Fresno Lawyer – Randolf Krbechek

Here’s a thorny problem.  The trial court found that the seller of a house lied to the buyer.  The buyer sought the remedy of rescission.  The trial court denied relief, in part because of events that occurred with the passage of time.

The court of appeal disagreed in Wong v. Stoler (June 23, 2015) __ Cal.App.4th ___, saying that equity favored the buyers.  The case will embolden aggressive plaintiffs’ attorneys.  Read on.

Let’s start with the facts.  The buyers purchased a 4,400 square foot house in May 2008 for $2.35 million.  The house was located at 2 Sudan Lane, San Carlos.  The sellers misrepresented the sewer hookup, and did not disclose that it was not a city connection.  The buyers first learned of the private sewer system in November 2008.

Here’s an important fact.  “By this time, much of the home was down to the studs as a result of the demolition work.”  By the time of trial, “the court reasoned that the [sellers] had purchased a new home over four years ago and had spent $100,000 in improving it, and the [buyers] had spent $300,000 improving the property and had removed a significant amount of the original landscaping.”

The court found that the sellers acted with reckless disregard in negligently misrepresenting the material facts about the true nature of the sewer system. “The court further found that the misrepresentations affected the property’s value and that the [buyers] would not have bought the property if they had known about the private sewer system.”

Nonetheless, the trial court determined that, given the “burden that rescission would place on the [sellers],” rescission was neither a fair nor appropriate remedy.

The court of appeal saw no reason not to handle the sellers with rough hands.  Explained the court,”Under California law, negligent misrepresentation is a species of actual fraud and a form of deceit … Thus, a single misstatement as to a material fact, knowingly made with intent to induce another into entering the contract, will, if believed and relied on by that other, afford a complete ground for rescission.”

Now comes the hammer. “Where defendant has been guilty of fraudulent acts or conduct which have induced the agreement between him and the plaintiff, courts of equity are not so much concerned with decreeing that defendant receive back [ ] identical property [ ] as they are in declaring that his nefarious practices shall result in no damage to the plaintiff.”

“Persons who attempt to secure profits by deceitful means may not confidently expect to receive special consideration from courts of equity … If his fraudulent acts have resulted in disastrous financial consequences to himself, it is no one’s fault but his own, and he must sustain the necessary inconveniences thereby entailed.”

Ouch.  “We recognize that changes have been made to the property and years have transpired.  But the changes in the property were commenced before the [buyers] learned of the [sellers’] misrepresentations, and much of the time that has elapsed has been due to the [sellers] contesting the rescission … While untangling the deal may not be easy, we are unaware of any insurmountable obstacles.”

“Thus, we remand the case to the trial court to effectuate the Wongs’ rescission … The trial court’s goal [ ] in fashioning this remedy must be, to the extent possible, to restore the Wongs to their status quo ante.”

Is this practical?  The transaction occurred in May 2008.  The trial court judgment was entered in early 2013, and the decision of the court of appeal was entered in June 2015.  How is the trial court going to be able to unwind seven years?  How are the parties going to unwind seven years?  Should we simply refer to the property as “Bleak House”?

When you read the cases, it’s hard not to reach the conclusion that the courts view a liability release agreement with distrust. A new high water mark in this analysis was reached in the recent decision in Etelvina Jimenez v. 24 Hour Fitness USA, Inc. (June 9, 2015) __ Cal.App.4th ___. In Jimenez, the court relied on a manager’s non-verbal gestures to defeat a release from liability.

Etelvina Jimenez joined a 24 Hour Fitness health club in Sacramento in 2009. In 2011, she suffered severe head injuries when she fell backwards off a moving treadmill and hit her head on a nearby exercise machine.

When plaintiff joined the gym, she was required to sign a membership agreement. However, Ms. Jimenez could not read or speak English. The manager “pointed to his computer screen to a figure, $24.99, indicating the membership fee, and made pumping motions with his arms like he was exercising.”

According to the court, plaintiff understood the “physical gestures to mean that if she paid that amount, she could use the facility.” Added the court, the manager “did not point out the release to Etelvina or make any other indications about the scope of the agreement aside from his gestures mimicking exercise and the fee.”

Etelvina believed she signed an agreement only to pay the monthly fee of $24.99.

The court held that the act of pointing at the computer screen and making a pumping motion could constitute a nonverbal gesture giving rise to a claim for affirmative misrepresentation.

Let’s say that one more time: the contract was written in English. It contained a release from liability clause. Plaintiff did not speak or read English. Nobody compelled plaintiff to sign up at 24 Hour Fitness – she could have chosen other gyms. The manager pointed at the dollar figure on his screen and “made pumping motions with his arms.” Based on this non-verbal communication, the court held that a reasonable jury could infer a misrepresentation by the manager, thereby negating the release agreement.

Explained the court, “under the circumstances, already ripe for misrepresentation overreaching, [the manager’s] gestures and pointing may well have misrepresented the nature of the document [plaintiff] signed. This is an inherently factual question for a jury to decide.”

For the life of me, I cannot understand how pointing at a dollar figure on a computer screen and pumping one’s arms could be construed as misrepresenting the terms of a contract that plaintiff was unable to read. Perhaps the legislature should revisit this issue. Perhaps gym membership contracts, like auto sale contracts, should have mandatory Spanish versions for Spanish-speaking customers.

But that’s a question for the legislature, not for the courts. Here, we have a court making a policy decision because it simply did not want to enforce the release clause.

The law is filled with rules.  Rules give guidance to judges.

Sometimes the legal result does not square with the facts.  In Estate of Britel (2015) 236 Cal.App.4th 127, “the court admitted into evidence a DNA test showing a 99.9996 percent probability that the decedent (Amine Britel) was A.S.’s (the child’s) father.”  Yet the court held that the child was not entitled receive any property under the law of intestate succession.  How did this happen?

When a person dies without a will, the judge will look to the law of intestate succession to determine who will receive the decedent’s property.  Explained the court of appeal, “Intestate succession is governed entirely by statute.  The heirs of a person are those whom the law appoints to succeed at the decedent’s death.”

“As relevant here, if there is no surviving spouse or domestic partner of an intestate decedent, the intestate estate passes to the decedent’s ‘issue’ … For the purpose of determining intestate succession, the relationship of parent and child exists between a person and the person’s natural parents, regardless of the marital status of the natural parents.”

Sounds promising for the child.  But here is where the argument ran ashore.  The mother, Jackie Stennett, “contends biological parents are, by definition, natural parents within the meaning of [Probate Code] section 6450.  Not so.”

Instead, when child born out of wedlock wants to show he is the natural child of a man who died without leaving a will, the statute requires “clear and convincing evidence that the father has openly held out the child as his own.”  A paternity test administered after death is not sufficient by itself.

Explained the court, “We conclude [the statute] requires an affirmative representation of paternity that is unconcealed and made in open view.  But although the representation must be a public one, in the sense of being made in open view, the statute does not require an announcement to the world, an official action, or an affectionate fatherly intent.  Each case depends upon its own circumstances.”

The court held that Jackie Stennett [the mother] failed to prove “that Amine openly held out A.S. as his own child.”  Hence, the legal result, which does not square with the facts.

Roscoe Pound, Dean of Harvard Law from 1916 to 1936, was a prolific writer in 1920s and 1930s regarding jurisprudence.  Here is Dean Pound’s description – both succinct and accurate – regarding the path of the law.

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“The historical school thought of each in terms of the growth of an organism, in terms of a development by the force of something working from within, wholly apart from human activity.  Blackstone’s analogy of an English castle made into a modern house, of something made over by men for their needs, by constant adaptations of and addings to the old materials, is quite as well taken.

“Indeed we might well compare these systems of law to one of the old churches in Rome.  Perhaps the Servian wall is in its foundations and an old pre-Christian basilica was the first edifice.  It was made over into a church in the fourth century.

“Perhaps in the ninth century a new church was built on the foundations and with part of the walls.

“It was rebuilt in the twelfth century and many stones and ornaments and some of the old mosaics and paintings were incorporated.

“It was restored frequently in later centuries and overhauled thoroughly in an eighteenth-century restoration in the baroque style of the time.

“The nineteenth century has added new chapels and monuments and has sought sometimes to bring to light some fragments of antiquity.

“How much of what men use today is the Servian wall or the Roman basilica, or the church in which the fifth-century council sat, or the church of the twelfth century or even the church of the Renaissance?  Such a picture is much nearer the truth than the picture of organic evolution and continuous identity with which the historical school made us familiar.”

Roscoe Pound, Interpretations of Legal History (Macmillan Company 1923)