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“Neighborly” Beach Access
by Patton Sullivan Brodehl on 

[By Randy Sullivan]

 

Easement rights and beach access have been an ongoing and regular area of dispute.  One strategy to keep neighbors off property recently failed in Ditzian v. Unger.  The case involved years of a Rear Property Owner and their guests walking over another’s property to gain access to the sand dunes of MacKerricher State Park in Mendocino.  The Rear Property Owner had done so for many years.  Their Airbnb guests had also accessed the dunes through the neighbor’s property.  At trial the court found that the Rear Property Owner had secured a prescriptive easement.   Albeit an oversimplified explanation, this is essentially an easement taken by years of use, without the neighbor’s consent, and is attached to the Rear Property Owner’s property. 


On appeal the neighbor attempted to argue that the request for a prescriptive easement was really a request for a public easement.  The neighbor hoped to show that if the easement was a public easement it required a written dedication of their land for the access.  Because the neighbor had not signed any written dedication there could be no easement.  The neighbor could then keep the fence up that impaired the Rear Property Owner’s access to the dunes.  The court of appeals disagreed. 


The Court found that the access rights granted to the Rear Property Owner and their invitees through Airbnb were not public.  This easement was not one that anyone could use or gain access to.  It was not a public easement, and it was not open to the public.  As a result, the court upheld the trial court’s findings on prescriptive easement rights awarded to the Rear Property Owner.


This case illustrates why neighbor access should be monitored to prevent the creation of easement rights.  While not the subject of this case or article, there are neighborly tools available to prevent the creation of prescriptive easement rights.

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Beware of Ignoring an Indemnity Clause
by Patton Sullivan Brodehl on 
[By John Patton]

There is a tendency in the business world and in life in general, to ask for more than you really want. The theory is that doing so ensures you will get what you want, and perhaps more.  But sometimes in the law, asking for more than what you want means you will not even get what you need.  It is best to be clear as to what you want.


This is often the case with indemnity clauses that are inserted into contracts, frequently as non-negotiated boilerplate provisions that neither party considers very carefully.  In general, an indemnity agreement, or clause, is intended to offer protection for one party from claims brought by third parties, by requiring the other party to the indemnity to provide protection from the legal consequences and/or to pay for the defense of the claim.  These clauses are commonly included in all manner of business contracts — purchase agreements, leases, construction and service contracts, and a host of other situations.  Typically, Party A requires Party B to indemnify Party A from claims that may be brought by reason of the contract.  For example, in a commercial lease, the landlord usually asks the tenant to indemnify the landlord from claims that may be brought by others by reason of the conduct of the business, or from claims brought by visitors to the premises.


There is nothing wrong with seeking this protection and it is a prudent consideration for any business arrangement.  But the devil is in the details and there are scores of reported California appellate decisions dealing with these issues.


The courts commonly construe indemnity clauses against the drafting party, which typically is the party seeking protection.  If the clause provides indemnity for a particular sort of conduct or risk, it may well be limited to that particular conduct or risk.  But if the clause provides indemnity for very broad and unspecific conduct, it may not provide real protection in the event of a claim.  For example, a clause that does not specify the sort of negligence will be covered may not protect the party who sought the indemnity, unless the negligence is shown to be “active” or “affirmative,” as opposed to simply failing to do something required by ordinary care.


Here is another simplified example of the pitfalls in drafting these provisions.  In Heppler v. J.M. Peters Co. (1999), 73 Cal.App.4th 1265, a general contractor inserted an indemnity provision in its subcontracts with a roofer, concrete supplier, and landscaper.  The provision called for the subcontractors to indemnify the general contractor “to the fullest extent permitted by law” for “all claims, demands or liability for death or injury to persons or damage to property arising out of or in connection with Subcontractor’s performance of the work. . .”  When claims were brought against the general contractor for construction defects based upon the work of the subcontractors, the court held that the indemnity provision would only cover that work if it was proven that the subcontractors acted negligently or with fault, causing the defects.  In other words, the court held that because the indemnity provision did not address non-negligent work by the subcontractors, the indemnity protection would not extend to such work, and would only provide indemnity for negligent work. The party seeking the indemnity was unable to prove that fault, and thus had to bear the loss on its own, in this case, a considerable amount.


The analysis is frequently arcane and often depends on the draftsmanship of the indemnity provision.  In business situations where this protection may be important, it is risky to rely upon pre-printed forms or for the parties to draft the language of the indemnity without the assistance or review of counsel.  In the Heppler case, it made a difference of hundreds of thousands of dollars to the losing party.


The moral is to know what you want and ask for it plainly.  But given the complexity of the issues, that may not be enough without the participation of counsel in drafting the indemnity provision.


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Hope of Home Appreciation Isn’t Fraud, Court Finds
by Patton Sullivan Brodehl on 
[By Randy Sullivan]

The American Dream of home ownership, with its implicit promise of value appreciation, turned into a nightmare for many when the housing bubble burst in 2007.


That set off a wave of litigation as borrowers claimed representations by mortgage brokers and lenders amounted to fraud. The plaintiffs pointed to loan terms and statements that borrowers would be able to refinance home loans because home values would continue to appreciate.


Many of the loans that have been litigated arose in 2005 and 2006, and at this time now are largely barred by statutes of limitation based on the date escrow closed.  As a result, borrowers now plead delayed discovery allegations to circumvent the statute of limitations.  That is, they claim they are excused for not discovering an allegation sooner.  It is a tall order to extend the statute of limitations for claims focused on loan terms because the loans closed years ago.


The current trend has been to focus on another allegation commonly found in borrower complaints.  This claim is based on the related allegation that they recently learned the appraisal was incorrect and the borrowers were told home values would appreciate.


The recent case of Cancino v. Bank of America addresses the allegation that borrowers were told that their home would increase in value, so that they would be able to sell or refinance. Plaintiffs claimed that they did the refinance because it would allow for the monthly payments to be reduced and with the expectation they could also take advantage of any appreciation, so that they could sell or refinance the home at a future date at an appreciated value before having to pay the principal or higher monthly payments.


This is a common allegation found in almost any complaint by any borrower against the lender or mortgage broker. The court in Cancino upheld prior related rulings on issues concerning representations of future value by finding they are not actionable for fraud.  The court also found that the plaintiffs’ claim they did not discover that the appraisal was allegedly false and allegedly inflated due to artificial market conditions created by lenders in 2010, was not reasonable.  Any such claim should have been discovered far sooner, the court found, and thus the claim was time barred.


This area is sure to be one that will continue to be litigated in the mortgage broker and lender context – both as to the appraisals and borrowers claims of delayed discovery.  Moreover, holdings such as that in Cancino will be applicable in a number of other circumstances where there are claims against person (brokers, or agents) based on their representations of future value for transactions of businesses or real estate.


Finally, these rulings are important because they allow lenders a route to avoid discovery and reduce the costs of defense.


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Playing Field Tilts in Business Tort Cases
by Patton Sullivan Brodehl on 
[By John Patton]

A California Court of Appeal ruling is changing how the parties in a business dispute calculate whether to go to court by holding out hope of collecting treble damages plus attorney fees.


Normally, parties to a civil lawsuit are confined to recovery of the actual damages that they suffered due to another’s wrongful conduct, and must bear their own legal fees in the litigation process. The most common exception is a contract entitling the prevailing party to recover attorney’s fees.


These rules typically turn the decision on whether to file a lawsuit into an economic one, in which the risks and costs of pursuing litigation are balanced against the potential rewards of successfully pursuing such relief.  Few practical business owners or individuals want to spend more money pursuing justice than they are likely to recover at the end of the litigation process, and this is a major factor to be considered when a dispute arises.


But a fairly recent decision of the California Court of Appeal, interpreting a criminal statute, alters the playing field in civil cases where the claimant can prove the deprivation of money or property by false pretenses.  Such situations could have broad application to tort cases of fraud, cases not uncommon to business and other disputes.  The typical business tort case often involves claims that one party misrepresented something that caused the other to enter into the transaction and suffer loss.


In Bell v. Feibush (2013) 212 Cal.App.4th 1041, a civil case in which a lender sued a borrower for obtaining a loan under false pretenses, the court examined Section 496 of the California Penal Code, concerning the crime of receiving stolen property.  Bell reconfirmed prior criminal cases holding that a party who is a principal in a theft of property may also be guilty of receiving stolen property.  It also held that money, or anything else that can be the subject of a theft, constitutes “property” for purposes of the statute.  It also found that a prior criminal conviction was not required to support a finding of civil liability under Section 496.  Based on these holdings, the court found that the defendant had obtained property from the plaintiff by false pretenses, and thus was guilty of receiving stolen property under Section 496.  It then examined subpart (c) of Section 496, which authorizes any victim of such a crime to bring an action to recover “three times the amount of actual damages… sustained…, costs of suit, and reasonable attorney’s fees.”


Bell holds that this provision applies to a civil suit for fraud based upon the defendant’s obtaining money from the plaintiff by use of false pretenses. It also holds that a prior criminal conviction is not required to support a finding of civil liability under Section 496, or for imposition of these civil remedies.  Therefore, even without a contract that provided for recovery of legal fees by the prevailing party, the plaintiff in Bell was entitled to recover her legal fees, and three times the amount of the loan procured by the fraud, among other recoveries.


This holding means that a defendant in a civil action for fraud can be exposed to treble damages and liability for the plaintiff’s legal fees if the plaintiff can prove that the defendant obtained property under false pretenses, and that this caused harm to the plaintiff.  In other words, a plaintiff utilizing a claim under Section 496 may be able to recover additional damages, plus his or her attorney’s fees, where such relief was not previously recoverable.  The holding of Bellmeans that victims of fraud may be able to economically justify a civil action for recovery of their losses due to the fraud, where such an action previously might not have made business sense.


Bell also means that the court system will likely see the increased use of Penal Code Section 496 in the civil context, and that the Legislature will likely be asked by insurance companies or the business community to reexamine how far its provisions should go toward penalizing such conduct, or rewarding parties with extra damages in such cases.  But absent action by the Legislature or the California Supreme Court, Bell is the rule of law for now in California, and a powerful aid to victims of fraud that tips the existing playing field in their favor.


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Stopping The Legal Clock
by Patton Sullivan Brodehl on 
[By Randy Sullivan]

The statute of limitations is a commonly used defense to any claim. But a California court recently took a step toward enforcing contractual modifications to the statute of limitations.


With the economy improving, and more deals being reached between sophisticated parties, it is as important as ever to ensure that the contract governing the party’s rights is properly vetted.


In the case of Brisbane Lodging, L.P. v. Webcor Builders, Inc., the court upheld a contract provision that provided that no claim could be brought four years after the substantial completion of the project’s construction. The underlying contract was for the construction of a Radisson Hotel.


Ordinarily, any claim based on a breach of contract must be filed four years from the date the contract claim accrued – the point at which a reasonable party knew or should have known that the other party to the agreement had breached the contract. This is an issue that is often a focal point of discovery in litigation between the parties.


It is an even greater issue for construction defect matters. If a defect is considered latent — it is not obvious — then the party may have up to 10 years to file a lawsuit under C.C.P. § 337.15.


The contract at issue in Brisbane for the design and construction of the Radisson Hotel limited that right. Specifically, the contract provided that the accrual date would be the date that the project was substantially completed. The question presented then for the first time, was whether such a provision could be enforceable in California.


In short, the court concluded that the parties to the construction contract for the Radisson Hotel decided to establish a set date from which any contract claim could accrue. The court made its ruling, even though the contractor had been called out and then did work to repair a sewer line more than six years after the parties entered the agreement. The problems apparently returned two years later.


Nevertheless, the court concluded that there were two critical reasons for upholding the limitation on when a lawsuit could be filed.


First, the parties were sophisticated, commercial parties developing property. That is to say, the contract did not involve a residential homeowner or buyer. Secondly, the contract did not seek to limit the time under which a lawsuit could be filed, such as a modification from four years to one year.


This decision, although limited, is important. Before a contract is signed, all of its terms and conditions should be carefully considered.


After the contract is signed, and if a dispute arises, an attorney should be consulted to ensure that the statute of limitations does not expire.

A safe solution in most any construction matter is to have the parties enter into a tolling agreement stating that while the contractor is repairing an item the statute of limitations is not running. This serves to stop the clock, put the matter on ice, and give the parties time to reach a resolution instead of rushing to file suit.
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