One advantage of statutory unfair competition claims for a plaintiff, evident here, is their independence from some of the tactics sellers often use to limit their liability.
Defendants developed a tract of land marketed as the Treviso Custom Home Development. Plaintiffs purchased lots with the intent to build custom homes on each lot; some have finished doing so. They sued, alleging that they paid a premium price because defendants marketed the development as one that would be limited to custom homes with at least 2,700 square feet of living space. However, unbeknownst to plaintiffs, defendants allegedly always intended to build tract homes on some of the lots that would be much smaller than 2,700 square feet. They alleged that this decreased the value of their homes.
The district court dismissed a variety of claims. Plaintiffs appealled only on the statutory unfair competition/false advertising claims and fraud, and also appealled the trial court’s grant of summary judgment on claims for breach of fiduciary duty and constructive fraud.
The trial court ruled that the parol evidence rule precluded any testimony about facts inconsistent with the contract between the parties and the purchase and sale agreement, depriving plaintiffs of a factual basis for their claims. The court of appeals affirmed as to the fraud claim, but reversed as to the statutory causes of action because those didn’t involve any attempt to vary, alter, or add to the terms of the parties’ agreement, and thus the parol evidence rule was inapplicable. The court of appeals also reversed the summary judgment on the question of whether defendant McCaffrey Home Realty acted as plaintiffs’ real estate agent and therefore owed them a fiduciary duty; the agreement was ambiguous, creating a triable issue of fact.
Plaintiffs bought their lots between July 28, 2006, and August 8, 2007. As initially recorded, and at the time plaintiffs bought their lots, the conditions, covenants & restrictions (CC&Rs) required each home built within the development to be at least 2,700 square feet and "'architecturally compatible with each other.'" Defendants also told two of the plaintiffs that the development contained the only custom home lots in the area and did other things allegedly indicating that the development would be full of custom homes.
After the plaintiffs bought their lots, defendants, without notice, caused the CC&Rs to be amended to reduce the minimum size of each residence built in the development, first to 1,700 square feet and then to 1,400 square feet. (This also, plaintiffs alleged, violated several provisions of the Business and Professions Code governing the relations between subdividers and lot owners.) Defendants also began selling tract homes on lots in the development for essentially the same price as plaintiffs paid for their undeveloped lots. This meant that the development was no longer a custom home development, and one defendant allegedly admitted to plaintiffs that it was never intended to be.
Defendants argued that any reliance on the alleged misrepresentations was unreasonable as a matter of law, because paragraph 9(a) of the sales agreement specifically permitted defendants to change the "product, development plan ... and marketing methods" for the development. This included:
The unfair competition/false advertising claims were not subject to the parol evidence rule, because they alleged false advertising, which didn’t affect the terms of the written agreement between the parties. Plaintiffs weren’t arguing that the terms of the agreement and the CC&Rs prohibited defendants from building tiny tract homes in the development. Instead, they alleged that defendants advertised the development as one for only custom homes, justifying a premium lot price. The question is whether plaintiffs could reasonably rely on this allegedly false advertising. Defendants argued that they couldn’t because of what the written contracts said. But plaintiffs sufficiently pled reliance and materiality. “The jury rationally could conclude that defendants' retention of the right to alter the nature of the Development did not necessarily mean they would do so.”
By contrast, the court of appeals refused to apply the fraud exception to the parol evidence rule to these facts. Under California law, the tort of promissory fraud based on an oral promise is limited by the parol evidence rule when the oral promise directly contradicts the terms of the contract to which the parties agreed (at least when there’s no misrepresentation that a particular term is not included in a contract). Here, an alleged promise not to use a right included in the contract was not within the scope of the fraud exception.
As for the fiduciary duty argument, the court found the agreement to be a “model of ambiguity”:
The court reasoned that the ambiguity of the relevant language was apparent when each sentence was considered in isolation. The court found it impossible to reconcile all that was said in each. As marked, the fourth sentence said that McCaffrey Home Realty was exclusively the seller’s agent, but that was inconsistent with the first and fifth sentences, which said it was the agent for both buyer and seller. Thus, extrinsic evidence should be considered by the trier of fact.
Defendants developed a tract of land marketed as the Treviso Custom Home Development. Plaintiffs purchased lots with the intent to build custom homes on each lot; some have finished doing so. They sued, alleging that they paid a premium price because defendants marketed the development as one that would be limited to custom homes with at least 2,700 square feet of living space. However, unbeknownst to plaintiffs, defendants allegedly always intended to build tract homes on some of the lots that would be much smaller than 2,700 square feet. They alleged that this decreased the value of their homes.
The district court dismissed a variety of claims. Plaintiffs appealled only on the statutory unfair competition/false advertising claims and fraud, and also appealled the trial court’s grant of summary judgment on claims for breach of fiduciary duty and constructive fraud.
The trial court ruled that the parol evidence rule precluded any testimony about facts inconsistent with the contract between the parties and the purchase and sale agreement, depriving plaintiffs of a factual basis for their claims. The court of appeals affirmed as to the fraud claim, but reversed as to the statutory causes of action because those didn’t involve any attempt to vary, alter, or add to the terms of the parties’ agreement, and thus the parol evidence rule was inapplicable. The court of appeals also reversed the summary judgment on the question of whether defendant McCaffrey Home Realty acted as plaintiffs’ real estate agent and therefore owed them a fiduciary duty; the agreement was ambiguous, creating a triable issue of fact.
Plaintiffs bought their lots between July 28, 2006, and August 8, 2007. As initially recorded, and at the time plaintiffs bought their lots, the conditions, covenants & restrictions (CC&Rs) required each home built within the development to be at least 2,700 square feet and "'architecturally compatible with each other.'" Defendants also told two of the plaintiffs that the development contained the only custom home lots in the area and did other things allegedly indicating that the development would be full of custom homes.
After the plaintiffs bought their lots, defendants, without notice, caused the CC&Rs to be amended to reduce the minimum size of each residence built in the development, first to 1,700 square feet and then to 1,400 square feet. (This also, plaintiffs alleged, violated several provisions of the Business and Professions Code governing the relations between subdividers and lot owners.) Defendants also began selling tract homes on lots in the development for essentially the same price as plaintiffs paid for their undeveloped lots. This meant that the development was no longer a custom home development, and one defendant allegedly admitted to plaintiffs that it was never intended to be.
Defendants argued that any reliance on the alleged misrepresentations was unreasonable as a matter of law, because paragraph 9(a) of the sales agreement specifically permitted defendants to change the "product, development plan ... and marketing methods" for the development. This included:
Without limitation, … Seller may elect not to build residences on each lot of this phase or future phases of the project, or may elect to build a different type or size of residence on a smaller or larger lot, or may use different construction methods to build such residences.… Any of the foregoing events may adversely affect the value of the Property. Nothing herein shall be interpreted as an express or implied warranty or representation that the Seller will refrain from any pricing program, product design program, development strategy or marketing plan which in any manner adversely affects the value of the Property, and Buyer acknowledges that no sales representative has made any contrary representation, or has made any representation regarding any potential appreciation of the Property, any resale value of the Property, or the effect of any component, option or amenity of the Property upon the value of the Property.The developer also retained the right to amend the CC&Rs at any time, including the right to reduce the minimum size of any residence within the Development, so long as it owned more than 51 percent of the lots.
The unfair competition/false advertising claims were not subject to the parol evidence rule, because they alleged false advertising, which didn’t affect the terms of the written agreement between the parties. Plaintiffs weren’t arguing that the terms of the agreement and the CC&Rs prohibited defendants from building tiny tract homes in the development. Instead, they alleged that defendants advertised the development as one for only custom homes, justifying a premium lot price. The question is whether plaintiffs could reasonably rely on this allegedly false advertising. Defendants argued that they couldn’t because of what the written contracts said. But plaintiffs sufficiently pled reliance and materiality. “The jury rationally could conclude that defendants' retention of the right to alter the nature of the Development did not necessarily mean they would do so.”
By contrast, the court of appeals refused to apply the fraud exception to the parol evidence rule to these facts. Under California law, the tort of promissory fraud based on an oral promise is limited by the parol evidence rule when the oral promise directly contradicts the terms of the contract to which the parties agreed (at least when there’s no misrepresentation that a particular term is not included in a contract). Here, an alleged promise not to use a right included in the contract was not within the scope of the fraud exception.
As for the fiduciary duty argument, the court found the agreement to be a “model of ambiguity”:
Agency Confirmation (California Civil Code § 2079.17 ). McCaffrey Home Realty is both the 'listing agent' and the 'selling agent' in the purchase and sale transaction contemplated by this Agreement. The 'listing agent' is the real estate broker who has obtained a listing of real property from the Seller to act as an agent of the Seller for compensation. The 'selling agent' means an agent who sells or finds and obtains buyers for real property and presents offers to purchase to the Seller. MCCAFFREY HOME REALTY IS THE AGENT OF [X] THE SELLER EXCLUSIVELY; OR [ ] BOTH THE BUYER AND SELLER. IN ITS CAPACITY AS BOTH THE LISTING AGENT AND THE SELLING AGENT, MCCAFFREY HOME REALTY IS ACTING AS THE AGENT OF BOTH BUYER AND SELLER IN CONNECTION WITH THE PURCHASE AND SALE CONTEMPLATED BY THIS AGREEMENT. McCaffrey Home Realty is affiliated by ownership with the Seller.Another document labeled "DISCLOSURE REGARDING REAL ESTATE AGENCY RELATIONSHIPS" identified McCaffrey Home Realty as the "AGENT" and the respective plaintiffs as the "BUYER/SELLER."
The court reasoned that the ambiguity of the relevant language was apparent when each sentence was considered in isolation. The court found it impossible to reconcile all that was said in each. As marked, the fourth sentence said that McCaffrey Home Realty was exclusively the seller’s agent, but that was inconsistent with the first and fifth sentences, which said it was the agent for both buyer and seller. Thus, extrinsic evidence should be considered by the trier of fact.
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