Cabanas v. Gloodt Associates

• Decision Date: 25 September 1996
• Docket Number: No. CIV-S-94-1481 DFL PAN.,CIV-S-94-1481 DFL PAN.
• Citation: 942 F.Supp. 1295
• Court: U.S. District Court — Eastern District of California
• Parties: Burt CABANAS, et al., Plaintiffs, v. GLOODT ASSOCIATES, et al., Defendants.

942 F.Supp. 1295

Burt CABANAS, et al., Plaintiffs, v. GLOODT ASSOCIATES, et al., Defendants.

No. CIV-S-94-1481 DFL PAN.

United States District Court, E.D. California.

September 25, 1996.

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Jack C. Nickens, Paul D. Flack, Clements, O'Neill, Pierce & Nickens, Houston, TX, for Plaintiffs.

Lawrence G. Townsend, San Francisco, CA, for defendants Gloodt Associates, Peter Gloodt, Karen Johnson and Peter Moegenburg.

MEMORANDUM OF OPINION AND ORDER

LEVI, District Judge.

This case presents important questions concerning the scope of liability of an appraiser to a third party in a novel factual context. Plaintiff is a hotel manager who claims that he was injured by misrepresentations in an appraisal defendants prepared for a lending institution. The novelty of the claims stems from plaintiffs' position that the injury was suffered in his renegotiation of his contract with the hotel owners, not because the owners had seen the appraisal, but because plaintiff feared that they had and therefore believed that his negotiating position had been weakened.

Defendants previously obtained a summary adjudication that plaintiffs' claims for libel, libel per se and disparagement of business, each variations of the tort of defamation, were barred by the qualified privilege of California Civil Code § 47(c). The defendant appraisers move for summary judgment on plaintiffs' remaining claims.¹ Plaintiffs move for reconsideration of the order dismissing the first three claims.

I. Facts²

Plaintiffs Burt Cabanas and BMC — The Benchmark Management Company (Benchmark) manage hospitality properties and conference centers. In 1988, Benchmark entered into a ten-year contract to manage the Resort at Squaw Creek, a resort hotel, recreation and conference center in Placer County, California.

Security Pacific National Bank (now merged with Bank of America) provided $53 million of the initial financing for the Resort. Before the Resort opened in 1990, Security Pacific hired defendant Gloodt Associates, Inc. to appraise the property. Gloodt appraised the property at a value, as of January 1, 1991, of $72 million.

The Resort's performance for the first year of operation was disappointing. Profits were at least $10 million less than Benchmark had estimated. Cabanas Depo., 345. Representatives of the owners were critical of Benchmark's performance. Verrue Depo., 64. A study was commissioned in 1991 by some of the owners; the study, by an entity called Aspen Crest, recommended a chain affiliation rather than an independent management company such as Benchmark. Id. at 65-66.

In 1991, Randall Verrue, a representative of one of the principal investors, began to broker a partial change in ownership that would bring in a new group of investors represented by Kenneth Ting and Geoffrey Yeh. Verrue Depo., 57-58, 60-61. Cabanas was told of Verrue's efforts to negotiate an ownership change in January 1992, and around March 1992 was informed that his cooperation, in the form of a restructured management fee agreement, would be necessary to facilitate the ownership change. Cabanas Depo., 241-42. Ting and Yeh felt strongly that the management agreement should provide more incentive for Benchmark to perform well, by linking management fees directly to the Resort's financial success. Verrue Depo., 62. Both the existing owners and Ting and Yeh were critical of Benchmark's first year performance. Id. at 64. In order to facilitate the ownership change, Cabanas agreed to renegotiate the management fees. Cabanas Depo., 242-43; see also Second Am. to Management Agreement (Cabanas Depo., Exh. 3), 1, ¶ 3 ("WHEREAS, Pacific Squaw Creek, Inc. has required that [Benchmark] agree to a mechanism for adjusting fees payable pursuant to the Agreement as a condition to its acquisition of the general partnership interest of Squaw Creek Investors Corporation in Owner...."). The negotiation was conducted between March and June of 1992.

In March or early April 1992, a maid cleaning a room at the Resort found a copy of a 400-page document entitled "Appraisal of the Resort at Squaw Creek" (the "1992 Gloodt report"). Cabanas Depo., 263. The report, prepared by the defendant appraisers³ for Security Pacific, included statements that Benchmark was not considered to be a competent manager of the Resort, described reasons why Benchmark should be replaced, valued the Resort as worth $17.9 million more if Benchmark were replaced, and estimated the legal costs involved in replacing Benchmark.⁴ The maid gave the report to the executive housekeeper, who saw comments about Benchmark and gave the report to the general manager. Id. at 262-63. The manager, John Russell, then called Cabanas in Texas and told him that a report critical of Benchmark, including "lies, untruths, comments about Benchmark being incompetent" had been found. Id. at 262-63, 267. Cabanas then asked that copies be made of the offending portions of the report. Id. at 267. Later that day, possibly within two hours, the guest came to the front desk and retrieved the report.⁵ Id. at 273. The excerpts of the report were kept by Benchmark, and a copy was sent to Cabanas in Texas. When Cabanas asked whether Verrue had seen the report, Russell told him that "he had seen a copy of an appraisal that Mr. Verrue had." Id. at 235.

While Cabanas would have accepted a lower fee in any event, he felt that the discovery of the 1992 Gloodt report weakened his bargaining stance. Cabanas testified that the report "[d]efinitely put me at a negotiating disadvantage with that unknown. Yes, unknown whether Verrue had it or didn't have it and assuming that he had it." Cabanas Depo., 392.⁶ Between fifteen and sixty days after the report was found by the maid Cabanas verified that Verrue had seen the 1990 appraisal, but did not ask whether Verrue had seen the allegedly damaging 1992 Gloodt report. Cabanas Depo., 234-36; Verrue Depo., 79. Although he believed that Verrue had a copy, Cabanas preferred not to discuss the statements in the 1992 Gloodt report, because he felt that it would not serve any positive purpose in the negotiation, and "would rather keep it in the dark." Cabanas Depo., 309-11.

After the re-negotiation of the management agreement was concluded, allegedly on terms less favorable to Benchmark, Cabanas raised the subject of the 1992 Gloodt report with Verrue. Verrue denied that he had seen the report. In March 1993, Cabanas brought this action against the appraisers.

II. Defamation Claims (Motion for Reconsideration)

Plaintiffs move for reconsideration of the order filed December 22, 1995, arguing that there is sufficient evidence to justify a jury finding of "malice" defeating the qualified privilege of Civil Code § 47(c).⁷ Plaintiffs concede that they cannot show that "the publication is motivated by hatred or ill will toward plaintiff," Brewer v. Second Baptist Church, 32 Cal.2d 791, 797, 197 P.2d 713 (1948), quoted with approval in Agarwal v. Johnson, 25 Cal.3d 932, 160 Cal.Rptr. 141, 603 P.2d 58 (1979), instead they contend that the privilege does not apply because (1) the appraisers lacked a reasonable basis for their conclusions; (2) the statements made exceeded the scope of the interest; (3) the appraisal exceeded the scope of an "ordinary" appraisal; and (4) the appraisers had an improper motive.

A. Lack of Reasonable Basis

Plaintiffs assert that the following evidence shows that the appraisers were either intentionally lying or "lacked a reasonable basis" for the statements:

1. The Appraisal essentially ignores the obvious reasons for the Resort's poor performance, such as the facts [sic] that it was the first year of the Resort's operation, there was no snow for skiing, the failure to complete the golf course on time, and the recession." Reconsideration Mot., 7; see also Opp. to First Summary Judgment Mot., 15.

2. "The comparables used are not true comparables." Reconsideration Mot., 7.

3. "Gloodt assumed that management was competent just one year earlier." Id.

4. "Hospitality Valuation Services concluded that Benchmark was generally competent and even recognized the possibility that beyond being merely competent, Benchmark may have been `the ideal operator of the property.'" Suppl.Mem. in Support of Reconsideration Mot., 4.

5. Plaintiffs' expert's opinion is that the defendants did not conduct "a thorough evaluation of management's capabilities," and that defendants "do not appear to have the proper qualifications ..." Opp. to First Summary Judgment Mot., 16.

6. Plaintiffs' expert's opinion is that the "analysis set forth in the Appraisal [does] not provide a reasonable basis for the Appraisal's conclusions ..." Suppl.Lattin Decl., 2, ¶ 3(d).

Taken as a whole, this evidence fails to establish the improper motive necessary to defeat the qualified privilege.

Negligence is not malice. It is not sufficient to show that the statements in the report were inaccurate, or even unreasonable. Only willful falsity or recklessness will suffice. "It is only when the negligence amounts to a reckless or wanton disregard for the truth, so as to reasonably imply a wilful disregard for or avoidance of accuracy, that malice is shown." Roemer v. Retail Credit Co., 3 Cal.App.3d 368, 83 Cal.Rptr. 540, 543 (1970).

Plaintiffs' first argument that defendants had "no reasonable grounds" for their statements has been rejected before, and its repetition here is frivolous. References appear throughout the appraisal to the Persian Gulf War, the California recession, the lack of golf or skiing, and to the fact that the Resort was in its first year. That these factors were not given more weight in explaining the estimated seven million dollar loss does not mean that they were ignored altogether, or that defendants recklessly disregarded the "truth" about the impact these factors had on the resort's performance. Nor have plaintiffs shown how much effect th...