Real Estate and Construction Law Blog

By James G. Higgins

Prompt payment laws can pose significant risk to owners and contractors.  In S&S Cummins Corp. v. West Bay Builders, Inc. 2008 Cal. App. LEXIS 160, *, a public works general contractor was stung under Public Contract Code section 7107 for delaying retention payments to an electrical subcontractor.

Landale-Cameron Court, Inc. v. Ahonen (Oct. 10, 2007, B190309 [2^nd Dist., Div. 2]), ___ Cal. App. 4th ____; http://www.courtinfo.ca.gov/cgi-bin/opinions

By Thomas B. Snyder and Andriana Ledesma

In Landale?Cameron, the homeowner's association of a condominium complex ("HOA"), discovered various water leaks to the building and subsequently sued the builder-developers Arnold and Helen Kaufman ("Kaufman") and Petri Ahonen dba Riteway Decking and Flooring ("Riteway") for negligence and contract causes of action.  Riteway moved for summary judgment on the grounds that the complaint was barred because it was filed after the expiration of the three-year statute of limitations for actions involving injury to real property under California Code of Civil Procedure Section 338.

Patel v. Liebermensch (Aug. 21, 2007, D048582 [4^th Dist, Div. 2]) __ Cal.App.4^th __; http://www.courtinfo.ca.gov/cgi-bin/opinions

By William M. Flieshhacker

In this case, the Fourth District Court of Appeal of California addressed the issue of the enforceability of an option contract that did not include essential terms regarding the time and manner of payment.  The court held that the evidence showed that the parties continued to negotiate these terms (and terms related to the amount of the deposit, the escrow period, and the payment of escrow expenses) following the tenant’s notice that he was exercising the option.  The court found that these key terms could not be added by the trial court by implication, thus rendering the option contract unenforceable.

By Robert J. Uram and Aaron Foxworthy

In Northern California River Watch v. City of Healdsburg, the Ninth Circuit held that a man-made pond that (a) contains and is largely surrounded by wetlands, (b) is separated from a traditionally navigable water only be a levee, and (c) shares a significant nexus with the adjacent navigable water can be considered a regulable water of the United States.  (Case No. 04-15442, slip op. at 9373, August 6, 2007).  The Healdsburg decision revised the court’s August 2006 opinion in the case.  (Earlier opinion at 457 F.3d 1023).

U.S. v. Moses, No. 06-30379 (9^th Cir. 2007)

By Stephanie J. Helfrich

In upholding an 18-month prison sentence, plus monetary fines, under the Clean Water Act (CWA) of an eastern Idaho developer who bulldozed a creek bed, the Ninth Circuit held that a seasonally intermittent stream which ultimately empties into a river that is a water of the United States can, itself, be a water of the United States. The Court further held that deposition of materials into the intermittent stream during the 10-month dry season still constituted a discharge of fill into waters of the United States.

United States v. Atlantic Research Corporation (2007) __ U.S. ___ [http://www.supremecourtus.gov/opinions/06pdf/06-562.pdf].

By Randy Visser and Olivier Theard

In a boon to private parties who undertake to voluntarily clean-up contaminated sites, the Supreme Court in United States v. Atlantic Research Corporation established that parties who undertake clean-up efforts may bring cost recovery actions under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against potentially responsible parties (PRPs).  Before this decision, there was a split in the circuit courts regarding whether private parties could recover costs of clean-up, or whether their exclusive remedy was a contribution action which could only be brought after they were sued by the government.  The Supreme Court, in a unanimous opinion by Justice Thomas, ruled that a private party may sue for cost recovery even if that party has not been sued or paid a judgment or settlement to the government.

By Robert Uram, Ella Foley-Gannon and Aaron Foxworthy

On June 5, 2007, the Army Corps of Engineers (Corps) and the U.S. Environmental Protection Agency (US EPA) published long-awaited guidance on the United States Supreme Court's decisions in Rapanos v. United States and Carabell v. United States Army Corps of Engineers.  Posted on the agencies' respective web sites, the guidance sets out their interpretation of the Rapanos and Carabell decisions, particularly their effects on the agencies' regulatory jurisdiction under Section 404 of the Clean Water Act (CWA Jurisdiction).

National Wildlife Federation v. National Marine Fisheries Service, No. 06-35011 (9th Cir. 2007)

By Bob Uram and Keith Garner

On April 9, 2007, the Ninth Circuit held that the jeopardy analysis under the Endangered Species Act regulations must consider the effects of an action on a listed species’ chance of recovery in a Section 7 consultation.  The regulations, which were promulgated in 1986, prohibit any agency action “that reasonably would be expected, directly or indirectly, to reduce appreciably the likelihood of both the survival and recovery of a listed species in the wild.”  50 C.F.R. § 402.02.  In a challenge to a biological opinion issued for the proposed operations of the Federal Columbia River Power System dams and related facilities, the National Marine Fisheries Service had argued that the restriction bars only actions that will both reduce the likelihood of survival and recovery of the species.  Because a species may survive without recovering to the point where it is no longer imperiled, the requirement to reduce the species’ chance of both survival and recovery was effectively a survival standard.  The Ninth Circuit upheld a district court’s decision invalidating the biological opinion, noting that the agency’s interpretation “reads ‘and recovery’ entirely out of the text.” The decision also contains important guidance on the definition of discretionary federal actions and rejects the NMFS effort to view the scope of the federal action narrowly.

Shepard v. Edward Mackay Enterprises, Inc., et al., --- Cal. Rptr. 3d ---, No. C052564, 2007 WL 853456 (Cal. Ct. App. Mar. 22, 2007)

While Section 1298.7 of the California Code of Civil Procedure generally allows homebuyers to pursue defect litigation in court regardless of an agreement to arbitrate, the Third District Court of Appeal recently ruled the Federal Arbitration Act preempts California law and binds homebuyers to arbitration provisions when the transaction involves interstate commerce.  Because homes built in California today likely incorporate at least some construction materials originating outside the state and therefore implicate interstate commerce, the court's ruling may effectively preclude homebuyers from relying on this section of the Code of Civil Procedure to avoid arbitration.

Stockton East Water District, et al. v. United States (February 20, 2007)

By Philip Atkins-Pattenson and Katharine Allen

In this action against the United States, the United States Court of Federal Claims held that the Bureau of Reclamation did not breach several 1983 state water contracts with two California water districts when it withheld water from the New Melones Reservoir for fish and wildlife purposes, as required by the Central Valley Project Improvement Act.  The court further found that the reduction in allocable water did not constitute a taking because the Bureau acted in its commercial capacity when it entered into the contracts, which meant that the plaintiffs’ only remedies were contractual.

By Robert Uram and Aaron Foxworthy

In San Francisco Baykeeper v. Cargill Salt Division, the Ninth Circuit Court of Appeals provided further guidance on the limits of Clean Water Act (“CWA”) regulatory authority.  ___ F.3d ___; Case No. 05-15051, slip op. at 2666 (9th Cir., filed March 8, 2007).  Cargill argued that a non?navigable, non?wetland pond does not fall within the Environmental Protection Agency’s definition of jurisdictional water of the United States simply by virtue of its adjacency to a navigable waterway.  The Court of Appeals agreed, holding that pursuant the agency’s CWA regulations, wetlands are the only waterbodies that  fall within CWA regulatory authority based on their adjacency to navigable waters of the United States.  Since the waterbody in question was a diked pond, not a wetland, the adjacency rule did not apply.  Baykeeper argued that the pond was nevertheless subject to regulatory authority because attendant circumstances indicated it had a “significant nexus” to navigable waters.  The court rejected this argument finding no indication in previous case law that the significant nexus test is intended to apply to waterbodies other than wetlands, and that, in any event, the evidence presented by Baykeeper did not indicate that water ever flowed from the pond to adjacent navigable waters.

By Robert J. Uram and Aaron Foxworthy

District courts for the Northern District of California and the District of Connecticut recently applied the Supreme Court’s 2006 Rapanos decision to decide whether certain intermittent and ephemeral streams and adjacent wetlands were subject to Clean Water Act regulatory jurisdiction.  (Please click for further discussion of Rapanos).  In both instances, the courts found that plaintiffs had not presented sufficient evidence that the streams or wetlands in question had a significant effect on downstream navigable waters.

Kristina Dyer v. Exon Martinez et al. (February 23, 2007, G037423) __ Cal.App.4th__; http://www.courtinfo.ca.gov/opinions

By Katharine E. Allen

In this action for specific performance of a contract for the purchase of real property, the Court of Appeals found that the physical recordation of a lis pendens in the county recorder's office was insufficient to provide a prospective purchaser with constructive notice of the claim until the recorder properly indexed the lis pendens in the county real property records because a diligent title search would not reveal the existence of the claim unless it was properly indexed.

Friends Of The Sierra Railroad v. Tuolumne Park and Recreation District  (filed January 12, 2007; certified for publication February 8, 2007, F050117) __ Cal.App.4^th__

By Lori Wider

Introduction

In this case plaintiff Friends of the Sierra Railroad (Friends) challenged the approval and sale of land from Tuolumne Park and Recreation District (District) to Tuolumne Band of Me-Wuk Indians (Real Party).  The land sold contained a portion of an historic railroad right?of?way.  Friends contended that the sale constituted a “project” under CEQA, requiring prior environmental review.  The Court of Appeal held that the transfer of the land was not a “project” under CEQA under the circumstances of this case.  While some development of the property was reasonably foreseeable, review of possible impacts to the historical resource would be premature in the absence of any specific proposal for development.

Anne Manderville et al. v. PCG&S Group, Inc. et al. (January 24, 2007, D047285) __ Cal.App.4th__; http://www.courtinfo.ca.gov/opinions/

By Katharine E. Allen

In this case, the Court of Appeals determined that exculpatory clauses contained in a purchase contract are against public policy to the extent such clauses exempt any individual from liability for his own fraud and therefore do not preclude a buyer of real property from showing that he justifiably relied on a broker’s intentional misrepresentation about the character of the property.  The court also found that any lack of due diligence by a buyer in investigating zoning and other laws restricting the use of property, even if negligent, does not preclude the buyer from establishing justifiable reliance if (a) there has been an intentional misrepresentation; and (b) the purchase contract only permits, but does not require, the buyer to undertake his or her own due diligence.

National Association of Homebuilders v. U.S. Army Corps of Engineers, 01-274 JR (D. D.C. Jan. 30, 2007)

By Robert J. Uram and Stephanie J. Helfrich

On January 30, 2007, U.S. District Judge James Robertson ruled in favor of several major trade associations when he held that a rule jointly issued by the Army Corps of Engineers and the Environmental Protection Agency defining whether “incidental fallback” that can result from activities such as ditch digging and excavation, and subjecting the activity to Section 404 jurisdiction, was invalid.  Judge Robertson held that the rule does not properly address issues raised by a 1998 D.C. Circuit Court of Appeals Decision (National Mining Association v. United States Army Corps of Engineers, 145 F.3d 1399 (D.C. Cir. 1998)) and that the rule violates the Clean Water Act.  This decision coupled with the Supreme Court’s ruling in the Carabell and Rapanos cases leaves the Section 404 program awash with uncertainty.

Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) Cal.App.4^th

By Thomas B. Snyder

In this case, Kemp was a prime contractor on two public works projects for the Los Angeles Unified School District ("LAUSD").  It subcontracted the electrical work to Titan Electric on both projects.  Partway through performance, Titan began to struggle with its payroll obligations and Kemp agreed to informally advance payments to Titan to assist in completing the work.  When problems continued, Kemp stopped the advance payments and Titan was unable to meet its payroll.  Kemp then retained another electrical subcontractor who completed the work.  Simultaneously, Kemp requested that the LAUSD approve Titan's substitution as the listed subcontractor under Public Contracts Code Section 4107, arguing that Titan was failing and refusing to perform its work and/or delaying or disrupting the progress of the work.  The LAUSD hearing officer agreed that Titan had been disrupting and delaying the work and therefore determined that Kemp had the statutory right to substitute Titan.

Black Hills Investments, Inc. v. Albertson's, Inc. - January 12, 2007

By Thomas B. Snyder

On November 22, 2004, Black Hills entered into a contract to purchase two parcels of real property in a retail shopping center.  At the time of the contract, the two parcels had not yet been created through subdivision of the property.  Black Hills deposited earnest money of $133,000 which was described as non-refundable.  The contracts contained a provision which permitted the seller, Albertson's, to terminate the contract if it failed to obtain the proper governmental approvals for creation of the two parcels.  Black Hills was given no such right.

Divers’ Environmental Conservation Organization v. State Water Resources Control Board (Nov. 29, 2006, D046112) __ Cal.App.4th __ http://www.courtinfo.ca.gov/opinions

By Ella Foley-Gannon and Julie Austin

The Court of Appeals held that a permitting agency under the Clean Water Act is not required to conduct a numeric analysis of individual pollutants in industrial stormwater discharges in order to comply with federal regulations.  In addition, even if a discharge will cause the receiving body of water to violate State water quality standards, the agency is not required to impose numeric “water-quality based effluent limitations” (WQBELs) in a National Pollutant Discharge Elimination System (NPDES) permit.  Rather, to comply with the regulations, the agency may conduct more general, non-numeric tests of stormwater discharges and, if necessary, impose Best Management Practices (BMPs) on the discharger.  This decision is significant because the environmental community has recently pressured permitting agencies to impose numeric limitations on industrial discharges, which include construction discharges.  These numeric limitations, if required, would have presented a huge challenge and risk to permittees, who could violate their permits despite the fact that stormwater pollutants are highly variable and may be beyond their control.  Thus, this decision helps protect permittees by clarifying that permitting agencies are not required to use numeric limitations to regulate industrial stormwater discharges.

By Robert Uram and Keith Garner

Pursuant to its authority under the Clean Water Act, the U.S. Army Corps of Engineers has issued general permits, called Nationwide Permits, for activities that have minimal effect on the environment. Discharges of dredged or fill material in wetlands and other waters of the U.S. are permitted in connection with these activities upon verification by the Corps that an activity qualifies under a Nationwide Permit. The current Nationwide Permits were issued in January of 2002 and are scheduled to expire on March 19, 2007. The Corps has not yet commenced the rulemaking process that is required to reissue Nationwide Permits, and no announcements have been made concerning the Corps' intention or schedule for doing so. Although activities authorized under Nationwide Permits are supposed to finish before the expiration date, verifications are generally issued with a "grandfather" provision that gives activities that have commenced or are under contract to commence before the expiration date an additional year to be completed.

For more information please contact Robert Uram and Keith Garner.  Robert J. Uram is a partner in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.  Keith Garner, AICP, is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

Bighorn-Desert View Water Agency v. Verjil, (July 24, 2006, S127535) __ Cal.4th __

By Dave Lanferman and Misti Schmidt

On July 24, the California Supreme Court unanimously held that the initiative power reserved to the voters by Article XIII C of the California Constitution permits use of an initiative to reduce or repeal water delivery charges, and suggested that this initiative power extends to all local government levies that are ordinarily understood to be fees or charges. However, the Court also held that XIII C does not permit such initiatives to require voter approval of future increases in those charges, and invalidated the particular initiative proposal on this basis. The Court's decision acknowledged concerns that recognition of the right of local voters to repeal or reduce governmental fees by initiative may result in fiscally irresponsible actions by voters, but invoked the presumption that governing boards and their voters will act reasonably and in good faith to reach financially and legally sound compromises on fee-setting actions.

A Summary of Benson v. California Coastal Commission (2006) 139 Cal. App. 4th 348

By Brenna Moorhead

"Predictions and suggestions from staff may be helpful or misleading to a party with a matter before the Coastal Commission. Therefore a party should take such advice with caution." (Id. at 348.)

John Benson alleged a due process violation by the California Coastal Commission. Benson's project, the expansion of the Baywood Inn in San Luis Obispo County, had been approved by the County's planning commission under a mitigated negative declaration. It was appealed by the Concerned Citizens of Los Osos, first, to the County Board of Supervisors and, upon rejection, to the California Coastal Commission ("Commission"). The Commission sent notice and a copy of the appeal to Benson as well as notice of the hearing date in May 2003. Subsequently, the Commission's staff issued, with a copy sent to Benson, a report on the appeal recommending that that the Commission "open and continue the public hearing to determine whether a substantial issue exists…" (Id. at 351-52.) 

By Michael Wilmar and Misti Schmidt

On May 31, the Court of Appeal for the First Appellate District endorsed the State Water Resources Control Board’s four-part test of whether groundwater is a “subterranean stream flowing through known and definite channels.” The Board first used this new test in its 1999 decision, In re Garrapata Water Co., which expanded the Board’s authority over groundwater.

California courts generally should defer judicial review of ballot initiatives until after the election, the state Supreme Court reaffirmed last week in a holding that limits the scope of pre-election review. The unanimous opinion in Independent Energy Producers Ass'n v. McPherson, S135819 (2006), emphasizes that courts should consider the availability and adequacy of post-election relief in deciding whether to resolve a challenge to a ballot measure before the election. Under this approach, the court made it clear that pre-election review will now be limited primarily to procedural challenges, These are cases challenging whether a measure has properly qualified for the ballot, not the underlying validity of the measure.  Pre-election review of procedural challenges remains because courts have been (and evidently should continue to be) reluctant to overturn the results of an initiative election on procedural grounds.

California LLC Fee Unconstitutional

The limited liability company fee imposed under California law recently was held to be unconstitutional according to the court in Northwest Energetic Services, LLC v. California Franchise Tax Board (Super. Ct. San Francisco County, 2006, No. CGC-05-437721). The decision states that the graduated fee imposed on the "total income" of an LLC (meaning gross income plus the cost of goods sold) under Section 17942 of the California Revenue and Taxation Code is illegal for violating the Commerce Clause and the Due Process Clause of the U.S. Constitution. Such fee currently starts at $900 if total income is $250,000 or more but less than $500,000, and ranges upward, topping out at $11,790 if total income is $5,000,000 or more.

By Robert J. Uram and Ella Foley-Gannon

On March 14, 2006, in Center For Biological Diversity v. Bureau of Land Management, et al., 2006 WL 662735 (N.D. Cal.), the United States District Court for the Northern District of California concluded that the U.S. Fish and Wildlife Service (the “Service”) improperly ignored the recovery goal of critical habitat in finding that there were no additional regulatory benefits to be gained by designating critical habitat in areas that were ultimately excluded. Additionally, the Court concluded the Service improperly considered economic impacts of critical habitat designation that are coextensive with restrictions resulting from the listing of milk-vetch in excluding significant areas from the final critical habitat designation.

By Robert J. Uram, Ella Foley-Gannon and S. Keith Garner

On February 6, 2006, in National Ass'n of Homebuilders v. U.S. Army Corps of Engineers, Nos. 04-5221 et al., 36 ELR 20032 (D.C. Cir. Feb. 6, 2006), the United States Court of Appeals for the D.C. Circuit issued a unanimous ruling in favor of several major trade associations, holding that the validity of the Army Corps of Engineers regulation of "incidental fallback" that can result from activities such as ditch digging and excavation is ripe for review, and requiring the lower court to consider the legality of permit requirements for this type of discharge of dredged material into waters of the United States.

By David P. Lanferman

The recent decision of the California Supreme Court in Barratt-American v. City of Rancho Cucamonga(37 Cal.Rptr.3d 149) [covered in an earlier update on this site] raises serious questions as to the way many jurisdictions calculate, collect, and apply fees from developers for building permits and building inspections. Back in 1993, the California Attorney General published an opinion which concluded that fees for building permits and inspections are required to be based on the actual or reasonable costs of providing such services, rather than on the value of the proposed construction or improvements [76 Ops.Cal.Atty.Gen. 4]. Nevertheless, many (perhaps most) cities and counties continue to charge building permit fees which are based on the valuation of the construction, rather than being based on staff time and costs of providing service. To the extent that such valuation-based fees may exceed the reasonable costs of providing those services, recent court decisions may now hold cities and counties accountable for the excess revenues collected.

By David P. Lanferman

In Barratt American, Inc. v. City of Rancho Cucamonga, the California Supreme Court clarified questions of procedure and potential remedies available in actions challenging building permit and inspection fees under the Mitigation Fee Act, California Government Code § 66000 et seq. (the "Act"). Appellant Barratt American had sued the City on the basis that its inspection and permit fees (1) exceeded the City's costs of providing building inspection services; and (2) the City was improperly accumulating excessive fee revenues from its building permit operations. The Court agreed with lower court holdings that, when building inspection and permit fees are at issue, the only statutory relief was an action for invalidation of the resolution pursuant to Gov. Code § 66022. However, the Court disagreed with lower courts that Barratt's action was barred by the 120-day statute of limitations applicable under § 66022, finding instead that the City's reenactment and minor modification of the building permit fee schedule started a new limitations period. Lastly, the Court held that, when building inspection and permit fees are at issue, the appropriate remedy under the Act was not a refund but rather to reduce the fees going forward.

By Michael Wilmar

Former Section 6307 permitted the State Lands Commission to make exchanges of tide and submerged terminating the public trust for commerce, navigation, and fishery in the best interests of the state for the following purposes:

• Improvement of navigation
• Aid in reclamation
• Flood control protection
• To enhance the configuration of the shoreline for the improvement of the water and upland on navigable rivers, sloughs, streams, lakes, bays, estuaries, inlets, or straits

By Michael B. Wilmar

In Endangered Habitats League v. County of Orange, 131 Cal. App. 4th 777 (2005), the California Court of Appeal rejected a development plan in Orange County. The court did so on the grounds that the specific plan approved by the County conflicted with its general plan, and that the County compiled an inadequately detailed environmental impact report (EIR).

By Michael Wilmar

Recently, three separate panels of the California Court of Appeal rendered opinions on the availability of attorneys' fees for plaintiffs who bring CEQA challenges. The decisions make clear that courts have considerable latitude in determining who is the "successful party" and whether there has been a "significant benefit" under the private attorney general statute.

By Doug Van Gessel

On August 4 the California Supreme Court ruled, in Grafton Partners v. Superior Court (Pricewaterhouse Coopers LLP), 2005 DJDAR 9387 that California contractual provisions in which the parties thereto pre-agree to waive the right to a trial by jury are unenforceable. The unanimous opinion stated that a right to a jury trial is a fundamental constitutional entitlement that cannot be waived in advance of a dispute between the contracting parties unless such a waiver is permitted by statute. Thus, the court has left the door open for the legislature to pass a statute allowing such waivers, and the forum for interests pursuing this debate will likely shift to the legislature now.

Lu v. Grewal
(05 C.D.O.S. 5740, June 28, 2005)

By Mary Hedley

A tenant who abandons a commercial leasehold cannot escape all liability for its breach by taking advantage of the landlord's work in restoring the space and making it profitable. In Lu v. Grewal the tenant abandoned a gas station with almost 3 years left on its lease. When the landlords re took the premises, they found that the gas pumps had been torn out of the ground, gasoline was pooling in holes in the ground, computer controls had been ripped off the walls, the premises were vandalized, and the convenience-store items were missing or broken. The landlords worked around the clock to repair the property and operate the business themselves. They sued the tenant for breach of the lease, including damages for removing fixtures and a claim for the rent that was due following abandonment.

Kelo v. City of New London
05 CDOS 5466 No. 04-108 (U.S. Supreme Court, June 23, 2005)

By Michael B. Wilmar

In a 5-4 decision, the U.S. Supreme Court held that economic development constitutes a valid public purpose within the meaning of the U.S. Constitution Fifth Amendment "public use" clause. Relying heavily on previous U.S. Supreme Court takings cases, Justice Stevens, writing for the majority, found that the City's purpose of economic development fit safely within the Court's broad interpretation of public purpose. Justice O'Connor, writing for the dissent, distinguished past U.S. Supreme Court takings cases as involving harmful precondemnation use of the private property whereas in the present case, the precondemnation use was not harmful. The majority only addressed takings under the U.S. Constitution and noted that states may place greater restrictions on its eminent domain power. The majority also rejected Petitioners' argument that the City's economic development plan would provide only purely economic benefits.

Horwitz v. City of Los Angeles (Beglari)
124 Cal. App. 4th 1344 (2d Dist. Dec. 15, 2004) (review filed Jan. 24, 2005)

Trial court properly issued writ commanding the City to revoke all building permits and the certificate of occupancy related to a particular residence where permits were issued in violation of mandatory requirements of zoning ordinance. Los Angeles Planning Commission's ruling in favor of resident - which allowed renovation to the residence to encroach approximately 14 feet into the area of the required front-yard setback - was clearly erroneous because City has no discretion to issue a permit in the absence of compliance with the mandatory set-back requirements.

For more information please contact a member of the Real Estate and Construction Law Blog Editorial Team.