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A California court has considered whether a listing broker and a seller could be liable to a buyer for failing to disclose an agreement that the sellers had entered into with a municipality which waived certain claims that could be made against the municipality.
Leon and Renee Jenkins ("Buyers") were interested in purchasing a property ("Property") owned by John Niemier ("Seller"). William Rhodes of RML Realty L.P. ("Brokerage") was the listing broker for the Property. The Property was located in an area of the City of Malibu, California ("City") that was geologically unstable and had the possibility for landslides. The Brokerage had given the Buyers extensive information about a prior landslide on the Property as well as information about the remediation efforts that had been undertaken. A geological report was also given to the Buyers, which stated that there was the potential for future geological movement in the area.
The Buyers hired a geologist to inspect the Property as well as an advisor to accompany the geologist. During these inspections, the Buyers learned of two unpermitted additions to the Property, since the City had stopped approving building projects in this area. The report prepared by the Buyers' geologist noted a fissure running down the center of the Property and the report stated that the Property "exhibits substantially higher than average risk of a geological nature." The Buyers also received a disclosure statement which noted significant defects on all of the Property's walls, the foundation, the floor, and other structural components of the Property. The disclosure statement also stated that there had been major damage to the Property's structures from landslides, and there were structures on the Property which did not conform with building codes. The disclosure statement also contained a general statement about how the surrounding area is geologically unstable, and may always be unstable.
The sale of the Seller's Property closed in 1992, with the Buyers executing a promissory note in favor of the Seller for the remainder of the purchase price. The Buyers proceeded to make $100,000 in improvements to the Property. A year later a dispute arose about the condition of the Property, and the dispute was resolved with a reduction in the Buyers' debt and also with the Buyers executing a waiver which stated that they had no complaints about the Property.
In 1994, the Buyers tried to obtain a mortgage for the Property, which was unsuccessful because of the recorded building code violations against the Property. The Buyers then filed a lawsuit against the Seller and the Brokerage alleging breach of contract and fraud. After a lengthy procedural history, a jury considered whether the Brokerage and Seller's failure to disclose an earlier settlement with the City was a required disclosure. The jury ruled in favor of the Brokerage and the Sellers, and the Buyers appealed.
The California Court of Appeal, Second District, affirmed the rulings of the trial court. The court considered the Buyers' challenge to various evidentiary rulings made by the trial court. The jury had considered whether the Seller and Brokerage's failure to disclose a release that the Seller had entered into with the City ("Release"), which released the City from all claims that might arise from the Seller's unapproved improvements to the Property, constituted a material fact that required disclosure. One of the Buyers had explained to the jury since he was a lawyer, he had actually considered the possibility of bringing a lawsuit if the Property was destroyed in a landslide and testified he would not have bought the Property if he had known of the Release.
The court stated that California law requires that the sellers disclose all facts which materially affect the value of a property. The court found that the Seller and the Brokerage had made available a "wealth of information" about the Property to the Buyers, and the Release added nothing to this knowledge. The Buyers knew that the Property had serious geological problems, and that the City would never approve any building improvements made to the Property. Despite this knowledge, the Buyers still purchased the Property and made $100,000 in improvements to the Property. The court found that in light of all the other information about the Property that the Buyers received, it was not likely that the jury could have found in favor of the Buyers even if the Buyers had received favorable evidentiary rulings from the trial court. Thus, the court affirmed the jury verdict.
Next, the court considered the Buyers' challenge to the attorney's fees awarded to the Brokerage and the Seller, which totaled approximately $650,000. The Buyers challenged the award to the Brokerage because the Buyers had no contractual arrangement with the Brokerage which entitled the Brokerage to recover attorney's fees. The court found that because the Buyers had made breach of contract allegations against the Brokerage based on a deposit receipt and would have recovered attorney's fees based on that document if they had succeeded, the Brokerage was entitled to seek attorney's fees based on the same language within the deposit receipt. Thus, the court affirmed the award of attorney's fees as well.
Jenkins v. Niemier, No. B147753, 2002 WL 31862859 (Cal. Ct. App. Dec. 23, 2002). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]