223 Cal. App. 4th 1258
Cal. Ct. App.2014Background
- Buyer David Ash contracted to buy commercial real estate from sellers Richard and Gloria Lemer ("Lemer") with escrow managed by North American Title Company (NAT); closing date was November 21, 2008.
- Ash structured his purchase as part of an IRC §1031 exchange and had sale proceeds placed in a segregated account with qualified intermediary LandAmerica.
- Closing was delayed a few days; on Monday, Nov. 24, 2008, LandAmerica froze accounts and filed bankruptcy, and the bankruptcy court did not release Ash’s funds in time to meet §1031 deadlines.
- Ash sued Lemer and NAT for breach of contract and sued NAT for negligence and breach of fiduciary duty, seeking damages including lost tax-deferral ($465,000), legal fees ($140,000), lost income, and loan-related losses (~$1,033,000 direct damages).
- A jury found breaches and awarded damages (totaling over $1.5M against NAT and $300,000 against Lemer); trial court set aside punitive damages but otherwise denied post-trial relief.
- On appeal the court affirmed liability but reversed in part: (1) contract damages attributable to LandAmerica’s bankruptcy were not shown to be foreseeable as a matter of law and must be reduced/remanded for recalculation; and (2) trial court erred by refusing NAT’s requested jury instruction on intervening and superseding cause as to tort claims, requiring retrial on NAT’s tort liability and contract damages limited to foreseeable losses.
Issues
| Issue | Plaintiff's Argument (Ash) | Defendant's Argument (Lemer/NAT) | Held |
|---|---|---|---|
| Whether contract damages for losses caused by LandAmerica’s bankruptcy were foreseeable | Ash argued the delay foreseeably risked loss of §1031 treatment and related losses; parties entered contract amid 2008 crisis so risks were knowable | Defendants argued Bankruptcy was an extraordinary, unforeseeable event; special/ consequential tax losses were not within parties’ contemplation | Court: Contract damages attributable to the bankruptcy were not shown to be foreseeable as a matter of law; reduce/remand contract damages to exclude bankruptcy-attributable losses and determine remainder |
| Whether trial court erred by refusing NAT’s requested instruction on intervening and superseding cause (tort) | Ash argued NAT’s fiduciary breach was a substantial cause and intervening bankruptcy could not absolve liability (arguing intentional/ fiduciary context) | NAT argued LandAmerica’s bankruptcy was an independent, unforeseeable superseding cause that should bar tort liability for resulting harms | Court: Error to refuse instruction; bankruptcy was an independent, unusual event and jury should have been allowed to consider intervening/superseding cause; prejudicial—requires retrial on NAT’s tort liability |
| Whether the intervening/superseding-cause defense applies to breach of fiduciary duty (intentional tort) | Ash contended the doctrine does not bar recovery for intentional torts/ fiduciary breaches when original tort was a substantial factor | NAT asserted the doctrine applies to relieve tort liability when an unforeseeable independent event causes the harm | Court: Did not decide the doctrinal reach for intentional torts; instead found error because trial court never required jury to find the breach was intentional and thus left possibility of negligence-based fiduciary breach where defense applies |
| Scope of retrial/remedy on appeal | Ash sought full recovery including bankruptcy losses and punitive damages | Defendants sought to overturn liability and damages; NAT sought instruction error cure | Court: Affirmed liability findings; reversed and remanded for recalculation of contract damages excluding bankruptcy-attributable losses and for retrial on NAT’s tort liability (jury to receive intervening/superseding-cause instruction); each party bears own appeal costs |
Key Cases Cited
- Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal.4th 960 (CAL. 2004) (adopts Hadley foreseeability framework for contract consequential damages)
- Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503 (CAL. 1994) (distinguishes contract and tort damages and foreseeability limits for contract damages)
- Soule v. General Motors Corp., 8 Cal.4th 548 (CAL. 1994) (explains superseding cause doctrine and when independent intervening events absolve tort liability)
- Pint v. Fireman’s Fund Ins. Co., 85 Cal.App.4th 98 (Cal. Ct. App. 2000) (facts/questions of breach and foreseeability are for fact-finder under substantial-evidence review)