Santa Anita Companies v. Westfield Corp.

• Decision Date: 17 November 2005
• Docket Number: No. B175820.,B175820.
• Citation: 35 Cal.Rptr.3d 728,134 Cal.App.4th 77
• Court: California Court of Appeals
• Parties: The SANTA ANITA COMPANIES, INC., Plaintiff and Respondent, v. WESTFIELD CORPORATION, INC., et al., Defendants and Appellants.

35 Cal.Rptr.3d 728

134 Cal.App.4th 77

The SANTA ANITA COMPANIES, INC., Plaintiff and Respondent, v.WESTFIELD CORPORATION, INC., et al., Defendants and Appellants.

No. B175820.

Court of Appeal, Second District, Division 5.

November 17, 2005.

Kaye Scholer LLP, Larry R. Feldman, Robert M. Turner, Kristopher S. Davis, and Paul Gelb, Los Angeles, for Defendants and AppellantsWestfield Corporation, Inc., Westfield America, Inc., Santa Anita Fashion Park LP, and Santa Anita Fashion Park LLC.

White & Case LLP, John A. Sturgeon, Gary S. Sedlik, and Maria R. Harrington, Los Angeles, for Plaintiff and RespondentThe Santa Anita Companies, Inc.

MOSK, J.

INTRODUCTION

Plaintiff and respondentThe Santa Anita Companies, Inc.(Santa Anita) brought an action against defendants and appellantsWestfield Corporation, Inc.; Westfield America, Inc.; Santa Anita Fashion Park LP; and Santa Anita Fashion Park LLC(collectively Westfield) to reform grant deeds concerning, and to quiet title to, a 2.36 acre parcel of real property in Arcadia, California.¹The property at issue, valued at about $3.5 million, had been part of a 391.1 acre parcel of real property owned by Meditrust.In separate transactions in December 1998, Meditrust sold part of the 391.1 acre parcel to Santa Anita and another part to Westfield.Meditrust and Santa Anita intended that the 2.36 acre parcel be conveyed to Santa Anita as part of its purchase.Instead, the 2.36 acre parcel mistakenly was conveyed to Westfield as part of its purchase.

After a court trial, the trial court found that Meditrust and Santa Anita intended to include the 2.36 acre parcel in Santa Anita's purchase, the failure to include the parcel resulted from a mutual mistake of fact, Meditrust and Westfield had not intended to include the 2.36 acre parcel in Westfield's purchase, Westfield did not pay for or know that it had acquired the parcel, Santa Anita did not discover the mistake until June 1999, and Santa Anita's May 2002 action was not barred by the three-year statute of limitations in Code of Civil Procedure section 338, subdivision (d).²Westfield does not contest the trial court's finding that the 2.36 acre parcel was conveyed to it by mistake and appeals solely on the ground that the trial court erred in finding that Santa Anita's action was not time-barred.

In affirming the judgment, we hold that there was substantial evidence supporting the trial court's decision that the applicable period of limitations for Santa Anita's action did not begin to run until Santa Anita discovered the mistaken conveyance in June 1999 and that Santa Anita did not fail to exercise reasonable diligence prior to that discovery.The erroneous description in the transfer documents is not necessarily a circumstance that would put a reasonable person on notice of the mistake to ascertain when the cause of action accrues for purposes of determining if that cause of action is barred by the applicable period of limitations.The three year statute of limitations applicable to causes of action for mistake — section 338, subdivision (d) — did not bar Santa Anita's action.

BACKGROUND

In November 1997, Meditrust, a healthcare real estate investment trust, acquired the fee interest in 391.1 acres in Arcadia, California.That property consisted of the Santa Anita Racetrack for horse racing (Racetrack Property); an adjacent shopping mall, the Santa Anita Fashion Park (Mall Property); and a medical office building.Included in this acquisition was a 2.36 acre parcel that was the entrance to Gate 1 of the Racetrack Property (Gate 1 Parcel).Meditrust had certain tax benefits through its ownership of this multi-use tract.Less than a year later, around September 1998, Meditrust learned of changes in federal tax laws that would result in adverse tax consequences to it unless it sold the Racetrack and Mall Properties by December 31, 1998.Meditrust undertook to sell the properties.

I. Santa Anita's Purchase of the Racetrack Property

On about October 13, 1998, Frank Stronach, chairman of the board of Santa Anita's parent company, decided that Santa Anita would purchase the Racetrack Property.On October 20, 1998, a letter of intent was signed, and, thereafter, Santa Anita began its due diligence.The law firm of O'Melveny & Myers (O'Melveny) represented Santa Anita in the transaction.

In connection with the sale, Meditrust retained EKN Engineering (EKN) to survey the Racetrack Property.EKN employee Patrick Mercado, who had worked on prior surveys of the Racetrack Property, performed the survey.In his work on an earlier survey of the Racetrack Property in 1996, Mr. Mercado informed First American Title Company(First American) that a title report it supplied to him erroneously excluded the Gate 1 Parcel from the legal description of the Racetrack Property and included it as part of the Mall Property.At the time of the earlier survey, Mr. Mercado had asked First American to correct its error.In Mr. Mercado's experience, First American should have made the requested corrections in subsequent title reports, and he assumed, incorrectly, that First American made this requested correction.

During EKN's preparation of its draft survey in connection with the sale of the Racetrack Property, First American provided EKN with a legal description that included its uncorrected error from 1996.EKN did not discover First American's error, and Mr. Mercado erroneously certified that the depiction of the Racetrack Property on the survey accurately reflected the legal description on the survey.

Meanwhile, Frank De Marco, general counsel for the Los Angeles Turf Club, a Meditrust subsidiary, received a legal description of the Mall Property from First American that included the legal description of the Gate 1 Parcel.³The cover sheet for the fax stated, "Legal description for mall."Mr. De Marco believed the legal description referred only to the Mall Property, and he wrote "Fashion Park Legal" at the bottom of the description and sent it to O'Melveny.

In the course of Santa Anita's due diligence, Mr. Stronach with other Santa Anita executives toured the Racetrack Property, including the Gate 1 Parcel.The Meditrust employees who guided the tour stated that the Gate 1 Parcel was part of the Racetrack Property.O'Melveny also viewed the Racetrack Property and examined a November 1998 draft survey and a December 1998 final survey from EKN, at least two appraisals of the Racetrack Property by Fisher Realty Services, and the Meditrust commercial development plans for the southern part of the Racetrack Property, all of which showed the Gate 1 Parcel as part of the Racetrack Property.

O'Melveny compared the legal description on the face of the 1998 EKN survey with the legal description on the face of the preliminary title report to make certain that they matched, which they did.O'Melveny reviewed the boundaries of the survey depiction of the property to ascertain that those boundaries accurately delineated what Santa Anita believed it was acquiring.The depiction on that survey included the Gate 1 Parcel even though the legal description on the face of the survey did not.O'Melveny also obtained a title insurance policy from First American that included a CLTA (California Land Title Association) 116.1 endorsement insuring that Santa Anita would have title to all of the real property represented in the EKN survey, including the Gate 1 Parcel.

On November 13, 1998, Meditrust and Santa Anita entered into an agreement for the purchase of the Racetrack Property (Purchase Agreement).Under Schedule 2.1(a) of the Purchase Agreement, Santa Anita purchased all of the assets used by Meditrust in its horse racing operations except "Excluded Assets."The assets Santa Anita acquired included the real property described on Appendix A ("Legal Description of Real Property Being Acquired"), which consisted of a full page single-space metes and bounds description.

Under Schedule 2.1(b) of the Purchase Agreement, certain real property was excluded from the sale.The excluded real property consisted of Meditrust's "interest in the real property and related improvements and adjacent parking lot constituting the regional shopping mall as described on Appendix B hereto."Appendix B ("Legal Description of Regional Mall Real Property Not Being Acquired") was a copy of the legal description First American faxed to Mr. De Marco that purported to be the legal description solely of the Mall Property but, instead, erroneously included the legal description of the Gate 1 Parcel ("Parcel B").An O'Melveny attorney testified at trial that he believed that he read each of the legal descriptions in Appendix B.The sale of the Racetrack Property closed on December 11, 1998.

An expert witness for Westfield testified that by failing to trace the legal description on the first page of EKN's November 1998 survey against the boundaries of the Racetrack Property shown on the survey, O'Melveny did not fulfill its legal duty to Santa Anita.Santa Anita's expert testified that major law firms in Los Angeles do not trace legal descriptions on surveys against the delineations on those surveys.The expert testified that O'Melveny performed its work competently and in accordance with the applicable standard of care.The trial court found that "O'Melveny & Myer's conduct was consistent with the standard of care exercised by major law firms in the Los Angeles area, and did not constitute neglect of a legal duty within the meaning of Civil Code section 1577."

The trial court found "by clear and convincing evidence that both Meditrust and Santa Anita intended that the Gate 1 Parcel be included as part of the Racetrack Property conveyed to Santa Anita.The conduct of the parties and the contractual provisions of the Racetrack Agreement (Ex. 18), excluding the two real property legal descriptions, are inconsistent with any intention to exclude the Gate 1 Parcel from the...