$1 MILLION RESIDENTIAL EVICTION

             Yvonne Martin and Petter Kristensen married in 1995. In 1999 they lived together at a home owned by Yvonne.

            Yvonne transferred ownership of the home to Petter’s father, Frank Kristensen, by quitclaim deed in 2004. The couple continued to live there as tenants, although neither Yvonne nor Petter paid rent or otherwise compensated Frank and there was no lease agreement.

            Petter left the home in May 2008 after Yvonne received a protective order against him, claiming that he had abused her. Yvonne filed for divorce soon thereafter. In the divorce litigation she received another protective order, granting her the use, control, and possession of the marital home.

            On July 1, 2008 Frank sent Yvonne a notice to vacate. Yvonne failed to do so, and instead added Frank as a defendant in the divorce proceeding, asserting that she had transferred ownership of the home to Frank under duress and that the quitclaim deed should be rescinded.

            In the divorce Yvonne sought an order granting her possession of the home until the court divided the marital property. After months of motions and argument, the divorce court entered an order awarding Yvonne temporary use and possession of the home pending final resolution of the divorce.

            Yvonne next received an order in June 2012 that prevented Petter from evicting her during the pendency of the divorce. Frank was incapacitated in Norway at the time, with Petter acting on Frank’s behalf through a power of attorney.

            Finally in 2014, after Yvonne had requested several delays, a trial was convened to resolve the ownership and eviction issues. At trial a jury rejected Yvonne’s assertion that she had transferred the property to Frank under duress. On that basis, the district court concluded that Frank was the rightful owner of the property and that Yvonne was guilty of unlawful detainer starting in July 2008.

            On October 12, 2015, Yvonne vacated the home. Several months later the court convened a new trial to determine damages based on Yvonne’s unlawful occupancy of the property for over seven years – the period from July 2008 to October 2015.

            The court concluded that the fair market rental value for the property during that period was $224,534. Since State law requires an award of treble damages, the total award was increased to $673,602 plus attorney’s fees and court costs of $227,000, for a final judgment for $900,663 in Frank’s favor.

            Yvonne appealed. The court of appeals affirmed.

            Yvonne appealed again. The Supreme Court agreed to review the case.

            The Supreme Court stated that Yvonne was in a precarious position. She could have relinquished possession in July 2008 and the resultant damages would have been minimal. Or, she could elect to contest the legality of the deed she signed conveying ownership of the property to Frank, but if she is proven wrong in her litigation strategy then the damages could be enormous.

            Although the divorce court’s orders protected her from eviction, they did not insulate her from liability for damages to the owner of the property. Once it was determined that Frank lawfully owned the property, Yvonne was responsible to pay the fair market rental value for the years between the initial filing and the date of the trial court’s judgment.

            The Supreme Court concluded that Yvonne’s “. . . gamble turned out to be a bad one.” Frank wins again; Yvonne loses again. See Yvonne Martin v. Frank Kristensen; Cause 20190797, Supreme Court of Utah, May 27, 2021: https://law.justia.com/cases/utah/supreme-court/2021/20190797.html.             

            Lessons / Questions / Observations:

1. Lesson: Do you have a tenant involved in a divorce? If the tenant attempts to seek a court order precluding the owner or manager from evicting, you’ll want to be actively engaged in that process.
   

2. Observation: This Opinion does not state whether Yvonne could pay a Judgment approaching $1 million. Very few consumers could do so, and I doubt there is insurance to assist her with this huge liability.
   

3. The BL: Just pure speculation, but my sense is that although the Supreme Court concluded that Frank won, I’m going with Frank lost. Frank had no rental income for over seven years and paid $227k in attorney’s fees to evict Yvonne and prove his lawful ownership of the residence. Although Judgment was rendered against Yvonne for $900k+, I’m guessing that she will pay little or none of it.
   

                                                                                    Stuart A. Lautin, Esq.*

 

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

TITLE INSURANCE V1

             I’ve been writing blog articles for over 10 years, but I have never written about title insurance. The time is nigh.

             Hall CA-NV funded the renovation of the Cal-Neva Lodge & Casino, near Lake Tahoe. Before Hall agreed to finance the project, the property owner engaged Penta Building Group to conduct some preliminary work.

            Hall knew of the contract, so Hall had Penta subordinate Penta’s construction liens to Hall’s finance documents. Based at least in part on that subordination, Hall then authorized $29 million in debt financing, for which Hall received a mortgage.

            At the same time Hall obtained a lender policy of title insurance from Old Republic. In doing so, Hall agreed to remove the standard Covered Risk 11(a) in the ALTA policy form. That provision protects the insured against losses sustained because of lack of priority of the insured mortgage.

            The project continued but the loan became out of balance due to significant change orders. Hall stopped advancing funds after the owner stopped obtaining additional equity. Penta, however, continued its work for months later.

            Finding itself unpaid, Penta started foreclosure on its mechanic’s lien claims, claiming super-priority over Hall because Penta’s liens related back to Penta’s initial work which predated Hall’s construction loan. Hall received partial payment for its debt position, and then filed claims against Old Republic since Old Republic was unwilling to indemnify Hall for a loss of almost $5 million.

            The federal district court concluded that Penta’s liens were for unpaid work incurred before the policy date, and the policy afforded no coverage to Hall due to the deletion of Covered Risk 11(a). The court entered judgment for Old Republic. Hall appealed.

            In the US Court of Appeals, Hall contended that other provisions of the title policy offer Hall insurance for this claim. Old Republic responded that Hall agreed to remove the one portion of the policy that would have protected Hall – Covered Risk 11(a).

            And further to that point, Old Republic offered that not only did Hall agree to remove Covered Risk 11(a) but Hall also agreed to ALTA endorsement 32-06, which provides that the policy does not insure against losses due to mechanic’s liens arising from services not designated for payment in the construction loan finance documents.

            Old Republic wins, again. Hall loses, again. See Hall CA-NV, LLC v. Old Republic National Title Insurance Company; Cause 20-10268, US Court of Appeals, 5^th Circuit, March 10, 2021: https://scholar.google.com/scholar_case?case=14431452547442516413&hl=en&as_sdt=6&as_vis=1&oi=scholarr.           

            Lessons / Questions / Observations:

1. Lesson: Title insurance, often overlooked because it is arcane, abstruse, obscure, abstract, abstruse, and generally no fun to read and comprehend, is critically important. Title insurance companies write policies to protect themselves and limit their exposure. Those policies must be negotiated by property purchasers and their lenders.
   

2. Observation: Why, you may ask, did Hall not seek recovery from the property owner? Although not clearly stated in the appellate opinion, it appears Hall may have done so but the owner’s bankruptcy precluded Hall from collecting all that was owing, leaving a balance under $5 million. And as a consequence, Hall then turned its gun turrets to Old Republic.
   

3. Questions: Do you know how to review title insurance, both from the owner’s and lender’s perspectives? Are there people on your team who are tasked with this important job? Are you working with an experienced title agent who can offer helpful guidance?
   

                                                                                    Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

REFUSING TO ALLOW A SUBLEASE

 

            H&B Realty leased a car lot to JJ Cars for a five-year term starting July 1, 2011. John Mokarzel, owner of JJ Cars, guaranteed the Lease obligations. JJ Cars was successful initially. But by February 2013 JJ Cars was in financial distress.

            John decided to close his business and sublet. From February 2013 until October 2015, three different businesses subleased the property from JJ Cars. Approval for the first and third was obtained from H&B’s owner Sterling Boyington. Evidently Boyington never objected to the second sublet although he knew of it and may have furnished tacit consent, if not actual approval.

            In November 2015 JJ Cars sought formal consent from H&B to sublease the property to Wholesale Motors. Boyington refused, claiming he disliked Wholesale’s owner, Dave McGovern.

            As a consequence, JJ Cars stopped paying rent. H&B evicted JJ Cars in March 2016, only a few months before the term was set to expire anyway. H&B sold the property two weeks later.

            Several months after the sale H&B filed a lawsuit against JJ Cars and John Mokarzel, alleging breach of the Lease and seeking damages for six months of rent. JJ Cars defended by claiming that H&B breached the Lease by refusing to allow the sublease to Wholesale Motors, and H&B failed to mitigate its damages.

            The trial court concluded that although JJ Cars failed to pay rent, H&B breached the Lease by unreasonably withholding its consent to allow the sublease to Wholesale Motors. The court further determined that H&B did not mitigate damages after JJ stopped paying rental. The court entered judgment in favor of JJ Cars and John Mokarzel, concluding that their breach – failure to pay rent – was excused by H&B’s Lease defaults – unreasonably withholding consent to sublease to Wholesale Motors and failing to mitigate damages.

            H&B Realty appealed.

            The Court of Appeals examined Article XIII of the Lease, and found that: (a) JJ Cars could not sublease without H&B Realty’s consent; (b) H&B could not unreasonably withhold its consent to a request for sublease; (c) H&B had the right to review each proposed subtenant’s credit, business experience, and financial statement; and (d) each subtenant had to agree to abide by the terms of the Lease.

            From there, the examination of the record revealed that no documents of Wholesale Motors were furnished to H&B. John Mokarzel testified that, simply put, H&B’s owner Sterling Boyington did not like Dave McGovern, owner of Wholesale Motors. Due to Boyington’s dislike of McGovern, there was no purpose in delivering documents and financial statements, and agreeing to abide by the terms of the Lease.

            The Court of Appeals determined that Boyington’s refusal to consider Wholesale Motors as a subtenant was a breach of Landlord’s duty to not unreasonably withhold consent. That breach ended any chance of JJ Cars to use the property in a way that would continue to generate income to pay rent.

            Boyington’s breach was material, and excused JJ Car’s failure to pay rent.

            JJ Cars wins again. See H&B Realty, LLC v. JJ Cars, LLC; Case 2021-ME-14, Maine Supreme Court; March 23, 2021: https://law.justia.com/cases/maine/supreme-court/2021/2021-me-14.html.           

            Lessons / Questions / Observations:

1. Observation: Most commercial Leases require Landlord’s approval before a Tenant can assign or sublease. Some prohibit subleasing and assigning entirely. It seems inconsistent that a Landlord can prevent a financially distressed Tenant from assigning or subleasing, and yet not be found liable for failure to mitigate damages when the Tenant could not pay rent.
   

2. Lesson: From this Court’s perspective, it is not enough for a commercial Landlord to reject a sublease application simply because the Landlord dislikes the owner of the proposed assignee or sublessee. If this Landlord had used the pretext of declining Wholesale Motors due to one of the reasons stated in the Lease (credit, business experience, financial statement), it likely would have sufficed and the outcome reversed.
   

3. Questions: What does your Lease form say about Lease assignments and Premises subleases? Do the laws of your State add an overlay to that analysis? Will your Courts uphold the right of a Landlord to unequivocally say NO, then successfully chase the Tenant and Guarantor for damages?
   

                                                                                    Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

 

PIERCE THAT LIABILITY SHIELD (OR NOT)

             Richard Belliveau provides lighting systems for high-profile events, concert tours, theater events, and showrooms. Richard entered into a License Agreement in 2007 with his company, High End Systems, Inc., which required that High End use Richard’s intellectual property for commercial gain. In exchange, High End agreed to pay Richard a substantial annual amount, in addition to sublicense proceeds.

            High End was sold to Barco, Inc. in 2008, for $55 million, and as a consequence High End became a wholly owned subsidiary of Barco. Richard worked closely with High End and Barco to negotiate new sublicense agreements for the following decade.

            Meanwhile, High end suffered financially. By 2016 Barco was looking for a purchaser. Barco signed a contract with a company in 2017 committing Barco to sell High End for $7.5 million to Electronic Theater Controls, Inc.

            Richard was displeased at the valuation.

            Negotiations between Barco and High End continued and resulted in a sublicense for High End’s current patent portfolio as well as Richard’s future intellectual property. Barco paid $75,000 for the license, but it agreed not to make or sell any licensed products for four years.

            Five days later, Barco sold High end to Electronic Theater Controls.

            Richard sued Barco in Texas State court, claiming that since Barco owned High End, Barco was responsible for High End’s sublicense of all of Richard’s intellectual property to Barco for an unreasonably low value. And that High End’s breach of a duty owing to Richard allowed Richard to prosecute a claim against High End’s owner, Barco.

            Barco removed the State litigation to Federal court. Richard lost at the district court level and appealed.

            The Federal appellate court, using Texas law, determined that in order to prevail Richard must show that Barco used High End to “. . . perpetrate an actual fraud . . . primarily for Barco’s direct personal benefit [italics added].”

            Richard argued that fraud was committed based on High End’s execution of the Barco sublicense for $75k, which Richard contends was far below market value. The appellate court noted that the lower court found that the execution of the Barco sublicense was permitted and not evidence of actual fraud. As well, Richard did not provide to the appellate court sufficient evidence that the Barco sublicense was undervalued.

            To refute, Richard tendered his expert’s opinion that the fair market value of Barco’s rights under the Barco sublicense was over $100 million. And consequently, the $75k amount actually paid was grossly inadequate and evidence of fraudulent intent.

            This argument seemed to gain traction with the appellate court.

            Traction ended when the appellate court determined that this is a breach of contract case, which does not authorize Richard to sue Barco, the shareholder, for operating according to the terms of a contract. Further, the appellate court stated that piercing the corporate veil is a remedy to be used when the actions of the entity’s owner amounting to “actual fraud” render the entity unable to pay its debts.

            Barco prevails, again.

            See Belliveau v. Barco, Inc.; Case 19-50717; US Court of Appeals, 5^th Appellate Circuit; Western District of Texas; January 28, 2021: https://scholar.google.com/scholar_case?case=13618133374852336339&hl=en&as_sdt=6&as_vis=1&oi=scholarr.             

            Lessons / Questions / Observations:

1. Observation: Laws and cases prohibit the formation of corporations, LLC, limited partnerships, and similar for the purpose of committing fraud and then hiding behind the liability shield offered by statute. But absent a clear showing of fraud, it is difficult to reach through the shield to the wallet of the shareholder, member, or partner.
   

2. Question: Richard Belliveau first asserted his claim against High End, then later dismissed High End and replaced it with Barco. Why do you suppose he did so?
   

3. Observation: For those interested in this case or how the “piercing” theory can be successfully used, there is a well-written dissent starting at page 20 from W. Eugene Davis, Senior United States Circuit Judge of the US Court of Appeals. Judge Davis would have returned this case back to the lower Federal court, to allow a jury to hear all the facts and render a verdict.
   

                                                                                    Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

 

EVICTION BASED ON NOTICE SERVED BY PRIOR OWNER

            Ever wonder what happens when a new property owner uses a demand to vacate served by the previous owner? Or to state it differently, if property is sold while evictions are pending, may the new owner succeed to the previous owner’s position or does the new owner have to restart?

             No? Well Ok, but I have wondered . . .

             Plaintiffs Johnny Ki Lee and Un Joong Lee sought to evict Defendant Sean Kotyluk for selling marijuana without a license. Sean claimed that Plaintiffs’ three-day notice was defective because it was served on June 4, 2019, but Plaintiffs did not become owners of the property until June 20, 2019 and the eviction litigation was started the following week.

             There was no landlord-tenant relationship between Plaintiffs and Defendant on June 4, the date the notice was furnished.

             In response to Sean’s defense regarding defective notice, Lee and Lee explained that the prior owner, Rosemarie Haynes, had served the notice before transferring ownership of the property to Plaintiffs. And that as direct successors to Haynes, Lee and Lee had the right to continue the eviction instead of being forced to start over with a new three-day notice.

             After the trial court examined the notice defect and made Plaintiffs aware that it was fatal to their eviction case since none of this sequencing was adequately explained in the litigation petition, Plaintiffs requested that the trial court allow Plaintiffs an opportunity to amend their pleadings. The revised pleadings, if permitted, would state that, sequentially, Haynes served the notice, Plaintiffs bought the property from Haynes, and thereafter Plaintiffs started the eviction lawsuit.

             The trial court rejected Plaintiffs’ request, and instead granted judgment for Defendant. Plaintiffs were not entitled to evict due to defective notice; Plaintiffs were not entitled to amend their pleadings to cure the procedural defect; Defendant wins the case and is entitled to recover $25,794 in attorney’s fees from Plaintiffs.

             Plaintiffs appealed.

             The Appellate Court reviewed a copy of the Lease was attached to the pleadings, which identified the landlord as the Living Trust of Rosemarie S. Haynes. The original petition further alleged that Sean was served with a three-day notice on June 4, 2019, and that Sean failed to vacate by June 7.

             Nothing in the pleadings stated that the eviction notice was served by the previous owner – Rosemarie Haynes. Further, the notice itself did not state that it was signed by Haynes. All Plaintiffs needed was a statement in the litigation pleadings to the effect that Haynes had served the notice (or an authorized agent for Haynes did so). Then, an appeal likely would not have been necessary.

             On appeal, the Court determined that Lee and Lee should have been allowed to fix this mistake at trial and doing so would have allowed the trial court to issue eviction Judgment for Plaintiffs.

            The trial court’s judgment was reversed; the lower court should have allowed Plaintiffs the opportunity to amend their pleadings to provide the sequencing of: (1) eviction notice by Haynes, (2) purchase by Lee and Lee, and (3) eviction lawsuit, which facts would have proven a satisfactory explanation.

             Plaintiffs Lee and Lee are ultimately victorious; Defendant Kotyluk loses.

             See Johnny Ki Lee v. Sean Kotyluk; Case G058631; 4^th Appellate District Court of California; Division Three; January 7, 2021: https://scholar.google.com/scholar_case?case=10858927393993309984&hl=en&as_sdt=6&as_vis=1&oi=scholarr.

           Lessons / Questions:

1. Question: How many times have property professionals taken over the management of commercial income-producing properties with not only demand and eviction notices pending, but also with litigation in process? And how many Defendants know to raise this defense? 

2. Question: Have you been asked to complete the prosecution of a pending lawsuit on behalf of an incoming landlord, because the property was sold before Judgment? Are you and your lawyers aware of the case management issues that can arise if not handled properly with the Courts, and Pleadings amended or drafted properly to identify and fix this issue?
   

3. Lesson: Landlords may tell their story in Pleadings. Do so. To limit surprises at trial, make the judge aware of the background and context in your litigation Petition, as well as what you are asking the court to do. Be specific. And if the judge questions your case, then ask for permission to amend the pleadings before judgment is rendered for your opponent. Sometimes even oral amendments are allowed – but only if you ask!

                                                                                     Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

 

ADEQUACY OF PROPERTY DESCRIPTION

            On October 24, 2017, Dayston LLC agreed to sell Jonathan Brooke acreage and improvements in Erath County, Texas. The Contract provided for two street addresses of the target assets in Stephenville, Texas, and then identified six parcels by abstract number, indicating a total of approximately 81.50 acres.

             Appended to the property description was the following: “*Please note the 81.50 acre parcel is being surveyed and renamed. Title company will convey the new legal address once completed.”

             Brooke asserted that the contract was void under the Texas statute of frauds because the property descriptions were legally insufficient. Dayston countered that Brooke had personally inspected the land on multiple occasions and additionally, the incorporation of a future survey would satisfy all statute of frauds issues.

             The trial court granted Brooke’s request and entered Judgment, finding that the land description was inadequate thus rendering the contract void. All monies held in escrow were ordered returned to Brooke.

             Dayston appealed.

             Citing Texas Supreme Court authority, the Appellate Court started the analysis by stating that “. . . the knowledge and intent of the parties has no effect on the validity of the contract.” The Appellate Court allowed that the contract must furnish, either within itself or by reference to other identified writings then in existence, the means or data by which property may be identified with certainty.

             Documents and surveys to be furnished in the future cannot be used to satisfy the statute of frauds; those writings must be in existence when the contract is signed. If those writings do not sufficiently describe the property to be conveyed, then the contract violates the statute of frauds and is voidable.

             Although the writing does not have to contain metes and bounds field notes, it must furnish data that identifies the property with reasonable certainty.

             A street address, with nothing more, may be insufficient if there is uncertainty regarding the amount of land included in the conveyance. And, essential elements of the writing may not be proved with extrinsic testimony.

             In this case, the Appellate Court examined the legal description of two street addresses, +/- 81.50 acres of A0681 Smith Hancock and A0057 DW Babcock, all in Erath County, Texas, and decided it fails for lack of clarity. As an interesting side note, it appears that if Dayston had added a note that the parcels were all the lands owned by Dayston in Erath County or similar, the Court might have reached a different result.

             Brooke wins; Dayston loses; the contract does not satisfy the statute of frauds test. See Dayston, LLC v. Jonathan D. Brooke: Case No. 11-18-00288-CV; 11^th District of Appeals of Texas, Eastland; October 8, 2020: https://scholar.google.com/scholar_case?case=6551208105501169766&q=dayston,+llc+v.+brooke&hl=en&as_sdt=6,44&as_vis=1.   

            Lessons / Questions / Issues:

1. Question: How many times have you used or seen incomplete property descriptions in real estate contracts; how often have you seen or used a provision like “to be provided in a Survey” or similar?
   

2. Question: Will you now change your practice to include a statement in each contract to the effect that the target asset is the only parcel of real estate owned by Seller in _________ County?
   

3. Question: For those States that have real estate commissions that promulgate contract forms, do you suppose that the forms will be revised to better guide brokers, agents, attorneys, buyers, and sellers to properly insert full property descriptions (maybe by stating that the failure to do so can invalidate the contract)?
   

4. HNY. Happy New Year 2021 to all my loyal readers!

                                                                                     Stuart A. Lautin, Esq.*

 

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

 

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.