through the initial pleading and summary judgment stage—as subsequent case developments in 2013 demonstrate. Previously, a claim based solely upon oral representations of contractual intent or claims of fraud as to the contents of documents that contradicted the language of those documents would rarely survive summary judgment. Now they may, which will affect case settlement dynamics as well as the prospects for avoiding a jury trial if a party is willing to testify to oral conversations that culminate in a different written agreement. This decision impacts a broad range of real estate transactions, including loan originations and workouts, leases (see Riverisland progeny below), letters of intent, and purchase-sale agreements. While there are various mechanisms available to limit the uncertainty associated with such fraudulent inducement claims, none of them are foolproof given the inherent problems in enforcement of any agreement when one of the parties can claim fraudulent inducement based on oral representations at variance with the writing.
Riverisland Progeny:
1a. Julius Castle Restaurant Inc. v. Payne8
In a fraud action brought against a commercial landlord, the court refused to limit the holding in Riverisland9 to unsophisticated parties.
Despite the unequivocal language in Riverisland, litigants initially sought to sift through the ashes of Pendergrass for some continued viability of the "Pendergrass" rule on commercial transactions, but to no avail. In Julius Castle Restaurant Inc. v. Payne,10 the landlord relied heavily upon Pendergrass in an effort to exclude parol evidence offered by the tenant to prove fraudulent promises at variance with the terms of the parties' agreement. In other words, the landlord attempted to limit the scope of Riverisland, unsuccessfully asserting that it did not apply to agreements entered into by sophisticated parties after extensive negotiations. According to the court of appeal, the landlord's argument was unsupported by the language of the Riverisland opinion. With the Riverisland court's blunt language that Pendergrass was an aberration, even sophisticated parties could claim to have been misled, and thereby assert the fraud exception.
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Comment: Although the Riverisland decision suggested that claims of fraud still have to be buttressed by proof of justifiable reliance, the Julius Castle decision demonstrates that justifiable reliance is in the eye of the beholder, and when the beholder is a civil jury, the results may not necessarily comport with the expectations of the contracting parties.
1b. Thrifty Payless, Inc. v. Americana at Brand, LLC11
A landlord's estimate of Common Area Maintenance charges in a letter of intent is not merely opinion, and can support a tenant's claim for fraud.
In another post-Riverisland case, the landlord estimated $211,874 for common area maintenance ("CAM") charges in the letter of intent ("LOI") signed by the tenant. After the lease was signed, the landlord charged the tenant $412,307 for CAM charges. In sustaining the landlord's demurrer, the trial court concluded that the figures in the LOI were nonactionable estimates.
The court of appeal reversed, holding that the recently decided Riverisland12 case permitted the tenant to introduce extrinsic evidence relative to representations made in the LOI, since, as explained in Riverisland, "[it] was never intended that the parol evidence rule should be used as a shield to prevent the proof of fraud."13
Comment: This decision further illustrates the difficulties encountered by a contracting party attempting to negotiate an enforceable written agreement. Here, an LOI is given the status of a separately actionable representation that circumvents the integration clause of the eventual leasing contract under the Riverisland doctrine. Some cases have found an LOI supports an actionable claim for damages for a failure to complete negotiations and actually execute a formal contract in good faith,14 while others treat an LOI that omits "magic words" denying contractual intent as an actual contract even where the parties by their conduct have not yet fully negotiated their intended agreement.15 The use of an LOI (or any other writing) as a negotiating tool has been undermined by such decisions, a development that some may view as hindering rather than advancing the process of getting to an agreement.
2. Neighbors for Smart Rail v. Exposition Metro Line Construction Authority16
California Supreme Court clarifies the propriety of using projected future conditions versus existing conditions as a CEQA baseline.
In Neighbors for Smart Rail v. Exposition Metro Line Construction Authority,17 the California Supreme Court addressed the often contested issues involved in determining the proper California Environmental Quality Act ("CEQA") baseline where a project is measured against future conditions. This case involved a project to construct a light-rail line running from Culver City to Santa Monica. The environmental impact report ("EIR") for the project exclusively employed an analytic baseline of conditions in the year 2030 to assess likely impacts of the project on traffic congestion and air quality. Project opponents contended that this baseline failed to disclose the effects the project would have on existing environmental conditions.
In resolving the issue, the court examined another court of appeal decision, Sunnyvale West Neighborhood Ass'n v. City of Sunnyvale City Council,18 wherein the Sixth District Court of Appeal held an EIR's...
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