“Greed, in the end, fails even the greedy.” — Cathryn Louis
As the saying goes, “Pigs get fat, hogs get slaughtered.” Such was true in the case of the greedy investor, who decided he could eke out a little more profit by suing our client.
The facts of this case began 34 years ago. In 1986, our clients (let’s call them “Sellers”) purchased a home right on the beach in Southern California (“the Residence”). At that time, the Residence had a bulkhead (also called a seawall) that was little more than a wood fence, and was not up to the task of keeping the ocean at bay. The basement of the Residence was often flooded.
Enter the evil Coastal Commission.
In 1987, the Sellers hired a contractor to build a new bulkhead. That’s where the Coastal Commission got involved. The California Coastal Commission was created in 1972 with the laudable goal, “To protect, conserve, restore, and enhance the environment of the California coastline.” But like every government agency, it grew into a monster, seeking to control the lives of everyone within sight of the ocean. OK, I overstate the point for emphasis, but suffice to say that the Coastal Commission has grabbed more control than was ever envisioned. It often gets overzealous, as was the case here.
So back to 1987, and the Sellers got tired of pumping the water out of their basement. They asked the Coastal Commission if they could build a new seawall, to which the Coastal Commission basically responded, “Sure, you can build a new seawall, so long as you build it 20 feet further from the ocean in order to create more beach area for the public.” The Sellers agreed, and a beautiful (and expensive) bulkhead was constructed, and signed off on by the City. The Coastal Commission has no sign-off process, and relies instead on the local agencies to inspect projects they have approved. There was never a time that either the City or the Coastal Commission expressed any concerns with the new bulkhead constructed by the Sellers’ contractor. For the next 30 years, all was good.
That takes us to 2017. In July of that year, Plaintiffs (we’ll call them the “Buyers”) – who both already owned homes in the area and were very familiar with the Coastal Commission – made an offer to purchase the Residence. One of the buyers was the founder of a company you are very familiar with, but I see no reason to provide that detail.
Sellers’ property was very desirable because it was a double lot with a single home. Buyers planned to buy the Residence, tear it down, and replace it with two homes. They paid $4.9 million cash for the Residence, and testified that they expected to sell the two new houses for more than $5 million each; effectively doubling their money. Not a bad day’s work. I was surprised to learn that the Buyers had never stepped foot into the Sellers’ home. I get that they were intending to tear down the house, but I just can’t picture myself ever being so rich that I would buy a property without examining it, if for no other reason than it might have fixtures worth preserving. But then I am not one of the mega-rich.
The Buyers submitted their plan to build two homes to the Coastal Commission, and got the answer you would expect. “Sure, you can build your two homes, so long as you move that bulkhead 20 feet further from the ocean in order to create more beach area for the public.”
By way of background, the Coastal Commission will always try a land grab when presented with a construction request. But in the past, when dealing with seawalls, the Coastal Commission would require only that any new seawalls line up with what they refer to as the “predominant line”. In other words, they look at the other seawalls in the area, and so long as your proposed seawall does not extend beyond those, you’re golden. (Although they will sometimes fight you if they deem that you don’t really need a seawall.)
But the Coastal Commission was in a bad mood. The bulkhead that Sellers had built 30 years earlier absolutely lined up with all the others in the area, but as it happened the houses on either side did not have seawalls. The Coastal Commission looked at a Google map, and decided that the seawall should line up with the neighbors who had no seawalls. In other words, the Coastal Commission staff was asking Buyers to move their bulkhead back to the edge of the planned houses.
I’m all for keeping the beaches accessible to the public. I’ve been to other countries where they don’t have such a policy, and it is terrible. Private individuals are allowed to own the beaches, and if you are afforded access at all, it might be only on a narrow strip of the beach. Strolling along the beach in these countries is impossible, since you run into a private property sign every 20 yards. But moderation in everything. In those same countries, the government doesn’t care if a pub located near the beach wants to expand its patio a few feet, but here in California the Coastal Commission would be all over such a request.
Here, the Commission was proposing that the Buyers end up with NO beach beyond the back wall of their property. Thus, a beach goer might decide to lay down their beach blanket in the shade of the house, half an inch from the house’s sliding glass door. Again, all in favor of public access, but that is unreasonable.
At first, the Coastal Commission based its land grab entirely on this “predominant line” claim. But during the application process, the Coastal Commission decided (based on Buyers’ own survey) that back in 1987 the seawall had been moved only 14 feet inland instead of the requested 20 feet. Because the seawall was about six feet too close to the ocean, the Coastal Commission deemed it to be “unpermitted” since the location did not match the plans, and used that as ammunition against the Buyers.
The Buyers get what they wanted.
The Buyers fought the recommendation by the Coastal Commission staff, and when the Buyers’ plan came up for a public hearing, the Commissioners voted unanimously to reject the staff recommendation and to approve the Buyers’ development plan. Oh happy days. (The Commission blatantly takes bribes. Oh, nothing so obvious as cash in a briefcase, but in this case it was made known that if the Buyers donated six figures to Save the Pelicans or whatever, the Commission might look favorably upon the Buyers’ requests.)
But the Buyers did not go quietly into the night to count their profits. They were upset that they had spent so much time and money fighting with the Coastal Commission, and blamed the Sellers. Buyers sued the Sellers, claiming they should be responsible for all the expenses incurred in fighting the Coastal Commission, since they had failed to disclose that the seawall was not built in the right place. All told, the Sellers were seeking about $2.5 million in damages, which included “not less than $1 million in punitive damages.”
You see, at the time of the sale, the Sellers had signed a disclosure form stating that they were not AWARE of any problems with permits on any new construction. The Buyers sued them for fraud and negligent misrepresentation, claiming that the Sellers knew or should have know the seawall was built in the wrong location. Never mind that the Buyers signed not one, not two, but three forms stating that they were in charge of determining if there were any permit problems.
Upon receiving our trial brief, Buyers immediately dismissed the two fraud causes of action. So much for the “not less than $1 million in punitive damages.” Then they decided they did not want a jury to decide the case, even though they had posted jury fees. Having seen the trial brief, they knew their claims would not play well to a jury.
The bench trial took just three days, and the judge issued his ruling immediately following the trial. Counsel for Buyers had argued that whether or not the Sellers knew the seawall was built in the wrong place, they assumed the duty to investigate whether there were any problems with the permits when they indicated in the disclosure statement that they were not aware of any permit issues.
Fun, fun, fun in the California sun (and a slight roll of the dice).
“Balderdash!”, I said. (I was a little more articulate than that.) “Aware” means having knowledge or perception of a situation or fact. Being “aware” is a state of mind. If you ask me, “are you aware of whether it is raining?”, I need only look inside my head to determine if I have any such awareness. I don’t need to go to the window to look outside, since the question is only whether I am aware. It is very different than asking, “Is it raining?” To answer that question, I need to know whether it is raining.
I sat waiting for plaintiffs’ counsel to finish putting on their evidence at trial. Then I pounced with what is called a Motion for Judgment. This is a somewhat arcane motion of which most judges and attorneys are unaware. It permits the court to consider the evidence, and determine at that point if the plaintiff has stated a claim. The other far more familiar motions are the Motion for Nonsuit and Motion for Directed Verdict, which have certain evidentiary limitations. However, the Motion for Judgment was the better choice, and at the conclusion of Plaintiffs’ case in chief, that is the motion I brought. Not unexpectedly, the judge stated he would withhold his decision on my motion until after I had put on Defendants’ case in chief. But I did not want our evidence to potentially fill in any holes in Plaintiffs’ case. Afterall, you never know how the testimony might go, and my client might have been badgered into saying that he knew the seawall was not in the right place, or whatever.
So I simply refused to put on any evidence (although I had obviously put on all the evidence I needed during cross-examination during Plaintiffs’ case in chief). I stood and stated that Defendants rested, thereby forcing the judge’s hand on my motion. I just did not see any way Plaintiffs could prevail on a theory that my clients failed to disclose the seawall was “unpermitted” as defined by the Coastal Commission, when they had obtained all the permits and had no way to know that it had not been constructed in the right location.
The judge left the bench for a few minutes, and returned to enter judgment in favor of my clients. He found that the Sellers had been completely truthful when they stated they were unaware of any permit problems and, in any event, the Buyers had been free to investigate that issue prior to the purchase.
A complete victory for our clients.
The entertaining aftermath.
The sale of the property had used the standard real estate agreement. That agreement provides that the prevailing party is entitled to attorney fees, but ONLY IF they participate in mediation before litigation is pursued. Whoever is suing, here the Buyers, must first demand mediation, and the other side must participate. You could end up with a situation where the buyers demand mediation, but the sellers reject the demand, in which case the buyers could recover attorney fees if they prevailed, but if the sellers prevailed, they could not.
Counsel for the Buyers fought my motion for attorney fees, claiming that he had demanded mediation and we had rejected it. He based this claim on the fact that before pursuing the litigation, he had written to the Sellers, demanding two million dollars, but offering to meet with them to see if some other resolution could be reached. The Sellers had never responded. In counsel’s mind, his letter was a demand for mediation.
I easily found authority for the proposition that a mediation requires a MEDIATOR. Counsel’s offer to discuss the matter with the Sellers, before they were represented, was not a demand for mediation.
The court awarded every penny of the attorney fees we requested. The greedy buyers made no indication that they were going to pay the ordered fees, until I set a judgment debtor’s exam, which would have required them to appear and provide all of their financial information. Within hours of receiving that demand, they wrote a check in the full amount.
If you enjoy legal dramas like the one you just read, be sure to check out The Case of the Thin-Skinned Councilman.