Soin v. Sger CA3
C071206
Cal. Ct. App.Aug 23, 2016Background
- Soin agreed to buy a Wienerschnitzel franchise from Sger in a CAR Purchase Agreement; $300,000 purchase plus $155,000 in escrow controlled by franchisor Galardi for required remodels (Galardi Report listed ADA-related work).
- The Galardi Report required an ADA inspection and corrections prior to close of escrow; Galardi controlled release of the $155,000 and ultimately approved the franchise without receipt of an ADA inspection.
- Before escrow closed, a patron (Riker) sent an ADA complaint letter (July 2005) and later filed an ADA lawsuit (filed April 2006; served May 2006). Sger did not disclose the pending Riker lawsuit to Soin before escrow closed; escrow closed June 2006.
- After closing, Soin was added as a defendant in the Riker suit and later faced additional ADA claims; Sger’s wife settled the Riker suit and agreed to repairs but then sought to shift costs to Soin (including an unlawful detainer claim pressing repair and settlement amounts).
- Soin sued Sger for breach of contract and fraud based on failure to disclose the Riker lawsuit; after a bench trial the court found Sger intentionally concealed the pending suit, awarded Soin compensatory and punitive damages, and entered judgment for Soin.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Soin performed contractual obligations so as to recover for breach | Soin performed or was excused/waived from provisions (Galardi waived ADA inspection); he completed Galardi-listed work and received funds and franchise approval | Sger: Purchase Agreement (incorporating Galardi Report) required Soin to obtain ADA inspection pre-close; Soin admitted he did not so he did not fully perform | Court: Substantial evidence supports that Galardi waived the inspect-and-correct provision and Sger waived by closing escrow; Soin’s performance (or excuse) sufficed |
| Causation and damages for breach—did nondisclosure cause Soin’s repair and litigation expenses? | Soin: Had he known of the pending Riker suit he would not have closed escrow; nondisclosure caused repair and defense costs and settlement pressures | Sger: Even with disclosure, Soin was contractually obligated to inspect/repair ADA defects, so he suffered no additional damages from concealed lawsuit | Court: Sger’s nondisclosure was a substantial factor; waiver and seller’s promise to handle pre-close lawsuits made seller responsible; damages award supported by evidence |
| Fraud—was plaintiff’s reliance justifiable given contractual inspection provision? | Soin: Justifiable because an ADA inspection would not have revealed existence of a pending lawsuit; nondisclosure was material and intentional | Sger: The Purchase Agreement and Galardi Report put inspection obligation on buyer, so reliance was unreasonable and any defects would have been discovered by inspection | Court: Reliance was justifiable; independent inspection would not have revealed the lawsuit; nondisclosure actionable and caused damages |
| Admissibility of Bal Soin’s testimony (undisclosed witness) | Soin: Bal assisted drafting purchase & escrow instructions and was disclosed in deposition; his testimony was nonprejudicial and cumulative | Sger: Bal was not disclosed in discovery and should have been excluded | Court: Admission not an abuse; defendant knew Bal and suffered no prejudice; any error harmless |
Key Cases Cited
- Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009) (measure and causation of contract damages)
- Engalla v. Permanente Medical Group, Inc., 15 Cal.4th 951 (1997) (elements of fraud: concealment, intent, justifiable reliance, damages)
- Bagdasarian v. Gragnon, 31 Cal.2d 744 (1948) (independent inspection does not preclude reliance where falsity is not discoverable by inspection)
- Manderville v. PCG & S Group, Inc., 146 Cal.App.4th 1486 (2007) (contractual exculpatory clauses do not bar claims for intentional misrepresentation)
- Calemine v. Samuelson, 171 Cal.App.4th 153 (2009) (seller’s duty to disclose includes existence of litigation related to a disclosed defect)
- Kuhn v. Gottfried, 103 Cal.App.2d 80 (1951) (failure to disclose pending litigation affecting desirability of business can constitute fraudulent concealment)
- Arceneaux v. Superior Court, 51 Cal.3d 1130 (1990) (presumption of correctness and standards for reviewing factual findings)
- Bass v. John Hancock Mut. Life Ins. Co., 10 Cal.3d 792 (1974) (third-party intended beneficiaries may waive rights under contract)