Liquidated Damages Clause Found Valid; Fees/Costs Award Sustained Also.
This next decision should be of substantive interest to both developers and our readers interested in fee issues.
Although unpublished, Beck Properties, Inc. v. Hameed, Case No. C058279 (Dec. 11, 2009) decided that an anti-speculation clause in a purchase agreement between a developer and residential buyers – a provision allowing for the developer to recover $50,000 in liquidated damages should purchasers sell or transfer the home in the one year period following close of escrow – was valid as far liquidated damages was concerned. The theory behind this type of clause is to encourage buyers to stabilize the neighborhood by living in the residence and keep speculators from bringing down property values based on lack of maintenance, competition with the developer trying to sell remaining units, and abandonment of the units to foreclosure by the speculators.
Developer won a bench trial contesting the validity of the liquidated damages clause. The decision has a nice discussion of the proof needed to support such clauses and defeat buyers’ defense that they really did intend to live there (i.e., 1031 exchange information obtained during discovery and buyers’ use of option-ARM financing that provided for debt negative amortization/low, interest-only payments that is typically only used by investors).
Later, the trial court awarded developer $88,485 in fees under an attorney’s fees clause in the purchase contract. Buyers’ appellate arguments were not persuasive for purposes of upsetting this award.
Even though the costs memorandum was prematurely filed before entry of judgment, this is a mere irregularity not rising to the level of reversible error. (Parker v. City of Los Angeles, 44 Cal.App.3d 556, 566 (1974).)
Buyers next challenged the fee substantiation by attacking the declaration of the lead counsel as to the performed legal work, arguing that it was inadequate because an associate did most of the work. Wrong, said the appellate panel. Lead attorney supervised the associate, and the time reflected came from the firm’s billing system in the normal course of business. The fee substantiation evidence sufficed.
Last, buyers argued that the time spent on litigating the case against the buyer husband’s wife (who was dismissed) needed to be apportioned from the fee request. Not so, because “[n]o work was performed regarding [wife] that was not equally necessary for prosecuting the case against [husband].” (Slip Opn., p. 17.)
BLOG UNDERVIEW—Co-contributor Marc has litigated the validity of anti-speculation clauses. He has done some prior matters where the clauses were challenged as unenforceable property restraints, beating demurrers and then settling the matters through mediation.