LL B Sheet 1, LLC v. Loskutoff

• Decision Date: 22 February 2019
• Docket Number: Case No. 16-cv-02349-BLF
• Citation: 362 F.Supp.3d 804
• Court: U.S. District Court — Northern District of California
• Parties: LL B SHEET 1, LLC, Plaintiff, v. Michael J. LOSKUTOFF, Defendant.

362 F.Supp.3d 804

LL B SHEET 1, LLC, Plaintiff,

v.Michael J. LOSKUTOFF, Defendant.

Case No. 16-cv-02349-BLF

United States District Court, N.D. California, San Jose Division.

Signed February 22, 2019

Momo Emily Takahashi, Tyler Carlyle Vanderpool, Ryan Donald Saba, Rosen Saba, LLP, Beverly Hills, CA, for Plaintiff.

Daniel W. Ballesteros, Hoge, Fenton, Jones & Appel Inc., San Jose, CA, for Defendant.

ORDER GRANTING IN PART AND DEFERRING RULING ON IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

[Re: ECF 92]

BETH LABSON FREEMAN, United States District Judge

This case involves a deal between Plaintiff LL B Sheet 1, LLC and Defendant Michael J. Loskutoff, in which Defendant sold Plaintiff the rights to a lease of a cell phone tower. At the time of the deal, Plaintiff says it believed that the lease had two streams of rental income. In fact, at the time of the purchase, the lease had only one stream of rental income. Plaintiff alleges that Defendant knew that the second stream of rental income had been terminated and fraudulently misrepresented and concealed this information from Plaintiff in order to close the deal. In his answer, Defendant asserted fourteen affirmative defenses and a counterclaim for rescission of the agreement.

Before the Court is Plaintiff's motion for summary judgment of Defendant's affirmative defenses and his counterclaim. ECF 92. The Court heard oral argument on January 7, 2019. For the reasons that follow, the Court DEFERS RULING ON Plaintiff's motion for summary judgment as to Defendant's fourth affirmative defense and GRANTS the motion as to the remainder of Defendant's affirmative defenses and his counterclaim for rescission.

I. BACKGROUND

A. Undisputed Facts

Defendant Michael Loskutoff is the sole trustee of the Michael John Loskutoff Trust dated November 20, 1992 (the "Trust"). Saba Decl. ISO Mot., Ex. C, ECF 92-4. The Trust owns a parcel of land at 1391 Geneva Dr. in Sunnyvale, California ("the Property"). Id. , Ex. B at 19:1–13, ECF 92-3. On July 1, 1996, Defendant leased a portion of the land to Spring Spectrum, L.P. ("Sprint") for Sprint to construct a cell phone tower on the Property, which remains on the Property today. Id. , Ex. D, ECF 92-5; id. , Ex. B at 19:1–13, ECF 92-3. The tower is approximately 100 feet tall, located on the back of the property, and enclosed by a locked fence to which Defendant does not have a key. Id. , Ex. B at 22:10–23:9.

Several changes were made that affected the rents paid under the lease over the next fifteen years. In September 2002, Defendant and Sprint amended the lease to allow Sprint to enter into a sublease (or co-location agreement) with AT & T Wireless ("AT & T"), which would allow AT & T to use the cell tower, and to increase Sprint's rents by $ 2,000 monthly. Saba Decl. Ex. F, ECF 92-7. Under the terms of the amended lease, Sprint entered into a sublease with AT & T. The amended lease did not require Sprint to inform Defendant if AT & T terminated its sublease with Sprint, and Defendant never had any interaction with or received any rents directly from AT & T. Id. ; Loskutoff Decl. ISO Opp. ¶ 4, ECF 93-2. In February 2007, CCGS Holdings, LLC ("Crown Castle") informed Defendant that due to a merger, it would begin managing the cell phone tower for Sprint, though the lease agreement remained unchanged. Id. , Ex. G. In March 2011, Sprint paid Defendant $ 10,000 to again amend the agreement, this time to extend the lease duration, increase the rent, and provide Sprint an option to obtain a $ 1.2 million easement or to match a purchase offer from any other interested party—i.e. , a right of first refusal. Id. , Ex. J at 2–4.

By October 2007, Defendant was receiving an annual rent of $ 48,374.10 for the lease from Sprint, with $ 21,342.80 attributable to Sprint and $ 27,031.30 attributable to AT & T. Id. , Ex. H, ECF 92-9. On April 1, 2010, Defendant received an annual rent check of $ 54,742.63 for the lease. Id. , Ex. I, ECF 92-10. On April 1, 2011, he received annual rents of $ 56,942.73. Id. , Ex. K, ECF 92-12. On April 1, 2012, he received $ 59,220.44. Id. , Ex. L, ECF 92-13. In April 2013, he received $ 61,589.26. Id. , Ex. M, ECF 92-14. But, in April 2014, he received only $ 28,260.30, less than half the amount received in 2013. Id. , Ex. P, ECF 92-17.

The 2014 rent was significantly lower because on October 25, 2013, AT & T had notified Crown Castle that it would be terminating its sublease of the tower on December 31, 2013. Id. , Exs. N & O, ECF 92-15, 92-16. Sprint, however, did not terminate its lease with Defendant; the lease remains in effect today. Loskutoff Decl. ¶ 11; Ballesteros Decl. ISO Opp. ¶ 3, Ex. 2, ECF 93-1. On April 23, 2014, after receiving this reduced check, Defendant contacted Crown Castle's Landowners Help Desk, which is a resource for landowners to receive help from Crown Castle and allows Crown Castle to log the interaction. Id. , Ex. Q at 9:14–10:4, ECF 92-18; id. , Ex. R ("Egercic Decl.") at 6:5–8, ECF 92-19. Crown Castle employee Denise Egercic spoke to Defendant and created the following log after the call ended: "Received a call from LL [Landlord] Mike .... He was inquiring why his check ... was so much less than normal. It appears that AT & T terminated and was discovered through a rent recon. It appears that we received notice from AT & T however the LL indicated that he was not notified. Forward to James Laque for assistance." Id. , Ex. S, ECF 92-20.

On May 5, 2014, Defendant emailed Crown Castle employee Ryan Hull asking him to "verify who is on the Sprint poll for this site [at 1391 Geneva Drive]. My records show Sprint, Clear Wire and AT & T." Id. , Ex. T, ECF 92-21. Mr. Hull responded with "I show Sprint and Clearwire on the tower. I don't show AT & T as being installed on the tower any longer." Id. Defendant responded on May 16, 2014 by asking "When did AT & T came [sic] off the tower?" Id.

Later in May 2014, Defendant began the process of selling the Sprint lease to Plaintiff. A separate company, Telecom Lease Advisors, LLC ("TLA") performed the due diligence process for Plaintiff.¹ Compl. ¶ 13. Sometime before May 28, 2014, Defendant spoke to John Mondragon, the broker for the eventual lease sale between Plaintiff and Defendant, about the possibility of Plaintiff purchasing the lease. Id. , Ex. B at 100:1–102:25. During that conversation, Defendant did not mention that there was an issue receiving the 2014 AT & T rent, and he told Mr. Mondragon that he was receiving money from both Sprint and AT & T. Id. at 102:14–25; 103:7–12.

On May 28, 2014, Mr. Mondragon sent Defendant a lease-purchase application to fill out. Id. , Ex. X, ECF 92-25; id. , Ex. Y at 33:4–35:10, ECF 92-26. Defendant filled out the application. Id. , Ex. W, ECF 92-24; id. , Ex. B at 90:12–21. The application stated that Crown Castle was the tenant and the other carriers on the site were Sprint, Clearwire & AT & T. Id. , Ex. W at 3. It also stated that the lease was in full force and effect. Id. In the application, Defendant certified that the information in the application was true and agreed to provide any later-received information that might change any of his answers. Id. The application did not indicate that AT & T either actually or potentially was no longer on the lease. In the same email, Mr. Mondragon also sent a proposed term sheet for a sale of the lease for $ 925,000. Id. , Ex. X; id. , Ex. Y at 33:4–35:10. The schedule to the term sheet indicated that the Property had two rental income streams of $ 27,173 and $ 34,416, respectively. Id. , Ex. X. Defendant provided these numbers to Mr. Mondragon in advance of receiving the term sheet.

On June 4, 2014, Plaintiff and Defendant signed the final term sheet, which indicated the two rental streams. Id. , Ex. Z, ECF 92-27. When the final term sheet was executed, Defendant did not advise Plaintiff that there might be a potential issue with the AT & T rent. Id. , Ex. B at 106:17–20. Crown Castle does not provide third parties with information about the properties they manage; it is the obligation of the landlord to provide any such details. Saba Decl., Ex. Q at 51:6–52:4.

In late July 2014, Defendant emailed his attorney Frank Maiorana about the agreement, saying, in part, "I have an agreement with AT & T but I can not honestly tell you they are on the cell tower or off the cell tower. They do not give me notice as to who is on or off the tower." Loskutoff Decl., Ex. 6. Defendant indicated Plaintiff had told him AT & T was on the tower, but he was unsure whether AT & T would need to notify him if they had terminated, so he sought guidance from Mr. Maiorana on whether he needed indemnification for who was on the site or to have Plaintiff do due diligence to determine AT & T's status. Id. Mr. Maiorana responded with "You make no representations or warranties in the agreements about AT & T or that they are on the space." Id. Defendant again followed up saying he was "still concerned about AT & T" and asking Mr. Maiorana if AT & T's status on the site would be subject to Plaintiff's due diligence. Id. , Ex. 7. Mr. Maiorana assured him that Plaintiff was conducting its own due diligence and Plaintiff did not make any representations or warranties to Plaintiff concerning AT & T. Id.

On August 7, 2014, Crown Castle sent Defendant a letter that stated "[d]uring the period of December 1, 2013 to March 21, 2014, payments were inconsistent with the lease due to license termination" and sought $ 11,471.97 from Defendant for Crown Castle's overpayment of rents. Id. , Ex. AA, ECF 92-28. An exhibit to the letter shows that Crown Castle paid lump sums for two rent streams on April 2013 (for the year between April 2013 and April 2014), but that the charges for one of those streams ended on December 1, 2013. Id. Defendant never provided Plaintiff with a copy of the letter. Id. , Ex. B at 117:12–119:7. Defendant did not otherwise inform Plaintiff prior to the closing that AT & T had not paid its 2014 rent or that h...