Facts

The lawsuit arose out of a 2017 purchase transaction by which the sellers sold the 99-bed Oak Hill Residential Care senior assisted living facility for $18 million to Affordable Senior Housing Foundation (the buyer). Oak Hill had been developed and operated for decades as a non-profit charity by John and Firouzeh Gamble, through the non-profit entities Life Care Residences, Inc. and Affordable Housing, Inc.

In 2017, the Gambles put Oak Hill on the market, and a group of investors led by Matthew Parks, Scott Kirby and Tom Sutton-- operating through their entity Torrey Pines Development Group-- offered to buy Oak Hill for $18.5 million. Following extensive due diligence, the parties agreed to a net purchase price of $18 million, with Torrey Pines Development Group receiving a "due diligence fee" of $540,000 and Matt Parks receiving a "broker's fee" of $150,000. The buyer's group formed a new non-profit entity--ASHF--to purchase and operate Oak Hill.

Under a separate escrow holdback agreement, $500,000 of the purchase price was left in escrow as security for payment of damages incurred by the buyer if claims were asserted against the buyer based on the sellers' operation of the business, and for damages incurred by the buyer based on any breaches of representations or warranties by sellers. Following the expiration of the holdback period, ASHF refused to release the $500,000 in escrow funds. Therefore, in 2018, Life Care Residences filed suit against ASHF for breach of contract and specific performance, seeking the release of the escrowed funds. In response, ASHF filed cross cross-claims against the sellers for fraud, negligent misrepresentation, and breach of contract. In support of ASHF's cross-claims, ASHF alleged that sellers had misrepresented occupancy at Oak Hill, knowingly violated employment laws at Oak Hill, and failed to disclose material adverse information about Oak Hill, thereby inducing ASHF to pay an inflated purchase price for the facility. ASHF claimed it had suffered $2.778 million in damages, based on lower-than-expected revenues and higher-than-expected labor costs.

Prior to trial, plaintiff obtained summary adjudication on its claim for breach of the escrow holdback agreement, with the trial court finding that ASHF had failed to make a written claim for damages within the time required. The court ordered ASHF to release the $500,000 escrowed funds and reserved an award of attorney's fees to seller for post-trial motions.

At trial, Life Care Residences sought damages incurred because of buyer's breach of the holdback agreement, including interest on the wrongfully withheld funds and additional escrow fees deducted from the holdback amount by the escrow agent in light of the long-extended escrow.

Result

The jury awarded plaintiff the requested $202,575.34 in breach of contract damages. Verdict for plaintiff/cross-defendant on cross-complaint seeking $2.778 million in damages. On ASHF's cross-claims, the jury also found in favor of the sellers, rejecting ASHF's fraud and breach of contract claims in their entirety and awarding zero dollars to ASHF.

Deliberation

two days

Poll

12-0

Length

four weeks