Schellinger Bros. v. Cotter

2 Cal.App.5th 984

207 Cal.Rptr.3d 82

SCHELLINGER BROTHERS et al., Plaintiffs and Respondents,

v.James F. COTTER, Defendant and Appellant.

A142201

Court of Appeal, First District, Division 2, California.

Filed August 26, 2016

Nossaman, Brendan F. Macaulay, Matthew J. Poole, San Francisco, for Defendant and Appellant.

Law Offices of Ethan A. Glaubiger, Ethan A. Glaubiger, Santa Rosa, for Plaintiffs and Respondents.

Richman, J.

This is the third appeal involving a frustrated attempt by respondent Schellinger Brothers¹ to develop a large tract of real property in the City of Sebastopol (the City) it had agreed to purchase from appellant James F. Cotter. We opened our opinion in the second appeal with the following:

“In Schellinger Brothers v. City of Sebastopol (2009) 179 Cal.App.4th 1245 [102 Cal.Rptr.3d 394] (Schellinger I ), this court first encountered the controversy surrounding a proposed commercial development that had become ensnared in a bureaucratic and politically charged morass that saw the certification of an environmental impact report (EIR) stymied for five years. The frustrated developer sued the municipality for a writ of administrative mandate to halt the seemingly endless proceedings under the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq. (CEQA)). We held that none of the developer's statutory arguments could ‘be used to halt the decisionmaking process specified by CEQA that is still ongoing.’ (Schellinger I, supra, at p. 1250 .) We specifically rejected Schellinger's central contention that one provision of CEQA—Public Resources Code section 21151.1 —imposed a ‘mandatory, nonwaivable jurisdictional deadline’ of one year for approval of an EIR. (Id. at pp. 1259–1261, 102 Cal.Rptr.3d 394.)

“In the course of developing the developer's statutory claims, we stated that ‘the developer's active participation in that process ... amounts to laches,’ an additional ground for denying relief. (Schellinger I, supra, at p. 1250 .) We explained that ‘a significant portion of the extended delay was solely attributable to Schellinger, which was repeatedly revising the scope of its proposal,’ thereby adding ‘a dimension of complications that distinguished this proposed project from the run-of-the-mill development.’ (Id. at pp. 1268, 1270–1271, 102 Cal.Rptr.3d 394.)

“Those statements were the basis for this collateral, follow-up litigation between James F. Cotter, the owner of the land, and Schellinger Brothers, the proposed developer of the project. Cotter sued Schellinger for breach of the contract to purchase the property. Cotter's position was that Schellinger I established as a matter of law that Schellinger breached the contract by taking an unreasonably long period of time to secure approval of the project. The trial court disagreed with this reading of Schellinger I, and after a bench trial, concluded that Schellinger's actions were reasonable. As part of its judgment, the court fixed a date by which Schellinger must secure final approval of the project by the municipality.” (Cotter v. Brothers 2013 WL 4007533 (Aug. 5, 2013, A135014) [nonpub. opn.] (Schellinger II.))

We affirmed that judgment, noting that “the history of this dispute would bring tears to the eyes of a brass monkey.” (Schellinger II , at pp. 1–2.) We spoke too soon, for a third round of litigation commenced by Schellinger was already under way. Following a bench trial of Schellinger's complaint against Cotter for breaching the contract between them, the Honorable Elliot Lee Daum entered a money judgment for $2,855,431.77 in favor of Schellinger, and then an order awarding costs and attorney fees.

Cotter appeals from the judgment and from the order. He contends: (1) Judge Daum misinterpreted the contract; (2) Judge Daum's finding that Cotter breached the contract is both legally erroneous and not supported by substantial evidence; and (3) Judge Daum erred in concluding that Schellinger was entitled to consequential damages that were the proximate result of Cotter's breach. Assuming that he will prevail with these arguments, Cotter argues that the cost and fee order must also be reversed. We are in full agreement with Judge Daum's ultimate conclusions: (1) Cotter committed an egregious breach of his contract with Schellinger, a breach animated by egregious bad faith; and (2) Schellinger suffered damages proximately caused by Cotter's breach in the amount fixed by the trial court. And although the amount of damages appears to be of unprecedented size, the distinct circumstances of the transaction put them within “the expenses properly incurred in preparing to enter upon the land” and consequential damages, both made recoverable by Civil Code section 3306. We thus affirm.

BACKGROUND

This cause was the subject of a five-day bench trial with 11 people who testified in person, one who testified via deposition, and dozens of exhibits. The statement of decision prepared by Judge Daum figures prominently in this appeal. With minor, nonsubstantive editorial changes we have made to the text, and footnotes we have added for context, the statement deserves quotation almost in its entirety:

“This case involved the contract for sale of commercial property in Sebastopol, California, an approximately 21 acre tract known as Laguna Vista. Seller is defendant James Cotter. The buyers are known as The Schellinger Brothers, plaintiffs in this case. Mr. Cotter is 80 years old, a self-described, self-made man who came to Sonoma County in 1964 and started a commercial real estate business that spread to many other parts of the country. [Plaintiffs] have confined most of their construction and development to Northern California where they have been in business for about 35 years.

“After plaintiff's opening (defendant deferred) Scott Kincaid was called to testify, inter alia , that as [Schellinger's] senior loan officer at Community Bank, he had prepared the necessary documents so plaintiffs would have the funds to purchase the subject property. He described the lengthy history of lending to [Schellinger] for numerous projects. It appears to the court that [Schellinger's] credit history with the bank is impeccable and longstanding. While ‘tender’ has been made something of an issue, this Court has no doubt that [Schellinger was] ready, willing, and, most significantly, able to consummate this deal with more than adequate funding. According to witness Kincaid, the bank was willing to collateralize the loan with other holding[s] of [Schellinger], eschewing the need for security in the form of the subject property itself, a nearly 21 acre piece of land with apparently increasing value. Plaintiff Bill Schellinger's testimony that a $3 million dollar loan ‘is not a big deal to us' is a very credible claim and the court accepts that characterization. Tender was simply not a problem for [Schellinger].

“After a protracted trial before Judge [Rene] Chouteau in 2011, the plaintiffs were given 2 years to obtain the necessary subdivision Map that would make the project worth while and viable. The Court takes plaintiff Bill Schellinger's comment that ‘everybody knew we weren't going to get the Map’ at his word.

“At issue, therefore, was [Schellinger's] determination to go forward without the Map, the force and effect of which would be a waiver.

“The negotiations for the sale commenced in August of 1997. After numerous delays and efforts to smooth out the many wrinkles of permits through the City of Sebastopol and other jurisdictional agencies, [Cotter] made efforts to sell the property to a different buyer, Tux Tuxhorn in 2005.^{[2 ]}“Among the key requirements for execution of the contract and consummation of the sale was 1) the necessity of obtaining a subdivision Map approval through the City; and 2) the completion of Lot Line Adjustments that definitively circumscribe the metes and bounds of the various parcels that were to make up the 21 acre total. In 1999 the Lot Line Adjustment was apparently completed, but [Cotter] apparently refused to sign it and the application expired.

“These key requirements were negotiated as part of the contract in the following provisions:

“[Schellinger's] obligation to close escrow was expressly conditioned on the occurrence of, among other things, two events—the approval by the City and recordation of a final subdivision map. The Agreement^{[3 ]}provides:

“ ‘Section C: The intent of this Agreement is that upon the successful completion of an approved final map recordation, seller [Cotter] shall retain the front commercial parcels.... [I]t is mutually understood that the exact size of the parcels can not be determined until the project is mapped, surveyed, and has certified approval....

“ ‘Section 6: Purchaser's obligation to perform under this Agreement is subject to the following conditions: (a) Purchaser's obtaining all approvals for a final subdivision map from City of Sebastopol, California for a Master Planned Development. Purchaser shall promptly apply for and diligently attempt to obtain approvals from Sebastopol, California....

“ ‘Section 4: Escrow shall close within 30 days after recordation of final subdivision map from the City of Sebastopol....

“ ‘Section 10: Closing Date. The conveyance of the Property to Purchaser and the closing of this transaction (‘Close of Escrow’) shall take place within 30 days following the satisfaction of the conditions set forth in Section 6 and 7.

“ ‘Section 15: (a) Seller's Covenants. Commencing with the full execution of this Agreement by both parties and until the Close of Escrow: (a) Seller shall not permit any liens, encumbrances, or easements to be placed on the Property, other than the Approved Exceptions, nor shall Seller enter into any agreement regarding the sale, rental, management, repair, improvement, or any other matter affecting the Property that would be binding on purchaser or the property after the Close of Escrow without the prior written consent of Purchaser.

“ ‘(b) Seller shall not...