target="D060560_files/props0002.xml">
TownCenter Plaza v. Hems
Filed 7/9/13
TownCenter Plaza v. Hems CA4/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
TOWNCENTER PLAZA, LLC,
Plaintiff and Appellant,
v.
KENTON HEMS, as Successor
Co-Trustee, etc., et al.,
Defendants and Respondents.
D060560, D061581
(Super. Ct. No. 37-2009-00101364- CU-BC-CTL)
CONSOLIDATED
APPEALS from a judgment and an order of the Superior Court of
County, Timothy B. Taylor, Judge.
Affirmed.
Pistone & Wolder, Thomas A.
Pistone and Eric J. Medel for Plaintiff and Appellant.
Higgs, Fletcher & Mack and Mark
K. Stender for Defendants and Respondents.
Plaintiff,
TownCenter Plaza, LLC (TownCenter), appeals a
entered after the trial court determined TownCenter cannot prove the breach and
causation elements of its breach of
contract claim against defendants for not disclosing a geothermal lease on
unimproved property it sold TownCenter, because before the purchase TownCenter
had notice of the lease through the preliminary title report and publicly
recorded documents. (Civ. Code,
§§ 19, 1213.) TownCenter contends
the judgment is improper because defendants did not meet their initial burden
of producing evidence showing entitlement to judgment as a matter of law, and
thus the burden of production never shifted to TownCenter, and alternatively,
TownCenter's evidence raised triable
issues of material fact. We conclude
the court correctly determined the causation issue, and thus we affirm the
judgment.
TownCenter
also appeals a postjudgment order awarding defendants costs and contractual
attorney fees. Because we affirm the
judgment we also affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
In 1983
defendants or their predecessors in interest purchased 131.7 acres of raw land
in the Calexico, California, area. The
property was subject to a geothermal lease by Standard Oil Company of
California (Standard Oil), recorded in 1970.
The lease provided it was to remain in force for a "primary
term" of 10 years, "and thereafter so long as lease products, or any
one or more of them, is produced from, or Lessee is engaged in drilling,
extraction, processing or reworking operations on said land."
In March
1979 an amendment to the geothermal lease was recorded, which designated
Chevron U.S.A. Inc. (Chevron) as Standard Oil's successor in interest. The amendment extended the primary term of
the lease by five years and did not affect the potential of an extended
term. In July 1979 a document entitled
"Unit Agreement[:] Heber Geothermal Unit" (unit agreement, some
capitalization omitted) was recorded.
The unit agreement was among Chevron and property owners who held
"interests in Geothermal Resources in the area of the Heber Geothermal
Anomaly," including defendants, and its purpose was "to prevent the
waste of natural resources, promote conservation and maximize the total
ultimate recovery of geothermal resources from lands subject to this Agreement
with minimum disturbance of surface land use through prudent development of the
resources." The unit agreement
states "such prudent development can be best effected through the
unitization and cooperative development of the lands subject to this
Agreement."
In the
mid-2000's, defendants listed their property for sale. On January 18, 2006, TownCenter's principal,
Kevin G. Smith, made an offer on a California Association of Realtors form to
purchase the property for $5.736 million.
Defendants made a counteroffer for $6.311 million, and on January 20,
2006, Smith signed an acceptance.
Defendants, however, did not fully execute the counteroffer until late
February 20, 2006.
title="">[3]
Under
paragraph 6(B) of the purchase agreement, defendants were required, within the
period set forth in paragraph 18, to "make available to Buyer for
inspection and review, all current leases, rental agreements, service contracts
and other related agreements, licenses, and permits pertaining to the operation
or use of the Property." Under
paragraph 14(C) of the purchase agreement, defendants were also required,
within the period set forth in paragraph 18(A), to "disclose to Buyer all
matters known to [defendants] affecting title, whether of record or
not." The applicable period in
paragraph 18 was seven days.
Paragraph
10(D) of the purchase agreement states:
"NOTE TO BUYER: You are
strongly advised to conduct investigations of the entire Property in order to
determine its present condition since Seller may not be aware of all defects
affecting the Property or other factors that you consider important." (Boldface type omitted.)
Paragraph 12 of the purchase
agreement provides:
"B. Buyer
shall complete Buyer-Investigations and, as specified in paragraph 18, remove
the contingency or cancel this Agreement.
Buyer shall give Seller, at no cost, complete copies of all Buyer
investigation reports obtained by Buyer.
Seller shall make Property available for all Buyer investigations. . .
. [¶]
BUYER IS STRONGLY ADVISED TO INVESTIGATE THE CONDITION AND SUITABILITY
OF ALL ASPECTS OF THE PROPERTY AND ALL MATTERS AFFECTING THE VALUE OR
DESIRABILITY OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE ITEMS SPECIFIED
BELOW. IF BUYER DOES NOT EXERCISE THESE
RIGHTS, BUYER IS ACTING AGAINST THE ADVICE OF BROKERS. BUYER UNDERSTANDS THAT ALTHOUGH CONDITIONS
ARE OFTEN DIFFICULT TO LOCATE AND DISCOVER, ALL REAL PROPERTY CONTAINS
CONDITIONS THAT ARE NOT READILY APPARENT AND THAT MAY AFFECT THE VALUE OF
DESIRABILITY OF THE PROPERTY."
Paragraph
14(B) of the purchase agreement states, "Title is taken in its present
condition subject to all encumbrances, easements, covenants, conditions,
restrictions, rights and other matters, whether of record or not, as of the
date of Acceptance except: (i) monetary liens of record unless Buyer is
assuming those obligations or taking the Property subject to those obligations;
and (ii) those matters which Seller has agreed to remove in writing."
Under
paragraph 18(B) of the purchase agreement, Smith had 45 days from the date of
acceptance "to complete all Buyer investigations; approve all disclosures,
reports and other applicable information, which Buyer receives from Seller; and
approve all matters affecting the Property." Similarly, paragraph 30 of the purchase
agreement, which consists of handwritten conditions, gave Smith 45 days to
conduct "[d]ue diligence."
Paragraph 30 also provides, "Sellers to deliver all documents,
reports & maps to buyers for proper [i]nve[s]tigation and facilitate all
[i]nvestigation."
In January
2006 an escrow was opened with Chicago Title Company (Chicago Title). Defendants concede that during the due
diligence period, they did not directly provide Smith with any documents or
information pertaining to the geothermal lease, the amendment to the lease, or
the unit agreement. One of the
defendants believed they lost an earlier deal for sale of the property because
the prospective buyer was concerned about the lease.
On February
3, 2006, however, Chicago Title provided Smith's broker with a preliminary
title report dated December 29, 2005.
Additionally, on February 7, 2006, Chicago Title e-mailed Smith a copy
of the report directly. The report's
cover page states: "Please read the
exceptions shown or referred to in Schedule B and the exceptions and exclusions
set forth in the attached list of this report carefully. The exceptions and exclusions are meant to
provide you with notice of matters which are not covered under the terms of
title insurance policy and should be carefully considered. It is important to note that this preliminary
report is not a written representation as to the condition of title and may not
list all liens, defects and encumbrances affecting title to the land."
Schedule B
of the title report designates exceptions to coverage. Item 10 of Schedule B excepts the recorded
geothermal lease with Standard Oil, and the recorded amendment to the
lease. As to these exceptions, Schedule
B states, "The present ownership of the leasehold created by said lease
and other matters affecting the interest of the lessee are not shown
herein." Item 13 of Schedule B
excepts the recorded unit agreement.
Further, item 15 notes that in December 1991, Heber Field Company
recorded a request for notice of any default by defendants on the trust deed
for the property.
In late October 2006 while escrow still remained open,
defendants learned that "other lessor-landlords in the Heber Geothermal
Unit had sued the lessee-tenant for royalties," and received a
settlement. The successor lessee of
defendants' property, Heber Field Company (Heber), contacted them and offered
to enter into a settlement and amendment to the geothermal lease to give
defendants the same increase in royalties the litigants obtained. Since the property was in escrow, defendants
sent Heber's proposal and related documents to Smith's broker.
Smith
claimed this was his first knowledge of the geothermal lease, and, although
escrow had not closed, by this time he had already spent several hundred
thousand dollars on mapping and otherwise pursuing a proposed development on
the property. He was concerned that the
geothermal lease would prevent him from obtaining financing and proceeding with
development.
In an
effort "to hold the deal together," defendants agreed to attempt to
resolve Smith's concerns with Heber. In
April 2007 an agreement was negotiated under which, after close of escrow on
the property, TownCenter would convey six acres of the property to Heber for
the operation of geothermal activities, in exchange for Heber's release of
acres. In all other respects, the
geothermal lease remained in force.
TownCenter closed escrow on the property on May 7, 2007.
In February
2010 TownCenter filed a first amended
complaint (complaint) against defendants for breach of contract.
paragraphs 6, 14 and 18 of the purchase agreement by not disclosing the
geothermal lease, or that they were receiving royalty payments, until November
2006, after TownCenter "invest[ed] hundreds of thousands of dollars in
escrow extension and various real estate development fees." The complaint sought damages of approximately
$560,426, attributable to TownCenter's "surrender" of six acres of
the property to Heber and wasted development costs for the six acres.
Defendants
moved for summary judgment, arguing there was no breach of contract because in
early February 2006, before they had even fully executed their counteroffer,
they met their duty of disclosure by causing Chicago Title to provide Smith
with the preliminary title report, which identified the geothermal lease as an
exception to coverage. Alternatively,
defendants argued there was no nexus between the alleged breach and damages,
because Smith was on notice of the geothermal lease and his lack of due
diligence was the causative factor.
Again, the geothermal lease was excepted in the preliminary title
report, and further, the geothermal lease, the amendment to the lease, and the
unit agreement were all matters of public record.
The court
ruled in defendants' favor, determining that as a matter of law TownCenter
cannot prove the elements of breach and causation because through the
preliminary title report Hems had notice of the geothermal lease before he
accepted defendants' counter-offer.
Judgment was entered for defendants on July 15, 2011.
DISCUSSION
I
Standard of
Review
Code of
Civil Procedure section 437c, subdivision (c) provides for summary judgment when
there is no triable issue of material fact and the moving party is entitled to
judgment as a matter of law. "The
phrase 'as a matter of law' is another way of saying that the evidence
available to the parties, and placed before the court in support of and in
opposition to the motion, raises no material issue that a trier of fact could
resolve in favor of the party opposing the motion. The function of the motion is thus to provide
a mechanism, short of trial, for 'cut[ting] through the parties' pleadings in
order to determine whether . . . trial is in fact necessary
to resolve their dispute.' " (
Cal.App.4th 749, 756.)
"A
defendant moving for summary judgment has the burden of producing evidence
showing that one or more elements of the plaintiff's cause of action cannot be
established, or that there is a complete defense to that cause of action. [Citations.]
The burden then shifts to the plaintiff to produce specific facts
showing a triable issue as to the cause of action or the defense. [Citations.]
Despite the shifting burdens of production, the defendant, as the moving
party, always bears the ultimate burden of persuasion as to whether summary
judgment is warranted." (
Inc. (2010) 186 Cal.App.4th 1038, 1041.)
We review a
summary judgment ruling de novo, applying the same standards as the trial
court. (Birschtein v. New United Motor Manufacturing, Inc. (2001) 92
Cal.App.4th 994, 999.) "[W]e accept
as undisputed fact only those portions of the moving party's evidence that are
uncontradicted by the opposing party. In
other words, the facts alleged in the evidence of the party opposing summary
judgment and the reasonable inferences that can be drawn therefrom are accepted
as true." (Hersant v. Department of Social Services (1997) 57 Cal.App.4th 997,
1001.)
II
Damages Element
of Breach of Contract Action
" 'The standard elements of
a claim for breach of contract are "(1) the contract, (2) plaintiff's
performance or excuse for nonperformance, (3) defendant's breach, and (4)
damage to plaintiff therefrom." ' "
(Abdelhamid v. Fire Ins. Exchange (2010)
182 Cal.App.4th 990, 999.) TownCenter
contends the court erred by finding that as a matter of law, it cannot
establish a nexus between the alleged breach of contract and claimed damages.
"Under
contract principles, the nonbreaching party is entitled to recover only those
damages, . . . which are 'proximately caused' by the
specific breach." (
43 Cal.App.4th 1704, 1709.) " '
"Causation of damages in contract cases, as in tort cases, requires that
the damages be proximately caused by the defendant's breach, and that their
causal occurrence be at least reasonably certain." [Citation.]
A proximate cause of loss or damage is something that is a substantial
factor in bringing about that loss or damage.
[Citations.] The term
"substantial factor" has no precise definition, but "it seems to
be something which is more than a slight, trivial, negligible, or theoretical
factor in producing a particular result." ' " (Haley
v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 871-872.) The proximate cause issue "is generally
a question of fact for the jury, unless, as a matter of law, the facts admit of
only one conclusion." (
205 Cal.App.4th 1103, 1123.)
III
Analysis
A
Delivery of
Preliminary Title Report
TownCenter's
leading contention is that defendants did not meet their prima facie burden of
production, and thus the burden of production never shifted to TownCenter. TownCenter asserts defendants did not submit
any competent evidence with their moving papers that they caused the
preliminary title report to be delivered to Smith in early February 2006,
before the purchase agreement was fully executed by all defendants late that
month.
Defendants
submitted a declaration by Heather Skains, the escrow agent with Chicago Title
who handled the sale of the property.
The declaration states, "On or about February 3, 2006, my title
officer Clarissa Mars transmitted to Luz Maria Garcia of The Flowers Realty,
the broker presenting the buyer, Kevin G. Smith, a preliminary title report
dated December 29, 2005 . . . , which had been prepared for
her client by the title department of Chicago Title." The declaration states Skain had personal
knowledge of this information.
Skain's
declaration also states, "Additionally, I am informed and believe on the
basis of my review of our file for that transaction that, on or about February
7, 2006, Michelle Vallejo of Chicago Title delivered to Buyer Smith, directly
by e-mail, the [preliminary title report].
I am informed and believe that Exhibit G lodged herewith is a true copy
of the e-mail by which Ms. Vallejo transmitted the [preliminary title report]
directly to Buyer Smith by e-mail."
TownCenter
objected to Skains's declaration on the grounds she lacked personal knowledge
of the stated matters and it consisted of inadmissible hearsay. TownCenter asserts that given its objection,
the court's finding the preliminary title report was delivered to Smith is
based on a "mere assumption."
The court, however, overruled the objection and allowed the evidence on
the ground it was admissible under the business records exception to the
hearsay rule. (Evid. Code,
§ 1271.) In its ruling, the court
expressly relied on Skains's declaration in determining Chicago Title delivered
the preliminary title report to Smith in early February 2006.
TownCenter
ignores the court's evidentiary ruling, and thus it has forfeited appellate
review of any arguable error. "In
our adversarial system, each party has the obligation to raise any issue or
infirmity that might subject the ensuing judgment to attack." (JRS
Products, Inc. v. Matsushita Electric Corp. of America (2004) 115
Cal.App.4th 168, 178.)
Thus, we
conclude defendants satisfied their initial burden of production. Moreover, in opposition, TownCenter produced
no countervailing evidence. In his
declaration, Smith did not deny he obtained the preliminary title report in
early February 2006. Rather, the
declaration states he was unable to confirm the date on which he first received
the report. Likewise, in response to a
request for admission, TownCenter stated it lacked knowledge of when it
received the preliminary title report.
Additionally,
in a reply declaration Skains clarified, "I caused my title officer Clarissa Mars to transmit" the
preliminary title report to Smith's broker.
(Italics added.) She also
clarified that the documents she discussed in her original declaration
"were all kept in my escrow file . . . , of which file
I am the custodian, in the ordinary course of Chicago Title's business,"
and, "I am familiar with the contents of the escrow file." The court correctly determined Chicago Title
supplied Smith with the preliminary title report in early February 2006.
B
Sufficiency of
Notice
Alternatively,
TownCenter contends summary judgment was improper because even if Smith
obtained the preliminary title report in February 2006, and had access to the
recorded geothermal lease, the lease amendment, and the unit agreement,
"none of these documents establish the existence of an unexpired
lease. To the contrary, these documents
only establish that the Calexico Property was once subject to a renewable
geothermal lease." (Italics and
boldface type omitted.) TownCenter
asserts the issue of whether it was on notice of the geothermal lease before he
purchased the property is a question of fact for the jury.
" 'If
future takers purchase a piece of property with notice of a restriction made by
a predecessor, then, in the absence of duress or fraud, they may ordinarily be
thought to have bargained for the property with the restriction in mind, and to
have shown themselves willing to abide by it.' " (Citizens
for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 366.) Notice of a matter may be either actual,
consisting of "express information of a fact," or constructive,
"which is imputed by law."
(§ 18.) "When the law imputes
knowledge, it has the same legal effect as though there was actual
knowledge." (Dolch v. Ramsey (1943) 57 Cal.App.2d 99, 105.)
"A
preliminary title report is an offer 'to issue a title policy subject to the
stated exceptions set forth' therein. . . . The reports
serve to apprise the prospective insured of the state of title against which
the insurer is willing to issue a title insurance policy." (Alfaro
v. Community Housing Improvement System & Planning Assn., Inc. (2009)
171 Cal.App.4th 1356, 1389.) In finding
the preliminary title report by Chicago Title put Smith on notice of the
geothermal lease, the trial court relied on section 19, which provides: "Every person who has actual notice of
circumstances sufficient to put a prudent
man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by
prosecuting such inquiry, he might have learned such fact." (Italics added.) "A person is presumed to have knowledge
of the contents of an instrument executed by him or in his possession [citation], and with the facts concerning
which the recitals in the instrument would put a prudent man upon
inquiry." (Wilson v. Coffey (1928) 92 Cal.App. 343, 349, italics added [buyer
presumed to have knowledge of contents of escrow instructions].)
TownCenter
submits that the preliminary title report gave Smith no reason to inquire into
the geothermal lease because the cover page of the report advised it "is
not a written representation as to the condition of title." This language is unavailing. The full paragraph states, "Please read
the exceptions shown or referred to in Schedule B and the exceptions and
exclusions set forth in the attached list of this report carefully. The
exceptions and exclusions are meant to provide you with notice of matters which
are not covered under the terms of title insurance policy and should be
carefully considered. It is
important to note that this preliminary report is not a written representation
as to the condition of title and may not list all liens, defects and
encumbrances affecting title to the land."
(Italics added.) Notice in a
preliminary title report that it is not an abstract of title does not relieve a
buyer of his or her duty of inquiry as to matters expressly excepted from a
prospective title policy. The exceptions
stated in the preliminary title report were sufficient as a matter of law to
put a prudent person on notice of the geothermal lease.
Moreover,
the court determined that even if the preliminary title report had not been
delivered to Smith in early February 2006, defendants were entitled to summary
judgment under section 1213. The statute
provides in part: "Every conveyance
of real property or an estate for years therein acknowledged or proved and
certified and recorded as prescribed
by law from the time it is filed with the recorder for record is
thereof to subsequent purchasers and mortgagees." (§ 1213, italics added.)
" 'The
act of recording creates a conclusive presumption that a subsequent purchaser
has constructive notice of the contents of the previously recorded document.'
"
(612 South LLC v.
Laconic Limited Partnership (2010) 184 Cal.App.4th 1270, 1278.)
"does not diminish the effect of the recorded instrument as imparting
constructive notice to a person who lacks actual, imputed or implied notice of
the instrument." (Miller &
Starr, Cal. Real Estate (3d ed. 2012), § 11:60, fn. omitted;
Financial Services (1989) 212 Cal.App.3d 1370, 1377.) "It is common knowledge" that as a
result of section 1213's constructive notice provision, "[m]any purchasers
will purchase land only if they can secure title insurance." (Greeninger
v. New Amsterdam Casualty Co. (1957) 152 Cal.App.2d 645, 647.)
TownCenter
does not suggest the geothermal lease documents were not properly
recorded. Further, TownCenter cites no
language from the recorded documents indicating the geothermal lease no longer
burdened the property. " '
"The appellate court is not required to search the record on its own
seeking error." [Citation.] Thus, "[i]f a party fails to support an
argument with the necessary citations to the
record, . . . the argument [will be] deemed to have been
waived." ' " (
Corp. (2012) 210 Cal.App.4th 487, 502-503.)
In any
event, after reviewing the recorded documents we conclude they gave TownCenter
constructive notice of a current geothermal lease on the property. The lease provided for a "primary
term" of 10 years, "and thereafter so long as lease products, or any
one or more of them, is produced from, or Lessee is engaged in drilling,
operations on said land." (Italics
added.) The amendment to the lease
extended the primary term of the lease by five years and does not affect the
lessee's extended term rights. Likewise,
the unit agreement does not affect the term of the lease. The lease contains a provision pertaining to
the lessee's right to surrender the lease, but there is no indication in the
subsequent recorded documents or the preliminary title report of any surrender.
Although
Smith did not observe any lessee activity when he visited the property, the
unit agreement was intended to minimize "disturbance of surface land
use."
ambiguous, a purchaser " 'is not entitled to interpret ambiguities in his
own favor nor is he entitled to ignore reasonable warning signs that appear in
the recorded documents.' " (
At the least, the recorded documents were a red flag requiring
investigation.
We also
reject TownCenter's assertion, unsupported by any legal authority, that the
duty of inquiry was excused because compliance would be too onerous. TownCenter claims that since the lessee's
operation was not visible from the surface of the property, to ascertain
whether the geothermal lease remained in effect Smith "would [have to] to
investigate the history of 'drilling, extraction, processing, or reworking
operations' within the unit area as that
area existed at various times during the past 3 decades. . . . Likewise, [he] would also need to trace the
rights of the record lessee . . . from Chevron
. . . through [the] ultimate assignment to the present
lessee, Ormat, in order to determine the identity of the lessee." (Boldface type omitted.) To the contrary, Smith could have easily
contacted defendants or their broker and requested the status. As the trial court observed at the hearing,
"I think it probably was a matter of a couple of phone calls."
We agree
that TownCenter had notice of the geothermal lease before it purchased the
property or reasonably incurred development expenses, and a jury could not
reasonably find otherwise. Thus, it
cannot establish its damages were proximately caused by defendants' alleged
breach of contract, and the appeal of the judgment lacks merit. The appeal of the order awarding fees also
lacks merit, because it is based on the argument the judgment is improper.
DISPOSITION
The
judgment and order are affirmed.
Defendants are entitled to costs on appeal.
McCONNELL,
P. J.
WE CONCUR:
NARES, J.
McDONALD, J.
name="_ftn1" title="">[1] Defendants are Kenton Hems, as successor trustee of the
Richard Ellis Trust UDT 8/22/76; Johnny Sonza; Michelle Sonza; Nicola Curtis;
Emil Michael Hashem III, as trustee of The Michael Hashem 1999 Trust U/D/T
dated 4/14/99; William J. Polkinhorn and Rae Lynn Polkinhorn, as trustees of
The Polkinhorn Family Living Trust U/D/T dated 9/10/91; Emil Michael Hashem
III, as trustee of The Emil Michael Hashem II 1998 Trust U/D/T dated 9/25/98;
and Gary Robinson, as successor to Daniel O. Robinson.
name="_ftn2" title="">
[2]
Further statutory references are
also to the Civil Code.
