Foul Odor Not “Sea Air”

Read the full decision: Fong v. Sheridan, No. A144286, 2016 WL 1626221 (Cal. Ct. App. Apr. 21, 2016)

A California appellate court reviews the damage awards made to purchasers who were told by a real estate professional that a strange odor on the property was “sea air” but the purchasers later discovered buried oil and septic tanks on the property.

Justin Fong, M.D., and Suzanna Fong (“Buyers”) purchased a seaside home from Phillip Sheridan (“Seller”).  When they visited the home prior to purchasing, they noticed a strange, moldy aroma in one of the rooms.  The real estate professional (“Licensee”), who was serving as a dual agent, told the buyers that the smell was from “sea air” and could be fixed by “changing things like sheetrock.”

Following purchase, the Buyers moved onto the property and began noticing an “oil-like” odor on the first floor.  They continued noticing the smell for two years and eventually hired a contractor to investigate.  The contractor found a buried septic tank on the property, and then also found a buried oil tank.  The Buyers notified both the Licensee’s broker and the seller about what they had found on the property.

During the removal of the oil tank, an inadvertent spill took place on the property which caused additional property remediation efforts.  Eventually, the Buyers moved away from the property due to the overwhelming chemical smell on the property.  In order to fully remediate the property, the entire house was removed from the property.

The Buyers filed a lawsuit against the Seller, the Licensee, and the Licensee’s broker.  The Buyers settled with the Licensee and the Licensee’s broker for $275,000.  A trial was held to consider the Buyers’ claims against the Seller.  The court rejected the fraud allegations against the Seller, but ruled the evidence supported the negligent misrepresentation allegations, holding the Seller vicariously liable for the Licensee’s statements that the strange smells were “sea air.” 

The court awarded the Buyers $91,635 for the discovery of the tanks and remediation of the property.  Because the Buyers had already settled for $275,000 and the settlement amount exceeded the damage award, the court awarded the Buyers nothing.  In addition, the court ruled that the Seller was the prevailing party at trial and so awarded him $456,000 in attorney fees and another $21,000 in costs.  The Buyers appealed those rulings.

The California Court of Appeal, First District, partially affirmed and partially vacated the trial court’s rulings, sending the case back to the trial court for further proceedings.  The Buyers first argued that the trial court had applied the wrong measure of damages when considering their claims.  The trial court had found that the Buyers were limited to their out-of-pocket costs.  The court found that the broader damages were only available for intentional fraud, and here the Licensee did not actually know about the presence of the tanks.  Thus, the court affirmed this award.

Next, the court considered whether the trial court had properly calculated their damage claims.  The Buyers argued that they had submitted evidence supporting an award of at least $750,000, yet the trial court had only awarded $90,000.  The court agreed that the trial court had not adequately explained how it had calculated the award amount. Therefore, the court vacated the damage award and sent back to the trial court to issue a detailed statement explaining the basis for its award.

Finally, the court considered the “prevailing party” award to the Seller.  The purchase agreement contained a provision that allowed the prevailing party to recover its attorney fees and costs.  In California, the prevailing party is the party who is determined to have best accomplished its litigation objectives.  Because the court had reversed and remanded the damage rulings for further proceedings, the question of who was the prevailing party in the litigation was no longer clear and so the court also reversed this ruling, sending it back to the trial court for further consideration.

Fong v. Sheridan, No. A144286, 2016 WL 1626221 (Cal. Ct. App. Apr. 21, 2016).  [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].