Monday, April 1, 2019

DE MINIMIS NON CURAT LEX

            De Minimis Non Curat Lex. It means the law does not remedy an injury that is minimal. We’ve had this legal theory for, well, forever.

             Lawyers use that phrase to tell the opposition: There was no blood. So there could be no foul. Therefore, your honor and members of the jury, my client is not guilty. Or isn’t responsible to pay damages. Or the rough equivalent in whatever makes sense at the time.

             This is that case; that is this case. Or maybe it’s not. Keep reading.

             J.S. Bawa is a residential landlord in Los Angeles and was owed rent by David Terhune. When Terhune did not pay, Bawa served a three-day notice to pay or vacate. Bawa stated in his notice that if Terhune did not comply with the notice, Bawa would pursue an eviction claim.

             Bawa’s resident manager testified at trial that Terhune had received a check for rent, but returned it because it was not in the correct amount. The PM further testified that after expiration of the three-day notice period, Terhune delivered two checks. One was for the correct amount of rental and the other was intended serve as rental for the next month, which rental was not yet due.

             Bawa and his PM did not deposit the checks and instead filed an eviction lawsuit.

             The case was tried to a jury. The jury determined the facts: $507.61 owed in rent. Terhune furnished a check for $507.60. The differential – one penny – convinced the jury that Terhune had indeed paid full rent owing and did not default.

             Let me state that again. This landlord asserted an eviction claim against his tenant because the rent check was one cent short.

             One. Penny. Short. You can’t make this up.

             The Landlord, clearly a person of deep conviction, appealed.

             The Court of Appeals, using Uniform Commercial Code laws, determined that a non-certified check is a conditional payment. A conditional payment suspends the obligation until dishonor of the check or until it is paid or certified.

             Typically, reasons the Appellate Court, a debtor is not in default for paying with an uncertified check. Once the tendered check is successfully negotiated, the obligation is discharged.

             But all of this is premised upon the creditor’s willingness to accept the conditional payment offered in the form of a non-certified check. Following this thread further, if a landlord does not accept an uncertified check, the duty to pay rent is not suspended and the tenant is in default.

             Then, the Appellate Court evaluated whether or not the landlord’s refusal to accept an uncertified check which is one penny less than the required amount is equitable. Or not. Because, you see, Courts have the ability to apply the theory of “de minimis non curat lex.” The point is to conserve valuable and overburdened judicial resources and not waste the time of the Judge, Justices, bailiffs, sheriffs, constables, clerks, marshals, deputies, jury members, court personnel, and pay outrageous amounts to attorneys when parties are squabbling over something trivial.

             Easy out for the Appellate Court, right? Regardless of certified or non-certified funds, conditional acceptance vs. conditional delivery, apply ye olde DMNCL and we’re done. Case concluded, go home and next time focus on something significant.

             But no. Rather than trust the jury to correctly determine the facts – that is after all the jury’s one and only job – no, the Appellate Court finds that Tenant Terhune failed to pay rental. And, after making that finding the Court rules for the Landlord Bawa and case over, yes?

             No. The Appellate Court kicked the case back to where it came from. For a new trial. So that we can start all over again and litigate this one penny case. From which one might suspect there will be further appeals.

             Which will give me the ability to write about this case again in 2021. But that’s a digression.

The judgment rendered by the trial court was reversed for a new trial where presumably the jury will be instructed that a one-penny-short rent payment is a default. See J.S. Bawa v. David Terhune; Appellate Division of the Superior Court, State of California, County of Los Angeles, Case No. BV 032618; January 30, 2019: https://www.courts.ca.gov/opinions/documents/JAD19-01.PDF.  

Lessons Learned / Questions Asked:
 
1.      Sweet suffering Buddha. Why does this case exist; why were / are the parties arguing over one penny. Yes that’s rhetorical. One might presume rent control . . . Section 8 . . . a personal vendetta . . . who knows.
 
2.      Ok disregarding #1 for the moment, why didn’t the Appellate Court use the DMNCL theory and drop-kick this to hades? Yeah, that’s also rhetorical. Because here we are. With a 10-page appellate decision.

3.      Look for further appeals. Sadly. 

                                                                                                                 Stuart A. Lautin, Esq.*




* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York 

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888




Monday, March 4, 2019

BROKER NON-DISCLOSURE


            In September 2013 Daniel Ryan and Patricia Ryan decided to sell their La Jolla beachfront property and engaged Pacific Sotheby’s International Realty to assist. A listing agreement was executing appointing Sotheby’s as exclusive agent for M/M Ryan. 
 
It was Sotheby’s obligation in the contract to use its “professional guidance and advice throughout all states and aspects of the listing, marketing and sale” of the property. Sotheby’s, in turn, appointed David Schroedl as its agent.

During an open house hosted by Schroedl, Hany Girgis informed Schroedl that Girgis intended to remodel his adjacent property, which would permanently obstruct Ryans’ westerly ocean view. Girgis further told Schroedl that the construction would have a significant impact on the Ryans’ property, as the construction would move Girgis’ home to within five feet of the common boundary, create a two-story wing overlooking Ryans’ pool, take two years to complete, and require extensive excavation.

Schroedl never informed Ryans of Girgis’ plans.

M/M Ryan sold their property several months later to Ney and Luciana Marinho for $3.86 million. Sotheby’s received almost $100k as a brokerage commission; presumably some portion of that was paid to Schroedl.

Schroedl did not disclose to M/M Marinho the extensive remodeling plans proposed by Girgis, and the likely impact upon the ocean view and privacy of the Property.

M/M Marinho only learned of the neighbor’s plans the day after closing, when the interior decorator engaged by M/M Marinho talked with Girgis. After discovery of this new intel, M/M Marinho immediately attempted to rescind the transaction.

M/M Ryan refused.

M/M Marinho demanded arbitration, where an Award was ultimately entered for them rescinding the transaction and returning the $3.86 million purchase price. The Award also ordered M/M Ryan to pay damages, interest, cost and attorney’s fees in excess of $1 million.

After entry of the arbitration Award, M/M Ryan filed a lawsuit against Sotheby’s and Schroedl to recovery the monies paid by Ryans to M/M Marinho. The basis of the claim was that prior to closing Sotheby’s and Schroedl know of the construction plans, knew of the adverse effect to the Property, and informed neither M/M Ryan nor M/M Marinho.

And due to that failure to disclose, M/M Ryan were substantially damaged through an adverse ruling in the arbitration Award.

Defendants claimed in the litigation that no duty to the Ryans was breached. Defendants argued that all of Ryans’ claims were based on professional negligence, and Ryans failed to offer expert testimony on that point, a requirement of California law. And that since M/M Ryan failed to designate an expert in trial court, they could not establish that Defendants breached a standard of care owing to M/M Ryan.

In opposition, Ryans maintained that expert testimony was not required due to the existence of the arbitration Award. Ryans claimed that to delve into the standards of professional responsibility would be essentially relitigating that issue, which – they claimed – had already been decided in the arbitration.

The trial court granted Defendants’ motion to dismiss the case. Ryans appealed.

Counsel for Ryans urged the appellate Court to waive the normal expert testimony requirement, claiming that any non-expert would have “common knowledge” that Sotheby’s and Schroedl owed and breached fiduciary duties owing to M/M Ryan. And that as a consequence, no special expert is needed to provide evidence of that which everyone already knows.

So goes the “common knowledge” theory.

The appellate Court first determined that M/M Ryan did not argue the “common knowledge” theory in trial court. But good news for them – the appellate Court allowed them to present it for the first time on appeal.

That was the first hint that the appeals Court was inclined to waive the expert witness requirement, finding that if the professional malpractice is obvious, then expert testimony is not required.

From that point, it was a short trip to determine that Sotheby’s and Schroedl had knowledge of matters that required pre-closing disclosure. Instead, they “. . . simply chose to remain silent, collect their commissions, and allow the Ryans to deal with the consequences.”

The judgment rendered by the trial court was reversed. M/M Ryan are entitled to proceed in their claims against Sotheby’s and Schroedl. 

See Daniel Ryan v. Real Estate of the Pacific, Inc.; California Court of Appeals, 4th Appellate District, Division One, Case No. D072724; February 26, 2019: http://www.courts.ca.gov/opinions/documents/D072724.PDF.

Lessons Learned / Questions Asked:
 
1.      I believe that a California real estate broker’s and agent’s obligation to disclose material conditions and latent defects is the most stringent in the USA.
 
2.      Although the conclusion reached by the appellate Court may be morally correct, I’m not convinced it is supported by California law. Can it truly be correct that California citizens have “common knowledge” of the professional standards of care that must be discharged by California real estate brokerage licensees? So if we stop a random guy from Escondido driving his 1983 Ranger pickup truck south on I-15 he will be able to aptly describe the fiduciary duties of those licensed by the California Department of Real Estate? Seriously?

3.      Look for further appeals. I will too.

                                                                                     Stuart A. Lautin, Esq.*


* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
Licensed in the States of Texas and New York

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888
























Thursday, January 31, 2019

Is The Notice Valid?




            A general contractor was hired to build public schools in Louisiana. The GC subcontracted a portion of the project to a subcontractor, who in turn, further subcontracted with 84 Lumber Company.
 
            Presumably 84 Lumber Company furnished building materials, but I see from their website that they are capable of furnishing much more including custom manufacturing.
 
            84 Lumber Company was not paid, so 84 Lumber filed sworn Statements of Claim. Louisiana law requires that subcontractors must send written notice of its claim by certified or registered US mail to the GC’s Louisiana office.
 
            Instead of using US mail, 84 Lumber sent the notice by email.
 
            Instead of sending the notice to the GC’s Louisiana office, 84 Lumber sent the notice to the GC’s attorney.
 
            84 Lumber sued the GC. The district court held that 84 Lumber’s notice did not comply with Louisiana laws.
 
84 Lumber appealed.
 
            The Appellate Court reviewed the State laws requiring notice, to determine if it was clear and unambiguous. The Court found that the laws on this subject were intended to protect those performing labor and furnishing materials. And that those same laws, if unambiguous, must not be expanded in their scope, but rather must be read literally.
 
            Louisiana laws provide that a subcontractor must furnish written notice to the GC within 45 days after recordation of the notice of acceptance by the property owner or notice of the owner regarding a default. The notice sent by the subcontractor must be “. . . served by mailing the same by registered or certified mail, postage prepaid, in an envelope addressed to the contractor at any place he maintains an office in the state of Louisiana.”
 
            It is undisputed that 84 Lumber did not send notice of its claim by registered or certified mail to the GC’s Louisiana office. 84 Lumber did neither. However, 84 Lumber gave evidence at trial that its lawyer’s secretary sent claim statements by email to the GC’s counsel. And accordingly, 84 Lumber contends that receipt by the GC of such sworn statements satisfies the statutory requirements.
 
            Because regardless of the manner of delivery, the message was in fact timely delivered and no one is contending otherwise. And so, the argument goes, we should look at the intent of the law not its exact wording. The purpose of the law is to provide notice. Notice was provided. Just not in exact conformance with Louisiana laws.
 
            Unconvinced, the Appellate Court determined that words have meanings and meanings should not be expanded if the ordinary meaning is clear. If the law requires notice to be sent by certified or registered mail to a Louisiana location, then that precludes notice sent by any other manner such as emails, texts, instant messaging, and phone calls.
 
No Louisiana court has held that an email to the GC’s counsel satisfies the requirements of Louisiana law. Consequently, 84 Lumber’s email notice to GC’s attorney fails.
 
            The GC wins; 84 Lumber loses.
 
See 84 Lumber Company v. Continental Casualty Company et al; US Court of Appeals, 5th Circuit, Case No. 18-30170; January 24, 2019: http://www.ca5.uscourts.gov/opinions/pub/18/18-30170-CV0.pdf.
 
            Lessons Learned / Questions Asked:
 
1.      This issue comes up constantly. People want to know that their email message is sufficient under law. Sometimes it is; often it is not.
 
2.      There are times where laws require delivery of a formal notice or demand in a specific manner. Eviction notices come to mind, as do demands for treble or punitive damages. I have not yet seen non-litigation laws that allow severe correspondence to be sent in any manner other than old fashioned paper, with proof of delivery.
 
3.      Conversely, leases, vendor agreements, service agreements, construction contracts and contracts of purchase and sale now commonly offer, as a convenience, to allow formal notices to be furnished by email or posted on a web portal. Be careful. There is a substantial risk that the intended recipient never sees the message as it might be trapped in a spam filter or ignored. For important notices like default, term renewal, and building repairs, only use paper notices by personal delivery, registered or certified mail, or courier delivery. The point is to have evidence of exactly when the notice was delivered, and to whom. You may need that evidence if the matter is contested.
 
                                                                                                Stuart A. Lautin, Esq.*



* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
 
Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

 






      

Monday, December 31, 2018

Bank Fraud


            Francisco Calleja-Ahedo, a resident of Mexico, opened an account with Compass Bank in 1988. He may or may not have signed an account card directing the Bank to hold all correspondence. Conversely, he may or may not have instructed the Bank to send statements to his brother in The Woodlands, Texas.

            Regardless, the Bank sent monthly statements c/o Calleja’s brother at the Texas address from 2008 until 2012. Calleja’s brother routinely ignored all statements, but furnished them to Francisco when he visited.

            In May 2012 the Bank statement provided that Calleja had a balance of approximately $43,000. This would be the last statement provided by the Bank to the brother at the Texas address.

            Neither Calleja nor his brother nor the two other signatories on the account (Calleja’s wife and father) complained to the Bank that statements were no longer being received in The Woodlands.

            In June 2012 an unknown person identified himself as Calleja and instructed the Bank to change the address on file to a California address. Then, another California address. Later, a Georgia address. Still later, a new Georgia address.

             A forged check for $38,700 was paid from the account in July 2012. The imposter then drained the account balance through a series of smaller transactions.

             Calleja claims that he first learned of the change of address and fraudulent activity in January 2014, when a buddy told him a check from Calleja had been returned marked “account closed.” Calleja went to the Bank to sign an affidavit disputing the charges and demand reimbursement.

             Calleja sued the Bank when it refused to pay the unauthorized withdrawals. The Bank’s employee testified through an affidavit that: (1) Calleja never complained about his brother’s non-receipt of statements, (2) copies of Bank statements are available at any branch office, (3) Calleja could have reviewed the statements online, and (4) all statements have a toll-free number Calleja could have used to get statement copies or setup online banking for free.

            The trial court granted judgment for the Bank, holding that Calleja failed to exercise diligence by waiting too long to notify the Bank of the fraud.

             Calleja appealed.

             The Texas court of appeals reversed and rendered judgment for Calleja, concluding that sending statements to the imposter did not amount to sending the statements to Calleja. The appellate court further rejected the Bank’s contention that it made statements available by providing them at its offices, offering free online banking, and providing a toll free number that Calleja could have used to inquire about his missing statements and overdrawn account balance.

             The Bank appealed.
 
            The Supreme Court evaluated Texas laws found in Section 4.406 of the Texas Business and Commerce Code. That section states that if a bank sends or makes available a statement of account, the customer must exercise reasonable promptness in examining the statement. If the customer discovers an unauthorized payment, the customer must promptly notify the bank.

             Further, Texas laws provide that if a customer fails to promptly notify the bank, the customer is precluded from asserting claims against the bank for improper payment.
 
            Focusing on the disjunctive “. . . or makes available . . .,” the Court concluded that Calleja could have used the toll free number to inquire about his account. Or appeared at any bank branch to review statements. Or used online banking for the same purposes and verifications. Or asked his brother why statement delivery had been suspended for 18 months.
 
            The Texas Supreme Court held that due to Calleja’s failure to exercise reasonable diligence, the Bank could not be responsible for his losses. Compass Bank wins; Francisco Calleja-Ahedo loses.

See Compass Bank v. Francisco Calleja-Ahedo; Texas Supreme Court; Case No. 17-0065; December 21, 2018: https://scholar.google.com/scholar_case?case=12161934202290073619&hl=en&as_sdt=6&as_vis=1&oi=scholarr.
 
            Lessons Learned / Questions Asked:

1.      Most of us would consider it irresponsible to ignore a $43,000 bank account. And yet I can envision that an individual, living in a foreign country and likely unaware of Texas banking laws, may have trusted his USA-resident brother to oversee the account and review statements mailed to his brother. And press the alert button when delivery of the statements ended. 

2.      Texans are charged with the duty of promptly reviewing banking and credit union statements (likely brokerage and similar accounts as well), and asking hard questions if there are errors or improper transactions. Trusting that things will work themselves out without taking affirmative action could jeopardize a significant account balance.

3.      Past that, Happy New Year to all my loyal readers. Let me know if there are any subjects you want me to explore this year.
 

                                                                                              Stuart A. Lautin, Esq.*
                                                                           



* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization

 Licensed in the States of Texas and New York

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888