CrystalPoint v. Le Jac Investments

Filed 10/16/08 Crystal Point v. Le Jac Investments CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from a judgment of the Superior Court of Los Angeles County, Alan S. Rosenfield, Judge. Affirmed.

Michael J. Melton for Defendants and Appellants Jim Cole, Robert Jay Pender, and Land, Inc.

Jon H. Lieberg for Plaintiff and Respondent.

INTRODUCTION

Plaintiff and respondent Crystal Point LLC (plaintiff) brought an action against Le Jac Investments, Jack Schneider, Leona Frieder, James Lewis Cole, and Robert Jay Pender (alleged in the complaint to be doing business under the fictitious business name of Land, Inc.) (defendants[1]) concerning the sale of certain real property. Following a court trial, the trial court awarded plaintiff $1,449,874.60 in damages against defendants. Only Cole, Pender, and Land, Inc. (appellants) appeal from the judgment. Appellants challenge the trial courts award of damages as unsupported by the evidence. We affirm.

BACKGROUND

Plaintiffs filed a complaint against defendants asserting causes of action for breach of contract, intentional misrepresentation, negligent misrepresentation, and failure to disclose material facts. The complaint alleged that Schneider and Frieder were general partners of Le Jac, a general partnership, Cole was licensed to sell real estate and was Le Jacs agent, and Pender was a licensed real estate broker. On or about January 12, 2004, plaintiff, through its principal, John Firestone, entered into a contract with Le Jac to purchase from Le Jac approximately 13 acres of commercial real property in the City of Palmdale (Property) for $1,962,154.28. Escrow on the purchase closed on March 10, 2004.

Plaintiffs alleged in the complaint that during negotiations to purchase the Property, it advised defendants of its intent to improve the Property with commercial structures. Le Jac, through Cole, represented to plaintiff that the Property was suitable and ready for development, ready to build, and that the required improvements were completed; that all required offsite improvements were complete and paid for; and that [plaintiff] would have no difficulty in getting a building permit. Plaintiff alleged that these representations were false. After escrow closed, plaintiff learned, among other things, that the Property is located in a floodplain, that it is not suitable and ready for development, and that it could only be made ready for development through substantial engineering and at significant additional cost.

Prior to trial, due to the repeated failure of Le Jac, Schneider, Cole, and Pender to respond properly to discovery, the trial court issued an evidentiary sanction resolving certain factual issues for trial and barring defendants from introducing any evidence on those issues. The facts that the evidentiary sanction established are as follows:[2]

(1) That as Coles supervising broker, Pender is both vicariously liable for Coles acts and individually liable for his own acts;

(2) That Defendants knew that Plaintiff planned to develop the Subject Property;

(3) That Plaintiff fulfilled all of its obligations under the Contract;

(4) That Defendants Le Jac, Schneider, and Pender, individually and through Cole, represented that the Subject Property was developable and ready to build when in fact that was far from the truth in that the Subject Property has many impediments to development, as more fully described in paragraph 13 of Plaintiffs Complaint as follows:

After close of escrow, Crystal Point learned that the Property is located in a flood-plain and that contrary to defendants representations, the Property is not suitable and ready for development but can only be made suitable for development through substantial engineering and through the expenditure of additional, significant funds.

Crystal Point also learned that it: (i) must wait two years for a master hydrology study to be completed; (ii) the defendants had agreed with the Assessment District 88-1 to reduce both the assessments and improvements so that the Property was currently undevelopable; (iii) Cole had been a member in an entity that previously owned the Property and was aware that the Property was not developable; (iv) the Property had previously been in escrow for nine (9) months with another purchaser who had submitted a plan to the City of Palmdale, which escrow was canceled because the Property was not developable; (v) the entire 13 acres was assessed in the Los Angeles Water District, even though substantially all of the Property was not in that water district and thus could not be served by the Los Angeles Water District; and (vi) the assessments from the Palmdale Trade and Commerce Center Specific Plan Assessment District 88-1 had not been paid.

(5) That Defendants knew of these impediments, were under a duty to disclose them, but did not;

(6) That Defendants misrepresented the Subject Propertys true condition in order to induce Plaintiff to purchase the Subject Property and so that Defendants could sell the Subject Property for an amount greater than its true value and that Defendants acted in concert in this regard;

(7) That plaintiff relied on these misrepresentations and the concealed facts to its detriment; [] . . . []

(9) That each of the Defendants is guilty of fraud and acted in conscious disregard of Plaintiffs rights, thereby justifying an award of punitive damages . . . .

After the trial courts evidentiary sanction established appellants liability under the complaint, the trial proceeded on the issue of damages. Plaintiff sought tort damages only under the trial courts finding that defendants had committed fraud.

Roger Doverspike, a real estate appraiser and broker, testified as plaintiffs expert on damages, after he and his staff had appraised the Property. Doverspike testified that in reaching the appraised fair market value of the Property, he used a definition of fair market value provided by plaintiffs counsel. That fair market value was defined as the highest price that a willing buyer would have paid on the date of the transaction to a willing seller, assuming that there is no pressure on either one to buy or sell and that the buyer and seller know all of the uses and purposes for which the property is reasonably capable of being used. Using that definition, Doverspike testified that the value of the Property on March 10, 2004 the date escrow closed on the Property was $592,000.[3]

In the course of the appraisal, Doverspike determined that the Property is in a floodplain and that the City of Palmdale would require the party developing the Property to install a storm drain system abutting Division Street.[4] Based on information from an engineering firm, Doverspike concluded that flood control improvements to the Property alone would cost about $790,000 or $970,000.

Doverspike also found that the Palmdale Water District would require the Propertys owner to install a water loop from the Districts existing line to enable the installation of fire hydrants adjacent to the Property, and the City of Palmdale would require the owner to widen Division Street. Howard Omdahl, a developer Firestone hired to develop the Property, testified that building the street would not cost much, maybe three, 350. In context, Omdahl appears to have testified that the cost would have been $300,000 to $350,000. Firestone testified that to bring water to the Property through a big loop would cost $200,000 to $250,000.

Doverspike testified that the entire Property is in an area that the Air Force has designated as a fly-over zone due to its proximity to the Palmdale Airport. As a result of the fly-over zone designation, the City of Palmdale reduced to 20 percent the development density limit for properties including the Property in the fly-over zone. Doverspike considered the 20 percent density issue to be a big thing and the back breaker of developing the Property.

Doverspike estimated that the Propertys location in the fly-over zone diminished the value of the Property by at least half of its purchase price, but explained that due to other factors that would have to be considered, he could not say that the Propertys value would be exactly half. Asked his estimate of the value of the Property had it not been in a fly-over zone, Doverspike testified that other factors would have to be considered, but that the price per square foot that plaintiff paid for the Property was probably a fair price and would be close to the Propertys market value.[5]

Plaintiff knew the Property was in a fly-over zone when it purchased the Property. Two weeks before the close of escrow the overlay (or fly-over zone) situation had not been clarified other than what [plaintiff] knew from general information. Plaintiff had not received a specific response from the city concerning the requirements of overlay zoning. Because the rest of the project was good plaintiff was willing to get after it and work with the City over a period of time to resolve the problem. That was a risk plaintiff was willing to take.

DISCUSSION

Substantial Evidence Supports The Trial Courts Award Of Damages

Appellants contend that the trial courts award of damages is not supported by the evidence because the testimony of plaintiffs expert on damages demonstrates that plaintiff suffered no damages. Appellants rely on Doverspikes testimony that if the Property had not been in a fly-over zone a fact plaintiff knew at the time of the purchase it would have been worth about what plaintiff paid for it. Substantial evidence supports the trial courts award of damages.

A. Standard of Review

The amount of damages is a question of fact.(Westphal v. Wal-Mart Stores, Inc. (1998) 68 Cal.App.4th 1071, 1078.) Generally, appellate courts . . . apply the substantial evidence standard to a superior courts findings of fact. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 461-462.) Under the substantial evidence standard of review the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor in accordance with the standard of review so long adhered to by this court. [Citation.] (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053, superseded by statute on other grounds as stated in Eller Media Co. v. City of Los Angeles (2001) 87 Cal.App.4th 1217, 1219-1220, fn. 3.) We do not reweigh the evidence, evaluate the credibility of witnesses, or resolve evidentiary conflicts. [Citation.] The burden is on the party or parties challenging the findings and orders of the trial court to show there is no evidence of a substantial nature to support the finding or order. (In re H.G. (2006) 146 Cal.App.4th 1, 13.)

B. Substantial Evidence

The parties agree that the proper measure of damages in this case, if any, is determined pursuant to Civil Code section 3343 (section 3343). Section 3343 provides, in pertinent part: (a) One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction, including any of the following: [] (1) Amounts actually and reasonably expended in reliance upon the fraud. [] . . . [] (b) Nothing in this section shall do either of the following: [] (1) Permit the defrauded person to recover any amount measured by the difference between the value of property as represented and the actual value thereof.

In fraud cases involving the purchase, sale or exchange of property, the out-of-pocket measure of damages applies. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240-1241 [citing section 3343, subdivisions (a) and (b)(1)].) The out-of-pocket measure of damages is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction, and thus awards the difference in actual value at the time of the transaction between what the plaintiff gave and what he received. . . . [Citations.] (Id. at p. 1240.)
Appellants challenge to the trial courts award of damages under section 3343 is based on an asserted irresolvable conflict. The conflict appellants perceive arises from Doverspikes testimony that the Property was worth only $590,000 at the date of sale and his testimony that absent its location in the fly-over zone the Property was worth about what plaintiff paid for it.[6] Even if Doverspikes testimony concerning the effect on the Propertys value if it was not in the fly-over zone can be viewed as inconsistent with his $590,000 valuation of the Property, under the substantial evidence standard of review we do not resolve any such evidentiary conflicts. (Bickel v. City of Piedmont, supra, 16 Cal.4th at p. 1053; In re H.G., supra, 146 Cal.App.4th at p. 13.) Instead, all conflicts are resolved in favor of plaintiff, the prevailing party. (Bickel v. City of Piedmont, supra, 16 Cal.4th at p. 1053.)

Moreover, Doverspikes testimony can be viewed as not being inconsistent. His opinion as to the value of the Property if it were not in a fly-over zone might have just considered that one factor and assumed that other representations had been accurate. Otherwise, his testimony concerning the substantial cost of remedying the drainage problem that had been fraudulently concealed would make no sense. But even if the diminution of value could be attributed to varying causes under Doverspikes testimony, without a statement of decision under Code of Civil Procedure section 632there is none in the record on appeal or an indication of a request for onewe must infer that the trial court made all factual findings necessary to support the judgment. (See Ermoian v. DesertHospital (2007) 152 Cal.App.4th 475, 494.)

The trial courts evidentiary sanction established that appellants defrauded plaintiff. The parties agree that the purchase price for the Property was $1,962,154.28. Doverspike testified that the Property was worth $592,000 at the time of sale. The trial court awarded damages of $1,449,874.60. Under section 3343, damages for fraud in the sale of real estate include the difference in actual value at the time of sale between what plaintiff paid and what it received. (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th at p. 1240.)[7] The difference between the purchase price and the Propertys actual value at the time of sale is $1,370,154.28.[8] Accordingly, substantial evidence supports the trial courts award of damages.

DISPOSITION

The judgment is affirmed. Plaintiff is awarded its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

MOSK, J.

We concur:

TURNER, P. J.

ARMSTRONG, J.

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[1] At some point during the proceedings, Frieder died. On plaintiffs motion, the trial court dismissed Frieder without prejudice. Except as to a description of allegations in plaintiffs complaint, the designation defendants does not include Frieder.

[2] On appeal, appellants do not contend that the trial court erred in issuing the evidentiary sanction.

[3] Doverspikes appraisal did not take into account any soils report or environmental report for the property, as he was provided neither. Either such report could affect the Propertys fair market value.

[4] The Property apparently was bounded, at least on three sides, by Division Street (or Division Drive), Technology Drive, and Highway 14.

[5] Doverspike drew a distinction between fair market value and market value earlier in his testimony. It is not entirely clear whether, in this testimony, Doverspike intended to discuss the Propertys fair market value or its market value.

[6] Although not articulated by appellants, their theory would be that plaintiff had not established loss causationa concept often applied in securities litigation. (See Dura Pharmaceuticals, Inc. v. Broudo (2005) 544 U.S. 336; OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835.) That theory is that even though plaintiff would not have purchased the Property but for the misrepresentations, the reduced value of the Property was actually due to something else of which plaintiff had knowledge at the time of the purchase.

[7] There was evidence that the Property was valueless to the plaintiff.

[8] Appellants do not advance any claim with respect to the $79,720.32 difference between the $1,449,874.60 judgment on the one hand and the $1,370,154.28 difference between the Propertys purchase price and its actual value at sale on the other hand. Accordingly, we do not address this difference except to point out that plaintiffs entitlement to damages includes [a]mounts actually and reasonably expended in reliance upon the fraud ( 3343, subd. (a)(1)), appellants apparently did not designate the reporters transcript for all of the trial, and, as noted, the record on appeal does not contain, or reflect that appellants requested, a statement of decision from the trial court setting forth the trial courts calculation of damages (Code Civ. Proc., 632). Also, appellants do not advance any other claim concerning the calculation of damages apart from their irresolvable conflict claim.