Posted on November 15, 2012 02:17 by Philip M. Gulisano

With the start of the holiday shopping rush just a week away, retailers should be mindful of their responsibility to keep customers safe when large crowds gather to take advantage of well-advertised and highly-anticipated sales. Customers, drawn by the promise of “doorbuster savings” and warned of limited quantities, do not always act in the most courteous manner when rushing to enter the store and running toward the products they desire.  Sadly, it has become all too common for injury, whether accidental or intentional, to occur as customers dash into and through stores during these special sales, and when a customer is injured during the clamor, a retailer can be held liable.

Although the law varies from state to state, in many states, a retailer’s duty to use reasonable care to protect customers from reasonably anticipated injuries includes foreseeing that large crowds might gather due to the advertised sales and that individuals might be injured due to the overcrowding, the congestion at the door, or the unruliness of the other customers.  Consequently, a retailer may be held liable to a customer who is injured due to pushing, crowding, trampling, or jostling by other customers when the retailer conducts a promotional activity or sale that will foreseeably cause crowds to gather and push.

At least one jury has determined that reasonable care when undertaking a special promotion that might cause people to run, push, and shove includes the retailer giving warnings of the dangers involved, taking steps to control or police the crowd, using loud speakers to warn the crowd not to run over people, and warning the elderly or children to stay out of the crowd.    Given the tragedies that have occurred in the past several years during “Black Friday Sales,” it is advisable for retailers to, at the very least, implement the above measures.  However, the above measures may not be sufficient given the particular circumstances of a retailer.  That is why each retailer should conduct a careful risk assessment evaluation that is tailored to its location and history.  This assessment will allow the retailer to develop and implement a plan that keeps its customers safe and happy during this holiday season. Now go shopping!

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Until now, there has been a split of appellate authority in New York concerning what a prospective purchaser must show in seeking damages for a seller’s repudiation of a contract for the sale of real property. It is the general rule that a prospective purchaser seeking specific performance of a real estate contract must demonstrate that it is “ready, willing and able to close.” However, there has been a split of authority concerning whether the purchaser must demonstrate that it is “ready, willing and able” to close in seeking damages for seller’s anticipatory breach of contract.

In Pesa v. Yoma Development Group, Inc. et al., 18 N.Y.3d 527, … N.Y.S.2d … (Feb. 9, 2012), the New York State of Appeals examined the issue whether prospective buyers in a damages suit must show that they were “ready, willing and able” to close the transaction – that is, but for the seller’s repudiation, the transaction could and would have closed. In reversing the Appellate Division, Second Department, the Court held that the burden of proof was the “real question” in a case like this:

"Should the buyers be required to show they would and could have performed? Or should the seller have the burden of showing that they would not or could not? Since the buyers can more readily produce evidence of their own intentions and resources, it is reasonable to put the burden on them."

To New York's high court, its conclusion was "supported by common sense" Thus, the Court of Appeals held that the buyers were not entitled to summary judgment and that issues of fact needed to be resolved, in favor of the buyers, before the buyers could be found to be actually “ready, willing and able.” In the instant case, for example, the buyers needed to demonstrate that they could secure a mortgage commitment within the required sixty day period.

The take-away from this decision is that buyers seeking redress for a seller’s repudiation of a real estate contract now have the same burden of proof whether they are seeking damages or specific performance.

This article was originally published in the Toxic Tort Litigation Blog of EpsteinBeckerGreen
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Holy Bat Trap, Batman! – Guano & Insurance

Posted on March 16, 2012 02:03 by Barry Zalma

The plaintiffs filed suit against their insurer, Auto-Owners, for breach of contract and bad faith, claiming that Auto-Owners was liable for the total loss of their vacation home that was uninhabitable and unsaleable as a result of the accumulation of bat guano between the home’s siding and walls.  The Supreme Court of Wisconsin was asked to resolve the question whether the pollution exclusion in the Auto Owners policy defeated the claim in Joel Hirschhorn and Evelyn F. Hirschhorn v. Auto-Owners Insurance Company, 2012 WI 20 (Wis. 03/06/2012).

Auto-Owners moved for summary judgment, which the circuit court initially denied. Upon reconsideration, however, the circuit court agreed with Auto-Owners that its insurance policy’s pollution exclusion clause excluded coverage for the Hirschhorns’ loss. The court of appeals reversed, concluding that the pollution exclusion clause is ambiguous and therefore must be construed in favor of coverage.

Beginning in 1981, the Hirschhorns owned a vacation home in the town of Lake Tomahawk, Wisconsin. At all relevant times, the home was covered by a homeowners insurance policy issued by Auto-Owners. The policy insured the Hirschhorns against the risk of loss of the home, along with structures and personal property located at the insured premises, against “accidental direct physical loss.” However, the policy contained a pollution exclusion clause that excluded from coverage any “loss resulting directly or indirectly from the “[d]ischarge, release, escape, seepage, migration or dispersal of pollutants . . . .” The policy, also defined “pollutants” as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, gases and waste and described waste as including materials to be recycled, reconditioned or reclaimed.

In May 2007, Joel Hirschhorn met with a real estate broker to list the home for sale. At that time, the broker inspected the home and saw no signs of bats. However, in July 2007, upon inspecting the home again, the broker discovered the presence of bats and bat guano. The broker attempted to remove the bats and clean the home. The broker’s efforts failed.

The Hirschhorns and their family stayed at their vacation home between August 9 and 14, 2007. During their stay, they noticed a “penetrating and offensive odor emanating from the home.” Upon leaving on August 14, 2007, they arranged for a contractor to conduct a more thorough inspection of the home. The contractor determined that the cause of the odor was the accumulation of bat guano between the home’s siding and walls. The contractor provided the Hirschhorns a remediation estimate but could not guarantee that cleaning up the bat guano would rid the home of its odor.

Subsequently, on October 23, 2007, the Hirschhorns filed with Auto-Owners a notice of property loss. The notice described the loss as resulting from the discovery of bats in the Hirschhorns’ home and specifically stated, “smell awful and [insured] cannot stay in house . . . .” Auto-Owners denied the claim three days later, reasoning that the accumulation of bat guano was “not sudden and accidental” and, in any case, resulted from “faulty, inadequate or defective” maintenance within the terms of the policy’s maintenance exclusion clause.

On November 4, 2007, the Hirschhorns entered into a contract with a builder to demolish their existing vacation home and construct a new one in its place. In his affidavit, Joel Hirschhorn explained that he thought it was more practical financially to demolish the home than to spend the money to make it habitable again.

After the home’s demolition, on February 22, 2008, Auto-Owners sent to the Hirschhorns a revised denial letter. Auto-Owners denied the Hirschhorns’ claim on the additional ground that “[b]at guano is considered a pollutant” within the terms of the policy’s pollution exclusion clause.

The parties did not dispute the material facts giving rise to the Hirschhorns’ loss. Rather, the sole issue presented to the Supreme Court was whether the pollution exclusion clause in Auto-Owners’ insurance policy excluded coverage for the loss of the Hirschhorns’ home that allegedly resulted from the accumulation of bat guano.

Since Auto-Owners’ insurance policy defines “pollutants” and lists waste as one such irritant or contaminant in its definition of “pollutant” the Supreme Court analyzed whether bat guano was the type of waste excluded by the policy.

Noting that the reach of the pollution exclusion clause must be limited by reasonableness, or everyday incidents may be characterized as pollution and the contractual promise of coverage reduced to a fantasy. For example, exhaled carbon dioxide, while potentially harmful in a confined and poorly ventilated area, is universally present and generally harmless since every animal, including people, exhale carbon dioxide. .

The ordinary meaning of “irritant” is a condition of inflammation, soreness, or irritability of a bodily organ or part. The Supreme Court concluded that bat guano falls unambiguously within the term “pollutants” as defined by Auto-Owners’ insurance policy. Bat guano is composed of bat feces and urine. Bat guano is or threatens to be a solid, liquid, or gaseous irritant or contaminant. That is, bat guano and its attendant odor make impure or unclean the surrounding ground and air space  and can cause inflammation, soreness, or irritability of a person’s lungs and skin. The Supreme Court noted that the Wisconsin  Department of Health & Family Services in cooperation with the Agency for Toxic Substances & Disease Registry, Indoor Air and Health Issues concluded that people who live around large quantities of bat wastes are more likely to become ill with histoplasmosis; people who contact mites that live in bat wastes may get skin rashes; and molds that grow in moist, warm, highly organic situations may increase asthma attacks in affected people.

The Supreme Court noted that these points cannot be seriously contested by the Hirschhorns because they alleged in their complaint that the odor of bat guano was so penetrating and offensive as to render their vacation home and unfit place to live. As a result the Supreme Court concluded that a reasonable person in the position of the insured would understand bat guano is waste. Since bat guano is composed of bat feces and urine bat guano is commonly understood to be waste.

The Hirschhorns argue, and the court of appeals agreed, that the term “waste” does not necessarily call to mind feces and urine, given the policy’s other examples of irritants and contaminants. The Supreme Court disagreed because, unlike exhaled carbon dioxide, bat guano is not universally present and generally harmless in all but the most unusual instances. To the contrary, bat guano is a unique and largely undesirable substance that is commonly understood to be harmful. A reasonable homeowner should understand bat guano to be a pollutant.

The Supreme Court’s conclusion that bat guano falls unambiguously within the policy’s definition of “pollutants” was not enough to resolve the dispute. The court needed to determine whether the Hirschhorns’ alleged loss resulted from the “discharge, release, escape, seepage, migration or dispersal” of bat guano under the plain terms of the policy’s pollution exclusion clause.

The policy does not define “discharge,” “release,” “escape,” “seepage,” “migration,” or “dispersal.” The Supreme Court was required, therefore, to construe these terms according to their plain and ordinary meanings as understood by a reasonable person in the position of the insured. As their dictionary definitions make clear, the six terms are often synonymous with one another and taken together constitute a comprehensive description of the processes by which pollutants may cause injury to persons or property.

The bat guano, deposited and once contained between the home’s siding and walls, emitted a foul odor that spread throughout the inside of the home, infesting it to the point of destruction. The Hirschhorns acknowledged as much in their complaint. They alleged that “the drapes, carpets, fabrics and fabric furnishings in the home were rendered unusable as a result of the absorption of the bat guano odor.” Accordingly, implicit in their complaint is an allegation that the bat guano somehow separated from its once contained location between the home’s siding and walls and entered the air, only to be absorbed by the furnishings inside the home.

Interestingly, as noted in a footnote to the opinion the Supreme Court noted that the Hirschhorns helped the court decide against their position by by conceding that a reasonable insured may understand the pollution exclusion to include human excrement. They failed to explain, however, why the policy’s definition of “pollutants” should be interpreted differently for feces and urine from humans is more a pollutant than feces and urine from to bats.

There should be no question that a collection of excrement from any animal, whether human, bird, bat or aardvark, if collected sufficiently in a home to make the dwelling incapable of sustaining life comfortably in the structure is both waste and a pollutant. The Wisconsin court clearly applied the the common meaning of a group of unambiguous terms.

© 2012 – Barry Zalma
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.

Mr. Zalma can also be seen on World Risk and Insurance News’ web based television program “Who Got Caught” with copies available at his website at http://www.zalma.com.

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Two undeniable and interconnected facts: the U.S. housing market remains virtually stagnant and the number of lawsuits against real estate professionals is on the rise.  Existing home sales have dropped steadily since 2005.  There is a glut of product on the market, yet relatively few ready, willing and able buyers.  During the same period, delinquency and foreclosure rates have grown at an alarming rate.  Real estate professionals have been under considerable pressure to adapt to the conditions of this weak and sputtering market.  Many have not fared so well, as there has been a noticeable increase in lawsuits filed against agents, brokers, inspectors and other real estate professionals.

A Deeply Troubled Housing Market

There is no concrete formula to calculate when the American housing “bubble” burst.   What we do know is that the market was thriving in or around 2004 – 2007 then began to fizzle in the following years.  New home inventory, whether completed or under construction, grew at a gradual rate between 1997 and 2003.  Then, in or around January 2003, new home development skyrocketed.  By 2005, Americans built more new homes than they had since the late ‘70’s.  By most indicators, American real estate was booming in the summer months of 2005 and 2006.

Based on the vast number of new homes built at the turn of the century, it would be fair to assume that this development was catered to a growing number of eager would-be homeowners on the market for a new home.  However, the supply far exceeded the demand.  Every year beginning in 2005 through 2008 resulted in a significant drop in existing home sales compared to the prior year.  In other words, Americans were not purchasing homes at the rate those homes were built.  By way of example, Americans purchased approximately 100,000 less homes in June 2007 than they had in June 2006.  During that same stretch, however, developers continued to build new homes at a staggering rate.  As a result, the market could not support itself and soon collapsed. 

Following the peak in 2007 – 2008, new home inventory dropped dramatically.  That drop continued until today when new home inventory nationwide is significantly lower than that recorded in decades.  As a result of that rapid decline, new homeowners found themselves living in property valued far less than the price they recently paid.  Houses were rapidly losing value nationwide.  By some accounts over 10 percent of mortgaged homes in 2008 – 2009 were “underwater”; or, the mortgaged amount exceeded the actual value of the property.  Some suggest that the number of underwater homes continues to climb.

Sub-prime lending, of course, also played a significant role in the rise, and fall in the real estate market.  Sub-prime financing, or high-interest loans, is catered toward high-risk borrowers.  As the market reached its peak, sub-prime lending also increased.  Only two percent of mortgages issued in 2000 were classified as sub-prime compared to nearly 30 percent in 2006.  When the market was healthy, lenders were willing to take on more risk and perhaps were more creative with their lending agreements.  Less documentation, reduced or zero down-payment, low initial interest rates that ballooned over time and other strategies were developed to get buyers in the door.  The problem: aggressive lending programs invited Americans to purchase homes that they literally could not afford.  What naturally followed was rampant delinquency and foreclosure.

During the good years, between 1995 and mid-2006, approximately 5 percent of all active loans were considered “delinquent” and about 1 percent was the subject of foreclosure proceedings. The delinquency started to slowly climb in ‘06 and ‘07 then took off in 2008 to a high of nearly 10 percent  of all active loans as of year-end 2009.  Foreclosures also increased to over 4 percent of all active loans.  In 2008 and particularly 2009 – 2010, a higher percentage of delinquent properties resulted in foreclosure proceedings which, in turn, resulted in more short sales and REO properties.  A disproportionate number of these foreclosures were the result of sub-prime financing.  Of course, real estate professionals suffered as a result.

Increased Claims Against Real Estate Professionals

No doubt due, at least in part, to the distressed real estate market, claims against real estate professionals have risen over the past several years.  Moreover, the types of claims against real estate professionals have changed due to the peculiarities of the recent rise and dramatic fall of the market.  Agency issues, mortgage rescue scams, breach of fiduciary duty, fraud, negligence, breach of contract, and false representation issues are among the classes of claims on the rise against real estate professionals.  Why the rise in claims?  Here are several plausible explanations: 

Dabbling: Due to the reduced work-load, the real estate professional may be more willing to take on work outside of his/her comfort zone in order to generate revenue, including property or construction management or providing credit counseling or quasi-legal advice as opposed to selling real estate.
Loan and Investment Fraud: Knowingly or unwittingly modifying transactional documents to mischaracterize the nature of a purchase to obtain more favorable loan terms.  For example, denoting the purchase of a Bed and Breakfast as a “residential” property rather than an “income producing” property to generate better financing terms and, hence, close a deal.
Lay Offs:  The termination of the most experienced (and most highly compensated) staff in order to reduce expenses while retaining a staff less able to meet the needs of their customers.
Misrepresentation:   Even good faith reliance on a desperate seller’s disclosures, which turn out to be false, may result in a fraudulent or negligent misrepresentation claim against a real estate agent for allegedly ignoring red flags.
Referrals: A real estate professional may be subject to “negligent referral” liability by suggesting that her client retain the services of a particular vendor of some kind (e.g. inspector or title agency) of there are flubs on the job.
Unauthorized practice of law:  A real estate professional walks a fine line between representation of her client, providing general advice and performing a legal function especially with respect to the financial end of a transaction.  Should an agent provide advice outside of her scope of expertise, she may be subject to a claim of negligence, misrepresentation as well as the unauthorized practice of law.
Short sales and foreclosures:  Perhaps more than any other cause, the most significant increase in real estate disputes of late is due to the foreclosure crisis.  Short sales lead to difficulties regarding property condition disclosures.  For example, since short sales can be a lengthy process, the condition of a property may change while the transaction is pending.  Often, lenders and sales agents insist on listing short sales “as is” which may result in unreliable or non-existent disclosures and surprises following settlement.  These surprises all too often lead to lawsuits. Moreover, these sales are overlayed with transactional complexity beyond the ken of less experienced real estate professionals, a hazard in and of itself.  By way of example, short sales and foreclosures may force a real estate professional to address priorities amongst multiple liens or lending and listing problems as a result of the fact that prior owners are typically not involved in these transactions.

What Lies Ahead?

Signals of a recovery remain distant and weak.  Fiscal policy at the macroeconomic level suggests continued pessimism and caution, as seen in sustained historic low borrowing rates, but these low rates continue to be foiled by far more rigorous underwriting standards.  What one hears is: there’s plenty of money to borrow for people who don’t need it.  So, those who earn a living off of the sale of real estate will find themselves under stress for the foreseeable future.
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The Second Circuit Court of Appeals has affirmed a series of rulings made by a district judge in approving a Settlement Agreement and Mutual Release of Claims in the case of In re September 11 Property Damage Litigation, 2011 WL 1331847 (2d Cir. Apr. 8, 2011).

The settlement was made by a group of Plaintiffs in that case, the “World Trade Center Properties Plaintiffs,” with what the Second Circuit called the “Aviation Defendants” for the Defendants’ asserted liabilities under the Air Transportation Safety and System Stabilization Act of 2001 or “ATSSSA.”  The Defendants were allegedly liable for negligence and other statutory fault in connection with the destructive events of September 11, 2001 insofar as the terrorists who committed well-known atrocities on that date were able to use airplanes under the Defendants’ alleged control to commit their atrocities including destruction and damage at the World Trade Center in New York City.

In approving the Settlement Agreement and Mutual Release of Claims between the WTCP Plaintiffs and the Aviation Defendants, the trial court applied New York state law in connection with various issues under the Federal ATSSSA, and without discussing those specific issues further, the Second Circuit affirmed those rulings:

In sum, we agree with the district court that the settling parties entered into their settlement agreement in good faith.  We therefore conclude that the district court did not abuse its discretion in approving the settlement agreement.

Id. at *7.

The issue of broader potential interest, however, concerned the Second Circuit’s affirmance of the district court’s ruling that the proposed settlement payments would be credited towards the Aviation Defendants’ limits of liability to pay damages under the ATSSSA.  The Second Circuit affirmed that ruling by beginning with the observation “that ‘liability’ refers to a ‘financial or pecuniary obligation’ that can arise through the settlement of claims.”  In addition, this interpretation of the term, “liability,” as used in the federal statute would have a similar meaning as “the common understanding of ‘liability insurance,’ which commonly provides for an insured’s claim to arise ‘once the insured’s [legal obligation] to a third party has been asserted.’”  Id. at *8.

By appealing to the general and common understanding of what constitutes “liability insurance,” the Second Circuit added weight to its process of interpreting a specific statutory one-word term, “liability,” and affirmed the trial court’s ruling that payments toward the settlement agreement at bar would have the effect of reducing dollar-for-dollar the paying Defendants’ statutory “liability” under ATSSSA.


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In Cogswell v. CitiFinacial Mtg. Co. Inc., CitiFinancial Mortgage assigned its interest in a mortgage to two investors—doing business as “The Patrick Group”—but never delivered the original or a copy of the underlying note. When The Patrick Group tried to foreclose on the mortgage in Illinois state court, its action was dismissed because it could not produce the note. The Patrick Group was not successful on its appeal to state court.

The Patrick Group filed a breach-of-contract lawsuit against CitiFinancial in state court. The suit was removed to federal court, and the district court granted summary judgment in favor of CitiFinancial.  The district court based its summary-judgment decision primarily on a determination that CitiFinancial never agreed to deliver the note as part of the parties’ agreement to transfer the mortgage. The Seventh Circuit, however, concluded that whether the parties agreed on this term is a question of fact, and The Patrick Group presented enough evidence from which a reasonable fact finder could conclude that it was a part of the parties’ agreement.  Therefore, the Court remanded the matter back to the district court to resolve the open factual question on whether the parties' agreement required CitiFinancial to provide The Patrick Group with the note.

The Seventh Circuit also concluded that the district court’s alternative basis for summary judgment—that CitiFinancial’s alleged breach did not cause The Patrick Group’s damages—was also erroneous.  Under the circumstances of the case, the Seventh Circuit held that the causation question should have been resolved in The Patrick Group’s favor as a matter of law; the state trial and appellate courts rejected The Patrick Group’s foreclosure action because without a copy of the note, it could not prove it was the holder of the debt the mortgage secured.

You can hear the oral argument at the Seventh Circuit here (mp3).

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Categories: Court of Appeals | Real Estate Law

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Birke v. Oakwood Worldwide, 169 Cal. App. 4th 1540, 87 Cal. Rptr. 3d 602 (Cal. App. 2009).

On January 12, 2009, in a ruling that concerns the rights of property owners and smokers alike, the California’s 2nd District Court of Appeal ruled that Melinda Burke, a 7-year old asthmatic, had standing to file suit as a tenant against her family’s apartment complex over second hand smoke in outdoor common areas.

While acknowledging that her claims may face significant challenges overcoming summary judgment, specifically the question of whether the company breached its duty to maintain premises in a safe condition, the Court of Appeal ruled that Melinda Birke demonstrated sufficient standing to withstand a demurrer.

The 2nd District found that Melinda had standing as the family member of a tenant within the apartment complex, and that her health problems of aggravation of her asthma and chronic allergies were not similar to the general public’s increased risk of heart disease and lung cancer from second hand smoke.

This ruling threatens to restrict further the rights of smokers and increase liability for property owners. In Birke, the smoking in this case occurred in outside common areas, and this ruling could prevent smokers from smoking in any place other than areas specifically designated for smokers, even in their own apartment complex. Moreover, it opens up property owners to liability for creating public nuisances by providing for cigarette disposal in common areas, and increases those members of the public to whom they owe a duty.

Adam T. Simons


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