The Court of Appeals last week thwarted an effort to unwind a sale of real property, holding that the disappointed purchaser had imputed knowledge of problems with the property at the time of the sale.
In Atkeson v. T&K Lands, LLC, the plaintiff contended that he was not aware of a number of problematic conditions when he purchased land for a vacation home, including improvements that had been built without the necessary permits, and violation of a riparian setback from a creek.
Plaintiff claimed he later learned of the problems which restricted his use of the property, and he sued to rescind on the grounds of mutual mistake and misrepresentation. But the lawyer whom plaintiff had hired to research the property testified during pretrial discovery that he was aware of the problems and had informed plaintiff.
While plaintiff disputed that he received the information from the lawyer, the trial court nonetheless granted summary judgment for the sellers. The result turned on the imputed knowledge doctrine: plaintiff was deemed to know facts learned by his lawyer, regardless of his actual knowledge. The Court of Appeals affirmed, noting that the relationship between a lawyer and a client is one of agent and principal, and the knowledge that the agent obtains within the scope of the agency is imputed to the principal as a matter of law.
Last week the Oregon Court of Appeals again addressed the appropriate ratio of punitive to compensatory damages when compensatory damages are modest. One week after affirming an award of punitive damages that was 200 times compensatory damages in Lithia Medford LM, Inc. v. Yovan, the court, in Evergreen West Business Center, LLC v. Emmert, reinstated a jury award of punitive damages 600,000 times compensatory damages.
In Evergreen, the jury's verdict and damages awards were supported by evidence that the defendant LLC member had a substantial net worth and that he made a calculated decision to breach his fiduciary duties to the LLC in order to profit at its expense. The defendant breached his fiduciary duties by dealing behind the backs of the other LLC members to acquire real property that was owned by the LLC, but under threat of foreclosure.
Finding for the LLC, the jury had awarded $1 in compensatory damages and $600,000 in punitive damages. The trial court reduced the punitive damages award to $4 in order to maintain the 4-to-1 ratio that has been approved by the Oregon Supreme Court as consistent with the Due Process Clause in non-personal-injury cases.
Among his arguments on appeal, defendant contended that, as a member of the LLC, he did not owe it any fiduciary duty. In particular, he claimed the LLC statute provides that members of a manager-managed LLC who are not also managers owe no duties to the entity or the other members solely by reason of being a member. The Court of Appeals concluded that the statute was inapplicable because the defendant's fiduciary duty was not based solely upon his status as a member, but rather upon the fact that the defendant entered into a relationship of confidence with the company when he promised to prevent the foreclosure of the property on behalf of the LLC.
Next, the court discussed the punitive damages award of $600,000. Relying on the Oregon Supreme Court's decision in Hamlin v. Hampton Lumber Mills, Inc. and its own decision in Lithia, the court held that the reprehensibility of the defendant's conduct, which is the most important indicator of reasonableness of a punitive damages award, supported an award that exceeded a single-digit multiplier of nominal damages. Given the defendant's net worth and the gravity of his tortious conduct, the $600,000 in punitive damages was sufficiently admonitory and did not violate his right to due process.
See our discussion of Lithia here.
Last week the Oregon Court of Appeals weighed in on an issue being litigated around the country by homeowners who have defaulted on their mortgages: whether a nonjudicial foreclosure can occur where there has been no recorded assignment to the party seeking to foreclose. In Niday v. GMAC Mortgage, LLC, the defaulting homeowner filed suit to stop a foreclosure, claiming that the holder of the promissory note was not the original lender, and that the assignment of the note had not been recorded with the county.
At issue was the Mortgage Electronic Registration System, Inc. -- known as MERS -- which lenders have used for nearly 20 years to track electronically the transfer of beneficial interests in loan obligations. Lenders using the MERS system do not record the sale or assignment of a beneficial interest because MERS remains in place as the "beneficiary" of a trust deed notwithstanding the sale or assignment.
The Court of Appeals, interpreting Oregon's 1959 law allowing foreclosure by a private, advertised trustee's sale rather than through a court-ordered foreclosure, held that a nonjudicial foreclosure cannot occur if an assignment of the beneficial interest was not recorded. The Court rejected the argument by MERS that, even though it was not the lender or a successor to the lender, foreclosure was proper because it had been designated as beneficiary of the trust deed when the homeowner took out the loan.
There was evidence in Niday that the lender assigned its interest in the trust deed without recording the assignment, and the Court of Appeals ordered a trial on whether the predicates to nonjudicial foreclosure had been satisfied.
The day after the Court of Appeals issued the opinion in Niday, the Oregon Supreme Court accepted a certified question from the U.S. District Court in a case also addressing nonjudicial foreclosures of mortgages tracked by MERS.
A title company is liable for negligence in a real estate transaction in which plaintiff thought he had purchased a lot that -- it was later discovered -- had already been sold to another party. Last week the Oregon Court of Appeals in Peterson v. McCavic affirmed a jury verdict for negligence against Amerititle, Inc., which had served as escrow agent and title insurer in the transaction.
Plaintiff undertook to purchase an empty lot in The Dalles, Oregon, but the property description in the earnest money agreement was changed after he signed it -- leading to his purchase of a lot about 50 feet from the one he thought he was buying. Plantiff learned of the mistake from the actual owners of the land he thought he had purchased, but only after spending several months building a house on the wrong lot.
Amertitle argued that, pursuant to the economic loss doctrine, it could be liable for negligence only if it had a special relationship with plaintiff. An escrow holder generally is a neutral party with no obligation to either party to the transaction. However, an escrow holder can assume a duty when it volunteers advice or otherwise acts outside the scope of its normal duties. Viewed in the light most favorable to plaintiff, the evidence showed that the escrow agent changed the property description in the earnest money agreement, and prepared closing documents based on that change, without direction from or knowledge of the parties to the transaction. By doing so, it acted outside the duties of a neutral party and incurred an obligation to exercise due care. On that basis, the court affirmed the jury verdict.
See our earlier discussion of the economic loss doctrine here.
The anti-discrimination provisions of the Fair Housing Act don't apply to a Roommate.com, the Ninth Circuit Court of Appeals ruled last month in Fair Housing Council v. Roommate.com, LLC.
Roommate.com operates a web site that helps roommates find each other. When users sign up they create a profile stating their sex, sexual orientation, and whether children will be living with them. Users may also complete an "Additional Comments" section. Users are asked to list their preferences for roommate characteristics, including sex, sexual orientation, and familial status. Based on the profiles and preferences the web site provides potential matches. The site also allows users to search based on roommate characteristics.
Plaintiff sued Roommate.com alleging that the questions about users' characteristics, and matching and steering based on those characteristics, violate the federal Fair Housing Act, which prohibits discrimination in the sale or rental of dwellings.
Judge Kozinski, writing for the Ninth Circuit, found no violation, based on the fact that roommates necessarily share a single "dwelling": "It makes practical sense to interpret 'dwelling' as an independent living unit and stop the FHA at the front door." According to the court, the selection of a roommate is more akin to a private relationship -- in which the government won't meddle -- than to a landlord-tenant relationship that's protected against discrimination.
Inadequate documentation of a promise to create an easement defeated a landowner's easement claim in a case decided yesterday by the Washington Court of Appeals. In Gold Creek North Limted Partnership, et al. v. Gold Creek Umbrella Association, the real property at issue was once held by a common owner. The owner then sold about half of the property to a developer. The Real Estate Purchase and Sale Agreement had a provision entitled "Seller's easement" which included a promise by the Buyer to grant the Seller an easement when the Seller decided to develop the remaining property. The Seller later sued the Buyer's successor-in-interest for quiet title seeking an "express easement" when the Seller started to develop the property. The Purchase and Sale Agreement did not create an easement, but only described Buyer's promise to grant an easement in the future, according to the court. The Buyer's successors-in-interest were not on notice of the promise, and, as a result, their land was not subject to the easement.