Toll Brothers, Inc v. Lin et al

Filing 216

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Samuel Conti on 4/30/2009. (sclc2, COURT STAFF) (Filed on 4/30/2009)

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1 2 3 4 5 6 7 8 9 10 For the Northern District of California UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA TOLL BROTHERS, INC., Plaintiff, v. CHANG SU-0 LIN, HONG LIEN LIN, HONG YAO LIN, Defendants. AND RELATED CROSS-ACTION. I. INTRODUCTION This case concerns the requirements of a Purchase and Sale Agreement ("PSA") entered into between Chang Su-O Lin, Hong Lien Lin, and Hong Yao Lin (the "Lins") and Toll Brothers, Inc. ("Toll"). Exs. P-26, D-519. Plaintiff and Counter-Defendant Toll ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. C-08-0987 SC MEMORANDUM OF DECISION, FINDINGS OF FACT, AND CONCLUSIONS OF LAW United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 brought this suit against the Lins, alleging causes of action for: (1) rescission; (2) breach of contract; (3) foreclosure of contractual lien; (4) foreclosure of purchaser's lien; and (5) declaratory relief. Second Am. Compl. ("SAC"), Docket No. 39. Answer to The Lins answered and filed counterclaims against Toll. SAC and Counterclaim ("Answer"), Docket No. 40. During trial, the Court granted the Lins' motion to dismiss their own fourth, fifth, and sixth counterclaims. Docket No. 192. The Lins have five remaining counterclaims for: (1) declaratory judgment; (2) breach 1 2 3 4 5 6 7 8 9 10 For the Northern District of California of contract; (3) breach of duty of good faith and fair dealing; (4) quiet title; and (5) promissory estoppel. Trial Br., Docket No. 208. Generally, Toll alleges that the Lins breached the PSA by constructing six utility vaults on Sub-Area 3, constructing a temporary power line across Sub-Area 3, and by granting easements to Pacific Gas & Electric ("PG&E") associated with the utility vaults and the power line. Toll also alleges that the PSA is See Def.'s Closing illegal and void for failure to comply with California's Subdivision Map Act ("SMA"), Cal. Gov. Code 66410, et seq. seeks restitution of its Sub-Area 3 deposit of $7,735,000. Generally, the Lins allege that Toll breached the PSA by failing to reconvey an elementary school parcel in Sub-Area 2 to the Lins, and that Toll breached the duty of good faith and fair dealing by failing to cooperate with the Lins to resolve Toll's concerns regarding the utility vaults, the temporary power line, and the associated easements. The Lins seek to retain Toll's Toll United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 deposit of $7,735,000 as liquidated damages. On January 14, 2009, the Court denied Toll's motion for judgment on the pleadings. Docket No. 76. On February 9, 2009, Docket On the Court denied the Lins' motion for summary judgment. No. 99. The Court held a trial beginning March 16, 2009. March 25, the Lins filed a Motion for Judgment on Partial Findings. Docket No. 197. The Court deferred ruling on the See RT at 1366:9-1367:10.1 Having motion until the end of trial. 1 "RT" refers to the Transcript of Record from the trial held March 16, 2009, to March 27, 2009. 2 1 2 3 4 5 6 7 8 9 10 For the Northern District of California now considered all the evidence and testimony offered at trial and the arguments of counsel, the Court DENIES the Lins' Motion for Judgment on Partial Findings as moot. The Court by this memorandum of decision issues its findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court concludes that the Lins did not breach the PSA by constructing six utility vaults and a temporary power line on SubArea 3, and by granting associated easements to PG&E. The Court concludes that Toll was not entitled to terminate or rescind the PSA. The Court's decision is based on an understanding that the United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Lins did not meet all of the requirements in the PSA as of the scheduled closing date for Sub-Area 3. However, the PSA allowed for the closing date to be extended to accommodate the resolution of de minimus issues of this kind. Instead of cooperating with The the Lins, Toll terminated the contract on December 7, 2007. issues that Toll raises as justifications for termination were not substantial when considered in relation to the totality of the PSA. When Toll entered into this contract in May 2004, the real estate market was strong, and when Toll was due to close on SubArea 3 in June 2007, market conditions had deteriorated significantly. These deteriorating market conditions explain why Toll sought to terminate or rescind the PSA. II. FINDINGS OF FACT A. The Parties 1. Toll is a Delaware corporation, with its principal 3 1 2 3 4 5 6 7 8 9 10 For the Northern District of California place of business in Horsham, Pennsylvania. Toll builds homes and communities throughout the country, including in Northern California. Id. at 47:5-19, 49:22-51:2 (Testimony of James Boyd (hereinafter "JB")). 2. The Lins are individuals who reside in Taiwan. They are the master They own land in Alameda County, California. developers of a residential and commercial development in Dublin, California, known as Dublin Ranch. Id. at 531:4-533:14 (Testimony of Rodney Andrade (hereinafter "RA")), 656:24-658:18 (Deposition Testimony of Hong Lien Lin (hereinafter "HL")), 662:17-663:24(HL). B. Relevant Non-Parties 3. Toll. James Boyd ("Boyd") is a Regional President with During the period of time involved in United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. at 45:2 (JB). this case, Boyd had overall responsibility for Toll's operations in California. 4. Id. at 46:4-7(JB). Warren Inouye ("Inouye") is a real estate attorney Id. at who has worked as outside counsel for Toll since 1993. 305:2-3, 305:24-306:9, 419:13-19 (Testimony of Warren Inouye (hereinafter "WI")). 5. James Tong ("Tong") is the Lins' authorized Id. at 910:9-18 representative with regard to Dublin Ranch. (Testimony of Tong (hereinafter "JT")). 6. Martin Inderbitzen ("Inderbitzen") was the Lins' attorney regarding the Dublin Ranch development, and has worked for the Lins since 1985. Id. at 1264:8-23 (Testimony of Inderbitzen (hereinafter "MI")). 7. Rodney Andrade ("Andrade") is an engineer who works 4 1 2 3 4 5 6 7 8 9 10 For the Northern District of California for MacKay & Somps ("M&S"). Id. at 529:7-10(RA). M&S is a civil engineering firm used by the Lins in the development of Dublin Ranch. Toll was required to retain M&S. See PSA 13.7(a). Andrade was the main liason between the Lins and M&S, working primarily through Tong and Inderbitzen. 534:25-535:10(RA). 8. Howard Jon Paynter ("Paynter") was the Area Manager Id. at Id. at 532:5-533:14, for Toll operations in the Bay Area until April 2007. 1493:3-22 (Testimony of Jon Paynter (hereinafter "JP")). 9. Robert Gray & Associates ("RGA") is a utility United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 consultant used by the Lins on the Dublin Ranch development, including the infrastructure for Fairway Ranch. 12(RA), 750:22-751:7(RA). C. The PSA 1. 10. The Purchase Price and Scheduled Closing Dates Id. at 597:10- On May 27, 2004, Toll and the Lins entered into a written contract for the purchase and sale of approximately 147 acres of real estate located in Dublin, California. 11. 2.1. 2.2. 12. Toll was to buy the land in three stages, and the See PSA A. Id. Id. The total purchase price was $241,500,000. Toll was required to make a deposit of $21,735,000. deposit was to be credited as follows: $7,000,000 at the closing of Sub-Area 1; $7,000,000 at the closing of Sub-Area 2; and $7,735,000 at the closing of Sub-Area 3. 13. Id. 2.2(c). The scheduled date of the first closing was September 30, 2005, after an additional payment of $64,765,000. 5 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Id. 5.1. The scheduled date of the second closing was June 30, Id. 5.2. The 2006, after an additional payment of $99,000,000. scheduled date of the third closing was June 30, 2007, after an additional payment of $56,000,000. 14. Id. 5.3. The PSA provides that: The dates for the respective closings shall be the later of (a) the discrete dates set forth above or (b) if the special closing conditions and general closing conditions have not been satisfied as of the discrete dates set forth above three (3) business days after all the special closing conditions and general closing conditions have been satisfied. Id. 6.1. 2. 15. Obligation to Convey Legal Parcels United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In the section of the PSA entitled "Parcel Map to Create Legal Parcel," it states: The entirety of the Property is not currently subdivided in a manner that would permit its conveyance in the contemplated Sub-Areas. Seller shall, at its sole cost and expense, cause the City to record a parcel map or other map or maps (the "Map") in order to create the Property as legal parcels that can be conveyed consistent with the requirements of the Subdivision Map Act and the City's Subdivision Ordinance. Id. 3.2 (emphasis in original). 16. The PSA establishes special closing conditions for One of these conditions is that "[t]he the third closing. entirety of Sub-Area 3 shall be conveyed in the Third Closing pursuant to an Approved Map." 17. Id. 5.5. Id. 5.3.2(a). The PSA establishes Buyer's closing conditions. One of Buyer's closing conditions is that "Seller 6 1 2 3 4 5 6 7 8 9 10 For the Northern District of California shall have caused the Map (or Maps) to be recorded." 5.5(d). Id. Another Buyer's closing condition is that "[t]he representations and warranties of Seller set forth in this Agreement shall be deemed remade as of respective Close of Escrow for each area, and shall be true and accurate as of, the Closing Date." Id. 5.5(c). Buyer has the right to waive one or more of Id. Buyer's closing conditions and proceed with the closing. 5.5(h). 3. 18. Elementary School Parcel A special closing condition for the third closing United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 is that "Buyer shall have reconveyed to Seller or Seller's assignee the elementary school parcel in Sub-Area 2." 5.3.2(g). 19. In a section of the PSA entitled "School Parcels," Id. the PSA provides that: "The parties acknowledge that an as yet unidentified portion of Sub-Area 2 is intended to be dedicated to the Dublin United School District to serve an the site of a K5 elementary school." Id. 7.5(a). The PSA states: Buyer shall acquire title to all of Sub-Area 2 subject to the obligation to reconvey the school site to Seller, or Seller's assignee, without consideration and with no new title exceptions but otherwise without any representation, warranty or liability to Seller when Buyer has obtained a Parcel Map creating the school site as a legal parcel. Id. 7.5(b). 20. In the section with the title "School Parcel in Sub-Area 2," it provides that: Buyer agrees that it will acquire title to 7 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Sub-Area 2 subject to the obligation to reconvey the School Parcel to Seller, or Seller's assignee, without consideration and with no new title exceptions but otherwise without any representation, warranty or liability to Seller when Buyer has obtained a Parcel Map creating the School Parcel as a legal parcel. Id. 13.13. 4. 21. The Assignment Provision The Assignment paragraph of the PSA provides that: United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Neither Buyer nor Seller shall assign all or any portion of its interest in this Agreement without the prior written consent of the other (which consent shall not be unreasonably withheld); provided, however, that (so long as Buyer and Seller remain liable for the performance of it's [sic] obligations under the terms of this agreement) either Buyer or Seller shall have the right to assign this Agreement in whole or in part without the other's consent to: (i) any affiliate of Buyer or Seller; (ii) any entity in which Buyer or Seller or such affiliate hold at least a 50% interest; or (iii) as to Buyer, to any entity that serves as a "land banker" for Buyer, and any such assignee shall have the same right to assign with respect to its interest in this Agreement. Id. 18.7. 5. 22. Seller Work In the Section of the PSA entitled "Seller Work," it states that: "Seller shall be responsible for satisfying all the Seller obligations set forth on Exhibit 'D.'" 23. Id. 9. Exhibit D contains a chart for Sub-Area 3 listing the construction item, Seller's obligation and Buyer's obligation. Id. Ex. D at T0014930. One of the construction items is "Lockhart Id. With Street Streetwork, utilities and street lighting." 8 1 2 3 4 5 6 7 8 9 10 For the Northern District of California regard to Lockhart Street, the Seller's obligation is "[c]urb-tocurb streetwork, street lighting, and utilities in accordance with (reference preliminary plans)." Id. The Buyer's obligation is "[a]dditional dry utility construction as necessary for service." Id. Another construction item on Exhibit D is "Dublin Blvd. streetwork, utilities and street lighting (Lockhart to Fallon)." Id. With regard to Dublin Boulevard, one of the Seller's obligations is "[j]oint trench conduit and joint trench boxes and conductor to service street light system." 24. Id. Under Seller Work, the PSA also provides that: United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. 9.5. Seller shall provide either by dedication or by appropriate easement land which is not part of the Property, owned by Seller as may be required to satisfy all Conditions of Approval including but not limited to dedications of school sites, pump station location, streets and roads, park land, bike paths and pedestrian paths and trails, open space corridors, streams, utilities, storm drain easements and water quality ponds . . . Seller shall abandon easements or rights of way as necessary to comply with any Conditions of Approval. 6. 25. Buyer's General Closing Conditions The first of Buyer's general closing conditions is that "Seller shall not, as of the Closing Date, be in default in the performance of its obligations under this Agreement." 5.5(a). 26. The second condition is that "Seller shall be Id. prepared to convey title to the Property to Buyer in the Approved Title Condition and the Title Company shall be irrevocably committed to issue the Title Policy in the Approved Title 9 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Condition." Id. 5.5(b). The PSA defines Approved Title Condition as follows: The Title Policy shall insure fee simple title to the respective Areas vested in Buyer or its nominee(s) as the case may be subject only to a lien for real property taxes and assessments not yet delinquent and those liens, defects and encumbrances mutually agreed to by and between Buyer and Seller during the Feasibility Period. Id. 3.1. 7. 27. Covenants "Seller and Buyer each covenants to cooperate with the other in pursuing the matters required to be performed by the other as set forth in this Agreement and in otherwise fulfilling the conditions to Closing." 28. Id. 13.1. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The PSA provides that: Except as necessary to comply with the terms of this Agreement, Seller shall not: (a) sell, encumber or transfer any interest in all or any portion of the Property between the date of this Agreement and the Closing Date; (b) take any action that would or could adversely affect title to the Property; or (c) without Buyer's written consent which shall not be unreasonably withheld or delayed, enter into any other agreement of any type affecting the Property that would or could survive the Closing Dates. Seller shall fully and timely comply in all material respects with any obligations that are applicable to the Property. Id. 13.2. 8. 29. Representations and Warranties The Lins made a number of representations and Id. 14.1. warranties for the benefit of Toll. 30. The Lins represented that: "[e]xcept as Disclosed, to the best of Seller's knowledge, the Property is free of any 10 1 2 3 4 5 6 7 8 9 10 For the Northern District of California material physical defects or conditions that preclude or materially limit its development as a master planned community as contemplated by this Agreement." 31. Id. 14.1(d). The parties agreed that: United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 If any representation or warranty given by Seller or Buyer becomes untrue in any material respect prior to the applicable Area Closing due to changed circumstances, the representing party shall promptly give written notice to the other party of the changed circumstances. The party making the representation or warranty shall take all commercially reasonable steps to address the changed circumstances so as to make the representation and warranty true and correct in all material respects once again. If the party making the representation and warranty is unable to do so to the other party's reasonable satisfaction within a reasonable time, or to give reasonably satisfactory assurances to the other party that the representation and warranty will be true and correct in all material respects as of the corresponding Area Closing Date, then (i) if the party making the representation and warranty is Buyer, Seller shall have the right to terminate this Agreement in full and exercise its remedies under Section 1.4, and (ii) if the party making the representation and warranty is Seller, Buyer shall have the Right to Terminate. Id. 14.3. 9. 32. Liquidated Damages and Attorneys' Fees The PSA contains a liquidated damages provision: If the sales of all the respective areas of the property are not consummated as a result of Buyer's default under the Agreement and if Seller is not also in default, the portion of the deposit which has not been allocated to the closing price of any area(s) already purchased by Buyer (and interest on such funds actually earned while in escrow) shall be retained by Seller as Liquidated Damages. Id. 4.4 (block capitals omitted). 11 1 2 3 4 5 6 7 8 9 10 For the Northern District of California 33. The PSA contains an attorneys' fees provision: United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 If any legal action or other proceeding is commenced to enforce or interpret any provision of, or otherwise relating to, this Agreement, the losing party shall pay the prevailing party's actual expenses incurred in the investigation of any claim leading to the proceeding, preparation for and participation in the proceeding, any appeal or other post judgment motion, and any action to enforce or collect the judgment including contempt, garnishment, levy, discovery and bankruptcy. For this purpose, "expenses" include, without limitation, court or other proceeding costs and experts' and attorneys' fees and their expenses. The phrase "prevailing party" shall mean the party who is determined in the proceeding to have prevailed or who prevails by dismissal, default or otherwise. Id. 18.1. D. Memorandum of Understanding 34. The Lins and Toll also executed a Memorandum of Understanding, recorded on May 28, 2004, by which Toll was granted a lien against the property "to secure the performance of Seller's obligation to refund the Deposit provided by Buyer and disbursed to Seller if Buyer becomes entitled to such reimbursement in accordance with the terms of the Agreement." E. SubArea 1 and SubArea 2 Assignment 35. Escrow closed on Sub-Area 1 in September 2005, but RT at Ex. P-24. Toll never sold all of the homes it built on Sub-Area 1. 84:14-85:25(JB). 36. Sub-Area 2 was scheduled to close on June 30, 2006, but on May 31, 2006, Toll notified the Lins that: Toll wants to "assign" the Purchase Agreement with respect to Subarea 2 to Regent Land Investment LLC. This is a land banking 12 1 2 3 4 5 6 7 8 9 10 For the Northern District of California transaction of the type referred to in the Purchase Agreement's assignment clause . . . The reason this is not a real "assignment" of the Purchase Agreement is that Toll is only designating a title holding nominee. Because Toll retains all the duties under the Purchase Agreement . . . it satisfies the requirements of the assignment paragraph of the Purchase Agreement. Ex. P-45. 37. In response to questions from the City of Dublin, Toll explained that: Toll is entering into a Nomination Agreement and Construction Agreement by which Toll will continue to seek entitlements and develop the infrastructure for Area F West [i.e. Sub-Area 2] as the contractor/agent for Regent Land Investment. . . Toll will continue to work toward the entitlement and development of the Property. Ex. P-58. 38. A land banking arrangement is a financial United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 transaction whereby the land banker pays for the land, and the home builder has the option to buy back the land from the land banker when the home builder is ready to begin construction. at 86:23-87:22, 88:11-89:1(JB). 39. The Lins did not object to Toll's assignment of See Ex. RT Sub-Area 2 to Regent Land Investment LLC ("Regent"). P-52. The Lins signed a written consent to the assignment, but RT at 1348:8-24 (MI). Inderbitzen never delivered it to Toll. 40. Toll assigned all of its "right, title and See Ex. interest" under the PSA relating to Sub-Area 2 to Regent. D-572. Toll and Regent entered into an option agreement so that Ex. D-573. Toll could buy back lots on Sub-Area 2 from Regent. 13 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Toll would continue to seek entitlements and develop infrastructure on Sub-Area 2 as the agent or contractor for Regent. Ex. P-59. 41. Due to complications arising from the assignment to Regent, escrow for Sub-Area 2 closed later than scheduled, on July 20, 2006. Title to Sub-Area 2 was transferred directly from the RT 103:2-12(JB). The Lins or their agents Id. at Lins to Regent. understood that Regent had become the owner of Sub-Area 2. 1350:9-25(MI). F. Market Conditions Deteriorate 42. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 At the time Toll entered into the PSA in May 2004, the market was very good, Toll was making a profit, and the market for selling residential development property was a "seller's market." Id. at 71:22-25(JB), 86:17-19(JB), 1494:6-12(JP), 1442:10-1443:22(Testimony of Gary Ryness (hereinafter "GR")). 43. In 2005, the real estate market reached its peak. Toll's operations in the Bay Area had their best year in terms of number of sales, selling approximately 600 units. 16-24(JP). 44. By August of 2006, the market conditions for Id. at 1494: selling houses of the type Toll was building was slowing down. Id. at 114:10-20(JB), 1446:3-1447:1(GR). 45. Toll was concerned at how well Sub-Area 1 would Id. at 115:16-18 sell, given the changing market conditions. (JB). Due to poor sales in Sub-Area 1, Toll put off the start of construction in Sub-Area 2, and exercised its right to extend the deadlines for re-purchasing Sub-Area 2 from Regent. 14 Id. at 116:7- 1 2 3 4 5 6 7 8 9 10 For the Northern District of California 24, 118:24-119:4(JB). 46. As of October 2006, Sub-Area 2 was in the red or Ex. 524. "under water" by $40 million. 47. In late 2006, Toll stopped its planning process RT at 125:6-15(JB). with the City for Sub-Area 3. 48. The market continued to slow during 2007, with Toll Id. at 68:12(JB), 1495:10-14(JP). delivering less than 300 homes. As of early 2007, Toll still had approximately 400 out of 450 units left to sell from Sub-Area 1. 49. Id. at 1498:11-20(JP). In early 2007, Toll was experiencing a high rate - United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 approximately 30% - of customers backing out of their contracts to purchase homes. 50. Id. at 1499:8-1500:1(JP). As of early 2007, no homes had yet been constructed on Sub-Area 2, but there were plans to build 650 homes on that property. Id. at 1500:14-21(JP). Toll determined it would not be Id. at 117:24-118:6 profitable to build houses on Sub-Area 2. (JB), 1450:20-1460:4(GR). 51. Sometime around June 2007, after Toll used up its six one-month extensions with Regent, rather than re-purchase SubArea 2 from Regent, Toll forfeited its deposit of $30,000,000. Id. at 121:6-14, 122:8-15(JB), 1514:1-7(JP). Toll determined that they would lose less money by forfeiting the deposit to Regent than by re-purchasing the property, developing it, and trying to sell the homes. 52. Id. at 121:17-122:7(JB). Toll considered selling part of Sub-Area 3 to an Id. at 124:11-14(JB). apartment developer. 15 1 2 3 4 5 6 7 8 9 10 For the Northern District of California G. The Temporary Power Line and Easement 53. The Lins were the owners and developers of Fairway Ranch, a residential development located directly to the west of Sub-Area 3 across Lockhart Street, and bounded by Central Parkway on the north, Dublin Boulevard on the south, and Keegan Street on the west. RT at 929:10-23 (JT). Fairway Ranch included Id. at 543:5-544:8 affordable housing and market rate units. (RA). 54. Before Fairway Ranch could be occupied, progress had to be made on construction of a water pump station for the Dublin San Ramon Services District ("DSRSD") to the east of SubArea 3. Id. at 591:14-593:23(RA), 597:25-598:15 (RA); Ex. P-28. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The pump station is on a small piece of land located by the southeast corner of Sub-Area 3. 55. RT at 1818:17-25 (MI). The operation of the pump station was necessary for flouridation of water in the area, to provide adequate water pressure to satisfy the fire department, and once Fairway Ranch could be occupied, the Lins would be able to obtain affordable housing credits from the City of Dublin that were necessary in order for Toll to be able to build on Sub-Area 2. 1374:19(MI). 56. PG&E determined that the least expensive way to Id. at 1373:4- provide power to the pump station was to run a temporary overhead power line across Sub-Area 3 until a permanent source of power was installed. Id. at 594:18-24(RA); Ex. P-28. 57. The location of the power line and the language of RT at the easement were negotiated between PG&E and Inderbitzen. 16 1 2 3 4 5 6 7 8 9 10 For the Northern District of California 729:13-731:5(RA), 1825:18-20(MI); Exs. P-34, P-36, P-37, P-38, P40. 58. On December 12, 2005, the Lins executed the power line easement in favor of PG&E, and Tong sent it to PG&E on January 16, 2006. RT at 943:7-945:4(JT); Ex. P-40. The easement was re-executed by the Lins on June 1, 2006, and recorded on July 3, 2006. Ex. P-53. Inderbitzen and Tong did not notify Toll of RT at 1838:14-24(MI), 927:20- the power line or easement. 928:13(JT). 59. The easement extended five feet on either side of United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the temporary power line, and the overhead wires had to be at least twenty feet from the ground to allow for the operation of construction vehicles. See Ex. 53. The landowner was not to construct any building in a thirty foot strip beneath the power line. See id. The extinguishment provision of the power line easement states: Upon the execution of an agreement by second party [i.e. PG&E] to provide for the relocation of the facilities installed within the temporary nonexclusive easement, second party agrees to quitclaim its interest in any portion of said premises which is not occupied by the above-described facilities, or which is not necessary for the maintenance, replacement or use of said facilities, and deliver the quitclaim deed to first party [i.e. the Lins]. Id. 60. The PG&E temporary power line was included on plans RT at 1557:7-23(JP); Ex. D- for the development of Sub-Area 3. 654. 61. When Paynter, Toll's Area Manager, learned of the 17 1 2 3 4 5 6 7 8 9 10 For the Northern District of California power line in August 2006, he understood that it was going to be temporary. RT at 1559:16-1560:6(JP). He did not think the power line would interfere with Toll's development of Sub-Area 3 given the timetable Toll was on. 62. Id. at 1561:15-18(JP). By September 2006, the Lins had completed the joint trench on the north side of Dublin Boulevard and had therefore completed all necessary work for the temporary power line to be removed from Sub-Area 3. 874:3(RA); Ex. 522. Id. at 865:9-867:13(RA), 872:14- The Lins applied for abandonment of the temporary overhead power line and the installation of permanent underground service. 63. easement. H. RT at 872:14-35(RA). United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 On June 16, 2008, PG&E quitclaimed the power line Ex. P-189. The Utility Vaults 64. After the execution of the PSA, the Lins installed four above-ground utility vaults on the east side of Lockhart Street, on Sub-Area 3, and two utility vaults close to Dublin Boulevard. Each utility vault required a 10' x 10' easement on See Exs. P-31, P-49. Two of the six vaults serve Fairway Ranch on the the property. 65. west side of Lockhart street, two of the vaults were intended for the development of Sub-Area 3, and two of the vaults are empty. RT at 1762:9-14 (Testimony of Walter Antonio (hereinafter "WA")), 1235:15-16 (Testimony of Paul Giacalone (hereinafter "PG")). 66. The Lins constructed the joint trench and vaults on the west side of Lockhart Street because there was a large, sixtysix (66) inch storm drain running along the east side of the 18 1 2 3 4 5 6 7 8 9 10 For the Northern District of California street. Id. at 1619:7-13, 1755:10-17 (Testimony of Ernest Boitano (hereinafter "EB")). 67. The utility vaults were included on plans for the Id. at 1529:21- development of Sub-Area 3 sent to Toll. 1533:10(JP); Ex. D-654. 68. Toll representatives first raised questions about RT at 1521:6- the utility vaults on Sub-Area 3 on August 3, 2006. 24(JP); Ex. D-640. 69. Toll continued to design plans for Sub-Area 3 with RT at the utility vaults situated in their current location. 1523:2-12(JP). 70. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 On September 26, 2006, representatives from Toll, the City of Dublin, and M&S held a meeting regarding the planning of Sub-Area 3. Ex. D-617. There was an investigation of whether Id. It was determined that the utility vaults could be moved. Matt Jensen, a representative from M&S, was "to move forward with 'woonerf' option." 71. Id. The Woonerf Option is a preliminary land plan for Sub-Area 3 produced by M&S on September 26, 2006, that includes the six utility cabinets. 72. Ex. D-580. Toll stopped planning for Sub-Area 3 around this time in September or October 2006 because of the deteriorating real estate market. 73. RT at 1524:11-24(JP). Toll first notified the Lins that the utility vaults would create a problem for the closing of Sub-Area 3 on April 13, 2007. 74. Ex. P-109. On May 4, 2007, Tong and Inderbitzen were advised 19 1 2 3 4 5 6 7 8 9 10 For the Northern District of California that it would take approximately six months for PG&E to engineer a relocation plan. Ex. P-118. On June 5, 2007, Tong and Inderbitzen were advised that relocating the vaults would cost from $300,000 to $500,000. Ex. P-128. 75. On October 3, 2007, the Lins applied to PG&E for the relocation of the utility vaults off of Sub-Area 3. Ex. P-158. 76. On March 20, 2008, RGA estimated that relocating or Ex. P-181. moving the vaults underground would cost $523,060. I. Reconveying the School Site 77. In 1997, as the master developers of Dublin Ranch, United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the Lins entered into a Mitigation Agreement with the Dublin Unified School District ("School District"), under which the Lins were required to dedicate certain land to the School District for school sites. RT at 1290:16-1294:16(MI), Ex. P-208. One of the planned school sites was on Sub-Area 2. 78. After Regent acquired Sub-Area 2 in July 2006, Toll continued to develop Sub-Area 2 as Regent's contractor or agent. RT at 1601:18-1602:21(JP). 79. Inderbitzen communicated with Christopher Muenzen ("Muenzen"), a Toll representative, regarding the obligation to record a parcel map for the school site. 80. Ex. D-624. On January 2, 2007, Muenzen sent an email to Inderbitzen indicating that the parcel map for the school site was not as far along as Toll would like, and that Toll would probably be recording the map sometime towards the end of April. 81. Id. On March 8, 2007, Inderbitzen sent Muenzen an email inquiring if the map was still on target for being recorded in 20 1 2 3 4 5 6 7 8 9 10 For the Northern District of California April. Id. at 3. On March 19, 2007, Muenzen indicated that the Id. at 5. map was looking like it would be approved in May. 82. On April 3, 2007, Muenzen sent an email to the Lins Id. at 7. asking for deeding instructions for the school site. Inderbitzen responded on April 9, 2007, and on April 11, 2007. Id. at 6-7. 83. On July 12, 2007, Inderbitzen sent an email to Muenzen asking about the status of the deed to the school site. Id. at 8. On July 25, 2007, Muenzen responded that "[p]rojected Once Id. acceptance of the Sub Area 2 final map is September '07. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 this is complete we will immediately deed the parcel over." 84. Inouye informed Indebitzen that only Regent could RT at 484:6-485:21(WI). convey the school site to the Lins. 85. Beginning in the fall of 2007, Inderbitzen held discussions with Regent and the School District about the school site. RT at 1301:6-23(MI); Exs. P-178, P-190. 86. The parcel map creating the school site as a legal parcel was recorded on November 7, 2008, and Regent notified the Lins that it was ready to reconvey the School Site to the Lins. Exs. P-193, P-195. J. The Sub-Area 3 Closing Correspondence and Meetings 87. On November 17, 2006, Inderbitzen sent an email to Toll representatives seeking to identify issues related to the third closing. 88. Ex. D-548. On March 23, 2007, Inderbitzen sent a letter to Exs. Toll seeking to review closing issues for the third closing. P-101, D-512. The letter attached an outline of "Subarea 3 21 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Considerations." Id. at LIN0002716. The outline mentions how the PG&E power line across Sub-Area 3 required a minor deviation from the approved bulk grading plan for Sub-Area 3. 89. Id. at LIN0002718. On April 13, 2007, Toll gave the Lins notice of their concerns regarding the utility vaults and that the Lins may be in default because of the utility vaults. Ex. P-108. The letter states the utility vaults "directly interfere with the development plan which Toll has been processing for some time for its project." closing issue. 90. Ex. P-110. Id. Id. On April 17, 2007, Inderbitzen responded by email. The letter did not mention the power line as a United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The email states a meeting has been scheduled for April 15, 2007, and Inderbitzen was unable to tell which utility vaults Inouye was talking about. 91. Id. The parties discussed the utility vaults at a RT at 1402:25-1404:16(MI). meeting on April 23, 2007. 92. On May 2, 2007, Andrade, Bill Morrison ("Morrison") Id. 754:16- of Toll, and RGA met to discuss the utility vaults. 24(RA). Morrison told Andrade that Toll wanted to move four of the boxes, underground one, and leave one in its current location. Id. at 848:8-849:2(RA). Morrison was going to get back to Andrade if this plan was not acceptable to Toll, but Morrison never did so. Id. at 849:3-9(RA). 93. On May 16, 2007, Andrade sent RGA a fax requesting RGA to prepare a written cost estimate for the relocation of five of the six utility vaults. 94. Ex. D-514. On June 6, 2007, Inderbitzen sent Toll an email 22 1 2 3 4 5 6 7 8 9 10 For the Northern District of California attaching a revised Assignment of Development Agreement and advising that the Lins would not extend the closing beyond June 30, 2007. Ex. P-129. At that time, Inderbitzen believed that Andrade and Morrison had worked out a solution regarding the utility vaults. 95. RT at 1410:1-13(MI). On June 8, 2007, Inouye sent the Lins a letter regarding outstanding closing conditions for the closing of SubArea 3. Ex. P-132. The letter stated that the utility vaults and the temporary power line violated various provisions of the PSA. Id. The letter included an exhibit which was Toll's evaluation of Id. With regard to United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the Seller's work required by the PSA. Lockhart Street, the letter stated "Buyer is inspecting the Joint Trench work to determine if the switches and vaults have been properly located." Id. With regard to Dublin Boulevard, the evaluation stated "[t]he joint trench conduit and joint trench boxes and conductor to service street light system are presently being inspected to determine if the switches and vaults have been properly placed." 96. Id. He stated On June 12, 2007, Inderbitzen responded. that the June 8, 2007, letter and Inderbitzen's prior June 4, 2007, letter should be the basis for discussions at a meeting scheduled for June 14, 2007. Ex. P-135. The letter states that "[t]he referenced utility vaults are part of the Seller Work obligation listed in Exhibit D of the Agreement. Any relocation of the same will be at Buyer's expense and should properly take place, if at all, only after Buyer has completed its Planning for the area and can in fact determine whether or not the vaults cause 23 1 2 3 4 5 6 7 8 9 10 For the Northern District of California any planning problems." Id. The letter stated the temporary power line was provided to PG&E to deliver power to the DSRSD pump station and that it would eventually be removed. 97. Id. On June 13, 2007, Toll postponed the meeting Ex. P-137. scheduled for the next day. 98. 2007, letter. On June 15, 2007, Inouye responded to the June 12, Ex. P-138. He stated the utilty vaults violated provisions of the PSA, that the temporary power line encumbered the property, and that the location of the vaults "will probably have an affect [sic] upon the size and configuration of the Neighborhood Park, the Open Space Area and the design of the Property, and therefore have an affect upon the net acreage of the Property and the Purchase Price. These issues must be resolved Id. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 before Toll pays the Purchase Price." 99. On June 22, Inderbitzen spoke to Inouye by telephone to try to get the discussion back on track, but Inouye informed Inderbitzen that he was being taken out of the transaction. RT at 1423:7-1424:16(MI), 476:19-477:11(WI). On June 27, 2007, Toll sent the Lins a letter that 100. was intended "to serve as notice of Seller's default under the Agreement." Ex. P-139. On June 27, 2007, Inderbitzen responded to the Ex. P-141. He expressed 101. letter sent June 15, 2007. disappointment regarding a cancelled meeting and mentioned Mr. Tong's efforts to communicate with Toll representatives. Id. With regard to the utility vaults, the letter states: "We believe this to be part of the required Seller Work outlined in Exhibit D 24 1 2 3 4 5 6 7 8 9 10 For the Northern District of California of the agreement." 102. Id. On June 28, 2007, Inderbitzen responded to the Toll June 27 letter, stating "[w]e look forward to the opportunity to meet and discuss the issues raised in your letter. All actions taken by Seller have been done in good faith in an attempt to comply with the terms of the agreement. If, following our discussions, Toll wishes to have the Seller reverse its actions Seller can do so in a timely and effective way." 103. Ex. P-142. Escrow did not close on Sub-Area 3, as scheduled, on June 30, 2007. 104. On August 8, 2007, the parties held a meeting at Ex. P-151. The parties discussed the United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2008. the office of James Tong. issues that preventing the closing of Sub-Area 3 on the scheduled closing date. Id. Toll proposed extending the closing date by Id. The Lins responded with an four years to June 30, 2011. offer to extend the closing date by three years, with Toll paying an additional deposit of $5,000,000. 105. Id. On December 7, 2007, Toll gave notice to the Lins that it was terminating the PSA as to the closing of Sub-Area 3. Ex. P-166. 106. On December 12, 2007, the Lins responded that they continued to prepare for the closing of escrow on Sub-Area 3, and they reminded Toll of the obligation to reconvey the school site. D-655. 107. An unsuccessful mediation occurred in January of RT at 164:5-9(JB). 25 1 2 3 4 5 6 7 8 9 10 For the Northern District of California III. CONCLUSIONS OF LAW A. Toll's Claim for Breach of Contract The elements of a cause of action for breach of contract are: (1) the existence of the contract; (2) performance by the plaintiff or excuse for nonperformance; (3) breach by the defendant; and (4) damages. First Commercial Mortgage Co. v. Here, the PSA Reece, 89 Cal. App. 4th 731, 745 (Ct. App. 2001). is the contract, and Toll did not close escrow on Sub-Area 3. Toll's excuse for nonperformance is that the Lins were in breach of the PSA, and Toll was therefore entitled to terminate the contract. Toll contends that the Lins' breached the PSA by United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 installing utility vaults and a temporary power line on Sub-Area 3, and by granting associated easements to PG&E. See Req. to File Am. Closing Br., Ex. A ("Pl.'s Am. Closing Br.") at 14-15.2 Before addressing these contentions, the Court starts by noting the minor nature of the alleged breaches when considered in the context of the PSA as a whole. The PSA is not only a purchase and sale agreement, but also consists of escrow instructions, and requirements for buyer and seller to perform different kinds of construction work. RT at 423:13-424:7(WI). The deal was worth $241,500,000, involved approximately 127 acres of land, and it involved three separate closings over a three-year period. PSA. At the time the parties signed the PSA, many issues See On April 14, 2009, Toll requested leave to file an Amended Closing Brief, attaching the Amended Closing Brief as an exhibit. Docket No. 213. Because the amended version merely adds a table of contents, a table of authorities, and some evidentiary citations, the Court GRANTS Toll's request. 26 2 1 2 3 4 5 6 7 8 9 10 For the Northern District of California concerning Sub-Area 3 were in flux. RT at 803:10-11(RA). For example, no final decisions had been made regarding the proper alignment of Dublin Boulevard, the boundary between the required open space and the residential areas, the exact location of a creekway, the location of the DSRSD pump station, and the alignment of Fallon Road. Id. at 801:13-803:11(RA). When the parties signed the PSA, they were not even sure where Sub-Area 3 was going to be. Id. at 806:8-808:13(RA). The PSA contemplated that there might be an adjustment in the overall net acreage described for residential use in Sub-Area 3, and the PSA provided for the possibility of adjusting the purchase price for Sub-Area 3 if that occurred. PSA 5.3.1(a). United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In light of uncertainties of this kind, the parties covenanted to cooperate with each other in pursuing the matters required to be performed under the PSA and in otherwise fulfilling the closing conditions. See PSA 13.1. Inouye, Toll's outside counsel, testified that "[t]his transaction required a lot of cooperation between the parties." RT at 426:15-16(WI). Indeed, on occasions prior to the close of escrow for Sub-Area 3, the parties did work together to resolve issues that arose. For example, in conjunction with the completion of improvements on Sub-Area 2, Toll and the Lins agreed to swap work. See Ex. D-596. Toll installed a traffic light for the Lins at a cost of $223,209, and the parties agreed that Toll would be reimbursed by the Lins at the close of escrow in this amount. See id. The Lins completed storm drain work for Toll at a cost of $87,500, and grading work at a cost of $78,075, and Toll was to reimburse the 27 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Lins at the close of escrow for those amounts. See id. Similarly, with regard to Grafton Street, the Lins began construction of the street as required by Exhibit D to the PSA, but it was decided that Toll would complete the construction of the street, and that the Lins would reimburse Toll for its efforts. RT at 813:12-814:17(RA). Toll did not continue to cooperate with the Lins, as required by section 13.1 of the PSA, when it came to similar issues that arose prior to the third closing. 1. Utility Vaults and Associated Easements United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court finds that installing utility vaults and granting associated easements was required under the PSA, and therefore did not breach the PSA. The PSA required the parties to perform With regard to Lockhart Street, different construction tasks. Exhibit D of the PSA required the Lins to construct "curb-to-curb streetwork, street lighting, and utilities in accordance with (reference preliminary plans)," and the sidewalk on the west side of the street. PSA Ex. D at T0014930. Toll was responsible for "[a]dditional dry utility construction as necessary for service," and miscellaneous "improvements to connect onsite streets and/or utilities." Id. With regard to Dublin Boulevard, Exhibit D required the Lins to construct Dublin Boulevard, and utilities including "[j]oint trench conduit and joint trench boxes and Id. conductor to service street light system." The Lins were required to construct the "backbone infrastructure" for the development of Fairway Ranch and Sub-Area 3. RT at 551:22-552:9(RA), 764:8-765:11(RA). 28 Backbone 1 2 3 4 5 6 7 8 9 10 For the Northern District of California infrastructure means major utility corridors and major arterial streets. Id. at 534:16-18(RA). The backbone infrastructure Id. at 548:4- included joint utility trenches on major streets. 10(RA). PG&E designed the joint trench for Lockhart Street, PG&E set the location for the utility vaults, the City approved the plans, and the Lins built the joint trench and the utility vaults as required by the approved plans. Id. at 568:3-6(RA), 569:1- 12(RA), 573:8-13(RA), 764:8-765:11(RA), 812:22-813:11(RA), 1229:26(PG). PG&E also designed the joint trench and cabinets on Dublin Id. at 1761:12-20(WA). Boulevard. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Inouye's June 8, 2007, letter shows that Toll viewed the construction of the utility vaults as part of Seller's work. Ex. D-599. See The letter expressed concern about "several Seller Id. Inouye expressed Work items which remain incomplete." concern regarding the location of the utility vaults, but not the fact that the Lins had constructed them. See id. The Court finds that the PSA required the Lins to construct the utility vaults. The Lins therefore did not breach the PSA by building the vaults or failing to consult with Toll prior to constructing the vaults. The Lins did not breach the PSA by constructing the utility vaults in their current locations or by constructing six vaults in close proximity to one another. Utility vaults are a part of all Id. at 1463:20- subdivisions that have underground utilities. 23(GR), 1617:15-21(EB). Utility vaults were built on other Toll developments in the area, such as at the entrance of Dublin Ranch Golf Club. Id. at 821:12-18(RA); Ex. 668. On the north side of Gleason Drive, the Lins built a joint trench with three switch 29 1 2 3 4 5 6 7 8 9 10 For the Northern District of California cabinets. Id. at 835:18-20(RA). While two of the four utility vaults on the east side of Lockhart Street served Fairway Ranch across the street, because of the wet utilities on the west side of Lockhart Street, there was no other reasonable alternative, from an engineering standpoint, than to put the dry utilities on the east side of Lockhart Street. 7(RA). Toll was on notice of the location and number of utility vaults on Sub-Area 3 since August or September of 2006. RT at Id. at 1755:10-17(EB), 837:1- 1521:6-8(JP), 1529:21-1533:10(JP), 1574:5-7(JP); Exs. 640, 654. By the time Toll raised the location of the utility vaults as a Sub-Area 3 closing issue, Toll had stopped all plans for the development of Sub-Area 3. RT at 1524:11-24(JP). The location of United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the vaults, therefore, could not interfere with Toll's development plans. Even if Toll had a plan, the utility vaults were located within a setback within which Toll would not have been permitted to build. Id. at 1891:20-1892:6(MI), 1899:3-1901:13 (Testimony of Therefore, the location of the Thom Gamble (hereinafter ("TG")). vaults could not have interfered with Toll's plans to develop SubArea 3. The Court is convinced that if Toll wanted to close escrow on Sub-Area 3, then Toll could have cooperated with the Lins to work out a solution regarding the location of the utility vaults. Utility vaults are relatively simple to move. Id. at 1633:22(EB). On a prior occasion, Toll was willing to relocate a utility vault to accommodate its development needs. 501. Id. at 222:6-224:5(JB); Ex. In the past, Toll and the Lins were willing to enter into 30 1 2 3 4 5 6 7 8 9 10 For the Northern District of California agreements to swap work and reimburse each other. See Ex. 596. Estimates about how much relocating the vaults would cost ranged from $300,000 to $523,060. See Exs. P-128, P-181. If Toll had built homes on Sub-Area 3, Toll would have expended hundreds of millions of dollars. RT at 1639:1-1640:1(EB). The utility vaults would have no significant impact on the sale of the kind of units Toll was planning to build on Sub-Area 3. 1464:22(GR). Id. at 1462:18- The Court concludes that the issue of the vaults' location was not significant enough to constitute a breach permitting Toll to terminate or rescind the contract. Toll contends that the easements granted to PG&E in conjunction with the Lins' construction of the six utility vaults breached the PSA. Pl.'s Am. Closing Br. at 8. However, the Court United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 notes that in a prior land deal between Toll and the Lins, public service easements of the kind at issue here were added to the property between the time the contract was signed and the time for the close of escrow. RT at 827:8-831:17(RA). Even with respect to Sub-Areas 1 and 2, utility vault easements were added to the property. Id. at 831:3-17(RA). The Court finds that the easements associated with the utility vaults did not breach the PSA. 2. The Temporary Power Line and Associated Easement The Court finds that the construction of the temporary power line did not breach the PSA because it did not interfere with Toll's planning for Sub-Area 3. for Sub-Area 3. The power line appears on plans This plan shows See Ex. D-654 ("Option #10"). that Toll expected the power line to be removed by the time it 31 1 2 3 4 5 6 7 8 9 10 For the Northern District of California started constructing buildings on Sub-Area 3. When Paynter, Toll's Area Manager, learned of the power line in August 2006, he understood that it was going to be temporary. 1560:6(JP). RT at 1559:16- He did not think the power line would interfere with Toll's development of Sub-Area 3 given the timetable Toll was on. Id. at 1561:15-18(JP). Since the City of Dublin does not permit above-ground utility lines, Toll must have understood that the power line was temporary. Id. at 864:20-865:4(RA). Toll ceased planning Sub-Area 3 in September or October 2006. Id. at 1524:11-24(JP). By September 2006, the Lins had completed United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the joint trench on the north side of Dublin Boulevard and had therefore completed all necessary work for the temporary power line to be removed from Sub-Area 3. 872:14-874:3(RA); Ex. 522. Id. at 865:9-867:13(RA), In September 2006, the Lins applied for abandonment of the temporary overhead power line and the installation of permanent underground service. 35(RA); Ex. P-184. Id. at 872:14- If Toll had restarted the planning process for Sub-Area 3, it would take approximately one year before Toll could start building houses on the land. RT at 1526:5-8(JP). On June 16, 2008, less than one year after the scheduled closing date for Sub-Area 3, PG&E quitclaimed the temporary easement. 189. The Court finds that the Lins' grant of a temporary easement associated with the power line did not breach the PSA. Toll See Ex. P- contends that it should have been informed about the temporary easement, and that the temporary power line and easement breached section 13.2 of the PSA by encumbering the property, adversely 32 1 2 3 4 5 6 7 8 9 10 For the Northern District of California affecting title to the property, and the Lins breached the PSA by entering into an agreement with PG&E that could survive the closing date. Pl.'s Am. Closing Br. at 16-19. Toll also contends that the temporary easement violated other provisions of the PSA, including sections 13.1, 14.1 and 14.3. Id. at 19-23. The Court acknowledges that by granting the temporary power line easement to PG&E, the Lins had not complied with all the requirements in the PSA as of the scheduled closing date for SubArea 3. See RT at 926:3-11(JT), 958:10-16(JT). However, given that the easement was clearly temporary, the Court finds that this issue was not significant enough to justify Toll's termination of the contract. Indeed, the Court finds that the grant of the United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 temporary power line easement was not a breach of the PSA at all because the Lins had the right to extend the close of escrow beyond June 30, 2007. The Lins had the right to do so because the school site had not been reconveyed to the Lins as of the scheduled closing date for Sub-Area 3. If Toll had wanted to purchase Sub-Area 3, the Court is convinced that the parties could have worked out a solution regarding this minor issue during this time extension. 2007. Section 6.1 of the PSA permitted the Buyer to extend the close of escrow if the Seller had not done everything Seller was required to do in the special and general closing conditions, and it permitted Seller to extend the close of escrow if the Buyer had not done everything Buyer was supposed to do in the special and general closing conditions. See PSA 6.1. 33 As Toll concedes, Instead, Toll terminated the PSA on December 7, 1 2 3 4 5 6 7 8 9 10 For the Northern District of California "permitting the parties to extend the closing date to allow the other party to satisfy closing conditions, makes perfect sense." Pl.'s Am. Closing Br. at 26 (emphasis in original). Prior to the close of escrow on Sub-Area 2, Toll invoked this provision to extend the close of escrow due to concerns about whether the Lins had fulfilled all of their requirements. See Ex. 585. On June 30, 2007, the Lins were entitled to extend the close of escrow because the elementary school parcel had not been reconveyed to the Lins, which was one of the closing conditions for the third closing. See PSA 5.3.2(g). United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court finds that the construction of the power line and the granting of the temporary easement were not circumstances that triggered Toll's right to terminate. Toll could terminated the PSA if any of the Lins' representations or warranties became untrue in a material respect prior to the closing date due to changed circumstances. See PSA 14.3. As noted earlier, many issues concerning Sub-Area 3 were in flux at the time the parties signed the PSA. RT at 803:10-11(RA). Nonetheless, the Lins represented that the property was free of material physical defects or conditions that precluded or materially limited its development as a master planned community. See id 14.1(d). The construction of the temporary power line and the grant of an easement did not limit Toll's ability to develop Sub-Area 3 because Toll stopped planning the development of Sub-Area 3 in late 2006. RT at 125:6-15(JB), 1524:11-22(JP). When Paynter, the Area Manager for Toll's operations, learned of the power line around August 2006, he did not think it would interfere with 34 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Toll's development of Sub-Area 3. Id. at 1558:14-1561:18(JP). The utility vaults, the power line, and the associated easements were minor issues of a kind that could have easily been resolved if Toll had lived up to its contractual obligation to cooperate with the Lins. The Court concludes that Toll cannot See prevail on its breach of contract claim against the Lins. Rischard v. Miller, 182 Cal. 351, 352-53 (1920) (contract can be enforced where it had been substantially performed and where "the omissions are so slight that it cannot be regarded as an integral or substantive part of the contract. . . ."). B. Toll's First, Third, and Fourth Causes of Action United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Toll's first, third, and fourth causes of action are for rescission, foreclosure of contractual lien, and foreclosure of purchaser's lien. 1. See SAC 7-17, 21-31. Rescission A party may unilaterally rescind a contract if (1) "the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds," or (2) "the consideration for the obligation of the rescinding party, before it is rendered to him, fails in a material respect from any cause." Cal. Civ. Code 1689(b)(2), (4); Rano v. Sipa Press, Inc., 987 F.2d 580, 586 (9th Cir. 1993)("A breach will justify rescission . . . only when it is 'of so material and substantial a nature that [it] affect[s] the very essence of the contract and serve[s] to defeat the object of the parties.'"(citations omitted)). "Whether a breach constitutes a failure of consideration sufficient to be deemed material and thus 35 1 2 3 4 5 6 7 8 9 10 For the Northern District of California to warrant rescission of a contract is a question of fact." Fed. Deposit Ins. Corp. v. Air Fla. Sys., Inc., 822 F.2d 833, 840 (9th Cir. 1987). "[T]he law is well settled in this state that a person is not entitled to rescind or abandon a contract for an alleged breach of that contract when the breach does not go to the root of the consideration." Karz v. Dept. of Prof'l and Vocational Standards, 11 Cal. App. 2d 554, 557 (Ct. App. 1936). Here, as explained above, the Court finds that the Lins did not breach the PSA. Hence, there has been no material failure of consideration or material breach warranting rescission of the contract. The Court concludes that Toll was not entitled to United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 rescind the PSA. 2. Foreclosure of Liens Where the parties intended to create a security interest in property, the Court may order the sale of the property to pay for the debt owed. Grappo v. Coventry Fin. Corp., 235 Cal. App. 3d The Lins and Toll executed a Memorandum 496, 509 (Ct. App. 1991). of Understanding, recorded on May 28, 2004, by which Toll was granted a lien against the property "to secure the performance of Seller's obligation to refund the Deposit provided by Buyer and disbursed to Seller if Buyer becomes entitled to such reimbursement in accordance with the terms of the Agreement." P-24. Ex. The Court finds that Toll is not entitled to the return of its deposit because the Lins were not in breach of the PSA when Toll terminated the contract. The Court concludes that Toll is not entitled to foreclosure on its liens. 36 1 2 3 4 5 6 7 8 9 10 For the Northern District of California C. PSA Complies with Subdivision Map Act ("SMA") Toll's final cause of action seeks a declaration that the PSA is illegal or void for failure to comply with the SMA. 66499.30(b) of the SMA provides that: No person shall sell, lease or finance any parcel or parcels of real property or commence construction of any building for sale, lease or financing thereon, except for model homes, or allow occupancy thereof, for which a parcel map is required by this division or local ordinance, until the parcel map thereof in full compliance with this division and any local ordinance has been filed for record by the recorder of the county in which any portion of the subdivision is located. Cal. Gov. Code 66499.30(b). The SMA contains a limited Section United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 exception to this prohibition for contracts that are "expressly conditioned upon the approval and filing of a final subdivision map or parcel map, as required under this division." Id. 66499.30(e). Toll argues that the Agreement is illegal and void because it is not "expressly conditioned" upon the recording of a map since it allows the recording to be waived. 34. Pl.'s Am. Closing Br. at Section 5.5 of the Agreement outlines the Buyer's closing One of these conditions is that "Seller shall have PSA 5.5(d). The conditions. caused the Map (or Maps) to be recorded." Agreement states that "if any Buyer's Closing Conditions remain unsatisfied as of the date then established as the Closing Date, Buyer shall have the right, in its sole and absolute discretion, to (1) waive one or more of Buyer's Closing Conditions and proceed with the Closing." Id. 5.5(h). "Parcel However, in a different section of the PSA, entitled 37 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Map to Create Legal Parcel," it states: The entirety of the Property is not currently subdivided in a manner that would permit its conveyance in the contemplated Sub-Areas. Seller shall, at its sole cost and expense, cause the City to record a parcel map or other map or maps (the "Map") in order to create the Property as legal parcels that can be conveyed consistent with the requirements of the Subdivision Map Act and the City's Subdivision Ordinance. Id. 3.2. This section of the PSA is not part of the Buyer's Therefore, Toll could not waive this closing conditions. provision. Also, one of the special closing conditions for the United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 third closing states that "[t]he entirety of Sub-Area 3 shall be conveyed in the Third Closing pursuant to an Approved Map." 5.3.2(a). Toll could not waive this provision. The Court Id. determines that Toll could not waive the obligation to comply with the SMA in sections 3.2 and 5.3.2(a) of the PSA. This case is therefore distinguishable from Black Hills Investments, Inc. v. Albertson's, Inc., 146 Cal. App. 4th 883 (Ct. App. 2007), and Sixells, LLC v. Cannery Business Park, 170 Cal. App. 4th 648 (Ct. App. 2008), where the requirement to record maps could be waived. In addition, Inouye, Toll's outside counsel, was aware of the need to create legal parcels. RT at 423:16-424:9(WI), 439:18-21(WI). Toll does not dispute that the Lins obtained the approvals creating Sub-Area 3 as a legal parcel. 49. The PSA complies with the SMA. RT at 149:21-24(JB); Ex. Toll is not entitled to a refund of its deposit based on the argument that the PSA is illegal or void. 38 1 2 3 4 5 6 7 8 9 10 For the Northern District of California D. The Lins' Request for Declaratory Relief and Breach of Contract Counterclaim 1. The School Site The Lins contend that Toll failed to perform a condition precedent by failing to transfer the school site to the Lins. Def.'s Closing Trial Br. at 2. The Lins raise the school site See issue as both an affirmative defense to Toll's breach of contract claim, see Def.'s Mot. to Dismiss, Docket No. 188, at 3-4, and as the basis for their counterclaim that Toll breached th

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