Michelson v. Camp
| Decision Date | 07 June 1999 |
| Docket Number | No. B118052,B118052 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 99 Cal. Daily Op. Serv. 4410, 1999 Daily Journal D.A.R. 5577 G. Karlin MICHELSON et al., Plaintiffs and Appellants, v. Bert S. CAMP, Defendant and Respondent. |
Law Offices of Ian Herzog, Santa Monica, and Evan D. Marshall for Plaintiffs and Appellants.
Hagenbaugh & Murphy and Neil Gunny, Orange, for Defendant and Respondent.
In this case, we are called on to decide the impact of the amount of a lender's bid at a private foreclosure sale on its ability to obtain tort damages in the aftermath of the Supreme Court's decision in Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 44 Cal.Rptr.2d 352, 900 P.2d 601 (hereafter "Alliance "), which limited the full credit bid rule. Appellants G. Karlin Michelson, M.D., and Michael Schiffman, M.D., brought suit against respondent Bert S. Camp, doing business as California Certified Appraisers, when property he appraised at $900,000, on which they made a loan secured by first deed of trust, proved to be worth far less. The trial court granted nonsuit, concluding that because the amount of the credit bid by appellants at the foreclosure sale was greater than their total loan related damages, there was no basis for recovery. Appellants argue that because they resold the property for less than their credit bid, the foreclosure price should be disregarded and they should be permitted to recover either benefit-of-the-bargain damages or the difference between their credit bid and the price obtained when the property was resold. We affirm the trial court's ruling.
In 1991, respondent, a professional appraiser, appraised a building owned by Jack Edelman located on La Cienega Boulevard in West Los Angeles, giving it a value of $900,000. 1 In 1992, appellants lent Edelman $475,000 secured by a first deed of trust on the property and a neighboring vacant lot which had been appraised at approximately $100,000. Shortly after accepting the loan, Edelman ceased making payments and filed for bankruptcy protection.
In September of 1994, appellants filed a complaint against respondent and others 2 alleging causes of action for intentional fraud, negligent misrepresentation, and negligence. 3 According to the complaint, respondent represented to appellants, through an appraisal performed in July of 1991 and recertified in January of 1992, that the Edelman property was worth $900,000, knowing the representation to be false, and thereby induced appellants to enter into the loan agreement with Edelman. The complaint alleged that the recertification "was done specifically for [the Edelman] loan transaction," and that the property was worth only $400,000.
Prior to trial, respondent submitted a trial brief in which he contended that appellants' bid of $652,029 at the foreclosure sale established the market value of the property. Since appellants' damages totaled less than that amount--according to respondent's calculations--there were no recoverable damages. The trial court instructed appellants to present an offer of proof as to the existence of damages.
In their written offer of proof, appellants set forth the following facts which they contended supported their claim of reliance on the misrepresentation: (1) Edelman had filed bankruptcy to protect what he believed to be a valuable property with substantial equity; (2) after Edelman filed for bankruptcy, Yossi Eichenbaum of Advanced Funding assured Dr. Schiffman that there was an "equity buffer" and that there had been a recent offer to purchase the property for $1 million; (3) appellants' original bankruptcy attorney was recommended by Eichenbaum; (4) when the original attorney was unable to obtain a negotiated relief from stay within a reasonable period, appellants hired a different firm, Levine & Eisenberg, who obtained relief from stay in December of 1993.
Concerning the November 1993 appraisal used by Levine & Eisenberg in support of the motion for relief from stay, appellants stated: "In bidding in for a sum less than the full indebtedness [at the foreclosure sale], [appellants] relied upon the initial Camp appraisal and the Camp reappraisal. There was another appraisal in the amount of $375,000 which was obtained by Levine & Eisenberg ... for purposes of the relief from stay action. [Appellants] did not rely upon that appraisal because they did not see it or know of it and did not know that the property was worth far less than the Camp appraisal or the amount of their bid. [Appellants] did not see or learn of the appraisal obtained by bankruptcy counsel until the present action was begun, as testified to at deposition by Dr. Schiffman.... [p] [Appellants] would not logically have bid $600,000 plus on a property known or suspected by them to be worth less than $400,000. The bid was based on two factors: (1) representations in the Camp appraisal and Camp reappraisal, and Eichenbaum's advise [sic ] that the properties were worth $1 million or more; (2) the fact that [appellants'] actual out of pocket losses and expenditures exceeded $600,000, taking into account principal, interest, costs, attorney's fees, taxes, etc. It is close to but not quite the amount that [appellants] needed In another section of the brief, appellants stated that they had incurred $200,000 in out-of-pocket losses, which they defined to include taxes, insurance, and attorney's and foreclosure fees. Appellants further contended they were entitled not just to out-of-pocket losses, but to loss of the "benefit of the bargain" measured by the difference between the fair market value of the property and $900,000.
to recover from the property to make themselves whole."
The trial court entered a judgment of nonsuit, taking appellants' offer of proof as "tantamount to their opening statement with regard to the facts and evidence they intend to offer on the issue of out of pocket loss attributable to their reliance upon the [respondent] appraisals." The court concluded that "[a]s a matter of law, [appellants] did neither reasonably nor justifiably rely upon [respondent's] appraised values when selecting the amount of their credit bid in July, 1994"; "as a matter of law, $652,029.81 represents the 'value of what [appellants] received' due to their alleged reliance upon the [respondent] appraisals"; "[appellants] neither claim nor intend to prove that their total monetary expenditures or losses (up through the date of foreclosure) exceeded $652,029.81"; "based upon the measure of damages set forth in Civil Code § 3343, ... there is no triable issue of fact remaining"; and "as a matter of law, [appellants] can show no recoverable damages as to the [respondent]." This appeal followed.
Preliminarily, we discuss which of appellants' claims against respondent survive the Supreme Court's decision in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745. There the court held that an accounting firm, hired by a company to perform an audit of its financial statement, was not liable to anyone except the party contracting for its services for negligence in performing the audit. (3 Cal.4th at p. 406, 11 Cal.Rptr.2d 51, 834 P.2d 745.) The court further held that persons who are "specifically intended beneficiaries of the audit report who are known to the auditor and for whose benefit it renders the audit report" may recover on a theory of negligent misrepresentation. (Id. at pp. 407-415, 11 Cal.Rptr.2d 51, 834 P.2d 745.) Liability could likewise be imposed for intentional fraud as long as the representations were made with the intent to defraud plaintiff or the public or any other particular class of persons to which plaintiff belongs. (Id. at p. 415, 11 Cal.Rptr.2d 51, 834 P.2d 745.)
Appellants alleged in their complaint that although respondent was not in their employ, the 1992 recertification was prepared for their benefit in connection with the Edelman loan transaction. Thus, their misrepresentation claims survive, but there is no basis for the pure negligence claim. (Bily v. Arthur Young & Co., supra, 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745; Soderberg v. McKinney (1996) 44 Cal.App.4th 1760, 1765-1772, 52 Cal.Rptr.2d 635.)
Appellants contend that the trial court erred in ruling that their damages were barred by the full credit bid rule which they believe has no application to an action by a lender for fraud against the property's appraiser after the Supreme Court's decision in Alliance. To understand the proper application of the full credit bid rule, and...
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