Toll Brothers, Inc v. Lin et al

Filing 99

ORDER by Judge Samuel Conti denying 66 Motion for Summary Judgment (sclc2, COURT STAFF) (Filed on 2/9/2009)

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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-O LIN; HONG LIEN LIN; HONG) ) YAO LIN, ) Defendants. ) ___________________________________) ) AND RELATED CROSS-ACTION. ) ) I. INTRODUCTION This matter comes before the Court on Defendants' Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment ("Motion"). Docket No. 66. Plaintiff Toll Brothers, Inc. Case No. 08-987 SC ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ("Toll") filed an Opposition and Defendants Chang Su-O Lin, Hong Lien Lin, and Hong Yao Lin (the "Lins") submitted a Reply. Nos. 78, 86. Docket For the reasons stated herein, the Defendants' Motion is DENIED. II. BACKGROUND The following facts are not in dispute. 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 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Dublin, California. Inderbitzen Decl. ¶¶ 4-5.1 The purchase Toll was Toll was price was $241,500,000. Id. Ex. A ("PSA") § 2.1. required to make a deposit of $21,735,000. Id. § 2.2. to acquire the land in three stages, and the 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. Id. § 2.2(c). The scheduled date of the first closing was September 30, 2005. ¶ 10. Id. § 5.1. Escrow closed on Sub-Area 1. Inderbitzen Decl. The scheduled date of the second closing was June 30, 2006. 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 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. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PSA § 5.2. Inderbitzen Decl. Ex. C ("May 31, 2006 Email"). 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 as the contractor/agent for Regent Land Investment. . . Toll will continue to work toward the entitlement and development of the Property. Martin Inderbitzen, attorney for Defendants, filed a declaration in support of Defendants' Motion ("Inderbitzen Decl."). Docket No. 67. He also filed a supplemental declaration in support of Defendants' Reply ("Inderbitzen Supp. Decl."). Docket No. 87. 2 1 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Id. Ex. D ("June 26, 2006 Email"). Homebuilders enter into land banking transactions as a means of retaining rights to acquire undeveloped real property without having to reflect the acquisition of the property on their financial statements. Kalt Decl. ¶ 3.2 The land banker becomes the owner of the property, but grants an option to the homebuilder, so that the homebuilder can acquire the property when it is ready to begin construction of residential units. Id. The homebuilder typically performs infrastructure work on the property pursuant to a construction agreement with the land banker. The Lins did not object to the proposed assignment. Inderbitzen Decl. ¶ 12. Toll assigned all of its "right, title Id. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and interest" under the PSA relating to Sub-Area 2 to Regent Land Investment LLC ("Regent"). Agreement") at 1.3 Austin Decl. Ex. A ("Nomination Toll and Regent entered into an option agreement so that Toll could buy back Sub-Area 2, or parts of SubArea 2, from Regent. Id. Ex. B ("Option Agreement"), Ex. C Toll and Regent entered ("First Amendment to Option Agreement"). into a construction agreement, whereby Toll would act as Regent's contractor and continue working on the property. ("Construction Agreement") at 3-4. Id. Ex. D Regent took title to Sub-Area Scott Kalt, a real estate partner at Jeffer, Mangels, Butler & Marmaro LLP, filed a declaration in support of Plaintiff's Opposition ("Kalt Decl."). Docket No. 81. David Austin, an associate at McNichols Beers LLP, filed a declaration in support of Defendants' Motion ("Austin Decl."). Docket No. 75. The declaration was filed under seal. 3 3 2 1 2 3 4 5 6 7 8 9 10 For the Northern District of California 2. Request for Judicial Notice Ex. 1 ("Grant Deed").4 Escrow for Sub-Area 2 closed on or about July 20, 2006. 13; Inouye Decl. ¶ 7.5 Inderbitzen Decl. ¶ The scheduled date of the third closing was June 30, 2007. PSA § 5.3. Between April and June 2007, disputes arose concerning closing conditions, the construction of utility vaults and power lines, and the recording of easements on Sub-Area 3. Decl. ¶¶ 15-22; Inouye Decl. ¶¶ 9-17. occurred. Inderbitzen Decl. ¶ 23. Inderbitzen The third closing never On December 7, 2007, Toll notified the Lins that it was terminating and rescinding the contract. Id. Ex. R ("Notice of Termination"). United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Toll's Second Amended Complaint seeks (1) rescission of the contract and restitution of the remaining deposit of $7,735,000; (2) damages for breach of contract; (3) foreclosure of a contractual lien against the property; (4) foreclosure of a purchaser's lien against the property; and (5) a declaration that the PSA is illegal under California's Subdivision Map Act ("SMA"), Cal. Gov't Code § 66410 et seq. See Docket No. 39. III. LEGAL STANDARD Entry of summary judgment is proper "if the pleadings, the The Lins request the Court to take judicial notice of a Grant Deed. Docket No. 68. The Grant Deed is a matter of public record, and it describes a fact not subject to reasonable dispute. See Fed. R. Evid. 201; see also Neighbors v. Mortgage Elec. Registration Sys., Inc., No. 08-5530, 2009 WL 192445, at *3 (N.D. Cal. Jan. 27, 2009). The Court grants the request. Warren Inouye, an attorney for Plaintiff, filed a declaration in support of Plaintiff's Opposition ("Inouye Decl."). Docket No. 80. 4 5 4 1 2 3 4 5 6 7 8 9 10 For the Northern District of California discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." R. Civ. P. 56(c). The movant bears the initial burden of See Celotex Fed. demonstrating the absence of a genuine issue of fact. Corp. v. Catrett, 477 U.S. 317, 323 (1986). To survive a motion for summary judgment, the responding party must present competent evidence that creates a genuine issue of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-52 (1986). United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IV. DISCUSSION The Lins contend that Toll's first, second, third, and fourth causes of action fail as a matter of law because Toll was in breach of the PSA by assigning its interest in Sub-Area 2 to Regent. Mot. at 12-16. The Lins contend that Toll's fifth cause of action fails as a matter of law because the PSA is valid, legal, and enforceable under California's SMA. A. The PSA's Provisions 1. The Assignment Provision Id. at 16-20. The Assignment paragraph of the PSA provides that: 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% 5 1 2 3 4 5 6 7 8 9 10 For the Northern District of California 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. PSA § 18.7. 2. The School Site Provisions In the section of the PSA that establishes "Special Closing Conditions" for the Third Closing, it states that "Buyer shall have reconveyed to Seller or Seller's assignees the elementary school parcel in Sub-Area 2." PSA § 5.3.2(g). In the section of the PSA entitled "Buyer's Work," it states that: 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. PSA § 7.5(b).6 The Lins included these provisions in the PSA United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 because they were parties to a Mitigation Agreement with the Dublin Unified School District that allowed the Lins to offset mitigation payments to the District by dedicating a ten-acre site to the District. Agreement") § 3. 3. The Parcel Map Provisions Mot. at 7; Inderbitzen Decl. Ex. B ("Mitigation Section 5.5 of the PSA outlines the Buyer's Closing Conditions. One of these conditions is that "Seller shall have Agreement § 5.5(d). caused the Map (or Maps) to be recorded." The same obligation to reconvey appears in section 13.13 of the PSA, in the section entitled "Covenants." 6 6 1 2 3 4 5 6 7 8 9 10 For the Northern District of California The PSA 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). 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. This section of the PSA is not part of the section In the section of the PSA United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 entitled "Buyer's Closing Conditions." that establishes special closing conditions for each of the three closings, it states that the entirety of each sub-area shall be conveyed "pursuant to an Approved Map." 5.2.2(a), 5.3.2(a). B. The Obligation to Reconvey the School Site Parcel PSA §§ 5.1.2(a), The Lins contend that Toll's assignment to Regent breached the PSA because, after the assignment, Toll was no longer able to reconvey the ten-acre school site parcel to the Lins, as required by section 5.3.2(g) of the PSA. Mot. at 12. Toll contends that the assignment did not breach the PSA because after the assignment the obligation to reconvey the school transferred to Regent. Opp'n at 11. 7 While the Lins allege that 1 2 3 4 5 6 7 8 9 10 For the Northern District of California Toll misrepresented that it would repurchase Sub-Area 2 from Regent, neither party disputes that Regent obtained title to SubArea 2 in July 2006. 11. See Inderbitzen Decl. ¶¶ 10, 12; Opp'n at Since Regent was the buyer of Sub-Area 2, it is entirely consistent with the terms of the agreement to view sections 5.3.2(g), 7.5(b), and 13.13 of the PSA as imposing the obligation to reconvey the school site on Regent, not Toll. Furthermore, the Mitigation Agreement between the Lins and the City of Dublin indicates that the obligation to dedicate a school site parcel ran with the land. See Mitigation Agreement § 17(c). United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Whether the parties understood the obligation to reconvey the school site as belonging to Regent or Toll is a disputed factual issue. When the dispute arose between Toll and the Lins about the closing conditions for Sub-Area 3, the Lins did not raise any concerns about the obligation to reconvey the school site. Opp'n at 7-9; Inouye Decl. ¶¶ 7-8. See Toll implies that if the Lins viewed the obligation to reconvey the school site as belonging to Toll, the matter would have been raised during that dispute. Opp'n at 7-9. Furthermore, since November 14, 2008, Regent has been prepared to reconvey the school site parcel, but has received no direction from the Lins on how to proceed. Decl. ¶ 7.7 Opp'n at 9; Hoban Regent has deposited a grant deed for the school site Opp'n at 9; Inderbitzen Supp. Decl. ¶ 14. into an escrow account. In response, the Lins point out that they were engaged in Timothy Hoban, regional counsel for Toll, filed a declaration in support of Plaintiff's Opposition ("Hoban Decl."). Docket No. 79. 8 7 1 2 3 4 5 6 7 8 9 10 For the Northern District of California "parallel discussions" with Toll representatives about Toll's obligation to reconvey the school site, and that explains why they expressed no concerns about the issue during the closing condition dispute. Reply at 3-4; Inderbitzen Supp. Decl. ¶ 10. In these parallel discussions, it was representatives of Toll, not Regent, who were working on grading the school site and preparing a map of the school site. See Inderbitzen Supp. Decl. ¶¶ 7-9. Toll representatives were also involved in preparing to deed the school parcel over to the Lins. See id. ¶¶ 10-11. However, this involvement is consistent with Toll's status as a contractor and agent for Regent after the assignment. See June 26, 2006 Email. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Because of these factual disputes concerning who was obliged to reconvey the school site parcel, the Lins have not shown as a matter of law that the assignment to Regent breached the contract. The Lins' motion for summary judgment on Toll's first, second, third, and fourth causes of action is DENIED. C. The PSA and the Subdivision Map Act The Lins contend that Toll's fifth cause of action fails as a matter of law because the PSA is valid, legal, and enforceable under California's SMA. Mot. at 16-20. As outlined above, the PSA gives the buyer the right to waive one or more of the buyer's closing conditions. See PSA § 5.5(h). One of the buyer's closing conditions is that "Seller shall have caused the Map (or Maps) to be recorded." See id. § 5.5(d). However, in a section of the PSA that is not part of the buyer's closing conditions, it states that "Seller shall, at its sole cost and expense, cause the City to record a parcel map or other map or maps . . . consistent with the 9 1 2 3 4 5 6 7 8 9 10 For the Northern District of California requirements of the Subdivision Map Act." See id. § 3.2. Also, under the special closing conditions for each sub-area, each area has to be conveyed "pursuant to an Approved Map." 5.1.2(a), 5.2.2(a), 5.3.2(a). On January 14, 2009, the Court denied Toll's Motion for Judgment on the Pleadings. See Order. Docket No. 76. The Court PSA §§ found that the PSA is ambiguous as to whether the Buyer's ability to waive the Buyer's closing conditions in section 5.5 gives Toll the right to waive the Lins' obligation to cause the City to record a parcel map as required by section 3.2. Order at 5. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In the present Motion, the Lins contend that section 3.2 was a condition for the benefit of both Toll and the Lins and, as such, it could only be waived by the consent of both parties. Mot. at 17. In support of this contention, the Lins draw attention to an exhibit attached to a memorandum sent by Toll on April 23, 2004, which states that: Each of the parcels or lots within the Takedown shall be a lot which can be legally conveyed in compliance with the California Subdivision Map Act and the City's Subdivision Ordinance. This condition shall benefit both Buyer and Seller. Inderbitzen Decl. Ex. T ("Memo.") at 8 § 2.6. This evidence, by itself, is not sufficient to establish that the parties understood section 3.2 to be a condition for the benefit of both Toll and the Lins. The relationship between this draft of a general closing condition and the final terms and conditions of the PSA is not clear. This draft is attached to a document that contemplates the sale of four parcels of land, not 10 1 2 3 4 5 6 7 8 9 10 For the Northern District of California three, and it refers to takedown prices that differ from the terms of the PSA. Unlike this draft, the PSA does not have a section called "General Closing Conditions," but instead divides them up into "Seller's General Closing Conditions," and "Buyer's General Closing Conditions." See PSA §§ 5.4, 5.5. Hence, there is still a triable issue of fact as to whether the PSA gives Toll the right to waive the Lins' obligation to cause the City to record a parcel map. Id. at 4-5. The Lins' motion for summary judgment on Toll's fifth cause of action is DENIED. United States District Court 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. CONCLUSION For the reasons stated above, the Court DENIES Defendants' Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment. IT IS SO ORDERED. Dated: February 9, 2009 UNITED STATES DISTRICT JUDGE 11

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