SI 59 LLC v. Variel Warner Ventures, LLC
239 Cal. Rptr. 3d 788
Cal. Ct. App. 5th2018Background
- In 2007 Variel Warner sold an 85-unit apartment complex to Sobrato under a Purchase Agreement that included an "as-is" general release disclaiming claims for property condition (other than express warranties). The release preserved claims for breaches of the Purchase Agreement and for fraud.
- Construction (2005) was performed by Verdugo and subcontractors; SAC alleges defective slab waterproofing and Building Code violations that diminished property value before the sale and Certificate of Occupancy (Dec. 2007).
- Variel Warner allegedly represented that the project had achieved "Final Completion" (a contract-defined assertion that work complied with plans/specs) and escrow closed; those representations later proved false, and ensuing water intrusion caused damage discovered by subsequent owners (including appellant SI XX, LLC then SI 59 LLC).
- Appellant sued respondents for negligence, negligent misrepresentation, breach of contract, and sought a declaratory judgment that Civil Code § 1668 renders the general release unenforceable as to statutory violations and fraud. Respondents demurred, invoking the general release.
- Trial court sustained the demurrer without leave to amend, relying on Lingsch and Orlando to hold appellant failed to plead fraud/nondisclosure required to defeat an "as-is" release; appellant appealed. Trial court later awarded attorney fees to some respondents; fee award appealed but became moot on affirmance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Civil Code § 1668 invalidates a general release for pre-existing statutory violations/fraud | Section 1668 voids contractual exculpation for violations of law or fraud, so the release cannot bar claims for negligent statutory violations and misrepresentation about Final Completion | § 1668 applies only to concurrent or future torts; where all tort elements (including damages) are past at signing, the release is enforceable | Court: § 1668 applies only when tort elements are concurrent or future at contract signing; not to fully past torts (release enforced as to past negligence/statutory violations) |
| Whether negligent misrepresentation claim survives the general release and is pleaded with requisite particularity | Misrepresentation that Final Completion occurred falls within § 1668 (Blankenheim) and is not barred; thus claim should proceed | The SAC fails to plead negligent misrepresentation with particularity (who made the statement, why it was known false); also Purchase Agreement disclaimers and inspection obligations undermine justifiable reliance | Court: § 1668 can nullify a release as to negligent misrepresentation, but the SAC failed to plead it with sufficient particularity and failed to show justifiable reliance; claim dismissed |
| Whether breach of contract claim is barred by the release or saved by misrepresentation theory | Breach accompanied by misrepresentation prevents release from barring contract claim | The alleged breach (failure to deliver work in compliance) is not itself a misrepresentation; release bars the contract claim | Court: Breach claim barred by the general release; misrepresentation theory not sufficiently pleaded to save it |
| Whether trial court abused discretion by denying leave to amend or violated due process by raising new authority sua sponte | Appellant requested leave to amend and argued it could add facts (emails) showing false Final Completion statements; contends court deprived it of notice/opportunity | Trial court gave 10 days to supplement and opportunity to respond to cases it raised; proposed additional facts would not cure pleading defects (anticipatory statements not equivalent to actual notice; reliance undermined by express disclaimers) | Court: No abuse of discretion and no due process violation; denial of leave to amend affirmed |
Key Cases Cited
- Lingsch v. Savage, 213 Cal.App.2d 729 (Cal. Ct. App.) ("as‑is" clauses ineffective against fraud/nondisclosure in real estate transactions)
- Orlando v. Berkeley, 220 Cal.App.2d 224 (Cal. Ct. App.) (similar limitation on "as‑is" clauses where seller committed fraud)
- Blankenheim v. E.F. Hutton & Co., 217 Cal.App.3d 1463 (Cal. Ct. App.) (§ 1668 prevents reliance on hold‑harmless clauses to escape liability for misrepresentations inducing contract)
- Halliday v. Greene, 244 Cal.App.2d 482 (Cal. Ct. App.) (hold harmless invalidated where dangerous condition caused injuries after execution—continuing condition made tort future for § 1668)
- Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226 (Cal.) (fraud elements of reliance and damages are essential and may be concurrent/prospective, informing § 1668 analysis)