Stuart v. Cannavino

• Docket Number: E078327,E078827
• Decision Date: 28 August 2023
• Parties: BRUCE STUART, as Trustee, etc., Plaintiff and Appellant, v. JAMES CANNAVINO et al., Defendants and Respondents
• Court: California Court of Appeals Court of Appeals

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BRUCE STUART, as Trustee, etc., Plaintiff and Appellant, v. JAMES CANNAVINO et al., Defendants and Respondents

E078327, E078827

California Court of Appeals, Fourth District, Second Division

August 28, 2023

NOT TO BE PUBLISHED

APPEALS from the Superior Court of Riverside County. No PSC1804352 Lawrence W. Fry, and David M. Chapman, Judges. Reversed.

Allen Matkins Leck Gamble Mallory & Natsis, Alan D. Hearty, and Alexander J. Doherty, for Plaintiff and Appellant.

Horvitz & Levy and Mitchell C. Tilner; Carlson Law Group Mark C. Carlson and Jose A. Mendoza, for Defendants and Respondents.

OPINION

CODRINGTON Acting P. J.

I. INTRODUCTION

Bruce F. Stuart bought a $2.495 million equestrian property with barns that had been converted into seemingly luxurious "apartments." After escrow closed, however, the Riverside County Building and Safety Department "red tagged" the apartments as inhabitable because of extensive code violations and safety hazards.

Stuart then sued the sellers for intentional and negligent misrepresentation, fraud, and breach of contract. The trial court granted summary judgment to the sellers, awarded them attorney's fees, and entered judgment in their favor. Stuart timely appealed. We reverse the judgment and remand for further proceedings.

II. FACTUAL AND PROCEDURAL BACKGROUND

James Cannavino and his wife, Elma Garcia Cannavino, along with their LLC, RPKMA, LLC, whose only members are James and Elma, bought a 10-acre equestrian estate in Thermal, California (the property).^[1] The property had several structures, including barns that had been converted into two "apartments."

The Cannavinos gradually remodeled the property, including the barn apartments. They kept only the "bones" of the apartments and extensively remodeled the rest. Among other things, the Cannavinos installed new fixtures and appliances, wood flooring, and a home theater. The Cannavinos hired Elma's relative, Lance Schley, to help with the renovations. Schley was not licensed as a contractor in California at the time but had been a licensed contractor in New Jersey and Arizona for over 40 years.

The Cannavinos eventually decided to sell the property, so they hired Kimberley Kelly as their real estate agent to help with the sale. Shortly after, James executed a listing agreement with Kelly for the sale of the property. When executing the agreement, James told Kelly that no permits had been obtained for the work on the property, including on the barn apartments. Schley told Kelly the same.

To help sell the property, Kelly hired a media company to create a marketing video. Elma, who has experience working on television commercials, directed the video and was "heavily involved" in its production. The video provided a tour of the property, including the barn apartments, which were called the "primary home" and the "guest apartment casita." The video described the barn apartments as "two completely remodeled and modernized [] apartments, that could easily be added onto; each offering full kitchens and bathrooms, and even a Theater Room!"

A family member told Stuart about Kelly's listing of the property. Stuart viewed the marketing video and other materials and scheduled a tour with Kelly. Stuart was very impressed with the property, especially the barn apartments. He was also so impressed with Kelly that he accepted her offer to serve as a dual agent representing him and the Cannavinos in a potential sale of the property.

At Kelly's advice, Stuart offered to buy the property at its $2,495,000 asking price. The Cannavinos accepted the offer.

Stuart then executed various forms as part of the purchase. First, he executed a "Vacant Land Purchase Agreement." Paragraph 14 of the purchase agreement stated the Cannavinos would disclose to Stuart any "adverse conditions materially affecting the Property" that they learned of during escrow. It also provided that the Cannavinos would amend their disclosures if they learned of "any material inaccuracy" and would notify Stuart of the amendment. Paragraph 16 stated the property was being sold "AS-IS" and "strongly advised" Stuart to inspect the property to confirm its condition. The provision continued, "Seller may not be aware of all defects affecting the Property or other factors that Buyer considers important. Property improvements may not be built according to code, in compliance with current Law, or have had permits issued."

Stuart also submitted an addendum to the purchase agreement requesting, among other things, "'any and all available documentation of improvements to land and structures to buyer and any permits or documents substantiating that code requirements have been met.'" The Cannavinos did not provide any of the requested documentation because they never got permits and had no documents proving that code requirements had been met. The Cannavinos also never represented to Stuart that they had obtained permits for any of the work done to the property.

Stuart also executed a Buyer's Inspection Advisory (BIA). The first line of the form stated, "The physical condition of the land and improvements being purchased is not guaranteed by either Sellers or Brokers. You have an affirmative duty to exercise reasonable care to protect yourself, including discovery of the legal, practical and technical implications of disclosed facts, and the investigation and verification of information and facts that you know or that are within your diligent attention and observation." Paragraph 3 of the BIA stated, "YOU ARE STRONGLY ADVISED TO INVESTIGATE THE CONDITION AND SUITABILITY OF ALL ASPECTS OF THE PROPERTY, INCLUDING . . . [¶] . . . [¶] I. BUILDING PERMITS."

Stuart also executed a "Statewide Buyer and Seller Advisory" (SBSA) form as part of the purchase agreement. Paragraph 18 of the form said, "BUILDING PERMITS, ZONING AND CODE COMPLIANCE: Buyer and Seller are advised that any structure on the Property, including the original structure and any addition, modification, remodel or improvement may have been built without permits, not according to building codes, or in violation of zoning laws.... Buyer is advised to check with appropriate government agencies or third party professionals to verify permits and legal requirements and the effect of such requirements on current and future use of the Property, its development and size."

Finally, Stuart and the Cannavinos executed an Agent Visual Inspection Disclosure (AVID). The form said that the "'Barn apartments were remodeled from existing structures, requiring no permits per [S]eller.'" The form advised Stuart "'to do all inspections and due diligence to satisfy [himself] as to any and all specifics pertaining to this property prior to close of escrow.'" Stuart, however, performed no independent inspection of the property before escrow closed.

The Cannavinos also filled out and submitted to Stuart a Seller Vacant Land Questionnaire (SVLQ). Paragraph 29 asked the Cannavinos to explain any structures or improvements on the property. The Cannavinos replied, "2 Apartments." Paragraph 47 in the SVLQ asked the Cannavinos to identify "[a]ny past or present known material facts or other significant items affecting the value or desirability of the Property not otherwise disclosed to Buyer." The Cannavinos checked the box for "No."

Two weeks after escrow closed, James let an inspector from the Riverside County Building and Safety Department onto the property to investigate a complaint. After inspecting the property and interviewing James, the inspector closed the case as unfounded.

About eight months later, Stuart agreed to sell the property to his nephew, Joseph Stuart. Joseph hired a contractor to build a swimming pool, but the County denied the application for a permit to build the pool because there were no permitted residences on the property. Joseph then learned that the barn apartments did not have certificates of occupancy, which were required for anyone to reside on the property.

While living on the property, Joseph began to experience serious problems with the barn apartments. There were significant problems with the air conditioner, the electrical system, and the plumbing. The larger barn apartment's roof leaked every time it rained. Black mold began growing throughout both apartments. The problems were so severe that Joseph rescinded the purchase from Stuart and moved out.

The problems with the property persisted and worsened. Stuart hired a contractor to inspect the property, and he claimed he had "rarely, if ever" seen a property with so many code violations. The County eventually reinspected the property, found that it was a public nuisance, and gave Stuart 30 days to make it code-compliant. The inspector also put a "red tag" on the barn apartments, declaring them unsafe. The inspector's report stated, "All structures on this property are unsafe, do not enter, licensed contractor may enter to remove personal belongings." The County eventually concluded that all of the structures on the property could not be remedied and had to be demolished.

Stuart then sued the Cannavinos, Kelly, and her real estate company. In his operative Second Amended Complaint (SAC), Stuart asserted four claims against the Cannavinos for (1) fraudulent misrepresentation (sixth cause of action), (2) negligent misrepresentation (seventh cause of action), (3) fraudulent concealment (eighth cause of action), and (4) breach of contract (ninth cause of action). Stuart sought various damages for his claims, including actual and punitive damages.

The misrepresentation claims alleged the Cannavinos falsely or negligently represented to Stuart that "that the [p]roperty had two [a]partments that were intended to be used as residences" even...