HAZ-MAT RESPONSE, V. OXNARD COMMERCEPLEX, LLC, (ARIZ. CT. APP., JUNE 2023)
CLAIMS: Tenant in commercial lease sued Landlord for wrongful eviction after a dispute over repairs to a plumbing problem.
EVIDENCE: The Lease made Landlord responsible for repairs of plumbing systems only if "concealed or used in common by tenants." In March 2018, Tenant's president entered his office space and found it flooded. He did not see any source of the leak, so he walked into an abutting warehouse space where he could hear water in the ceiling and wall. Using a ladder, he could see the water coming from the water heater above the office drop ceiling. Tenant called the Landlord who proceeded to have contractors fix the leak. Tenant did not have any water for several weeks and had no hot water from then on. Landlord sent Tenant a bill for the plumbing repair stating the repair was Tenant's responsibility. Tenant refused to pay. Landlord terminated the Lease.
COURT RULING: The case focused on the definition of "concealed". Tenant argued because the Lease did not define "concealed," the phrase was ambiguous, and it should be construed against the drafter-landlord. But the Court concluded "concealed" was fairly susceptible to more than one meaning. Tenant argued the Lease's use of "concealed" required the Landlord to repair any pipes if they were difficult to see or were not in plain view when observed from the floor. Landlord argued the Lease's use of "concealed" required the Landlord to repair pipes only if they were enclosed and inaccessible to Tenant. The Court noted that although Tenant's president testified he needed a ladder to access the water heater and pipes, he also admitted he could see the top of the water heater from the floor. The Landlord's maintenance technician testified he did not have to cut drywall or remove anything to access the water heater. The Court concluded the water heater and leaks were not "concealed", and Tenant breached in not reimbursing. Landlord wins judgment, possession, damages, and attorney fees.
SNUG & MONK PROPERTIES, INC., V. FIRST AMERICAN TITLE INSURANCE COMPANY (U.S. DIST CT., PENN. JULY 2023)
CLAIMS: Property Owner sues a title insurance company over claims that the title insurance company failed to fulfill coverage for marketable title to the Property the Owner bought.
EVIDENCE: The title company issued a title policy to the Owner in 2017 on the purchase of a property. The policy insured the Owner for certain defects in title, liens or encumbrances on title, or unmarketable title. The Owner closed on the Property and later became aware of a lawsuit that had been filed in 2013 by a neighbor against the Owner’s predecessor in title, and others, seeking to enforce a private Road Maintenance Agreement. The 1994 Road Agreement obligated a sharing of the cost of maintenance and repair of a private road that gave access to the Property and other homes. The Road Agreement was never filed of record. The lawsuit had mostly been dormant. No Lis Pendens had been filed against the Property. The Owner’s predecessor in title had not been served and had since died. Nonetheless, now with direct knowledge of the lawsuit alleging cost-sharing obligations, the Owner would have to defend and would be obligated to disclose to any next buyer. Owner sued for damages from not being made aware of it by the title company.
COURT RULING: The Court focused on the intent of the title insurance coverage provided and reasoned that there must be no outstanding interest that might endanger the insured Owner’s right to continued possession of the Property, explaining that title is deemed not marketable if there is a reasonable concern that another entity could retain the right to use or transfer the Property. While noting that the Road Agreement stated that the “agreement shall be a covenant running with the land, and, shall be binding upon any subsequent owners of the Property”, the Court determined that a property owner must have actual or constructive notice of an encumbrance on their property in order for an encumbrance to be enforced against them. Since the Owner admittedly had neither actual nor constructive notice of the Road Agreement, then the never-recorded Road Agreement would not be enforceable against them as an encumbrance on the Property's title. Therefore, the 2013 lawsuit asserting the Road Agreement as basis for breach of contract by the Owner’s predecessor in title did not constitute an encumbrance on the Property's title and therefore does not make it unmarketable. Title Company wins.
IAS SERVS. GRP., L.L.C. V. JIM BUCKLEY & ASSOCIATES, INC., (U.S. 5TH CIR. JUNE 2023)
CLAIMS: Buyer purchased the assets of an insurance loss adjusting firm and thereafter sued the Seller, alleging fraudulent inducement and breach of the asset purchase agreement
EVIDENCE: In 2011, before any written offers were exchanged between Buyer and Seller, the parties executed a Confidentiality and Nondisclosure Agreement (the NDA) that prohibited either side from discussing the sale with third parties, including Seller’s clients. After due diligence, the parties negotiated various provisions such as earn-out payments over ensuing years to hedge against the risk of lost clients and revenues. The parties agreed the transaction would not be consummated until “the satisfactory outcome of their due diligence,” which was expressly to include “a particular focus on Seller’s clients.” Due diligence showed that a substantial part of the Seller’s revenue came from only one client. Buyer asked Seller to allow Buyer to talk with the client, but Seller refused. Instead, the Seller told Buyer that the client was their “number one” client but did not disclose that the client had not ranked first in revenue in several years. Further, the Seller’s contracts with the client were not assignable without client’s consent, which had not been arranged. Nonetheless, the Buyer closed the deal after texts with Seller seemingly assured that the client was aware and not objectionable. Within days of the closing, the client discontinued all work and refused to consent to the assignment. Buyer sued for fraud.
COURT RULING: Buyer argued that its reliance on Seller’s “number one” statement induced Buyer to overpay. But the Court noted that Seller did not make the “number one” comment until after the parties had agreed upon a purchase price amount that was solely based on general and “undisputedly accurate financial due diligence information.” Thus, "Seller’s after-the-fact statement could not have induced Buyer to purchase the business for a price that Buyer had already offered to pay months before." Further, Buyer testified that he understood the risk that the “number one” client could have consented to assignment but then never again assigned any new claims to the business, and therefore would have had same consequence. Therefore, the Court found that the Seller’s representations were immaterial and did not establish fraudulent inducement. Seller wins.
