Confidential
Settlement – $295,000Judge
Court
San Diego Superior
Attorneys
Plaintiff
James C. Mitchell
(Gilleon Law Firm APC)
Defendant
Experts
Plaintiff
Doug Dewhurst
(technical)
Martin T. McGuinn
(technical)
Skip Haugh
(technical)
Scott B. Arens
(technical)
Rick Harris
(technical)
Defendant
James R. Recht
(technical)
Gary Ludden
(technical)
Facts
Between 1986 and 1989, the defendant developer constructed a 40-unit single family home project in Escondido. The defendant developer ran out of money and could not complete the project or sell the last eight homes. The construction lender foreclosed on the remaining eight homes, had a receiver appointed pending the foreclosure, and purchased the eight homes at a trustee's sale in May 1989. The construction lender then kept the receiver in place to manage, market and sell the properties and, in March 1990, he hired real estate broker to sell the properties for the construction lender. The plaintiffs, husband and wife purchased three homes from the construction lender, two for $190,000 each, and one for $180,000 in June 1990. After the purchase, they discovered that the roofs, decks and stucco on the homes had been defectively constructed and suffered from extensive water leaks. In June 1993, the plaintiffs sued the construction lender for fraud claiming that the construction lender and its agents, the court appointed receiver, and the real estate broker, knew the homes were defective and leaked, but did not disclose this to the plaintiffs. The case went ot trial for the first time in March 1996, before Judge Peter Riddle in San Diego Superior Court. Judge Riddle granted construction lender's motion for nonsuit at the close of plaintiffs' case on the grounds the plaintiffs had not proved any of the elements of fraud and, that even if they had, construction lender was not responsible for any acts or omissions of the receiver, or the broker, because the receiver, as the court appointed receiver, was not an agent of Hawthorne. The plaintiffs appealed this decision to the Court of Appeal, Fourth Appellate District, and in May 1998, the court reversed the granting of the nonsuit and ordered a new trial. The court also ruled that plaintiffs had proved a prima facie case of fraud and that the receiver and the broker were, as a matter of law, the agents of the construction lender. The retrial began on March 15, 1999, before Judge Thomas R. Murphy, Department 62.
Settlement Discussions
The defendants offered $150,000. The plaintiffs' demand on the first day of trial was $400,000.
Damages
The plaintiffs claimed damages of $275,000, consisting of the diminished of value to properties due to the defects for $165,000; lost rents for $75,000 and improvement and repairs for $35,000.
Other Information
The plaintiffs filed a Chapter 7 bankruptcy in October 1997, so the lawsuit was part of the bankruptcy estate administered by Richard F. Kipperman, the bankruptcy trustee. Kipperman and his attorney, Everett C. Barry Jr. participated extensively in the negotiations to settle the case. The first trial in March 1996 resulted in a $115,000 jury vedict against the developers, but not against the individual general partners, who, because of the negligence of plaintiff's former lawyer, were not added as defendants. The plaintiffs sued their former lawyer for legal malpractice and obtained a $140,000 judgment against him in March 1998. This verdict was reported in October 1998. The plaintiffs' former lawyer appealed this verdict to the Court of Appeal, Fourth Appellate District. The plaintiff also sued the developer's insurance carrier, claiming coverage for the $115,000 verdict against the developers. The developer's insurance company prevailed on a motion for summary judgment, which plaintiffs also appealed to the Court of Appeal, Fourth Appellate District. These two related cases were the subject of the settlement conference at the Court of Appeal on March 18, 1999, before Judge Sheridan Reed, sitting by designation. Both cases were settled that day for $75,000.
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