University Park, LLC et al v. Zurich American Insurance Company et al
Filing
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ORDER GRANTING Defendants Motion for Summary Judgment 20 and DENYING Plaintiffs Motion for Partial Summary Judgment 22 by Judge Dean D. Pregerson. (MD JS-6. Case Terminated.) (jp)
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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UNIVERSITY PARK, LLC, a
California limited liability
company; JAMES R. WATSON, an
individual and doing
business as WATSON &
ASSOCIATES,
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Plaintiffs,
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v.
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ZURICH AMERICAN INSURANCE
COMPANY, a New York
corporaiton; AMERICAN
GUARANTEE AND LIABILTY
INSURANCE COMPANY, a New
York corporation; STEADFAST
INSURANCE COMPANY, a
Delaware corporation,
Defendants.
___________________________
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Case No. CV 11-03328 DDP (JCx)
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT AND DENYING
PLAINTIFFS’ MOTION FOR PARTIAL
SUMMARY JUDGMENT
[Docket Nos. 20, 22]
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Presently before the court are Defendants’ Motion for Summary
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Judgment (“Motion”) and Plaintiffs’ Motion for Partial Summary
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Judgment (“Cross-Motion”).
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papers and heard oral argument, the court grants Defendants’
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Motion, denies Plaintiffs’ Cross-Motion, and adopts the following
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Order.
Having reviewed the parties’ moving
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I.
BACKGROUND
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At all times relevant to this action, Plaintiffs University
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Park and James R. Watson (collectively, “UP”) owned certain real
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property in San Bernardino, California (“Property”).
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2007, UP entered into sale and purchase agreements for the Property
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with Toll Bros, Inc. (“Toll”).
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to Toll in a “finished lot condition.”
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Contracting Corporation (“Mesa”) to perform certain grading work on
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the Property.
In 2006 and
UP agreed to deliver the Property
In 2004, UP contracted Mesa
Defendants Zurich American Insurance Company,
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American Guarantee and Liability Insurance Company, and Steadfast
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Insurance Company (collectively, “Defendants”) issued general
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liability policies to Mesa, covering UP as an additional insured.
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The policies provide that Defendants “will pay those sums that the
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insured becomes legally obligated to pay as ‘damages’ because of .
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. . ‘property damage’ to which this insurance applies.”
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here, property damage is limited to: “[p]hysical injury to tangible
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property, including all resulting loss of use of that property,” or
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“[l]oss of use of tangible property that is not physically
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injured.”
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Relevant
(Statement of Stipulated Facts (“SSF”) ¶¶ 3-12, 44-61.)
Following an inspection in 2008, Toll refused to close escrow,
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claiming that the Property was in unfinished condition because of
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construction defects - including improper grading by Mesa.
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sued Toll for breach of contract, and Toll cross-complained against
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UP, ultimately alleging breach of contract, fraud, negligent
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misrepresentation, foreclosure, and rescission.
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requested rescission of the purchase agreement, return of its $1.5
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million deposit, and $3.1 million compensation for its development
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costs associated with the Property - including, according to UP,
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UP then
As relief, Toll
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the “diligence expenses that ultimately discovered the existence”
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of the physical defects.
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Mot. at 6.)
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(SSF ¶¶ 14-26; Reply in Supp. of Cross-
In 2009, UP first tendered the defense and indemnity of the
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Toll claims to Defendants.1
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and subsequent tenders by UP, until after UP filed this action
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against them in 2011.
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move for summary judgment on the grounds that Toll’s claims were
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for economic loss, not property damage.
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II.
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Defendants failed to respond to this
Defendants then denied UP’s tenders and now
(SSF ¶¶ 27, 37-38, 41.)
LEGAL STANDARD
Summary judgment is appropriate where “the movant shows that
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there is no genuine dispute as to any material fact and the movant
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is entitled to a judgment as a matter of law.”
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56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
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In deciding a motion for summary judgment, the evidence is viewed
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in the light most favorable to the non-moving party, and all
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justifiable inferences are drawn in its favor.
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Lobby, Inc., 477 U.S. 242, 255 (1986).
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Fed. R. Civ. P.
Anderson v. Liberty
California law governs the claims at issue in this diversity
case.
See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d
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In 2009, UP also filed a cross-complaint against Mesa and
others companies, based on the defective grading and construction
defects. (SSF ¶ 28; Mot. at 5.) Mesa and the other companies, in
turn, filed a cross-complaint against UP and others for indemnity,
contribution, and declaratory relief. (SSF ¶ 29.) In their
Motion, Defendants contend that they have no duty to defend or
indemnify UP for these claims, because the “claims merely seek a
reduction or elimination of any amount adjudged to be owed” by Mesa
and the other companies for damage to UP’s Property. (Mot. at 16.)
UP does not provide any response to Defendants’ contention. The
court therefore finds that there is no genuine dispute of material
fact, and that Defendants are entitled to judgment as a matter of
law, as to these claims.
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1025, 1031 (9th Cir. 2008).
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a broad duty to defend its insured against claims that create a
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potential for indemnity.”
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L.A. County, 6 Cal. 4th 287, 295 (1993); see also Anthem Elec.,
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Inc. v. Pac. Employers Ins. Co., 302 F.3d 1049, 1054 (9th Cir.
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2002) (“Any doubt as to whether the facts establish the existence
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of the defense duty must be resolved in the insured’s favor.”).
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Summary judgment can often resolve whether an insurer has a duty to
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defend.
Under California law, an insurer “owes
Montrose Chem. Corp. v. Super. Ct. of
See Butler v. Clarendon Am. Ins. Co., 494 F. Supp. 2d
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1112, 1122 (N.D. Cal. 2007).
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when seeking summary judgment on the duty to defend,” because they
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“must conclusively show that the underlying claims cannot fall
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within policy coverage.”
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III. DISCUSSION
But “insurers have a heavy burden
Anthem, 302 F.3d at 1056, 1060.
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The parties here dispute only a single legal issue as to
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potential coverage that would trigger the duty to defend: whether
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Toll’s claims were for damages because of property damage - i.e.
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physical injury to tangible property.
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law, economic loss and damage to intangible property rights are not
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covered property damage.
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112 Cal. App. 3d 213, 219 (1980) (“Strictly economic losses like
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lost profits, loss of goodwill, loss of the anticipated benefit of
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a bargain, and loss of an investment, do not constitute damage or
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injury to tangible property covered by a comprehensive general
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liability policy.”).
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Generally, under California
See, e.g., Giddings v. Indus. Indem. Co.,
Defendants therefore argue that there was no potential for
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coverage here, because Toll’s suit was for damages to its
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intangible property right to purchase the finished Property from
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UP.
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physical injury to UP’s own property.
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for the economic losses to its contractual right to purchase the
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Property.
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form of Toll’s claims, the claims only arise because of the
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physical injury caused by Mesa’s defective grading.
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words: but for the property damage, Toll would have no claims
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against UP.
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decisions in support of their respective positions.
As Defendants note, Toll could not have sued UP for any
Rather, Toll could only sue
UP argues, to the contrary, that regardless of the exact
In other
Both parties also provide relevant California
Although no
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case is exactly on point, the court concludes that the weight of
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the authority precludes coverage as a matter of a law, and that
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Defendants are therefore entitled to summary judgment.
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Most persuasive, Defendants cite to the California Supreme
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Court’s decision in Kazi v. State Farm Fire & Casualty Co., 24 Cal.
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4th 871 (2001).
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their neighbors’ easement, through grading they had done on their
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own property.
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potential coverage under similar policy provisions, because the
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suit sought damages to the neighbors’ easement - an intangible
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property right “akin to goodwill, an anticipated benefit of a
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bargain, or an investment.”
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the Court held that the arguable physical injury to the insureds’
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own property through grading did not “change the character” of the
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intangible easement right at issue.
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emphasized that the neighbors could not have sued for any damages
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to the property, since it was owned by the insureds.
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884.
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would not have happened but for - physical grading, the Court
There, the insureds had been sued for impeding on
See id. at 875.
The Court found that there was no
Id. at 880.
As Defendants argue here,
Id. at 883-84.
The Court also
See id. at
In short, even though the suit was precipitated by - and
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instead focused on the nature of the right being asserted - the
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intangible easement right - in denying coverage.
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therefore ask this court to apply the same analysis here.
Defendants
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UP, however, argues that this action is controlled not by
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Kazi, but by the California Supreme Court’s earlier decision in AIU
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Insurance Co. v. Superior Court, 51 Cal. 3d 807 (1990).
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government agencies had sued the insured for contaminating the
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environment with hazardous waste.
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sought “reimbursement of response costs and the costs of injunctive
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relief” - including “their costs of investigating, monitoring, and
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initiating cleanup of [the] hazardous waste.”
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Interpreting policy provisions similar to those here, the court
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held that: 1) the agencies were seeking damages because of property
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damage, since “the event precipitating the[] legal action [was]
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contamination of property”; 2) it was irrelevant whether the
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damages and cleanup took place on the insured’s own property; and
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3) all of “the agencies’ expenses for responding” were covered, not
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just those “attributable to actual cleanup, mitigation of damage,
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or investigation and monitoring.”
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the analysis is the same here: 1) the precipitating event was the
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defective grading; 2) it does not matter that UP owned the property
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that was damaged; and 3) it is immaterial that Toll sought
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compensation for purely economic losses, since Toll also sought
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costs related to the property damage - i.e. the diligence expenses
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that discovered the defective grading.
See id. at 815.
In AIU,
The agencies
Id. at 816, 842.
Id. at 830, 843.
UP argues that
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As Defendants correctly note, however, AIU is distinguishable
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from and reconcilable with Kazi, because the damages sought by the
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agencies in AIU were substantially related to the alleged property
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damage.
See Nat’l Union Fire Ins. Co. v. Ready Pac Foods, Inc.,
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782 F. Supp. 2d 1047, 1055 (“[L]oss from damage to intangibles is
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recoverable only to the extent that it provides a measure of
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damages to physical property which is within the policy’s
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coverage.”
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Paul Mercury Indem. Co., 63 Cal. 2d 602 (1965)).
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the agencies were suing for response costs, including for cleanup,
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investigation, and monitoring.
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therefore quantitatively tied to the extent of the environmental
(emphasis added) (citing Geddes & Smith, Inc. v. St.
Again, in AIU,
The amount of damages sought was
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contamination.
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the purchase agreement, return of its deposit, and compensation for
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development costs - none of which were a measure of the physical
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damage due to defective grading.
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quantitatively tied to Toll’s intangible contractual rights.
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this case is like Kazi, where the requested damages were connected
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to the value of the easement, not the amount of any property damage
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due to grading.
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Here, to the contrary, Toll sought rescission of
Instead, the requested relief was
Thus,
Finally, that Toll’s development costs may have included its
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costs to inspect the condition of the Property prior to closing, as
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UP contends, does not change the analysis.
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have incurred these diligence expenses whether or not there had
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been any property damage.
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increased somewhat due to the defective grading, this minor
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connection would fall well short of the relation between the
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response costs sought and physical injury caused in AIU.2
Toll would presumably
Further, even if the inspection costs
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UP also asks the court to distinguish Kazi because of its
focus on easements. However, the alleged contractual right to
purchase asserted by Toll here is equally intangible, and therefore
(continued...)
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IV.
CONCLUSION
For the foregoing reasons, the court GRANTS Defendants’ Motion
for Summary Judgment, and DENIES Plaintiffs’ Cross-Motion.
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IT IS SO ORDERED.
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Dated: March 22, 2012
DEAN D. PREGERSON
United States District Judge
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(...continued)
legally indistinguishable.
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