Kenneally v. Bank Of Nova Scotia

• Decision Date: 28 April 2010
• Docket Number: Case No. 09cv2039-WQH-JMA.
• Citation: 711 F.Supp.2d 1174
• Court: U.S. District Court — Southern District of California
• Parties: John KENNEALLY, on behalf of himself and all others similarly situated, Plaintiff,v.BANK OF NOVA SCOTIA, Bosa California LLC, Bosa Development California Inc., First American Title Co., and HSBC Bank USA N.A., Defendants.

711 F.Supp.2d 1174

John KENNEALLY, on behalf of himself and all others similarly situated, Plaintiff,v.BANK OF NOVA SCOTIA, Bosa California LLC, Bosa Development California Inc., First American Title Co., and HSBC Bank USA N.A., Defendants.

Case No. 09cv2039-WQH-JMA.

United States District Court S.D. California.

April 28, 2010.

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Gregory S. Weston, John J. Fitzgerald, The Weston Firm, San Diego, CA, Jared H. Beck, Beck & Lee Business Trial Lawyers, Miami, FL, for Plaintiff.

Gregory S. Korman, Katten Muchin Rosenman, Los Angeles, CA, Merrill F. Storms, Jr., Robert W. Brownlie, Karen S. Chen, DLA Piper US LLP, Robert S Brewer, Jr., Jones Day, San Diego, CA, for Defendants.

ORDER

HAYES, District Judge:

The matters before the Court are (1) the Motion to Dismiss the First Amended Complaint filed by Defendants Bosa California, LLC and Bosa Development California, Inc. (collectively, “Bosa”) (Doc. # 23); (2) the Motion to Dismiss the First Amended Complaint filed by Defendants Bank of Nova Scotia and HSBC Bank USA, N.A. (collectively, “Lenders”) (Doc. # 24); and (3) the Motion to Dismiss the First Amended Complaint and the Motion to Strike Certain Allegations in the First Amended Complaint, filed by Defendant First American Title Co. (“First American”) (Doc. # 46 and 47).

I. Background

On September 18, 2009, Plaintiff initiated this action by filing a Complaint in this Court. (Doc. # 1).

On November 20, 2009, Plaintiff filed a First Amended Complaint. (Doc. # 3).

A. Allegations of the First Amended Complaint

Bosa and the Lenders are each “developer[s] of Bayside ..., a recently completed condominium tower in San Diego, California.” ( Id. ¶¶ 5-7, 9). “First American is the designated escrow holder for Bayside.” ( Id. ¶ 8).

“In November 2006 Plaintiff ... signed a form purchase contract provided by Bosa ... to purchase unit No. 2302 in Bayside and deposited the sum of $202,170 into an escrow account maintained by First American.” ( Id. ¶ 11). “Plaintiff did not receive a federal property report before signing the purchase contract.” ( Id. ¶ 12). “The purchase contract stated unit No. 2302 would be 1404 square feet.... The Bayside website maintained by Bosa ... further represented that units with the floorplan of No. 2302 would be ‘1395-1404 sq. ft. approx.’ ” ( Id. ¶¶ 13-14). “In fact, the size of the unit, as measured by an independent appraiser, is 1248 square feet, 156 square feet smaller than the size claimed in the contract and 148 square feet smaller than the lower bounds of the range on the Bayside website.... This discrepancy greatly lowered the value of the unit. The difference between what [Plaintiff] was promised and what Bosa proffered is equal to the omission of an entire 12x13 bedroom.” ( Id. ¶¶ 15-16).

“Bosa supplies purchasers a ‘Residential Unit Floorplan’ as Addendum No. 1 to the purchase contract. This page contains a visual schematic of the unit, many dimension measurements, and a statement containing language such as ‘all references to square footage or floor area are approximate’ and that ‘Buyer should not rely upon any advertising materials to determine the size of Buyer's Residential Unit.’ ” ( Id. ¶ 22). “This statement, however is insufficient to act as a disclaimer in that it (1) is inconspicuously nested within, and covered by, several gridlines and various numerical calculations of the floor plan; (2) is printed down the page at a nearly 90-degree angle clockwise from the orientation of the page as it was presented to buyers, including [Plaintiff]; (3) is in small, hard-to-read, ˜10-point font; (4) misleadingly purports to disclaim the accuracy of all Bosa square footage calculations on the very page containing a vast array of precise (to the nearest inch) numerical measurements that collectively represent the area of the respective unit.” ( Id. ¶ 23).

“Additionally, as elsewhere in Bosa's purchase documents and advertising materials, the statement in Addendum No. 1 uses the misleading, non-standard term ‘gross square footage’ (‘GSF’) to describe the unit rather than gross living area (‘GLA’), the standard method of measurement used in condominium appraisals.” ( Id. ¶ 24). “Utilizing the non-standard GSF methods results in substantially larger and highly misleading measurements than those attained using standard GLA measurement methods, has not been and is not now common practice among condominium developers.” ( Id. ¶ 25).

“The purchase contract at § 3.2 notes square footages presented in its advertisements, purchase documents, and verbal representations are approximations. This section states that ‘Buyer by its execution of this Agreement agrees that it is not relying upon any brochures, sales documents, or oral statements by Seller or Seller's agents regarding the square footage of the Condominium.’ ” ( Id. ¶ 26). “This statement does not properly disclose that the constructed unit will be of a substantially smaller size than represented, only that Buyer is not purchasing ‘a certain amount of footage, but rather air space’ despite that Defendants use ‘square footage,’ rather than ‘air space,’ calculations ubiquitously in sales documentations and statements.” ( Id. ¶ 27). “As § 3.2 attempts to waive Buyer's reliance on such documentation and statements as they relate to the purchase of units at Bayside, effectively allowing the Seller to offer a unit of any size and composition it chooses, the contract is illusory.” ( Id. ¶ 28).

“Though a similar disclosure is made regarding square footage estimates, it is inconspicuously located in the third of the five addenda to the purchase contract rather than in the contract itself. It appears in the middle of the thirtieth of forty legal-sized pages Bosa supplied purchasers.” ( Id. ¶ 29). “Though this disclosure does mention that Bosa's measurement ‘may’ differ from ‘the actual square footage of the air space’ for a given unit, it fails to adequately explain that Bosa's measurement methods uniformly result in larger measurements than standard methods would otherwise attain.” ( Id. ¶ 31).

“While the statements in § 3.2 and Addenda Nos. 1 and 3 impliedly disclose that unit sizes cannot be estimated to the exact square foot, they fail to disclose that units, from the commencement of the Bayside project, were intended to be substantially and uniformly smaller in size than described. They thus fail to adequately serve as disclaimers to representations found in all advertising and contract documents that state an exact or near-exact unit measurement.” ( Id. ¶ 32). “Further, because federal and private lenders require appraisers to use the standard GLA method, mortgage financing is not available on standard terms where the property's price was based on non-standard GSF measurements.” ( Id. ¶ 33).

“[The Lenders] are the construction and development lenders for Bayside. Because of the poor sales performance of the Bayside project, Bosa was forced to apply to [the Lenders] for a restructuring of the loan, including forgiving part of the loan principal, but had to offer substantial concessions in return for the forebearance.” ( Id. ¶ 20). “Bosa's inability to perform on the terms of the original loan gives [the Lenders] effective control over the Bayside project given they hold the leverage of refusing further modifications and instead foreclosing on the property.” ( Id. ¶ 21).

The First Amended Complaint contains eight Counts: (1) fraud, in violation of California Civil Code § 1709, against Bosa; (2) breach of contract against Bosa; (3) false advertising, in violation of California Business and Professions Code § 17500 et seq. , against Bosa and the Lenders; (4) unjust enrichment, constructive trust and equitable lien against all Defendants; (5) untrue statements in the sale of subdivided lots, in violation of 15 U.S.C. § 1703(a)(2)(B),¹ against Bosa and the Lenders; (6) failure to provide a property report, in violation of 15 U.S.C. §§ 1703(a)(1) (B), 1703(a)(1)(C) and 1709, against Bosa and the Lenders; (7) failure to satisfactorily complete and provide a statement of record, in violation of 15 U.S.C. §§ 1703(a), 1705 and 1709, against Bosa and the Lenders; and (8) violation of the California unfair competition law, California Business and Professions Code § 17200 et seq. against Bosa and the Lenders.

Plaintiff brings this action on behalf of himself and the following putative class: “All persons and entities (excluding officers, directors, and employees of Defendants) who signed a purchase contract for a residential condominium unit at Bayside.” ( Id. ¶ 34).

Plaintiff seeks “rescission of the purchase contract”; “a constructive trust or equitable lien to be placed on all funds in the possession of Defendants and their affiliated entities and subsidiaries which were paid by Plaintiff and the Class in their performance of the terms of the purchase contract”; compensatory and punitive damages; and attorneys' fees and costs. ( Id. at 14).

B. Pending Motions

On November 20, 2009, Plaintiff filed a Motion for Class Certification and Appointment of Class Counsel. (Doc. # 4).

On December 28, 2009, Bosa filed its Motion to Dismiss. (Doc. # 23).

On December 28, 2009, the Lenders filed their Motion to Dismiss. (Doc. # 24).

On January 6, 2010, the Court issued an Order vacating the hearing date for Plaintiff's Motion for Class Certification and Appointment of Class Counsel. (Doc. # 31).

On January 19, 2010, Plaintiff filed a response in opposition to Bosa's Motion to Dismiss. (Doc. # 34).

On January 25, 2010, Bosa filed a reply brief. (Doc. # 36).

On February 2, 2010, Plaintiff filed a response in opposition to the Lenders' Motion to Dismiss. (Doc. # 40).

On February 4, 2010, Plaintiff filed a surreply brief in opposition to Bosa's Motion to Dismiss. (Doc. # 42).

On February 9, 2010, the Lenders filed a reply brief. (Doc. # 45).

On February 12, 2010, First American filed its Motion to...