Lawsuit: Construction flaws — Seller Not Necessarily Responsible to Disclose them

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By Jennifer Felten 

Case of the Month: RSB Vineyards, LLC v. Bernard A. Orsi et al.

RSB Vineyards, LLC (“RSB”) purchased a vineyard, including a winery and a tasting room, from the Defendants (“Defendants”) in August 2011.  After the purchase, RSB had someone in to repair the stairs to the tasting room.  His inspection of the stairs led the repairman to suspect other items were damaged as well.  After a closer inspection, it was determined that the tasting room had major structural and other problems.  It was deemed more cost effective to raze the entire building and build a new one instead of repairing the existing structure.

The structural issues were not disclosed at the time of the sale.  Therefore, RSB sued the Defendants for many actions, including breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, and negligence.  The Defendants had acquired the property in 2009.  It had a single-family home on the property during their purchase.  They decided to turn the single-family home into a winery and tasting room.  They filed for a commercial use permit, which was issued in spring of 2010.  The Defendants hired an architect and submitted the plans to the county.  After some changes, the plans were approved by the county and the construction was completed.

Since the Defendants hired a professional architect and had permits from the county, RSB reasoned that the Defendants knew the structural issues existed and failed to disclose them.  However, the Defendants countered that they hired professionals because they did not know enough about construction to complete any of the work themselves.  The drawings were completed by an architect.  The plans were approved by county officials.  The Defendants hired a licensed contractor to complete the actual construction.  The Defendants relied on the professionals they hired and therefore had no knowledge of any deficiency.  Since they had no knowledge of the existing condition, they could not have disclosed the information.

The Defendants filed for summary judgment less than seven months after RSB filed for suit.  Since RSB could not provide any information that the Defendants actually knew about the structural issues, they argued that the professional hired by the Defendants should have known and that the knowledge was imputed to the Defendants.  The Trial Court granted the summary judgment, reasoning the Defendants could not be liable for nondisclosure in the absence of any evidence that they had and actual knowledge of the facts to be disclosed.

RSB appealed the decision.  The appellate court noted that RSB had the burden to provide sufficient evidence that the Defendants had knowledge of the structural issues in order to create a triable issue of fact.  It is rare for a plaintiff to be able to provide any direct evidence.  However, actual knowledge can, and often is, shown by inference from circumstantial evidence.  Only where the circumstances are such that the defendant “must have known” or “should have known” will an inference of actual knowledge be permitted.  Since most of the structural issues were discovered after RSB’s contractor started to tear down the structure, and were not readily apparent to the average person, the court reasoned they were not something the Defendants must have or should have known.  As such, the appellate court affirmed the decision of the trial court.


Jennifer FeltenJennifer Felten, Esq., Relaw Ms. Felten specializes in representing both individuals and legal entities, providing representation and guidance on a variety of real estate related matters.  Relaw APC 699 Hampshire Road, Suite 105 Westlake Village, CA  91361 US Phone: (805) 265-1031 or email her at: jennifer@relawapc.com 


Upcoming Speaking Engagements

In November 2017:

Jennifer will be teaching a class for the Escrow Training Institute on Saturday, November 11, 2017, in Costa Mesa on Escrows in Probate, Bankruptcy, Divorce and More.  For more information on the class or to register please visit:  http://escrow-eti.com/class-schedule-bulk-sale.htm

Jennifer is also speaking at the Santa Clarita Valley Escrow Association dinner meeting on Wednesday, November 8, 2017.

For inquiries or questions about having Ms. Felten speak to your organization please email info@relawapc.com.


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