Daro v. Superior Court

• Decision Date: 06 June 2007
• Docket Number: No. A112134.,No. A111947.,A111947.,A112134.
• Citation: 61 Cal.Rptr.3d 716,151 Cal.App.4th 1079
• Court: California Court of Appeals Court of Appeals
• Parties: Nicole DARO et al., Petitioners, v. The SUPERIOR COURT of the City and County of San Francisco, Respondent; James Foy et al., Real Parties in Interest. James Foy et al., Plaintiffs, Cross-defendants and Respondents, Gary Rossi et al., Defendants and Appellants; North Beach Partners LLC et al., Defendants, Cross-complainants and Appellants.

61 Cal.Rptr.3d 716

151 Cal.App.4th 1079

Nicole DARO et al., Petitioners, v. The SUPERIOR COURT of the City and County of San Francisco, Respondent;

James Foy et al., Real Parties in Interest.

James Foy et al., Plaintiffs, Cross-defendants and Respondents,

Gary Rossi et al., Defendants and Appellants;

North Beach Partners LLC et al., Defendants, Cross-complainants and Appellants.

No. A111947.

No. A112134.

Court of Appeal, First District, Division 3.

June 6, 2007.

As Modified on Denial of Rehearing July 3, 2007.

Zacks Utrecht & Leadbetter, Andrew M. Zacks, and James B. Kraus, San Francisco, for Petitioners, for Defendants and Appellants and for Defendants, Cross-complainants and Appellants.

No appearance for Respondent.

Tenderloin Housing Clinic, Inc., Stephen L. Collier, San Francisco, and Dean Preston for Real Parties in Interest and for Plaintiffs, Cross-defendants and Respondents.

McGUINESS, P.J.

In this action brought by tenants of an apartment building under California's Unfair Competition Law (Bus. & Prof.Code,¹ § 17200 et seq.) (UCL), the trial court found that the appellant property owners had committed an unfair business practice by attempting to sell subdivided interests in property without obtaining a "public report" that must be provided to potential buyers pursuant to the Subdivided Lands Act (§ 11000 et seq.). The court described appellants' unfair business practice as purchasing residential rental properties, subdividing them through the vehicle of tenancy-in-common agreements accompanied by the right to exclusive occupancy of individual units, and then selling or attempting to sell the subdivided interests without complying with the Subdivided Lands Act. In order to create vacancy in the buildings they sought to subdivide and sell, the appellants utilized the Ellis Act (Gov.Code, § 7060 et seq.) to evict the tenants and remove the buildings from the rental market. The court issued an injunction requiring appellants to comply with the Subdivided Lands Act before either offering their interests in the building for sale or exercising their rights under the Ellis Act to recover possession of the building from the tenants.

On appeal, the property owners contend the tenants lack standing to pursue a UCL claim premised on a violation of the Subdivided Lands Act. After Proposition 64, a private person has standing to sue under the UCL for unfair competition only if he or she "has suffered injury in fact and has lost money or property as a result of such unfair competition." (§ 17204, italics added.) Any threatened loss of the tenants' leasehold interests here resulted not from the owners' alleged noncompliance with the Subdivided Lands Act but instead from the owners' lawful exercise of their right to withdraw property from the rental market under the Ellis Act. The tenants lack standing under the UCL to seek relief based on a purported violation of the Subdivided Lands Act because their claimed injury does not result from the alleged violation of that statutory scheme. Accordingly, we shall reverse the order granting the injunctive relief.

FACTUAL AND PROCEDURAL BACKGROUND

Respondents (hereafter tenants) reside in a six-unit residential apartment building located at 424-434 Francisco Street in San Francisco (Francisco Street Property). Four limited liability companies (LLCs),² along with petitioners Nicole Daro and Max Schultz, purchased the Francisco Street property from the tenants' former landlord, Louise Vasquez. Escrow closed on October 7, 2003. We will refer collectively to the owners of the Francisco Street property as the "owners," but where necessary to distinguish among the owners, we will refer to the appellant LLCs as the "LLC owners" and to Daro and Schultz by their names.

Appellant Gary Rossi is a real estate agent with a 50% ownership interest in one of the LLC owners. Appellant Gregory Todd Eichler is a principal in nonparty SF Duke Investments, which itself has an ownership interest in one of the LLC owners. Eichler's name initially appeared on the grant deed to the Francisco Street property. The inclusion of his name as an owner of record was an error by the title company, however, and the deed was subsequently corrected to omit his name.

Prior to the close of escrow, the owners executed a tenancy in common (TIC) agreement, which provided that each owner would have an undivided percentage interest in the Francisco Street property. The TIC agreement provided that four of the LLC owners, and Daro and Schultz together, would each have the exclusive right to occupy one of the six units. Because there were five undivided ownership interests in a property with six units, the TIC agreement provided that one of the LLC owners had the exclusive right to occupy two of the six units. While the deed to the Francisco Street property reflects that the owners hold their interests as tenants in common, nothing in the deed reflects or otherwise refers to the exclusive rights of occupancy created by the TIC agreement.

Daro and Schultz purchased their interest with the intent to make it their home. The LLC owners purchased their interests as investments for purposes of future sale. The LLC owners intended to create vacancies in the Francisco Street property, repair and remodel the units after the tenants left, and then sell their interests to owners who would occupy the units. The owners understood before the close of escrow that they might have to invoke the Ellis Act in order to create vacancies in the units. The owners also agreed to convert the Francisco Street property into condominiums at the earliest possible date.

When the owners acquired the property, all six units at the Francisco Street property were occupied by tenants. In order to recover possession of the premises, the owners invoked the Ellis Act on April 13, 2004, by serving notices terminating tenancy on all of the tenants in the building. With one exception, the tenants resisted by refusing to comply with the notices terminating their tenancies.

After purchasing the Francisco Street property, Rossi had discussions with two tenants, Alane Castro and Christopher Larose, about purchasing interests in the building corresponding to the units they occupied. In December 2003, Rossi told Castro he was a representative of the owners and that she and her husband could buy into the TIC for a price of "$500,000, not $100,000 more or less." The $100,000 variance was based upon the amount of improvements to be done and whether a parking space was available. Rossi and Castro spoke again on April 21, 2004, when Rossi once more mentioned the sale price. Castro understood she could buy her unit if she met Rossi's price. In May 2004, Rossi told Castro that "it wasn't going to be able to work" at the Francisco Street property but that he had other properties he could show Castro and her husband. Castro and her husband moved out of the Francisco Street property in response to the Ellis Act notice and are not parties in the underlying litigation.

In November 2003, Rossi spoke with Larose about purchasing a TIC interest at a location other than the Francisco Street property. Subsequently, they discussed purchasing Larose's unit at the Francisco Street property. In approximately February 2004, Larose asked Rossi "how much generally" his unit would sell for. Rossi told him $400,000 unremodeled. The scope of what was being offered was unclear because somebody told Larose that a planned garage for the building would affect the physical layout of the unit he occupied. Larose stated he "really couldn't have afforded" to buy his unit and did not think there was the opportunity to do so. Rossi denied offering to sell units to any tenants, although he admitted he had general discussions with Larose regarding his ability to purchase a unit in a TIC.

The tenants filed suit against the owners, Rossi, Eichler, and their former landlord, Vasquez (collectively, defendants), on June 25, 2004. They alleged two primary claims. In the first cause of action seeking injunctive relief under the UCL, the tenants contended that all the defendants had committed an unfair business practice by violating the Subdivided Lands Act. The tenants also included causes of action against the owners and Eichler relating to habitability issues arising out of allegations of substandard conditions at the Francisco Street property.

In the UCL cause of action, the tenants alleged that the defendants had — as was their "regular practice" — divided the Francisco Street property into five or more TIC interests for the purposes of sale. The tenants asserted that the defendants failed to notify the real estate commissioner of their intention to sell subdivided interests and failed to obtain a public report from the Department of Real Estate before creating the subdivided interests and offering them for sale, both in violation of the Subdivided Lands Act. The tenants further alleged that the defendants had structured their business practices in order to avoid complying with the Subdivided Lands Act and had engaged in similar violations of the Subdivided Lands Act at other properties. The UCL cause of action did not describe the owners' attempt to recover possession pursuant to the Ellis Act as unfair, unlawful, or deceptive. Indeed, nowhere in the complaint did the tenants even mention that the owners had exercised their rights under the Ellis Act to recover possession of the Francisco Street property. Further, while they sought an injunction to prevent further violations of the law "with respect to the ownership and sale of real property," they did not specifically seek to enjoin the Ellis Act evictions.

The owners, Rossi, and Eichler answered the complaint and cross-complained against the tenants for declaratory relief and ejectment based on their invocation of the Ellis Act. They sought a declaration that their notices terminating the tenancies complied with applicable...