A couple buying a home in California planned to completely renovate the property and ignored warnings from several inspectors who found serious moisture problems. The buyers created and signed a release that exempted the sellers from liability, but sued anyway when additional defects surfaced. Were the sellers held accountable? Read on.
A Las Vegas couple seeking a secondary home in California was repeatedly warned by inspectors that the property they were considering had significant mold and moisture problems. They chose to make no repairs, as they planned to do a complete renovation, and even drafted and entered into a liability release with the sellers in exchange for $40,000 in compensation.
When the buyers discovered additional problems, they sued the sellers anyway. A jury ruled against the buyers on all claims, and when their arguments went before the Court of Appeal, Fourth District, Division 3, California affirmed the lower court’s ruling on June 6.
The Laguna Beach, Calif., home was built in 1984 and purchased by defendants Charles and Nan Strauch. The builder, Kent Barry, hired a company called GeoSoils to do geotechnical inspections and address drainage issues that the Strauchs discovered. From that time until they decided to sell in 2003, the Strauchs allegedly experienced few problems other than routine maintenance.
The Strauchs listed the property for sale in 2003. Plaintiffs Mitchell and Marci Chait of Las Vegas, represented by Coldwell Banker real estate agent Deborah Lambros, viewed the property in April 2003. The Chaits allegedly represented that they did not plan to make the Laguna Beach house their primary residence.
Discovering odor and mold
Chait later testified that he and his wife noticed a “musty odor” in the house. Lambros allegedly advised the Chaits the odor could be a sign of something more serious. The agent’s inspection disclosure noted the odor throughout the house, particularly in a downstairs bedroom and closets, and black mold cracks in the driveway and around the pool and spa areas. The Chaits signed the disclosure form.
The Chaits offered to buy the house in its “present physical condition” subject to inspection rights. The Strauchs made a counteroffer, and the Chaits accepted. Among the documents the Chaits received was an advisement from Lambros in which she wrote that she “strongly” recommended conducting a geological inspection of the property. Mitchell Chait allegedly testified that he understood the recommendation but chose not to heed the warning.
Prior to closing, the Chaits conducted several other inspections. Steve Suer, a general contractor the buyers planned to hire for a complete remodeling project, inspected the property and reported a “horrible smell” emanating from the downstairs level.
A mold expert, CPC Laboratories Inc., cited elevated moisture readings in several areas, water stains and evidence of water intrusion. It recommended a professional mold remediation company be hired due to the “potential health implications” associated with mold. Reports from Terminix and Affordable Home Inspection noted excessive moisture apparently caused by groundwater seepage, and several instances of dry rot and fungus.
Mitchell Chait allegedly testified he was aware of the conditions prior to closing and did not investigate further. The buyers received seven written inspection reports before closing, but closed escrow without completing any of the recommended repair work.
A release from liability for $40,000
Before closing escrow, Chait allegedly prepared a letter and e-mailed it to Strauch, discussing remediation for the property’s problems. He suggested the sellers pay $45,000 to his contractor as “full restitution for the damages” and that in consideration, the Chaits would buy the house and release the Strauchs from all liability concerning the alleged damages.
Chait prepared, signed and sent to the Strauchs a complete release of all known claims. Chait did not hire an attorney to review the document, despite Lambros’ advice that he do so. The parties agreed upon a $40,000 deal in exchange for the release, and the Chaits received the funds.
Escrow closed on June 20, 2003, and within three weeks, the Chaits allegedly met with an attorney to discuss a potential lawsuit against the sellers. The buyers claimed they had found additional water intrusion and other problems with the home. The sued the sellers on July 29, 2004 on causes of action for breach of contract, nondisclosure of material facts and intentional and negligent misrepresentation.
A jury found in favor of the Strauchs on all claims. The trial court awarded the sellers $416,303 in attorney fees. The Chaits appealed the ruling.
The buyers argued that the trial court should have determined the legal effect of the release they had with the Strauchs and instructed the jury accordingly, rather than permitting the jury to decide the meaning, scope and intent behind the release.
Conversely, the Strauchs claimed the release ultimately had no legal importance because prior to the finding that the Chaits had released the sellers from liability, the jury found that based on a preponderance of evidence, the Chaits hadn’t proved either the breach of contract or misrepresentation claims.
The release, the appellate court said, was “merely part of the evidence,” and therefore found the trial court was proper in allowing the jury to interpret the factual significance and scope of the parties’ release.
The Chaits claimed the trial court should have limited the release to its “expressed terms” because the actions they brought were for “unknown, unreleased” claims. This assertion failed to sway the appellate court.
“This argument rather misses the point that the precise factual question the jury was asked to determine was the scope and nature of the release,” the appellate court said. “We find no error.”
Buyers given sufficient warning
Based on the evidence that the jury heard, the appellate court determined the Strauchs disclosed a significant amount of information about the house to the buyers, including earlier inspection reports. The buyers also had done their own testing and received at least seven inspection reports.
“Thus, the jury heard ample evidence that the Chaits were aware or should have been aware of potential problems related to their later claims about the property, specifically, water intrusion, drainage and soil issues and non-permitted improvements,” the appellate court noted. “The jury also heard about the terms of the agreement surrounding the release, the very existence of which is evidence that the Chaits were aware of substantial issues, for which they received $40,000 as compensation.”
The appellate court found that, due to the amount of evidence provided, a reasonable jury could have determined the release was meant to cover all such issues and that the Chaits were aware of problems that were either the same or closely tied to the claims they later brought against the sellers.
“Contrary to the Chaits’ apparent belief, the purchase contract does not require absolute disclosure of every potential problem, just those that are ‘significant’ of which the sellers are actually ‘aware.’ The Strauchs testified — and the jury apparently believed them — that they had disclosed all such issues at the time they signed the TDS,” the appellate court said. “Thus, taken together with the extensive testing and the information received as a result, a reasonable jury could have found no breach of contract and/or misrepresentation.”
Leaving attorney fee award alone
The buyers’ last effort, to reverse the trial court’s award of attorney fees to the sellers, also fell short. The Chaits called the award unreasonable, to which the Strauchs responded by arguing that a lack of a separate notice of appeal results in a lack of jurisdiction for the appellate court to consider the award.
The Chaits allegedly conceded this to be true, but argued in their reply brief that only if the rest of the verdict is overturned should the attorney fee also be reversed. The appellate court pointed out that the initial judgment filed on Aug. 24, 2006 did not mention attorney fees, only “costs and disbursements.” The Strauchs had filed a separate motion for attorney fees.
The court held a hearing and issued a minute order on Oct. 10, 2006 granting the sellers’ motion for attorney fees. The Chaits’ notice of appeal filed on Oct. 23, 2006 mentioned only that it was from the judgment entered on Aug. 24, 2006. Since there was no proper notice of appeal, the appellate court found it had no jurisdiction to review the award.
Thus, the lower court’s judgment was affirmed.
Mitchell Chait et al. v. Charles S. Strauch et al.