JANUARY 2016 / $5

EARN MCLE CREDIT

THE MAGAZINE OF THE LOS ANGELES COUNTY BAR ASSOCIATION

Los Angeles lawyers Nader Pakfar (center),

Kelsey Thayer (left), and Karli Baumgardner

inform borrowers of the risks of nonrecourse

carveouts of CMBS page 18

PLUS

Foreigner Purchaseof CaliforniaReal Estatepage 23

Cell PhoneInfrastructurepage 11

ConstructionDefectLitigationpage 14

On Direct:Daniel Grigsbypage 8

SecuritiesBreach

PropertyLine

Disputespage 28

31st ANNUAL

REAL ESTATE LAWISSUE

http://www.chapman.edu/law

http://www.walzermelcher.com

http://www.aldavlaw.com

18 Securities Breach BY NADER PAKFAR, KELSEY THAYER, AND KARLI BAUMGARDNER

Since 2008, courts have tended to interpret CMBS agreements strictly, allowingfor even harmless breaches to trigger full recourse

23 Homes away from HomeBY VANJA HABEKOVIC

Corporate structures may be used to address income and property tax considerations in a foreign person's purchase of California residential real estatePlus: Earn MCLE credit. MCLE Test No. 253 appears on page 25.

28 Boundary Issues BY ANDREW R. HENDERSON

Real estate buyers should be aware that under the agreed boundary doctrine,recorded lot lines may be relocated

F EATU RE S

Los Angeles Lawyer

the magazine of

the Los Angeles County

Bar Association

January 2016

Volume 38, No. 10

COVER PHOTO: TOM KELLER

01.16

8 On DirectDaniel M. GrigsbyINTERVIEW BY DEBORAH KELLY

10 Barristers TipsEnforcing no-contest clauses in the face of anti-SLAPP motionsBY EUNICE Y. LIM AND DOUGLAS E. LAWSON

11 Practice TipsNew requirements facilitate wireless infrastructure developmentBY LYNN WHITCHER, CYNTHIA HANSON, DANIEL

GOODRICH, AND BENJAMIN ESTES

14 Practice TipsThe effect of Brisbane on the constructiondefects statute of limitationsBY JOHN BRAZIER

36 Closing ArgumentVideoconferencing can help our courtsand improve access to justiceBY BRIAN S. KABATECK AND BENJI AZIZIAN

DE PARTM E NTS

LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly,except for a combined issue in July/August, by the Los AngelesCounty Bar Association, 1055 West 7th Street, Suite 2700,Los Angeles, CA 90017 (213) 896-6503. Peri odicals postagepaid at Los Angeles, CA and additional mailing offices. Annualsubscription price of $14 included in the Association mem-bership dues. Nonmember sub scrip tions: $38 annually; singlecopy price: $5 plus handling. Address changes must be sub-mitted six weeks in advance of next issue date. POSTMASTER:Address Service Request ed. Send address changes to LosAngeles Lawyer, P. O. Box 55020, Los Angeles CA 90055.

4 Los Angeles Lawyer January 2016

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ChairDONNA FORD

Articles CoordinatorTED M. HANDEL

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Copyright © 2016 by the Los Angeles County Bar Association. All rightsreserved. Reproduction in whole or in part without permission is pro -hibited. Printed by R. R. Donnelley, Liberty, MO. Member BusinessPublications Audit of Circulation (BPA).

The opinions and positions stated in signed material are those ofthe authors and not by the fact of publication necessarily those of theAssociation or its members. All manuscripts are carefully considered bythe Editorial Board. Letters to the editor are subject to editing.

Los Angeles Lawyer January 2016 5

LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATIONOF THE LOS ANGELES COUNTY BAR ASSOCIATION

1055 West 7th Street, Suite 2700, Los Angeles CA 90017-2553Telephone 213.627.2727 / www.lacba.org

LACBA EXECUTIVE COMMITTEE

President

PAUL R. KIESEL

President-ElectMARGARET P. STEVENS

Senior Vice President and TreasurerMICHAEL K. LINDSEY

Vice PresidentDAVID K. REINERT

Assistant Vice PresidentBRIAN K. CONDON

Assistant Vice PresidentDUNCAN W. CRABTREE-IRELAND

Assistant Vice PresidentHON. BRIAN S. CURREY

Immediate Past PresidentLINDA L. CURTIS

Barristers PresidentROBERT S. GLASSMAN

Barristers President-ElectDAMON A. THAYER

Chief Executive Officer/SecretarySALLY SUCHIL

Chief Financial & Administrative OfficerBRUCE BERRA

General Counsel & Chief Administrative OfficerW. CLARK BROWN

BOARD OF TRUSTEESHARRY W.R. CHAMBERLAINNATASHA R. CHESLERREBECCA A. DELFINOMIGUEL T. ESPINOZAKENNETH C. FELDMANJO-ANN W. GRACEHARUMI HATASTACY R. HORTH-NEUBERTSAJAN KASHYAPMARY E. KELLYLAVONNE D. LAWSONF. FAYE NIAANNALUISA PADILLAJUAN A. RAMOSSARAH V.J. SPYKSMADAVID W. SWIFTJEFF S. WESTERMANROXANNE M. WILSON

AFFILIATED BAR ASSOCIATIONS

BEVERLY HILLS BAR ASSOCIATIONCENTURY CITY BAR ASSOCIATIONCONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELESCULVER MARINA BAR ASSOCIATIONGLENDALE BAR ASSOCIATIONIRANIAN AMERICAN LAWYERS ASSOCIATIONITALIAN AMERICAN LAWYERS ASSOCIATIONJAPANESE AMERICAN BAR ASSOCIATIONJOHN M. LANGSTON BAR ASSOCIATIONLESBIAN AND GAY LAWYERS ASSOCIATION OF LOS ANGELESMEXICAN AMERICAN BAR ASSOCIATIONPASADENA BAR ASSOCIATIONSAN FERNANDO VALLEY BAR ASSOCIATIONSANTA MONICA BAR ASSOCIATIONSOUTH BAY BAR ASSOCIATIONSOUTHEAST DISTRICT BAR ASSOCIATIONSOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATIONWOMEN LAWYERS ASSOCIATION OF LOS ANGELES

6 Los Angeles Lawyer January 2016

pocketbook to be a renter here than New York City, you would be equally wrong.Statistics paint a dismal picture of the L.A. housing market. In August 2015, the

UCLA Luskin School of Public Affairs released a study titled “Impacts of theWidening Divide: Why Is LA’s Homeownership Rate So Low?” Its authors pointout that “The Los Angeles metro area…has the lowest homeownership rate amongmetropolitan areas in the U.S.” The percentage of homeowners in this county is 46,while in New York City it is 52 percent and 54 percent in the Bay Area. It is alsoconsiderably below the national average of 64 percent. In addition, the UCLA studycomments that the metropolitan statistical area of Los Angeles “has the highestaverage housing burden and new owner costs.”

Local renters face an increasing financial burden too. In a press release publishedlast August, Zillow indicates that in the second quarter of 2015 local tenants paid48.9 percent of their income in rent, as opposed to 35.6 percent between 1985 and2000. In contrast, in the New York-Northern New Jersey area the percentage is41.3. Whatever the city, more dollars spent on rent means less to buy groceries,pay car expenses or Metro fares, obtain insurance, and have a little left over fordiscretionary activities or savings.

A variety of factors have contributed to this housing crisis. Stagnant wages is akey one. As a Los Angeles Times editorial, “How to get more affordable housing in LosAngeles,” observed in August 2015 that “Housing prices in Los Angeles have grownfour times faster than incomes since 2000.” Similarly, the UCLA study cited abovenotes, “Since 1970, renters in Los Angeles, particularly those in the bottom incomequartile, have been severely burdened, paying more than 30% and increasingly 50%of their income in rents.”

Land use regulations also play a significant role. As planner and professor Greg -ory D. Morrow described in a Los Angeles Times op-ed piece last July, “For muchof the last 40 years, planning in Los Angeles has been guided by the idea thatgrowth is bad, that more people mean more congestion, pollution and social ills.The city has emphasized ‘downzoning’—reducing the number of units allowed tobe built on properties—to actively curb growth. It hasn’t worked.…since 1970,half a million more people have moved to Los Angeles than were planned for.…”

With 2016 being an election year, the forecast is for continued hand wringingby candidates about the Los Angeles housing crisis. Once the electorate has spokenin November and public officials feel momentarily motivated to demonstrate acapacity to act, perhaps the scarcity of new housing development initiatives willbe replaced with those actually leading to more affordable single-family homesand apartments being built. This includes adoption of local inclusionary zoningordinances for market-rate residential developments and adoption of state andfederal tax incentives to promote housing. For those looking for a clean, decent,safe place to put their feet up after a hard day at work, the hope is that speechesare replaced with real change beginning now. n

Affordable housing—an oxymoron tormenting virtuallyevery prospective homeowner or tenant scrambling tofind a decent place to live in Los Angeles. If you think

it is tougher to become a homeowner in San Francisco or SanJose, think again. And if you believe it is relatively easier on the

Ted M. Handel’s practice with the Business and Real Estate Group of Valensi Rose, PLC,focuses on real estate transactions and corporate law matters. He is the coordinating editorof the Real Estate Law special issue of Los Angeles Lawyer.

http://www.lmic.com

8 Los Angeles Lawyer January 2016

on direct

DANIEL M. GRIGSBY | Before moving in-houseas general counsel, Daniel M. Grigsby servedas outside counsel to the Lakers for morethan 32 years, most recently as a partnerwith Jeffers Mangels Butler & Mitchell, wherehe served as chairman of the firm’s nationalsports law group.

Daniel M. Grigsby General Counsel of the Los Angeles Lakers

their own brand. They want a place that issocial-media friendly and that allows themto best prepare for their playing careers.

Are players injured more than before?Athletes today play year round, which putstremendous stress on their bodies. Arth -roscopic surgery is more commonplace inthe off season to treat injuries caused byrepetitive stress.

Do you think certain athletes are moreinjury-prone than others? The true giants,the bigger guys, 300 pounds, jumping andlanding—yes, it’s the way they are built. Buttraining has improved too.

How has the loss of Dr. Buss impacted theLakers? Losing someone of his intelligence,experience, and vision was tough, but he dida good job of prepping everyone for lifeafter Dr. Buss.

What is the biggest legal challenge facingthe NBA? The NBA just signed a majornational television deal which will payapproximately $25 billion over the nexteight seasons. It more than doubles therevenues that each team will receive fromnational TV, which in turns drives the salarycap up because currently players get roughly51 percent of basketball-related income.Rather than players signing new, long-termfive-year deals, they are signing shorter dealsto see what happens.

Is it harder to build a dynasty now? Yes.We hear all the time, “Why don’t you getplayer ‘A’ and player ‘B’ and add them toKobe?” But the salary cap rules preventteams from doing that.

Does it make sense that different sportshave different salary restrictions? Yes, Ithink they’ve gotten it right for theindividual sports. The NBA system workspretty well, it has a “soft” cap with someexceptions and a progressive luxury tax forthose exceptions. Baseball is a free market,with a luxury tax. Football has a hard cap.

The reasons for each system are inherent inthe nature of the sports to which they apply.

Are you in favor of “one and done”? I thinkthe league and NCAA teams would like tohave it be two years. I’m a college basketballfan; I’m a Bruin. It’s tough on colleges tohave someone for one year and lose them.

Why should a tennis player be able to turnpro at 13 and a basketball player have towait? Tennis players are individual athletes,and their entourage probably includes theirparents and a private coach that theirparents have hired. It’s a little different inbasketball. Bringing in most 19-year-oldkids, paying them significant amounts ofmoney, and putting them in with grownmen in their late 20s to early 30s—theyhave to grow up pretty fast. The league hasan extensive transition program, and theplayers are required to go.

Do you think it’s appropriate for the leagueto own a team? Probably not, butsometimes there is no choice, as was thecase with New Orleans a few years ago.

Were you an athlete? I played for theKansas City Royals Baseball Academy for afew weeks back in 1972 and I realized I wasonly an adequate player. I played basketballin high school.

What is your favorite spectator sport?Basketball. But, I also really enjoy baseball.If you understand baseball, it is like a bigchess game going on all the time.

What do you do on a perfect three-dayweekend? Golf on Saturday morning and inthe evening, go out with my wife andfriends for cocktails and dinner. Sundaymorning is church, and Sunday afternoon,basketball or baseball.

What are your favorite vacation spots?Cabo and Oahu. I’m a Waikiki fan becauseof the great mix of being in paradise buthaving great restaurants, shopping, and

INTERVIEW BY DEBORAH KELLY

What is the perfect day? Winning anotherNBA championship for the Lakers!

What are your main job duties as generalcounsel for the Lakers? Player contractmatters, sponsorship and broadcast matters,and general business. I truly am a generalcounsel.

What’s new? We bought a piece of land inEl Segundo where we will build a 120,000-square-foot, state-of-the-art training centerand office building. It should be completedin June of 2017.

Why move? Several reasons. First of all,player recruiting. Players today want toknow what amenities we have, what kind ofworkout, recovery, and nutrition facilitieswe have. Second is that we currently operateout of three different office buildings.

Has the game changed? Players all have

other activities nearby. One of my favoritespots to relax is under the giant banyantree at the Moana Surfrider.

Any advice for law school students whowant a job like yours? Get into the best lawschool you can, do the best that you canwhile there, take all of the IP courses youcan, and if you can, write sports-relatedarticles for law review. If you clerk or workwhile in school, try to find somethingrelated to sports. You need to distinguishyourself from thousands of other studentswho want work in sports law.

Has the business changed? According toForbes, the Lakers are worth at least $2.6billion. The Lakers are a brand. We can’tmake enough money selling out the Staplesarena at whatever price we can charge toeven pay our players. At the end of the day,we are a global trademark and brand.

Do you have a favorite jersey? Growing up,I was always a Jerry West fan. Morerecently, I am a Kobe Bryant fan because noone works harder than Kobe.

Do you think the NBA will ever change itsJerry West logo? No. And they shouldn’t.It’s iconic.

What would you grab while running out ofthe front door if your house were on fire?My family, my pets, and pictures.

How do you get your news? Lots ofsources. I read the Los Angeles Times everymorning, from cover to cover, andSportsBusiness Journal.

What television shows do you record?Homeland, Blacklist, Quantico. Mostlypolitical dramas.

What is your favorite movie? Field ofDreams—having lost my father at a youngage and being a baseball player, the scene atthe end where he asks his dad, “Do youwant to have a catch?” gets me every time.

What are the three most deplorableconditions in the world? People killing eachother in the name of religion, globalhunger, and imperialism.

Who are your two favorite U.S. presidents?Ronald Reagan and John Kennedy both hadthe courage of their convictions and wentagainst the grain. Perhaps that got Kennedykilled.

What is the one word you would like onyour tombstone? Only one? Warrior.

Los Angeles Lawyer January 2016 9

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A STRATEGIC LAWSUIT against public participation (SLAPP) is amalicious or frivolous cause of action intended to chill the validexercise of First Amendment rights. California’s anti-SLAPP statuteprovides for a special motion to strike any cause of action arisingfrom the exercise of the rights of petition and free speech.1 Recently,trust and estate litigators have been turning to anti-SLAPP motionsto attack petitions to disinherit beneficiaries under no-contest clauses,2

with twofold consequences: 1) parties seeking to disinherit a beneficiaryfor violating a no-contest clause must meet a higher evidentiaryburden before proceeding to the fact-finding stage, and 2) partiesmust endure delays while the anti-SLAPP issues are decided andappealed.

In probate court, a beneficiary may bring an anti-SLAPP motionto strike an adversary’s petition to disinherit him or her under a no-contest clause. Anti-SLAPP analysis entails a two-step inquiry: if thebeneficiary establishes that the adversary’s cause of action arisesfrom the beneficiary’s protected activity, the burden shifts to theadversary to demonstrate its probability of prevailing on the underlyingpetition to disinherit.3 If the adversary fails to meet this burden, thecourt will strike the petition.

A beneficiary has much to gain by filing an anti-SLAPP motionin response to a petition to disinherit under a no-contest clause.Because any petition to disinherit based on a beneficiary’s challengeto a testamentary instrument necessarily arises from the challenge(an exercise of the beneficiary’s right to petition), the beneficiarywill have a strong argument that the first prong of the anti-SLAPPanalysis is satisfied. In a recent decision, Rosenberg v. Reid, thecourt of appeal acknowledged that “actions to enforce a no contestclause will…in many cases arise from protected activity under theanti-SLAPP statute.”4 Although the Rosenberg court did not explicitlyrecognize that all actions to enforce a no-contest clause will satisfythe first prong of the anti-SLAPP analysis, this conclusion can beinferred from the court’s reasoning for affirming the applicability ofthe anti-SLAPP statute. Responding to the defendant’s argumentthat applying the anti-SLAPP statute to her petition “would in effectrender all valid No Contest clause enforcement actions SLAPPs,”the court explained that this effect “hardly seems excessive” becausethe second prong of the anti-SLAPP test ensures that only meritlesspleadings will ultimately be stricken.5 Thus, a beneficiary’s adversarywill likely be forced to demonstrate a probability of prevailing atthe outset to avoid having its petition stricken.

This situation confers at least three strategic advantages on thebeneficiary: 1) the beneficiary’s adversary may be unable to prove aprobability of prevailing at such an early stage and with limited dis-covery, 2) in any event, the beneficiary’s adversary must tip its handby revealing its supporting evidence, and 3) the beneficiary’s anti-SLAPP motion will effect a delay in the proceedings—filing an anti-SLAPP motion stays all discovery relating to the petition to disinherit,6

and the trial court’s decision on the anti-SLAPP motion is immediatelyappealable.7 Moreover, while the party opposing the anti-SLAPP

motion must demonstrate the motion was “frivolous” or “solelyintended to cause unnecessary delay” to recover attorney’s fees andcosts, the beneficiary is entitled to fees and costs simply for prevailingon the motion.8

Consequently, litigators should keep the following practical con-siderations in mind when seeking to enforce or defend against theenforcement of a no-contest clause. On one hand, a beneficiary filinga challenge that might trigger a no-contest clause should be preparedto file an anti-SLAPP motion if another party files a petition to dis-inherit. The beneficiary should file this motion quickly to haltdiscovery and force the adversary to make the required evidentiaryshowing based on limited information. On the other hand, the ben-eficiary’s adversary should only file a petition to disinherit once heor she is prepared to demonstrate a probability of prevailing. Indeed,the adversary could wait until the beneficiary’s contest is fully litigatedbefore bringing a petition to disinherit so the beneficiary would nolonger have grounds to argue that the petition curtails his or herright to petition the court.

Although the legislature likely did not foresee that the anti-SLAPPstatute would be applied to no-contest clause enforcement pro -ceedings,9 this procedure is a recurring reality today. Thus, until thelegislature or courts intervene, litigators either filing or opposing apetition to disinherit a beneficiary under a no-contest clause shouldbe aware of the implications of anti-SLAPP’s application in thiscontext so that they are better positioned to advance and protectclient interests. n

1 CODE CIV. PROC. §425.16(b)(1).2 See, e.g., Rosenberg v. Reid, No. B256895, 2015 WL 5883893 (Cal. Ct. App.Oct. 8, 2015).3 Navellier v. Sletten, 29 Cal. 4th 82, 89-90 (2002). The second prong of anti-SLAPP analysis “operates like a motion for summary judgment in reverse.” Grewalv. Jammu, 191 Cal. App. 4th 977, 990 (2011). The plaintiff need only “demonstratethat the complaint is both legally sufficient and supported by a sufficient primafacie showing of facts to sustain a favorable judgment….” Oasis West Realty, LLCv. Goldman, 51 Cal. 4th 811, 820 (2011). “If the plaintiff can show a probabilityof prevailing on any part of its claim, the cause of action is not meritless and willnot be stricken.” Id.4 Rosenberg, 2015 WL 5883893, at *6. 5 Id., citing Navellier, 29 Cal. 4th at 93-94.6 CODE CIV. PROC. §425.16(g).7 CODE CIV. PROC. §425.16(i).8 CODE CIV. PROC. §425.16(c)(1).9 Applying anti-SLAPP to no-contest clause proceedings creates the same type ofcost and delay the legislature sought to eliminate by repealing the safe harborprovision of former Probate Code §21320. See S. Rules Comm., Office of S. FloorAnalyses, 3d reading analysis of SB 1264 (2007-2008 Reg. Sess.) at 2-3 (as amendedJune 18, 2008).

BY EUNICE Y. LIM AND DOUGLAS E. LAWSON

Enforcing No-Contest Clauses in the Face of Anti-SLAPP Motions

Eunice Y. Lim and Douglas E. Lawson specialize in litigation regarding trustsand estates at Sacks, Glazier, Franklin & Lodise LLP in downtown Los Angeles.The authors would like to give special thanks to Ryan D. Houck for helpediting this article.

barristers tips

Los Angeles Lawyer January 2016 11

RICH

ARD

EW

ING

DOCTORS NOW USE WIRELESS TECHNOLOGIES to support patientcare; smart parking meters help us find and pay for parking; and wecan get driving directions in our cars with real-time traffic updates.Wireless communication has become a critical infrastructure, alongsidewater, gas, and electricity. Despite the recent rise of wireless technology,its connectivity relies on the old legal principles of real estate. Tosatisfy the fast-growing demand for connectivity, major wirelesscarriers such as AT&T, Sprint, T-Mobile, and Verizon must not onlymaintain but continue to expand an infrastructure of cell towers andother telecommunication facilities that occupy land.

Wireless communication is developing so quickly that even arecent basic overview1 of the various land use requirements of celltower siting and network infrastructure is due for an update.Notwithstanding a congressional mandate provided in 2012,2 theprocess of wireless facility siting has remained burdensome and timeconsuming. Accordingly, more recent developments at the federaland state level have further streamlined the siting process. Thesenew developments determine what types of wireless projects qualifyfor streamlined treatment, distinguish clear areas from gray, identifythe law’s limitations, and propose an outlook on the future of wirelessdeployments under the new laws.3

Much like zoning for any other real estate development, wirelessfacility siting is primarily handled at the state and municipal level.However, federal law may sometimes preempt conflicting municipallaw. For example, the 2012 Spectrum Act provides that a localmunicipality “may not deny, and shall approve” an “eligible facilitiesrequest” for the modification of an “existing” wireless “tower” or“base station” that does not “substantially change” the physicaldimensions of the tower or base station.4

At first blush, the Spectrum Act offers favorable relief to wirelesssiting applicants seeking certain entitlements from any given municipalityby providing the municipality “may not deny, and shall approve” anapplication over which the municipality previously may have enjoyedthe ability to exercise discretion. Indeed, when a municipality’s zoningcode requires a lengthy or discretionary process, this federal law maymandate the municipality take a different course of action.

However, many of the act’s terms, such as “eligible facilitiesrequest,” “existing,” “tower,” “base station,” and “substantiallychange,” were not defined. The wireless industry applicants and thelocal jurisdictions often did not agree on when the act was applicable.5

Recently, the FCC, which is charged with ensuring that communicationinfrastructure can be rapidly and efficiently deployed, provided thewireless industry6 with relief by issuing an order (FCC Order) andrulemaking designed to significantly streamline certain wireless infra-structure deployments.7

Eligible Facilities Request

The Spectrum Act provides that an “eligible facilities request” refersto any project that involves the collocation, removal, or replacementof transmission equipment.8 The FCC has clarified that the act’s

wireless siting rules—often referred to as Section 6409 provisions—may apply to a wide range of projects, including antenna modifications,the addition of new fiber optic lines and generators, the placementof the first wireless facility on an existing building or other structure,and even certain tower enhancements.9 These types of site enhance-ments are critical to ensuring wireless facilities are updated to keepup with new mobile device technology, ever-expanding consumerdemand, and public safety needs. The wholesale removal and replace-ment of a tower, however, falls outside the scope of Section 6409.

“Existing” wireless towers or base stations refer to infrastructurethat has been previously reviewed and approved under the applicablelocal zoning process or that has received another form of affirmativestate or local regulatory approval, such as from the state publicutility commission.10 Facilities placed as a matter of right, those notrequired to undergo a siting review at the time constructed, orfacilities deployed without proper review do not qualify as “existing”towers for the purposes of Section 6409.11

practice tips BY LYNN WHITCHER, CYNTHIA HANSON, DANIEL GOODRICH, AND BENJAMIN ESTES

New Requirements Facilitate Wireless Infrastructure Development

Lynn Whitcher, Cynthia Hanson, Daniel Goodrich, and Benjamin Estes serveas counsel for Md7, which provides site acquisition and portfolio managementservices to the wireless industry.

Section 6409 does apply to modificationsand additions to 1) “towers,” defined as anystructure built for the sole or primary purposeof supporting an FCC-licensed or authorizedantenna and its associated equipment, regard-less of whether the antennas and associatedequipment are located on the tower andregardless of whether the tower has actuallybeen constructed, and 2) a wide variety of“base station” structures, such as buildings,water tanks, utility poles, or light standards,so long as the structure supports antennas orassociated equipment at the time the appli-cation is filed.12

In determining whether a project will resultin a “substantial change,” six factors will beevaluated: 1) changes in height, 2) changesin width, 3) increase in the number of equip-ment cabinets, 4) deployment or excavationactivity outside the existing footprint of thesite, 5) defeat to existing concealment mea-sures, and 6) compliance with the conditionsof prior approvals.13 In order to ensure stream-lined treatment under Section 6409 review,applicants would be well served to providethe jurisdiction with detailed site plans thatclearly establish that the proposed projectmeets the “no substantial change” test.

The first four substantial change factorsare empirically measureable and are supportedwith significant and relatively clear FCC guid-ance. However, the determination of whethera project will defeat concealment measuresor whether there is compliance with priorconditions of approval may be open to thesubjective evaluation of a municipality.

Federal Limitations

Aside from clarifying when Section 6409applies, the FCC has also issued importantguidance about 1) what information a munic-ipality can require as part of the zoning appli-cation, 2) how long the municipality canreview it, and 3) what happens when themunicipality does not meet the review dead-line. When reviewing a zoning applicationunder Section 6409, the municipality mayonly seek documentation necessary to confirmwhether the project qualifies for treatmentunder the section.14 For example, wireless car-riers cannot be asked to provide business casejustifications supporting the need for the pro-ject. A municipality will, however, continueto maintain its ability to condition approvalon compliance with generally applicable build-ing, structural, electrical, and other similarhealth and safety codes.15 Projects must alsostill comply with otherwise applicable federalrequirements.16 Under what is known as the“shot clock” rule, munici palities reviewingzoning applications for wireless facilities arerequired to act upon the application within areasonable time after the request is submitted.17

Under the shot clock requirements, reasonable

response times have historically been definedas 90 days for site modifications and colloca-tions and 150 days for a new cell site, unlessotherwise agreed between the parties.18

The FCC clarified that the 90- or 150-dayshot clock timelines apply only to zoningapplications falling under Section 332 of theTelecommunications Act of 199619 and im -posed a new, shortened shot clock period of60 days for the review of applications fallingunder Section 6409.20 If a jurisdiction failsto rule on an application covered by Sec tion6409 within the new 60-day shot clock period(accounting for tolling), the r e quest will bedeemed granted.21 This approval only takeseffect after the applicant submits writtennotice to the municipality that the approvaltime period has elapsed and during that timethe municipality did not take definitive actionon the zoning application.22

In the event the municipality disagreeswith this determination, the burden shifts tothe municipality to seek relief in the courtsrather than the applicant having to seek thisremedy, as is the case with zoning applicationssubmitted under Section 332. This “deemedgranted” remedy alone may result in a sig-nificant acceleration of deployment projectsand is a welcome relief for carriers, most ofwhich are reluctant to sue the local authoritiesfor every violation of the shot clock.

In addition to imposing a new shot clockfor Section 6409 applications, the FCC alsoclarified how and when the shot clock applies.First, the shot clock begins to run when anapplication is submitted, not when it hasbeen deemed complete by the municipality.23

Second, in the event that a municipality deemsthe application incomplete, the municipalityhas 30 days to request the missing informa-tion, and it must also identify the code sectionor publicly stated requirement that requiresthe missing information.24 Third, when theapplicant resubmits the requested applicationmaterials, the local authority has 10 days toidentify which previously requested piecesof information are still missing, and the mun -icipality cannot request new information out-side the scope of its original request.25

This prescribed shot clock scheme preventsmunicipalities from asserting serial requestsfor supplemental documentation and infor-mation, which would effectively string to -gether multiple tolling periods to artificiallyelongate the shot clock approval timeframe.The FCC also declared that the shot clockwill run regardless of any local moratoriumon zoning approvals of wireless facilities.26

These shot clock administration guidelinesapply to zoning applications submitted undereither Section 6409 or Section 332.

Unfortunately, the FCC stopped short ofchanging the effect of a municipality’s failureto meet the Section 332 shot clock timelines.

Any disputes regarding a local authority’sfailure to meet the Section 332 shot clockmust be resolved in court. Also, the munici-pality maintains its right to request extraneousproject information—for example, trafficstudies, development impact reports, or copiesof the underlying lease or other owner consentdocuments.27

DAS and Small Cells

The FCC has confirmed that the deploymentof smaller-scale facilities known as distributedantennas systems (DAS) and small cells mayqualify for the protections of Sections 332and 6409.28 Further, in light of the smallernature and therefore lessened impact of theseinstallations on the environment, the FCChas created new categorical exclusions fromenvironmental and historical review for manyof these minimally obtrusive facilities.

Qualifying interior facilities, collocations,and facilities in the rights-of-way will nolonger need either an Environmental Assess -ment (EA) or Environmental Impact State -ment (EIS) as to the potential impacts of theproject under the National EnvironmentalPolicy Act of 1969 (NEPA).29 Specifically,the FCC extended the existing NEPA cate-gorical exclusions for antenna collocationson buildings and towers to include equipmentassociated with the antennas, such as wiring,cabling, cabinets, backup power equipment,and collocations in a building’s interior.30

This NEPA categorical exclusion for collo-cations was also extended to collocationson structures other than buildings and tow-ers.31 Further, the FCC created a categoricalexclusion for projects that will not resultin a substantial increase in size over the ex -isting utility or communications uses of 1)the public right-of-way designated for com-munication towers, 2) above-ground utilitytransmission lines, or 3) any associated struc-tures and equipment.32

Similarly, qualifying collocations on utilitypoles and transmission towers33 (but notlight standards) and qualifying collocationson buildings and certain nontower structures34

will not require consultations with the StateHistoric Preservation Officer (SHPO), TribalHistoric Preservation Officer (THPO), orAdvisory Council on Historic Preservation(ACHP) as otherwise required under theNational Historic Preservation Act of 1966(NHPA, also known as Section 106).35 Inorder to qualify for this exclusion and pre-suming no other exclusions otherwise apply,the collocated equipment, when measuredwith any other wireless deployment on thesame structure, must meet certain size andground disturbance limitations.36 Lastly, anystructure can now qualify for Section 106exclusion, regardless of age—even if olderthan 45 years.37

12 Los Angeles Lawyer January 2016

Finally, the FCC ruled that the existingexclusions for certain collocations on build-ings under FCC programmatic agreementsare now extended to collocations inside build-ings.38 The FCC has already begun discus-sions about broader reforms to expediteapplicable DAS and small cell wireless facil-ities deployments and relieve all stakeholdersof unnecessary and nonproductive obliga-tions. These discussions are anticipated toconclude in 18 to 24 months, at which timenew reforms will be announced.

The FCC Order has been challenged byMontgomery County, Maryland; the Cali -fornia cities of Los Angeles, San Jose, Red -wood City, and Ontario; the city of Bellevue,Washington; the city of McAllen, Texas; andthe Texas Coalition of Cities for Utility Issuesin an appeal pending before the Fourth CircuitCourt of Appeals.39 These petitioners havelimited their challenge to those portions ofthe FCC Order implementing Section 6409.Petitioners claim the FCC overreached itsrulemaking authority, resulting in a violationof the Tenth Amendment. A stay pendingappeal was not sought by the petitioners, andall parts of the FCC Order remain in effect.

State Law

While the FCC Order imposed a “deemedgranted” remedy for certain collocations andminor modifications that do not result in asubstantial change (i.e., eligible facility re -quests), the commission was unwilling toextend this remedy to other collocations,new sites builds, or major modifications.However, the California State Leg is lature hasnow filled this gap by extending a “deemedgranted” remedy to these siting applicationsas well. Following the FCC Order, CaliforniaState Assemblyman Bill Quirk introducedAssembly Bill 57, addressing land use ap -provals of wireless telecommunication facil-ities.40 The bill was passed by large majoritiesin the Assembly and the Senate despite intenselobbying efforts by local governments andtheir affiliated organizations.

Effective January 1, 2016, AB 57 addedSection 65964.1 to the Government Code,which provides that wireless communicationsfacility collocation or siting applications notacted on in a dispositive manner by a city orcounty within the reasonable time periodsestablished by the FCC (90 days for collo-cations and 150 days for other applications41)will be “deemed approved.”42 This new lawwould allow a “deemed approved” remedyonly if all public notice requirements regard-ing the application for the wireless telecom-munications facility have been met,43 andthe applicant has provided a notice to thecity or county that the reasonable time periodhas lapsed.44 The applicable review timeframe can be tolled to accommodate timely

requests for information required to completethe application or by mutual agreementbetween the applicant and the local govern-ment.45 Section 6409 “eligible facilityrequests” for minor modifications to existingfacilities, described above, fall outside theprojects covered by AB 57 and remain subjectto the new FCC 60-day shot clock. AB 57also does not extend to telecommunicationprojects proposed on fire department facil -ities.46 Once a siting application has beendeemed approved, the city or county willhave 30 days to file a court action challengingthe deemed approved status and stop theconstruction.47 By enacting this legislation,California joins with a growing number ofother states—including Georgia, Indiana,and Iowa—in passing laws aimed at accel-erating upgrades to wireless infrastructurein an effort to meet the demands of an ever-growing base of consumers.48

In light of the framework established bythe new federal guidance and new state law,wireless carriers will be closely tracking thedate siting applications are submitted, thedate notifications of application incomplete-ness are issued, and any shot clock tollingperiods and expirations. Carriers will be push-ing to move forward with siting applicationsthat have been deemed granted or approvedunder federal or state law. How ever, it maytake considerable time for mun i cipalities toupdate their codes and application forms toalign with the new re quire ments. In the mean-time, certain progressive municipalities workcooperatively with applicants to achieve asolution that not only accommodates thestreamlined approach required by law butalso complies with municipal code as it relatesto wireless deployments. For example, juris-dictions with codes that require public hear-ings for siting applications arguably fallingunder Section 6409 are en deavoring to holdthe hearing and issue ap provals within the60-day shot clock period.

Although much progress has been made,much work remains to be done to meet thesteadily growing demand for wireless com-munication infrastructure. Carriers and muni -cipalities can work together to find solutionsto support the efficient and balanced deploy-ment of wireless infrastructure, which benefitsnot just the wireless industry but all whohave come to rely on smartphones and otherdevices (such as those now found in cars)that employ wireless communication tech-nology. n

1 See Lynn Whitcher & Cynthia Hanson, Tower Build -ing, LOS ANGELES LAWYER 30-34 (Jan. 2014).2 47 U.S.C. §1455.3 See, e.g., In the Matter of Acceleration of BroadbandDeployment by Improving Wireless Facilities SitingPolicies, Report and Order, 29 F.C.C.R. 12865 (2014),80 Fed. Reg. 1237, available at https: / /federalregister

.gov/a/2014-28897 [hereinafter FCC Order]; 80 Fed.Reg. 1259.4 See Middle Class Tax Relief and Job Creation Actof 2012 (Spectrum Act), Pub. L. No. 112-96 §6409(b),(c), 126 Stat. 156 (2012); 47 U.S.C. §1455(a)(1) (wire-less facilities deployment).5 See Pub. L. No. 112-96 §6409, codified at 47 U.S.C.§1455.6 The FCC ruling also has implications extendingbeyond wireless (including to public safety, broadcast,and WiFi).7 FCC Order, supra note 3.8 47 U.S.C. §1455(a)(2).9 See 80 Fed. Reg. 1249-52.10 See 47 C.F.R. §1.40001(b)(5).11 See 80 Fed. Reg. 1251.12 See 47 C.F.R. §1.40001(b)(1), (9).13 See 47 C.F.R. § 1.40001(b)(7).14 See 47 C.F.R. §1.40001(c)(1).15 See 80 Fed. Reg. 1252.16 See 80 Fed. Reg. 1255.17 47 U.S.C. §332(c)(7)(B)(ii).18 80 Fed. Reg. 1259 (In the FCC’s 2009 DeclaratoryRuling, the commission interpreted a “reasonableperiod of time” under §332(c)(7)(B)(ii) to be 90 daysfor processing collocation applications and 150 daysfor processing applications other than collocations.).19 47 U.S.C. §332(c)(7).20 See 47 C.F.R. §1.40001(c)(2).21 47 C.F.R. §1.40001(c)(4).22 47 C.F.R. §1.40001(c)(4).23 47 C.F.R. §1.40001(c)(3).24 47 C.F.R. §1.40001(c)(3)(i).25 47 C.F.R. §1.40001(c)(3)(iii).26 47 C.F.R. §1.40001(c)(3).27 See generally 47 U.S.C §332(c)(7).28 See 80 Fed. Reg. 1260.29 See 80 Fed. Reg. 1239.30 See id.31 See 80 Fed. Reg. 1240.32 See 80 Fed. Reg. 1241.33 See 80 Fed. Reg. 1244; 47 C.F.R. §1.1307(a)(4)(ii).34 Collocations on a building or other nontower struc-ture are excluded from Section 106 review to the extentnot otherwise already excluded if 1) there is an existingantenna on the building or structure, 2) antenna prox-imity requirements are met, 3) the new antenna(s) willcomply with all zoning conditions and historic preser-vation conditions imposed on existing antennas thatmitigate or prevent environmental impact (such asstealthing requirements), and 4) they meet ground dis-turbance requirements. These criteria apply to equip-ment collocated within a building as well as on itsexterior. 80 Fed. Reg. 1243.35 See 80 Fed. Reg. 1243, 1245.36 80 Fed. Reg. 1243.37 Id.38 80 Fed. Reg. 1239.39 Montgomery County, MD v. United States, No.15-1240 (Cons. No. 15-1284) (4th Cir. filed Mar. 6,2015).40 A.B. 57, 2015-16 Reg. Sess. (Cal. 2015), availableat http://www.legislature.ca.gov.41 See In re Petition for Declaratory Ruling, 24 F.C.C.R.13994 (2009).42 GOV’T CODE §65964.1(a).43 GOV’T CODE §65964.1(a)(2).44 GOV’T CODE §65964.1(a)(3)(A).45 GOV’T CODE §65964.1(a)(1).46 GOV’T CODE §65964.1(f).47 GOV’T CODE §65964.1(a)(3)(B).48 See Mobile Broadband Infrastructure Leads toDevelopment Act, GA. CODE ANN. §36-66B-1 (2014);Indiana Wireless Telecom munications Investment Act,IND. CODE §8-1-32.3 (2015); Iowa Cell Siting Act, H.File 655, 86th Gen. Assem. (2015) (enrolled).

Los Angeles Lawyer January 2016 13

14 Los Angeles Lawyer January 2016

FOR THE REMAINDER OF 2016, the 1997 edition of the GeneralConditions of the Contract for Construction,1 published by theAmerican Institute of Architects (AIA) and typically incorporatedinto the AIA standard form prime agreement between an owner andcontractor, contains language that has been adjudicated to circumventthe Code of Civil Procedure’s statute of limitations scheme and thedelayed discovery rule in favor of a party-negotiated limitationsperiod that time-bars all claims four years after the notice of com-pletion. However, the clock is ticking as this defense will evaporateafter December 31.

In Brisbane Lodging, L.P. v. Webcor Builders, Inc., the CaliforniaCourt of Appeal upheld the enforceability of a provision of a stan-dardized contract form promulgated by AIA that waived the appli-cation of the delayed discovery rule to an action for a latent con-struction defect claim.2 The contract between Brisbane and Webcorcontained the 1997 AIA standard form of agreement between ownerand contractor (cost plus fee) and document A201 general conditions(AIA A201). By agreement between the parties, Article 13.7.1.1 ofAIA A201 establishes a contract-based limitations scheme and abro-gates the delayed discovery rule. At the end of 2016, the extent towhich Brisbane’s abrogation of statutory rights and the commonlaw rule disappear as the 1997 edition of A201 has been revisedand superseded by the 2007 edition. Whereas Brisbane relied on the1997 edition of AIA A201, the critical language of Article 13.7.1.1was modified to all but eliminate the present opportunity to assert aclaim as time-barred by the 1997 edition of the AIA A201.

In ruling that Brisbane’s claim against Webcor was time-barred,the court of appeal recognized the right of sophisticated parties towaive the statute of limitations contained in the Code of CivilProcedure in favor of those provided by a form contract. The decisionlegitimizes the use of the standardized AIA A201 General Conditionsin California. At the same time, the Brisbane court was not required,nor asked, to resolve the possible effect of this negotiated limitationsperiod on express or equitable indemnification causes of action aspart of their case on appeal, and there is presently no clear answeras to whether or not Brisbane also abrogates such indemnificationcauses of action that arise out of the project at issue.

Established in 1857, the AIA publishes widely accepted standardform agreements for a multitude of contractual relationships. Thefirst common use contract was circulated by the AIA in 1888, and thefirst standardized General Conditions were published in 1911.3 TheGeneral Conditions have become, and are recognized as, a substitutefor portions of the California Commercial Code.4 They are ubiquitousin the owner-architect, design, construction management, and generalcontracting industries and are regularly relied upon by governments,architects, owners, and construction industry professionals.5

In Brisbane, a property owner contracted with a builder for theconstruction of a hotel, which was substantially completed on July31, 2000. In January 2005, the owner discovered a broken sewerline. The builder visited the site in March 2005 and concluded that

the sewer line break was a latent defect for which the plumbing sub-contractor was responsible. In July 2005, the plumbing subcontractormade repairs to the kitchen sewer line. In October 2007, whileinspecting another plumbing problem under the structure, the plumb-ing subcontractor discovered that the pipe sections had become dis-connected. No repairs were made, nor was the owner informed ofthe plumber’s discovery.

In May 2008, Brisbane sued Webcor for breach of contract, neg-ligence, and breach of implied warranties. The builder moved forsummary judgment, contending that the entire action was time-barred by Article 13.7.1.1 of the AIA A201 General Conditionsbecause A201 provides that the statute of limitations began to runon the date of substantial completion.6 The owner opposed themotion, contending “(1) it had never agreed to waive its right to suefor ‘latent’ defects; (2) Article 13.7.1.1 was too vague to be interpretedas a waiver of the provision of section 337.15, which sets a maximum10-year period to sue for latent defects; and (3) a clause purportingto abrogate the delayed discovery rule would be against publicpolicy.”7 The trial court granted the builder’s motion, and theappellate court affirmed.

The statutory basis for the owner’s opposition is founded uponSections 337.1 and 337.15 of the California Code of Civil Procedure,which set a four-year statute of limitations and a 10-year statute ofrepose, respectively, upon an aggrieved party that seeks to recoverdamages from one who “performed or furnished the design, super-vision, or observation of construction or construction of an improve-ment to real property.”8 These statutes provide that, in most cir-cumstances, the claim accrues on the date of a substantial completionof the project. However, when a construction defect is latent orotherwise undiscoverable without investigation as of the date ofsubstantial completion, this bright-line rule can produce inequitableresults by precluding a latent defect claim that is actually discoveredmore than four years after substantial completion. In Brisbane, theMarch 2005 discovery of the latent pipe failure would have beentime-barred under a strict interpretation of Section 337.1 becauseit was discovered five years after the substantial completion of theproject, an arguably harsh result for a party unaware of the defectgiving rise to the claim.

Exceptions to this bright-line rule have developed judicially tolimit this harsh result. In Leaf v. City of San Mateo,9 a propertyowner purchased a duplex in 1972 and later sued the developer-builder-seller for construction defects after the property owner dis-covered the property subsidence resulted from an improperly con-structed water drainage system. The plaintiff settled with the defendantsin June 1976 and used the settlement proceeds to make repairs.

practice tips BY JOHN BRAZIER

The Effect of Brisbane on the Construction Defects Statute of Limitations

John Brazier is a senior associate with the firm Chapman, Glucksman, Dean,Roeb & Barger in their Los Angeles office. He practices multiparty, complexcivil litigation representing builders, developers, and general contractors ingeneral and construction-related matters.

During the repair effort, the property ownerdiscovered the city had failed to properlycompact the soils covering the sewer lines onhis prop erty. These ill-compacted trenchesdirected ground water underneath the property.The property owner sued the city in November1976—13 years after completion. The city’smotion of summary adjudication was sus-tained, as the claim was filed more than 10years after substantial completion in violationof Section 337.15. On appeal, the court rec-ognized the harshness of “depriving a plaintiffof a cause of action before they were awarethey had been in jured.”10 The court furtherreasoned that before the property ownerexcavated around his property to effectuatethe repairs attendant to the first lawsuit, hewas unaware of the full extent to which hehad been damaged. The court applied thedelayed discovery rule, and plaintiff’s suitwas restored.

The result in Brisbane turned on the inter-pretation of the provisions contained in theAIA 201 General Conditions. The Brisbanecourt engaged in a detailed examination ofthese provisions and concluded that Article13.7, which is entitled “Commencement ofthe Statutory Limitations Period,” supersedesCalifornia’s statutory limitations period forconstruction defects. As drafted, Article 13.7establishes a strict four-year limitations periodfor “any alleged causes of action” as of thedate of “substantial completion” for a con-struction project. Specifically, Article 13.7,subsection 1.1 provides that for claims arisingfrom acts or omissions before “SubstantialCompletion, any applicable statute of limi-tations shall commence to run and any causeof action shall be deemed to have accrued inany and all events not later than such dateof Substantial Completion.”11

In construction defect matters, the four-year limitations period found in Article 13.7is materially consistent with the operativeterms of Section 337.1 of the California Codeof Civil Procedure. However, the harsh effectsof the substantial completion trigger date ofSection 337.1 have been mitigated by thedelayed discovery rule. Leaf and other caseshave articulated that when properly appliedthis rule delays the substantial completiontrigger to a time when the plaintiff discoversor has reason to discover the cause of action.12

Since the property owner’s latent defect claimin Brisbane did not arise until it was discov-ered in 2005, it was statutorily time-barredby Section 337.1. However, the claim wouldhave survived by the application of thedelayed discovery rule. Interestingly, the Com -mentary on Document AIA A201-1997 speci -fically states that the purpose of Article 13.7is to eliminate the delayed discovery rule.13

Surprisingly, before Brisbane there had beenno judicial examination or reconciliation of

the differences between the Article 13.7 trig-gering event, which is set on the date of sub-stantial completion, and the common-lawtolling of the limitations period until the con-struction defect is, or could have been, dis-covered—the delayed discovery rule.

Brisbane went on to examine the impactof applying such a strict triggering event tothe facts presented, i.e., the substantial com-pletion condition of Article 13.7, and foundthat the potentially unforgiving or harsh resultswere, in fact, negotiated between two sophis-ticated parties. For this reason, Article 13.7 is“valid, enforceable and not contrary to publicpolicy.”14 In reaching its opinion, the Brisbanecourt found persuasive the Maryland case ofHarbor Court Associates v. Leo A. Daly Com -pany,15 which analyzes other states’ laws and,in doing so, recognized the right of contractingparties to contract around a statutory limita-tions scheme, and enforced a contractual pro-vision that specified a cause of action betweenthe owner and contractor commenced to runupon substantial completion of the work inaccordance with the applicable statute of lim-itations.16 Like California, Mary land appliesa delayed discovery rule, and Harbor notedthat neither the courts nor the legislature ofMaryland ever stated that the delayed discoveryrule could not be waived by contract and displayed “considerable reluctance to strikedown a voluntary bargain on public policygrounds.”17 The Harbor court also found that“[t]his is especially true where…the parties tothe agreement are sophisticated business actorswho sought, by contract, to allocate businessrisks in ad vance.”18 Thus, the Brisbane court’slegal reasoning was based on California’s com-mon law and persuasive authority from Mary -land to respond, and overcome, the propertyowner’s public policy arguments in opposition.

In the end, Brisbane held that the limita-tions period commenced to run on the dateof substantial completion as provided in Art -icle 13.7.1.1 and all claims (patent or latent)were required to be presented within fouryears from that date.19 The court further rea-soned that “[b]y tying the running of theapplicable statute of limitations to a datecertain, the parties...negotiated to avoid theun certainty surrounding the delayed discov-ery rule for the security of knowing the datebeyond which they would no longer be ex -posed to potential liability. …[S]ophisticatedparties should be allowed to strike their ownbargains and knowingly and voluntarily con-tract in a manner in which certain risks areeliminated and, concomitantly, rights are re -linquished.”20

The 2007 General Conditions

Brisbane stands for the proposition that Article13.7.1.1 of the AIA A201 General Con ditionsclearly and unambiguously abrogates the

delayed discovery rule and the provisions ofSection 337.15 of the California Code of CivilProcedure.21 A contract that properly incor-porates the AIA A201 General Conditions(editions 1987 through 2007 include Article13.7.1.1) contains an enforceable contractualabrogation of the California statute of limi-tations for matters that arise out of “perform-ing or furnishing the design...supervision, orobservation of construction or constructionof an improvement to real property....”22

This abrogation of the otherwise enforce-able limitations of the California Code ofCivil Procedure in defect causes of actionprovides the defense bar with a powerfultool to overcome claims that were latent butdiscovered more than four years after sub-stantial completion. Although the Brisbaneruling is good news for the defense bar, thebad news is that the 2007 edition of the AIAA201 General Conditions was amended, andthe very language upon which Brisbane ana-lyzed to find an abrogation had been modifiedto defer to the applicable law for limitationsperiods thus, mitigating—but more likelyeliminating—the potential for conflictingresults between the state’s delayed discoveryrule, application of the Civil Code of Pro -cedure, and a negotiated AIA contract be -tween sophisticated parties. Specifically, Bris -bane is predicated on the 1997 edition ofthe AIA A201 General Conditions, whichwas drafted to circumvent the delayed dis-covery rule,23 whereas the 2007 edition wascrafted to reverse this course.

In particular, the 2007 version of Article13.7 reads in relevant part that “[t]he Ownerand the Contractor shall commence all claimsand causes of action…against the other arisingout of or related to the Contract…within thetime period specified by applicable law, butin any case not more than 10 years after thedate of substantial completion.” By referringto the applicable law, the 2007 edition ofthe AIA A201 General Conditions is to beread in concert with the statutory limitationsperiod as opposed to being in conflict.

The AIA’s official commentary on the2007 Edition explains that “As a result [ofthe modification], the owner will have thebenefit of the discovery rule in states thatfollow it, but the contractor will have thebenefit of knowing it will not be exposed topotential liability for more than ten yearsafter the date of substantial completion evenin states that follow the discovery rule.”24

In California and at least until the end of2016 or 10 years after the 2007 edition hadtaken effect, Brisbane provides an effectiveaffirmative defense for those agreements thatincorporate the pre-2007 version of the AIAA201 General Conditions. After 2016, the2007 Edition of the AIA A201 General Con -ditions is incorporated in the AIA standard

Los Angeles Lawyer January 2016 15

form agreements. Thus, the specific contrac-tual basis upon which Brisbane is predicatedno longer applies.

There is no clear record, other than thecommentary, to explain the motivations thatprecipitated the AIA’s repositioning in regardto Article 13.7 “Commencement of Limit -ations Periods” within the A201 General Con -ditions between its 1987 and 2007 editions.It is reasonable to conclude the AIA optedto be consistent with the applicable laws ofthe state in which it is applied rather than inconflict.

Notwithstanding the litigation advantageBrisbane may provide to some until 2017,there remain questions as to the absolutescope of the abrogation and whether or nota cause of action for indemnity would survivethe application of Brisbane. In constructionlitigation it is common to encounter derivativecross-actions for indemnification between anamed defendant general contractor and its subcontractor cross-defendants. CaliforniaCivil Code Section 2778(2) provides: “Uponan indemnity against claims, or demands, or damages, or costs, expressly, or in otherequivalent terms, the person indemnified is not entitled to recover without paymentthereof.” Thus, the general rule is that thestatute of limitations does not start to runon an indemnity cause of action until theclaimant has suffered a loss or has been dam-aged. Notwithstanding the general rule, allconstruction claims are time-barred 10 yearsafter substantial completion, including indem-nity, unless an exception applies.

Section 337.15(c)

The 10-year statue of repose of Section337.15(c) of the California Code of Civil Pro -ce dure excludes a cross-complaint for indem-nity from the 10-year bar so long as the under -lying action was timely filed. In Valley CircleEstates v. VTN Consolidated25 the appellatecourt affirmed the enforceability of the excep-tion in Section 337.15(c), and in Sandy v.Superior Court26 the court held further thatthe original construction and the events givingrise to the indemnification cause of actionmust also be transactionally related to theevents giving rise to the underlying cause of action. Although Valley Circle and Sandyare the seminal cases interpreting Section337.15(c), they and their progeny rely on asingle critical fact that distinguishes themfrom Brisbane. In both Valley Circle andSandy, Section 337.15 was valid and enforce-able, whereas the Brisbane court abrogatedthis statute. It is incongruous to conclude thatthe exception of Section 337.15(c) would sur-vive the abrogation of the code.

This raises the question of whether aderivative cross-complaint for indemnificationwould be possible after Brisbane in which

16 Los Angeles Lawyer January 2016

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AIA A201 (1987 or 1997 edition) had beenproperly incorporated. Abrogating Section337.15 (and presumably its exception) under-mines the ability of litigants to argue thesurvivability of a derivative indemnificationcross-action. Brisbane is also distinguishablein this regard as there was no such cross-action for the court to assess. However, giventhe decisive language of A201 (“any claims,”“all causes of action”) and the Brisbanecourt’s championing of the rights of sophis-ticated parties to contract around the limi-tations periods, another court could expandthe holding to include transactionally related,derivative cross-actions for indemnity nototherwise time-barred by the California Codeof Civil Procedure. Regardless, this questiontoo becomes moot as these contract analysesbegin to rely on the revised 2007 edition ofA201. Any action predicated on the 1997edition brought after January 1, 2017, will,almost assuredly, be time-barred by the 10-year statute of repose.

As such and given that Brisbane involvedthe 1997 edition of Article 13.7, its effectswill evaporate with the close of 2016. Cer -tainly, there are thousands of completed con-struction projects in California that reliedon an AIA standard form agreement and theincorporated A201 1997 edition. Many ofwhich have become involved in litigation or

the alternative dispute resolution process.The Brisbane decision could prove criticalto their resolution. Additionally, the impactof Brisbane on derivative cross-actions forindemnification has yet to be addressed.While such an action may fall far afield ofthe Brisbane holding, the same facts do notsupport a conclusion that an indemnificationcause of action should be precluded fromthe scope of the Brisbane holding. n

1 AMERICAN INST. OF ARCHITECTS, AIA DOC. A201-1997, GEN. CONDITIONS OF THE CONTRACT FOR CONSTR.(1997) [hereinafter AIA DOC. A201-1997].2 Brisbane Lodging, L.P. v. Webcor Builders, Inc., 216Cal. App. 4th 1249 (2013).3 There have been 15 formal AIA published updatessince the first revision in 1915, with the most recentrevision occurring in 2007. Prior to the 1976 edition,modifications to the AIA were sporadic. Followingthe 1976 edition, the AIA has attempted to be morepredictable with its General Condition updates.4 COM. CODE §§1101 et seq.5 AMERICAN INST. OF ARCHITECTS, COMMENTARY ON

AIA DOC. A201-1997, 2 (1997) [hereinafter COM -MENTARY ON AIA DOC. A201-1997].6 Brisbane, 216 Cal. App. at 1256.7 Id.8 CODE CIV. PROC. §337.15(a).9 Leaf v. City of San Mateo, 104 Cal. App. 3d 398(1980).10 Id. at 406.11 AIA DOC. A201-1997, art. 13.7.1.1.12 Leaf, 104 Cal. App. 3d at 404; Fox v. EnthiconEndo-Surgery, Inc., 35 Cal. 4th 797, 807 (2005).

13 According to the Commentary on AIA DocumentA201-1997 the statute of limitations in all jurisdictionsstarts when a claim has accrued. In many jurisdictions,a claim accrues when the harm caused has been dis-covered by the innocent party. This is called the dis-covery rule. These provisions eliminate the discoveryrule by providing that the statute of limitations beginson the date of the contractually specified occurrence.For example, the statute of limitations begins to runon the date of substantial completion for nonconform-ing work performed before substantial completion,even though the nonconforming work may not be dis-covered until years later.14 Brisbane Lodging, L.P. v. Webcor Builders, Inc.,216 Cal. App. 4th 1249, 1259-62 (2013).15 Harbor Court Assocs. v. Leo A. Daly Co., 179 F.3d 147 (4th Cir. 1999).16 Brisbane, 216 Cal. App. 4th at 1259-60.17 Harbor, 179 F. 3d at 150.18 Brisbane, 216 Cal. App. 4th at 1260 (quotingHarbor, 179 F. 3d at 150-51).19 Brisbane, 216 Cal. App. 4th at 1264.20 Id. at 1260-61.21 Id. at 1263-64.22 CIV. PROC. CODE §337.15(a).23 These provisions (13.7.1.1-.3) eliminate the “[delay -ed] discovery rule by providing that statute of limita-tions begins on the date of the contractually specifiedoccurrence.” COMMENTARY ON AIA DOCU MENT A201-1997, at 96.24 AMERICAN INST. OF ARCHITECTS, DOC. COMMENTARY,A201TM – 2007 GEN. CONDITIONS OF THE CONTRACT

FOR CONSTR., 52 (2007).25 Valley Circle Estates v. VTN Consol., Inc., 33 Cal.3d 604 (1983).26 Sandy v. Superior Court, 201 Cal. App. 3d 1277(1988).

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18 Los Angeles Lawyer January 2016

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THE INTRODUCTION of commercialmortgage-backed securities (CMBS) financingin the 1990s ushered in a period of spectaculargrowth in the U.S. commercial real estatemarket. Between 1995 and 2005, total out-standing commercial real estate loans in -creased by 158 percent from $1.014 trillionto $2.618 trillion.1 In 2005 alone, over one-third of new loan issuances were CMBS. Akey trait of CMBS loans is that they are non-recourse, which means that the borrower isnot personally liable for the loan upon adefault. Instead, the lender’s sole recourse isto repossess the property pledged as collateralfor the loan.2 To address the moral hazardof borrowers operating properties recklesslyand using nonrecourse provisions as a shieldagainst personal liability, lenders have his-torically included exceptions in loan docu-ments so that the commission of certain inten-tional acts within the borrower’s control(commonly referred to as “bad boy acts” or“nonrecourse carveouts”) would trigger per-sonal liability. These exceptions representedthe “fundamental bargain” of nonrecourse

lending: so long as a borrower does not inten-tionally harm the lender’s collateral, the lenderwill look solely to the collateral, and not tothe borrower’s personal assets, for recovery.

The flood of liquidity caused by the riseof CMBS precipitated the Great Recession.As commercial real estate values plummeted,taking CMBS loans down with them in theprocess, lenders scrambled to preserve theircollateral and deter moral hazard. Their con-cerns were often well-founded. In the fog ofwar resulting from the adversarial postcrashenvironment, many borrowers neglected theirproperties, wasting them away while misap-propriating whatever income remained. Lend -ers naturally looked to nonrecourse carveoutsfor relief, and an unprecedented flurry ofCMBS-related litigation ensued. Never beforehad practitioners and courts scrutinized thesecarveouts so heavily.

In the wake of the recession and accom-panying litigation came the advent of “CMBS2.0,” a new lending environment in whichcredit underwriting standards tightened andthe use of nonrecourse carveouts expanded.3

This expansion revealed two major side effectsfor borrowers. First, lenders pursued aggres -sive and often novel legal theories to exploitambiguities in existing nonrecourse carveouts.Second, lenders became far stricter in docu-menting nonrecourse loans by requiring newcarve outs not seen in CMBS 1.0. Taken to -gether, these side effects substantially broadenthe scope of carveouts from traditional badboy behavior to more innocuous acts, culmi-nating in a thorny financing environment.Borrowers must now be vigilant not to unin-tentionally trigger personal liability for carve-outs in their existing loan documents whileensuring that any new carveouts are narrowlytailored and in the spirit of nonrecoursefinancing.

Historically, real estate finance practitioners

Nader Pakfar is a partner at Sutton, Pakfar &Courtney LLP, where he handles transactional realestate matters. Kelsey Thayer and Karli Baum -gardner are associates at Sutton, Pakfar & CourtneyLLP, and also handle transactional real estatematters.

SecuritiesBREACHWith the return of CMBS, attorneys for borrowers

must carefully examine the nonrecourse carveouts

of loan agreements

by Nader Pakfar, Kelsey Thayer, and Karli Baumgardner

were in general agreement (or so they thought)as to what types of bad boy acts would leadto personal liability. Acts constituting inten-tional malfeasance—such as fraud, misap-propriation, transferring mortgag ed property,filing for bankruptcy, and violating single-purpose entity (SPE) covenants and riskingsubstantive consolidation—were in disputablenonrecourse exceptions. For the most part,any violation of these carveouts automaticallyresulted in personal liability for the entireamount of the loan (i.e., “springing liability”or “full recourse”) without the need for thelender to show that it incurred actual losses.

During the early years of CMBS lending,these generally accepted carveouts were in -cluded in form loan documents but rarelytested in court. Practitioners blithely assumedthat they understood the scope and potentialramifications thereof. However, to the dismayof borrowers (and to paraphrase Inigo Mon -toya from the movie The Princess Bride), thecarveouts they kept using did not mean whatthey thought they meant.4 Indeed, cata-strophic and unintended results stemmedfrom breaches of two such carveouts relatedto SPE covenants and transfers.5

SPE Covenants

The inclusion in loan documents of SPE (orseparateness) covenants is intended to separatethe assets of a borrower so that, if an entityaffiliated with the borrower files bankruptcy,the borrower’s assets (i.e., the lender’s col-lateral) are not “substantively consolidated”with those of the bankrupt entity. Customaryloan documents contain over 30 such cov -enants, some of which are material—e.g.,prohibiting the borrower from combining itsassets with those of another entity—whileothers are not so at all—e.g., requiring theborrower to have its own letterhead. In theaggregate, however, these covenants serve alender’s legitimate interest in preventing sub-stantive consolidation. If a court ultimatelyconsolidates the assets of a borrower withthose of a bankrupt entity based on breachof an SPE covenant, the borrower would behard-pressed to argue that such a breach isnot tantamount to its own voluntary bank-ruptcy filing, which unquestionably triggersfull springing personal liability.

Absent a substantive consolidation, how-ever, a typical borrower may justifiably doubtthat a seemingly innocuous breach of a singleSPE covenant would result in the same re -course penalties as a voluntary bankruptcy.After all, who really cares if a borrower doesnot have its own letterhead? In 2011, in theoft-cited Wells Fargo Bank, N.A. v. Cherry -land Mall Ltd. Partnership case, the courtrelied on precedent in ruling that each indi-vidual SPE covenant is equally importantand any breach thereof triggers full springing

recourse.6 What was wholly unprecedentedwas the court’s determination that the bor-rower’s failure to have sufficient funds topay its mortgage constituted a breach of thecovenant to “remain solvent.”7 This insol-vency breach did not cause a substantive con -solidation of the borrower’s assets, nor didit arise from any intentional bad boy actstaken to harm the collateral. Rather, it wascaused solely by deteriorating market con-ditions outside of the borrower’s control.

By essentially requiring the borrower topersonally guarantee the repayment of theloan (and to contribute an unlimited amountof capital beyond the value of the propertyto avoid a payment default), the court aban-doned the fundamental bargain of nonre-course lending and in essence converted theloan from nonrecourse to recourse. Sufficeit to say that the decision created shockwavesin the real estate finance community.8

Strictly interpreting individual SPE cov -enants in a vacuum, and not as a whole in thecontext of substantive consolidation, othercourts have rendered seemingly unjust and, attimes, absurd decisions. In addition to solvencycovenants,9 courts have said that breaches ofSPE covenants prohibiting acquisition of addi-tional property,10 admission in writing of aninability to pay debts,11 and amendment of aborrower’s organizational documents12 wouldall trigger full springing recourse, even if thebreaches caused no actual harm.

For example, in LaSalle Bank N.A. v.Mobile Hotel Properties, LLC, the borroweragreed to a form SPE covenant not to amendits organizational documents.13 It later didso, however, simply changing the company’sstated business purpose from the “owner-ship…of a hotel” to “[engaging in] any lawfulactivity.”14 This benign change did not causeeither a substantive consolidation of the bor-rower’s assets or any other harm to the lend -er. Yet it did trigger personal liability, withthe court stating uncompromisingly that theplain language of the carveout “means whatit says.”15 Because typical CMBS loan doc-uments contain over 30 SPE covenants, manyof which are insignificant if considered indi-vidually (for example, failing to “correct aknown misunderstanding about its separateidentity”), borrowers face a real risk that, inthe CMBS 2.0 universe, innocuous and imma-terial breaches of any given SPE covenantwill be enforced vigorously by lenders andinterpreted strictly by courts.

Transfers of Property

Another carveout under which borrowersthought they understood their risks, but bywhich they ultimately got burned in unantic-ipated ways, involves a prohibition on trans-fers of property. On its face, this prohibitionseems reasonable and indeed essential to the

fundamental bargain of nonrecourse loans.Under a plain-English interpretation of a“transfer,”16 a borrower might reasonablyassume that the intent behind the carveout isto prevent the unpermitted sale of a mortgagedproperty. Given that such a sale is by definitionan intentional bad boy act that harms the col-lateral, it follows that the remedy is full spring-ing personal liability.

Due to the expansive definitions of “trans-fers” and “mortgaged property” found incustomary CMBS loan documents, however,CMBS 2.0 borrowers have incurred springingpersonal liability in scenarios that most CMBS1.0 practitioners would have thought implau-sible. Specifically, the term “transfers” gen-erally includes not only sales but also anyvoluntary or involuntary liens, encumbrances,pledges, assignments, easements, covenants,and other dispositions of any direct or indirectinterests in a mortgaged property. And like-wise, the term “mortgaged property” gener-ally includes not only land and improvementsbut also easements, covenants, rights to com-mence or defend legal actions, leases, licensesand permits, accounts, and other types oftangible and intangible property. Allowinglenders to exploit the breadth of these defi-nitions, courts have upheld full personal lia-bility for triggers as disparate as property taxliens,17 involuntary mechanic’s liens,18 term -inations of parking licenses,19 and waivers ofpotential legal actions.20

An extreme example of the nonintuitivenature of the transfer carveout is Blue HillsOf fice Park LLC v. J.P. Morgan Chase Bank.21

In that case, the borrower’s neighbor appliedfor a permit to build a garage.22 The borrowerobjected to the permit application but laterwithdrew its objection.23 Over a year later,the lender foreclosed and commenced anaction to recover a $10.7 million deficiencypersonally from the borrower based on thetransfer carveout.24 The court ruled that theborrower’s withdrawal of its objection to theneighboring development—despite not havingany causal link to the actual default that ledto the foreclosure, the $10.7 million deficien -cy, or indeed to any loss the lender incurred—constituted a violation of the carveout.25

Given cases like Blue Hills, and the seeminglyendless ways to mix and match the definitionsof “transfer” and “mort gaged property,” thepractical risks to borrowers of unintentional -ly tripping the transfer carveout are almostinconceivable.

Expanding Personal Liability

A second major side effect of CMBS 2.0 isthe requirement of new carveouts that didnot exist in CMBS 1.0. Lenders, stung bythe losses they suffered in the Great Reces -sion—including those they believed werecaused by the nefarious acts of borrowers—

20 Los Angeles Lawyer January 2016

invented carveouts to address matters forwhich the traditional remedy was nonrecoursedefault and foreclosure. For example, in re -sponse to borrowers’ intransigence and delaytactics during loan workouts, lenders nowimpose personal liability for failure to permitproperty inspections, deliver financial state-ments, appoint a new property manager, orcooperate in transferring licenses upon a fore-closure. In most of these cases, the purport -ed bad act in question does not rise to themal feasance level of tra-ditional carveouts likefraud, misappropriation,or bankruptcy.

Further, in the newworld of CMBS 2.0,lenders more often re -quire certain catch-allcarveouts (such as grossnegligence and willfulmisconduct), which donot involve any specificbad acts or covenantbreaches. This lack ofspecificity exposes bor-rowers to unpredictableand subjective risks, asopposed to traditionalbad boy clauses thatenumerate proscribedacts. In CMBS 1.0, thesetypes of carveouts wereeither not required at allor routinely negotiated out by borrowerswithout much resistance.

One of the most controversial new carve-outs imposes personal liability on a borrowerif it interferes with or hinders a lender’s exer-cise of remedies. The reason for this carveoutis clear, as during the recession borrowersoften asserted lender liability claims in aneffort to protect themselves from liability orforeclosure. Lenders in turn created an interrorem effect to deter such claims. For bor-rowers, this new carveout presents an obviousdilemma: abandon good-faith defenses to alender’s foreclosure and lose the property, orfight to keep the property under the threatof springing personal liability.

For example, in Bank of America, N.A.v. Freed, the borrower obtained a mortgageloan to finance its project, which later encoun-tered financial difficulty.26 One of the spring-ing full recourse carveouts in the loan docu-ments required the borrower not to “contest,delay, or otherwise hinder” the lender’s exer-cise of remedies.27 The loan workout discus-sions became contentious, the lender filed apetition to appoint a receiver to wrest controlof the project, and the borrower duly contestedthe appointment.28 The contest was short-lived, as just 30 days later the court appointedthe receiver.29 Nevertheless, under a strict

interpretation of the nonrecourse carveouts,the court rejected the borrower’s defenses andenforced full personal liability.30

Nonavailability of Equitable Defenses

Given the courts’ strict interpretation of non-recourse carveouts, often producing draconianand unanticipated results, borrowers havecried foul and looked to equitable defensesfor protection. Among other things, borrowershave claimed that penalizing them with spring-

ing personal liability if the lender has sufferedno actual harm is inequitable, unconscionable,and unenforceable. For example, the developerin Freed argued that its “hindrance” of thelender’s appointment of a receiver for a mere30 days did not warrant a judgment for $206million.31 The office owner in Blue Hillsargued that its “transfer of property”—inactuality withdrawing its objection to a neigh-boring development—was not the type of badboy conveyance that should merit a $10.7million judgment.32 The apartment owner inPineridge Associates, L.P. v. Ridgepine, LLC,argued that its transfer of property—in actu-ality incurring a mech anic’s lien that waswiped out in foreclosure—did not warrantfull personal liability under its loan.33 In allof these cases, the borrowers’ arguments wererebuffed by the courts.34

Indeed, the vast majority of cases reflectan unwillingness to entertain, much less adopt,the equitable defenses of borrowers.35 In thosecases, neither the immateriality of the breach,the disparity between the judgment amountand the loss, nor the absence of any loss atall has persuaded the courts otherwise. Theopinion in CSFB 2001-CP-4 Princeton ParkCorporate Center, LLC v. SB Rental I, LLC—a case in which the borrower placed a$400,000 subordinate mortgage behind a $13

million senior loan and repaid the subordinateloan one year before the senior lender’s fore-closure—best sums up the common theme inthe reasoning employed by many courts: “Itmatters not, as defendants argue, that theyeventually cured the very breach that triggeredtheir personal liability and that no harmaccrued to plaintiff as a result thereof…defen-dants may not now escape the consequencesof their bargain.”36 Undoubtedly, the SBRental decision leaves many nonrecourse bor-

rowers wondering what happened to theirfundamental bargain.

What’s Next?

CMBS debt surged in 2015 and, while thefinal numbers are still coming in, projectedissuances totaled over $100 billion—morethan in any other year in history except forthe 2005–2007 peak.37 Because this surgecoincides with rising commercial real estatevalues, there has been less distress in the mar-kets and less litigation over nonrecoursecarveouts. As history has taught, however,the surging market will not last forever, andthe next black swan event could be justaround the corner. When a market correctionoccurs, it will be impossible to predict whattypes of seemingly innocuous events will trig-ger springing personal liability.

Imagine making a deal with a neighborthat allows the use of the neighbor’s drinkingfountain—would giving up that right con-stitute a transfer of property? How aboutobjecting to that neighbor's new paint colorand then realizing you actually like neongreen—by dropping your objection have youtransferred property? And what if you legit-imately dispute a lender's foreclosure—didyou improperly hinder the lender’s remedies?Or if you text the lender that you might not

Los Angeles Lawyer January 2016 21

make your next mortgage payment—did youadmit your inability to pay debts?

While lenders (and at times borrowersthemselves) may consider the above examplesas absurd instances of lawyers being per-snickety, case law suggests otherwise. As bor-rowers navigate their way through CMBS2.0 and beyond, it would behoove them tometiculously review their existing loan docu -ments, identify overbroad nonrecourse carve-outs that could trigger personal liability inunanticipated ways, and calibrate their behav-ior accordingly. In negotiating new nonre-course loans, borrowers should ensure thatany springing carveouts are narrowly drafted

to encompass only intentional bad boy actsthat are within the borrower’s control andwill actually cause material harm to the lend -er’s collateral. n

1 Daniel C. Vaughn, The “Credit Crisis” in Com -mercial Lending and the Effect on Your Real EstatePractice, ABA, http://www.americanbar.org (lastvisited Nov. 23, 2015) [hereinafter Vaughn].2 JLM Fin. Invs. 4, LLC v. Aktipis, No. 11 C 2561,2013 U.S. Dist. LEXIS 77939, at *16 n.2 (N.D. Ill.June 3, 2013).3 See, e.g., Vaughn, supra note 1; CMBS 2.0 MarketStandards, CRE Fin. Council, http://www.crefc.org(last visited Nov. 20, 2015); Clayton B. Gantz, EllenR. Marshall, & Tom Muller, CMBS 2.0: Still in Needof Work, URBAN LAND, JAN.-FEB. 2012, available at

https://www.manatt.com (last viewed Nov. 20, 2015). 4 THE PRINCESS BRIDE (1987).5 Other nonrecourse carveouts (such as misrepresen-tation and waste) have also been the subject of con-troversy, and difficult questions are raised when thereis a change of control of the borrower and the newborrower subjects the old (unaffiliated) guarantor topersonal liability.6 Wells Fargo Bank, N.A. v. Cherryland Mall Ltd.P’ship, 812 N.W. 2d 799, 812, 815 (Mich. Ct. App.2011) (citing LaSalle Bank N.A. v. Mobile HotelProps., LLC, 367 F. Supp. 2d 1022, 1029 (E.D. La.2004)).7 Cherryland, 812 N.W. 2d at 815.8 The Cherryland decision was so antithetical to thefundamental nature of nonrecourse lending that theMichigan legislature promptly enacted legislationoverturning its effect. Nonrecourse Mortgage LoanAct, MICH. COMP. LAWS §§445.1591–445.1595(2012).9 Cherryland, 812 N.W. 2d at 815; see also 51382Gratiot Ave. Holdings, LLC v. Chesterfield Dev. Co.,835 F. Supp. 2d 384, 393-400 (E.D. Mich. 2011).10 Transcript of Hearing at 9-10, LaSalle Bank Nat’lAss’n v. Marquis, No. 2:02-cv-00988-TSZ (W.D.Wash. June 10, 2003).11 D.B. Zwirn Special Opportunities Fund, L.P. v.SCC Acquisitions, Inc., 902 N.Y.S. 2d 93, 94-95(N.Y. App. Div. 2010).12 LaSalle Bank N.A. v. Mobile Hotel Props., LLC,367 F. Supp. 2d 1022 (E.D. La. 2004).13 Id. at 1029-30.14 Id. at 1025.15 Id. at 1030.16 See, e.g., BLACK’S LAW DICTIONARY (1999).17 G3-Purves St., LLC v. Thomson Purves, LLC, 953N.Y.S. 2d 109, 111-12 (N.Y. App. Div. 2012).18 Weinreb v. Fannie Mae, 993 N.E. 2d 223, 233(Ind. Ct. App. 2013); Pineridge Assocs., L.P. v.Ridgepine, LLC, 337 S.W. 3d 461, 469 (Tex. App.2011).19 J.E. Robert Co. v. Signature Props., LLC, 71 A. 3d492, 506-07 (Conn. 2013).20 Blue Hills Office Park LLC v. J.P. Morgan ChaseBank, 477 F. Supp. 2d 366, 377-80 (D. Mass. 2007).21 Id.22 Id. at 370.23 Id.24 Id. at 371, 377.25 Id. at 378-79.26 Bank of Am., N.A. v. Freed, 983 N.E. 2d 509, at*4 (Ill. App. Ct. 2012).27 Id. at *3.28 Id. at *4-9.29 Id. at *24-25.30 Id. at *32-34.31 Id. at *24-34.32 Blue Hills Office Park LLC v. J.P. Morgan ChaseBank, 477 F. Supp. 2d 366, 381 (D. Mass. 2007).33 Pineridge Assocs., L.P. v. Ridgepine, LLC, 337S.W. 3d 461, 466-68 (Tex. App. 2011).34 Blue Hills, 477 F. Supp. 2d at 381; Freed, 983 N.E.2d at *32-34; Pineridge, 337 S.W. 3d at 466-68.35 While the vast majority of courts have rejected bor-rowers’ equitable defenses, other courts have taken amore balanced approach. See, e.g., CP III RinconTowers, Inc. v. Cohen, 13 F. Supp. 3d 307 (S.D. N.Y.2014); ING Real Estate Fin. (USA) LLC v. Park Ave.Hotel Acquisition LLC, 907 N.Y.S. 2d 437 (N.Y.Sup. Ct. 2010).36 CSFB 2001-CP-4 Princeton Park Corporate Ctr.,LLC v. SB Rental I, LLC, 980 A. 2d 1, 6-7 (N.J.Super. Ct. App. Div. 2009).37 CRE Fin. Council 2015 Market Outlook Survey,CRE Fin. Council, available at http://www.crefc.org(last visited Nov. 20, 2015).

22 Los Angeles Lawyer January 2016

Los Angeles Lawyer January 2016 23

HOMEMANY WEALTHY NON-AMERICANS see U.S. real estateas an attractive and secure investment opportunity and asafe vehicle by which they may expatriate cash from theirhome countries. Foreign investment in U.S. real estate reached$54 billion for the year ending March 2015.1 Not surprisingly,the Golden State has topped the charts in market share,second only to Florida.2 The majority of these sales are forsingle-family residences intended to be used as vacationhomes or investment property.3 Sometimes foreign buyersacquire a home for their U.S. college-bound children.

Whatever the reason for purchasing a home in California,foreign investors typically have a number of competing objec-tives. A common one is privacy. Since title to real estate inthe United States is usually public record, wealthy foreigninvestors, particularly those that are public figures, are right-fully concerned about the public availability of the locationsof their personal residences. As a corollary to this concern,many foreign investors do not want to file income tax returnsin their individual names. Lawsuits are another commonfear of foreign investors. While liability exposure for theownership of a personal residence is arguably less than for aproperty that is being rented to unrelated third parties, foreignbuyers often have concerns about America’s notoriously liti-gious society. Finally, foreign investors want to minimizeincome and estate taxes on their real estate investment. Whatmany investors neglect to consider when investing in Cali -fornia is property tax, which can be significant, and theproperty tax impact of subsequent transfers of real property

to their children by gift or inheritance.When advising foreign purchasers of U.S. real estate, it is

advisable to mention that under the U.S. tax system, U.S.residents are taxed on all the income they earn, whether itwas earned in the United States or abroad. Most other devel-oped countries employ a territorial tax system, which doesnot tax income from a foreign source. Many foreign investorsare shocked to hear that their visits to the United Statescould cause them to become U.S. residents for tax purposes,subjecting them to U.S. tax on their worldwide income.

A foreign individual is treated as a U.S. tax resident ifeither 1) the lawful permanent resident test or 2) substantialpresence test is met.4 Under the lawful permanent residenttest, those who hold green cards owe the U.S. tax on theirworldwide income. Under the substantial presence test,foreign individuals are treated as U.S. tax residents if theyare physically present in the U.S. for 1) at least 31 days inthe current year, and 2) 183 days or more in the current andprevious two calendar years, with a weighting formula usedfor the previous two calendar years.5 In order to avoid passingthe substantial presence test and to maintain status as non-resident aliens (NRAs), foreign individuals must keep trackof the time they spend here, especially if they are gettingclose to the 183-day threshold. There are some noteworthyexceptions under the substantial presence test, including time

Vanja Habekovic is of counsel to Ervin, Cohen & Jessup LLP in Beverly Hills.

HOMESaway fromForeign buyers of California

residential real estate must consider

how best to address concerns of privacy,

liability exposure, and taxation

MCLE ARTICLE AND SELF-ASSESSMENT TEST

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To apply for credit, please follow the instructions on the test answer sheet on page 25.

by Vanja Habekovic

spent here on a student visa. Also, tax treatyresidence rules trump the Internal RevenueCode and therefore need to be reviewed inanalyzing a foreigner’s U.S. tax status.

Under the Foreign Investment in RealProperty Tax Act of 1980 (FIRPTA), NRAsand foreign corporations are taxed on dispo-sitions of U.S. real property interests.6 A realproperty interest in the United States includesnot only a direct interest in real property butalso interests in certain corporations that ownreal property, known as U.S. real propertyholding corporations.7 The FIRPTA tax isenforced through a withholding mechanismin which buyers are required to withhold 10percent of the gross proceeds from the sale ofa U.S. real property interest for federal pur-poses, and 31⁄3 percent for California purposes.8

Since the withholding tax is on the total pro-ceeds from the sale and not just the gain onsale, the amount of withholding may far exceedthe NRA’s U.S. federal and California statetax liability. The withheld tax can be appliedagainst the actual tax liability on the NRA’sincome tax return, and the NRA can obtaina refund if there was overwithholding.

The estate tax is only imposed on anNRA’s U.S. situs assets.9 U.S. real estate andstock in a U.S. corporation are treated asU.S. situs assets, while stock in a foreign cor-poration is not, even when the corporation’ssole asset is U.S. real property or all the stockof a U.S. corporation whose sole asset is U.S.real property.10 Whether interest in partner-ships or LLCs holding real property are

treated as U.S. situs assets is not entirely clearunder current IRS guidance. The large exemp-tion from estate tax for U.S. residents isunavailable for nonresidents; their exemptionis only $60,000.11

California property tax is based on thefair market value of the property at the timeof purchase.12 The tax rate is 1 percent annu-ally plus any special or direct assessments,which vary from city to city. The fair marketbase value of a property is adjusted for infla-tion but only up to 2 percent per year. Thus,once real property is acquired, the propertytax increases are relatively modest. Attorneysshould advise foreign purchasers that theirproperty taxes may be significantly higherthan those of the current owners of a property.This cost needs to be taken into accountwhen evaluating the investment.

The possible dramatic tax increase result-ing from a change in ownership of real prop-erty includes transfers by gift or inheritance.A transfer of real property to a spouse, how-ever, does not result in a reassessment of realproperty.13 In addition, a transfer of a primaryresidence to a child on death does not resultin a reassessment, and transfers of up to $1million of other than a primary residence isalso excluded from reassessment.14 Withrespect to transfers of interests in entitiesthat own California real property, if a personobtains more than 50 percent of the votingstock of a corporation or more than 50 per-cent of the total interest in partnership orLLC capital and profits, the transfer consti-

tutes a change of ownership of the real prop-erty owned by that corporation or partner-ship.15 However, transfers of interests in enti-ties that result in a spouse’s obtaining a greaterthan 50 percent interest do not result in achange of ownership.16

Structuring Alternatives

There are a number of ways to hold title tothe real property to address these issues. Noone solution meets all objectives, and thusthe pros and cons of each structure need tobe weighed in light of the foreign investor’sconcerns.

The simplest and most straightforwardstructure is direct investment by the individual.The key advantage of direct ownership is thefavorable long-term federal capital gain rate(currently at a maximum of 20 percent17) onthe sale of the property if it is held for over ayear. California, however, does not have apreferential capital gain rate, and the gainwould be taxed at a current maximum rateof 13.3 percent. Direct investment also leavesopen the possibility of being able to utilizethe exemption for gain on the sale of a principalresidence ($250,000 for singles and $500,000for couples).18 If a person has more than oneresidence, determination of which residenceis the principal one is made by an analysis offacts and circumstances. Ordinarily, the prop-erty that the taxpayer uses the majority of thetime is treated as the principal residence.19

This creates a tension between obtaining prin-cipal residence treatment for a U.S. home

24 Los Angeles Lawyer January 2016

The Rental PredicamentWhen a shareholder uses corporate property for personal purposes, the fair rental value of the property is includible in income as a constructive dividend to the extentof the earnings and profits of the corporation.1 In the context of a U.S. corporation holding real property, the question is whether the foreign individual shareholdershould pay rent to the U.S. corporation for the shareholder’s free use of the property.

In a relatively recent case, G.D Parker Inc. v. Commissioner,2 the Tax Court held that a foreign individual’s free use of residential real property held by a U.S.corporation was a constructive dividend to its foreign parent corporation and ultimately to the foreign individual shareholder at the top of the structure. The result wasthat the U.S. corporation was liable for a 30 percent withholding tax on the constructive dividend to the foreign corporation. The Tax Court also denied expensesassociated with the property on the grounds that the acquisition and maintenance of the property were primarily motivated by personal rather than profit-motivatedpurposes.

While the idea of a constructive dividend may seem alarming, such a distribution is not taxable as a dividend if the corporation has no earnings and profits. Forexample, a U.S. corporation that owns a single residential property that is not rented to third parties and has no other income or assets should not have any earningsand profits. Whether free use of corporate property by a shareholder could result in deemed rental income to a corporation that would generate earnings and profits,however, is a question that remains unanswered.

In the case of a U.S. corporation with no earnings and profits, a constructive distribution does not result in a taxable dividend to the foreign parent corporation.The distribution is first treated as a return of capital and, after basis is exhausted, capital gain. Where the shareholder is only using the real property occasionally, itwould likely take many years before basis is exhausted as the deemed distributions would be small.

In light of G.D Parker and the risk of imputed rent, rental agreements at fair value should be considered when a U.S. corporation owns real property that theultimate foreign shareholders are using primarily for personal purposes. The rental income can be offset by maintenance, depreciation, insurance, and other expensesso that there is no income tax liability resulting from the deemed rental payments, and potentially even losses that could be used in the future. In any event, theforeign shareholders would have to fund the property expenses in some manner, whether by capital contribution or loan to the U.S. corporation.

If actual rental payments are made to the U.S. corporation, questions of local business tax must be evaluated. Many cities in Cali fornia impose taxes and registrationrequirements on doing business in their city. Rental real estate is a business activity subject to tax in many cities. Each city has its own tax rates and municipal code,so the rules of the particular city where the real property is located must be reviewed to determine whether and how much business tax might be owed on rentalpayments to the U.S. corporation. Notably, it is unwise to claim that no city business tax is owed because the activity of renting to the ultimate sole shareholder is nota business activity. Such a contention would undermine the position that maintenance, depreciation, insurance and other expenses of owning the residential propertyis a business expense for income tax purposes.—V.H.

1 Ireland v. United States, 621 F. 2d 731 (5th Cir. 1980).2 G.D Parker Inc. v. Comm’r, T.C.M. 2012-327.

Los Angeles Lawyer January 2016 25

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1. Study the MCLE article in this issue.2. Answer the test questions opposite by markingthe appropriate boxes below. Each questionhas only one answer. Photocopies of thisanswer sheet may be submitted; however, thisform should not be enlarged or reduced.

3. Mail the answer sheet and the $20 testing fee($25 for non-LACBA members) to:

Los Angeles Lawyer MCLE Test P.O. Box 55020 Los Angeles, CA 90055

Make checks payable to Los Angeles Lawyer.4. Within six weeks, Los Angeles Lawyer willreturn your test with the correct answers, arationale for the correct answers, and acertificate verifying the MCLE credit you earnedthrough this self-assessment activity.

5. For future reference, please retain the MCLEtest materials returned to you.

ANSWERS

Mark your answers to the test by checking theappropriate boxes below. Each question has onlyone answer.

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MCLE Test No. 253The Los Angeles County Bar Association certifies that this activity has been approved for MinimumContinuing Legal Education credit by the State Bar of California in the amount of 1 hour.

1. U.S. residents are taxed only on income they earnin the United States.

True. False.

2. Green card holders are U.S. tax residents.True. False.

3. It is possible to be treated as a U.S. tax resident bybeing physically present in the United States.

True. False.

4. Withholding under the Foreign Investment in RealProperty Tax Act of 1980 (FIRPTA) is 10 percent of thegain on the sale of a U.S. real property interest.

True. False.

5. There is no estate tax imposed on nonresidentaliens.

True. False.

6. A transfer of real property to a spouse does notresult in a reassessment of real property for Californiaproperty tax purposes.

True. False.

7. California real property held directly by a nonresidentalien is subject to the U.S. estate tax.

True. False.

8. A California LLC that is treated as a disregardedentity for federal tax purposes does not have to paythe $800 minimum tax on LLCs in California.

True. False.

9. The parent-child exclusion from property tax changein ownership is not available for transfers of interestsin LLCs disregarded for income tax purposes.

True. False.

10. The interspousal exclusion from property tax changein ownership is not available for transfers of entityinterests.

True. False.

11. Stock in a foreign corporation is not a U.S. situsasset for purposes of the U.S. estate tax.

True. False.

12. FIRPTA withholding does not apply to any sale ofstock of a U.S. corporation.

True. False.

13. The estate tax applies to the stock in a foreign cor-poration that is owned by a nonresident alien (NRA) ifthe foreign corporation owns U.S. real property.

True. False.

14. Married couples can elect to treat an LLC as a dis-regarded entity for federal income tax purposes.

True. False.

15. California real estate owned by a foreign individualdirectly is not subject to the estate tax.

True. False.

16. California does not impose a withholding tax onthe sale of California real property by an NRA.

True. False.

17. Dividends from a U.S. corporation to a foreign cor-poration are generally subject to a 30 percent with-holding tax.

True. False.

18. California property tax is based on the fair marketvalue of the real property at the time of purchase.

True. False.

19. NRAs are eligible for preferential long-term federalcapital gain rates on the sale of U.S. real estate.

True. False.

20. NRAs are not subject to federal income tax on thesale of U.S. real estate.

True. False.

while not spending so much time in it thatthe resident is treated as a U.S. tax resident.There will be FIRPTA withholding on thegross proceeds from the sale.

The main drawback of direct investmentis that if the foreign owner dies while holdingthe real property, the property will be subjectto the U.S. estate tax, which has a currentmaximum rate of 40 percent. For a youngbuyer with a relatively short investment timeframe, the estate tax may be of little concern.For those who are older and wiser, a structureinvolving a foreign corporation should beconsidered. An intermediate solution for theyoung and invincible is to obtain life insurancefor an amount equal to 40 percent of the netequity of the real estate value. Under Cali -fornia tax law, a transfer of a primary resi-dence to a spouse or to a child on death doesnot result in a reassessment of the property.20

Another disadvantage of direct investmentis lack of privacy. The name of the individualNRA owner is a matter of public record, theNRA is required to file U.S. tax returns inher or his name on the sale of the property,and there is no liability protection.

A solution to the privacy and liabilityconcerns is taking title in the name of a sin-gle-member LLC—which is disregarded forfederal and California income tax purposes.Married couples owning the LLC as com-munity property (even under the laws of aforeign country) can elect to treat the LLCas having only one owner, with the resultthat it is a disregarded entity.21 Although theincome tax treatment is the same as if theNRA directly owned the property, Californiaimposes an $800 annual minimum tax onLLCs that are disregarded entities, plus agross receipts tax. The gross receipts tax,which would apply in the year of sale to thegross sales proceeds, ranges from $900 if thetotal gross receipts are between $250,000and $500,000 and up to $11,790 if the grossreceipts exceed $5 million.

Upon the death of the NRA investor, theLLC membership interests are subject to theestate tax. Addition, the parent-child exclusionfrom property tax change in ownership is notavailable for transfers of entity in terests,although the interpsousal exclusion is avail-able.22 However, unless a child of the NRAinherits more than 50 percent of the totalinterest in LLC capital and profits, the transferof the LLC interests does not constitute achange in ownership for property tax pur-poses.23 Thus, if an NRA dies with only onechild as an heir, the real property held in theLLC is reassessed at current fair market value.On the other hand, real property held in anLLC owned by an NRA who dies with twochildren as equal heirs does not undergo areassessment, as no child would obtain morethan a 50 percent interest in the LLC.

The main benefit of the LLC structurecompared to direct ownership is limited lia-bility protection. As compared to a corpo-ration, the remedies for a creditor’s claimsagainst an LLC are more limited. LLCs donot require compliance with corporate for-malities such as shareholder meetings andkeeping minutes in order to maintain pro-tection against creditors. LLCs also offerincreased privacy, as the name of the LLC,not the person, is listed in the public recordsas the owner of the home. However, theCalifornia LLC-12 Statement of Informationlists the names of the managers or membersof the LLC, and this form can be obtainedby anyone from the California Secretary ofState. Moreover, the tax filing requirementin the name of the individual NRA remains.

A foreign corporation structure is com-monly recommended to hold U.S. real prop-erty, as stock in a foreign corporation is notsubject to the U.S. estate tax. This could bestructured either as direct ownership by theforeign corporation or ownership of the realestate by a U.S. corporation that is held by aforeign corporation. In either case, the ulti-mate owner would be the NRA. While avoid-ance of estate tax is a clear advantage to thisstructure, the income tax result is not ideal.Corporations, domestic or foreign, are noteligible for long-term capital gain rates. Thus,gain on sale of the real property in eithercase would be subject to tax at a maximumrate of 35 percent rather than the long-termcapital gain rate of 20 percent. In addition,California imposes an $800 annual minimumtax on corporations organized in or doingbusiness in California, plus a net income taxof 8.84 percent.

Another consideration for a corporatestructure in which a foreign corporation ownsthe U.S. corporation that owns the property,in addition to the income tax at the U.S. cor-porate level, a dividend distribution from theU.S. corporation to the foreign corporationwould be subject to a 30 percent withholdingtax.24 In other words, this structure creates adouble tax. However, if there is a liquidatingdistribution (e.g., the real property is soldand the U.S. corporation is liquidated) the30 percent withholding tax does not apply.The direct foreign corporation ownershipstructure also has this double layer of tax asa result of the imposition of the branch profitstax. It is possible to avoid the branch profitstax, however, by terminating the foreign cor-poration’s U.S. business. From a Californiaproperty tax perspective, the transfer of theshares of stock to a spouse on death wouldnot result in a property tax reassessment.However, a transfer of the shares to anotherheir would result in a property tax reassess-ment if an heir acquired more than 50 percentof the foreign corporation.

Like an LLC, a corporate structure pro-vides privacy in that the corporation’s nameis listed as the owner of the real property onthe public records. Nonetheless, Form 1120-F, the U.S. income tax return of a foreigncorporation, requires listing shareholderswho own 50 percent or more of the corpo-ration. Therefore, NRA majority shareholdersof a foreign corporation owning real estatein the United States are required to put theirnames on the tax returns, although the NRAis not required to obtain a taxpayer identifi-cation number.

In structuring an NRA’s purchase of ahome in California, one has to keep the Cal -ifornia-specific income and property taximplications in mind while also balancingthe federal income and estate tax conse-quences, privacy concerns, and liability pro-tection issues. Even if everyone wants to liveto California, not every investment structureworks for everyone. n

1 National Association of Realtors, 2015 Profile ofHome Buying Activity of International Clients Forthe Twelve Month Period Ending March 2015 (June2015), available at http://www.realtor.org. While thenumber of units sold declined, the dollar value ofthe sales increased.2 Id. Sixteen percent of all international unit salesfor April 2014 through March 2015 took place inCal i fornia; 21% in Florida.3 Id.4 I.R.C. §7701(b).5 I.R.C. §7701(b)(3).6 I.R.C. §897(a).7 I.R.C. §897(c).8 I.R.C. §1445; REV. & TAX. CODE §18662(e). ACalifornia real property interest only includes directinterests in real property, not interests in corporationsowning real property. REV. & TAX CODE §18662(e)(5).9 I.R.C. §2101, 2103.10 I.R.C. §2104; Treas. Reg. §§20.2104-1(a)(1),20.2105-1(f).11 H.R. Rep. No. 100-1104, at 116 (1988) (Conf.Rep.).12 REV. & TAX. CODE §110.13 REV. & TAX. CODE §63.14 REV. & TAX. CODE §63.1. The parent-child exclu-sion requires an actual conveyance by deed. Transfersof interests in legal entities do not qualify.15 REV. & TAX CODE §64(c); see also Jacob Stein, TaxPlanning for Foreign Investment in California RealEstate, LOS ANGELES LAWYER 13 (Jan. 2013); GregoryR. Broege, Christopher J. Matarese, & Richard J.Ayoob, What Determines Change in Ownership ofReal Property in California?, LOS ANGELES LAWYER

14 (Feb. 2015).16 Prop. Tax R. 462.220(b).17 Nonresident aliens are not subject to the 3.8%net investment income tax imposed by I.R.C. §1411.18 I.R.C. §121.19 Treas. Reg. §1.121-1(b).20 REV. & TAX. CODE §63.21 Rev. Proc. 2002-69.22 LLCs that are disregarded for California incometax purposes are not disregarded for property taxpurposes and their separate existence is respected.CAL. PROP. TAX ANN. 220.0375.015.23 REV. & TAX. CODE §64(c).24 I.R.C. §881.

26 Los Angeles Lawyer January 2016

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28 Los Angeles Lawyer January 2016

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AS JOHN DONNE FAMOUSLY WROTE, “No man is an island…every man is a piece of the continent, a part of the main.”1 Millionsof Los Angeles County property owners can relate to Donne’s meditation because, with rare exception, each has one or more next-doorneighbors. Given enough time, property owners will likely experience some legal issue over their property or that of a neighbor. Thesetypically mundane issues are usually resolved amicably because the amount at stake is relatively de minimis when compared with thecost of retaining counsel and litigating or arbitrating the dispute. Nevertheless, disputes arise when there is sufficient antipathy betweenneighbors or the legal and financial consequences are so great that they can only be resolved through some form of legal proceeding.These disputes often relate to the location of land boundaries; structural encroachments; easements; fences and walls between properties;trees, hedges, and roots near boundaries; rights to sunlight and scenic views; noise and other nuisances; and attractive nuisances ordangerous conditions. When these disputes arise, it is advisable to grasp California civil law pertaining to property rights vis-à-vis one’sneighbors, specifically concerning single-family, detached residences over which no homeowners association governs.

Disputes concerning the coherence of recorded lot lines are becoming rare in established communities. When such coherence islacking, litigation may be inevitable if the parties cannot sort out the problem through quitclaim deeds or a lot line adjustment.2

Statutes guide California’s courts and parties concerning how to resolve ambiguities and mistakes in deeds.3 In the case of single-family,detached residential parcels, the locations of lot lines are usually determined by reference to the recorded subdivision map under whichthe lots were created.4

Andrew R. Henderson is the founder and owner of the Henderson Law Firm in Century City.

BOUNDARYISSUES

California law provides some clear answers on such sources of conflict between neighbors asencroachments, lot lines, fences, and trees

by ANDREW R. HENDERSON

When coherent lines, arcs, angles, dis-tances, etc., are recorded in a subdivision mapor by metes and bounds or other narrativedescription, the recorded descriptions arealmost always determinative—except whenthe doctrine of agreed boundary or adversepossession might apply.5 The need remains,however, to translate information from countyrecords onto the terrain, which usually requiresa professional land surveyor. Long ago, sur-veying was error-prone, especially in woodedor uneven terrain.6 Advances in modern sur-veying, however, have significantly lessenedconcerns about the reliability of surveys.7

Any landowner undertaking an improve-ment near the edge of neighboring property,even constructing a modest fence, is advisedto hire a professional surveyor to stake thelot line if its location is uncertain, becausethe encroached-upon neighbor may seek tocorrect any mistake.8 The next-door neighboralso should monitor the activity because thelaw could deprive him or her indefinitely ofthe use of the land on which an encroachmentsits. Moreover, over time, recollections andevidence about an improvement’s origin,parol agreements, friendly permission, etc.,all tend to fade or get lost. Principals andwitnesses may pass or move away. In short,laxity concerning the true location of bound-aries invites later confusion.

Lot lines described in recorded documentsare not always dispositive. A lot line caneffectively be relocated based on the ripeningof a parol agreement made between uncertainneighbors. Under the agreed boundary doc-trine, recorded lot lines will be relocated byoperation of law when there is proof of 1)mutual uncertainty between neighbors con-cerning the true boundary line, 2) an expressor implied agreement between the neighborsto accept a particular line as the boundary,and 3) either acceptance and acquiescencein the new line for the prescription period(five years) or, if earlier, when an action istaken in reliance of the agreement that wouldresult in substantial loss if the recordedboundary were reinstated.9 Thus, even whenthe facts are disputed, if a preponderance ofthe evidence reflects 1) mutual, coincidentalconfusion between neighbors, and 2) a long-standing or consequential resolution thereof,recorded lot lines can be ignored and per-manently relocated.

Importantly, a buyer who purchases aparcel that is already diminished by an agreedboundary can later suffer a surprising shortageof land even if there were no notice to thebuyer about an earlier agreement.10 Therefore,real estate purchasers should be aware thatthe agreed boundary doctrine is an exceptionto the rule giving legal effect to a land descrip-tion contained in a recorded deed, and theyshould look for any indications of such an

agreement. The doctrine might possibly beraised when there is an encroachment over,or perhaps a fence placed some distance awayfrom, a recorded lot line.

Encroachments

Encroachments happen in urban, suburban,and rural settings. The best advice aboutencroachments is simple. Strictly avoid build-ing any improvement on, over, or under some-one else’s land—other than perhaps a properlynoticed division wall exactly straddling theproperty line—unless the record owner givesexpress written permission to do so. Doingotherwise can give rise to a costly disputeover whether the encroachment was hostile,permissive, accidental, or perhaps followingan agreed boundary.

When the record owner gives neither ex -press nor implied permission, an encroachmentconstitutes a trespass or nuisance, subject toa timely suit to quiet title (which can includea prayer for the recovery of possession or in -junctive relief) that also may include dam-ages.11 In the past, many courts, when adju-dicating structural encroachments, appliedthe same three-year limitations period thatapplies to fleeting trespasses.12 More recently,however, the courts have carefully consideredthe interplay between the trespass statute andthe adverse possession statute. They nowinstead apply the five-year statute of limita-tions and other law applicable to disputesinvolving title to land—adverse possession.13

Authority exists for the proposition thata structural encroachment that juts into aneighbor’s airspace only—not touching theencroached-upon land at or below grade—constitutes an abatable continuing nuisance,and no statute of limitation should bar a lawsuit.14 A special rule applies to a latent en-croachment that is located entirely belowgrade. In this case, the encroached-uponowner enjoys the right to self-help (i.e., remov-ing the encroachment at the encroacher’sexpense without resorting to litigation) aftergiving reasonable notice and an opportun -ity to remove it.15 In all other cases involvingstructural encroachments, self-help is un-available and legally actionable. Thus, therecord owner is advised to sue to redress theen croachment.16

California law defines when and underwhat circumstances—given time or other fac-tors—an encroachment can ripen into eithera prescriptive taking of the land or, morelikely, qualify for the imposition of an equi-table easement to continue to occupy theland. Generally, one can appropriate a legalinterest in another’s land (either ownershipor an easement) by openly, notoriously, con-tinuously and without interruption, and withhostility possessing or using it, under claimof right, for five years.17 To gain actual own-

ership of the land (rather than lasting use),the adverse possessor must pay all propertytaxes levied on the land during the five-yearprescription period.18

If an unwelcome encroachment has notyet been in place for five years, a court maynevertheless award an equitable easementfor the encroachment’s continuation whenthe balance of relative harm between the par-ties warrants this relief.19 A court will typicallydo so only if the party seeking to maintainthe encroachment was neither knowing andwillful nor sufficiently negligent in causingthe encroachment.20 Therefore, one whointentionally encroaches should never enjoyan equitable easement and, instead, needs tosatisfy all elements of adverse possession.21

When courts grant equitable easements, theyusually require the encroacher to compensatethe record owner for the ongoing use of theland, and pay damages if proven.22 One whotakes by prescription usually pays nothingfor the acquired interest (other than the prop-erty taxes during the prescription period ifownership is taken).23

Three factors play relatively significantroles in deciding if an encroachment hasripened into a prescriptive or equitable rightand, if so, what kind: 1) exclusive use of theaffected land, 2) payment of property taxes,and 3) adversity versus permission. First,courts focus on whether an encroachmentprevents the record property owner fromusing the land encroached upon—such as anencroaching building or wall enclosing theencroaching party’s yard. Courts hold thatan exclusive easement—one that excludesthe record owner from using the spot ofland—can be created only by a court in equity(i.e., an equitable easement) or the recordowner’s clear expression of intent to allowsuch exclusive use by the easement holder.24

Thus, an encroacher generally should notobtain a prescriptive easement for the adverse,exclusive use of a portion of the neighbor’sland because it would be tantamount toactively appropriating ownership withoutpaying property taxes levied.25 In addition,courts have opined that a prescriptive ease-ment should never be found concerning agarden-variety boundary encroachment (with-out defining what one is).26 Therefore, tothe extent that a more-or-less typical exclusiveencroachment might result in an easement,it should be only in equity.

Second, in order for an adverse possessorto gain a fee interest in land, one must paythe property taxes levied on the land through-out the prescription period.27 Few who buildan encroachment on a neighbor’s propertywill actually pay property taxes levied onthe affected land, and it seems unlikely thatsomeone could do so unnoticed.28 Practi-tioners should be aware, however, that courts

30 Los Angeles Lawyer January 2016

have recognized a “natural inference” thatlocal officials levy taxes on the underlyingland when they levy taxes on structures.29

Therefore, when such a factual inferencemight be drawn, merely paying the propertytaxes levied on the encroaching structure orother improvement can constitute sufficientevidence of paying property taxes levied onthe land, satisfying the statutory element.30

Countering the inference requires marshallingevidence of the local taxing authority’s actual,contrary property assessment practices—i.e.,one should prove that the encroachmentresulted in no lessening of the property taxlevied on the record owner’s land.31

Third, adversity is one of the most con-tested elements of adverse possession. Thiselement can be arcane and does not requirean intention to appropriate land that oneknows to be a neighbor’s land.32 Instead, anencroacher’s innocent mistake or inadvertenceabout whose land is being occupied is con-strued as adverse, hostile and under a claimof right unless the court finds that theencroacher knew that there was a potentialof encroachment and intended to disclaimownership if an encroachment upon recordtitle were in fact the case.33

Generally, hostility and adversity are notpresent; therefore, the requisite elements arenot satisfied if the possession or use of theland is maintained with the record owner’sexpress or implied permission—for example,by license.34 Importantly, each element ofappropriation by adversity must be provenby clear and convincing evidence.35 However,each element of adverse possession or use is

ultimately a question of fact and, thus, issubject to both dispute and ultimate factualfindings that are hardly appealable under theapplicable substantial evidence test.36 There -fore, if one wishes to permit an encroach -ment or use only temporarily—neither per-manently nor for the encroachment’s naturaluseful life— one should provide permissionin a writing that clearly sets forth any and

all qualifications, and preserve, or, ideally,record, the evidence.37

If the permission given by a record owneris unclear or unqualified, the owner may laterbe barred from ejecting an encroachment,terminating a use, garnering damages, or qui-eting title. Specifically, an unqualified licenseto build an encroaching improvement canbecome irrevocable for the natural life of theimprovement thus constituting an irrevocablelicense.38 In short, one’s permission shouldnegate a future claim of adversity (and thusprescription), but it can also invite claims ofestoppel or irrevocability or both. Therefore,clarity and proof concerning the exact extentof one’s permission are advised.

Easements

An easement is defined as a right to use oraffect the land of another for a specific pur-pose, which is less than an ownership or pos-sessory (e.g., a tenant’s) right.39 An easementtypically involves the right to use a neighbor’sdriveway or land for ingress and egress, orperhaps for parking or to turn vehicles around.In, addition, with a landowner’s permission,a person may acquire an easement to constructand use a permanent structure, such as a

garage, on another’s land.40

Easements may be established by a varietyof means, including agreement, prescription,necessity, implication, condemnation, estoppel,and or by equitable considerations (out of asense of reasonableness and balance).41 Ease -ments by necessity are rare, and arise, forexample, when land is subdivided so that oneparcel is entirely surrounded and an easementis necessary for access.42 An easement byimplication arises when the actions of one ormore parties conveys an intention to burdenland with such an easement, such as when asubdivider builds, or when neighbors jointlybuild, either a party wall (then or thereafterincorporated into dependent structures) or adivision wall straddling a property line.43

Most easements seemingly arise by agree-ment, by prescription, by estoppel, or byequity. In each instance, evidence reflectingthe record owner’s permission and the parties’foreknowledge and intentions is crucial.Permission concerning the temporary use ofone’s land (e.g., a revocable license) shouldbe carefully memorialized in terms of anyand all qualifications, lest the facts are calledinto dispute, and estoppel or irrevocabilitymight adhere. Once an easement is found toexist, it will usually continue until it is aban-doned,44 terminated by agreement or pre-scription, or if ownership of both the dominantand servient tenements becomes un ified.45

Fences

Specifically concerning fences and divisionwalls, Robert Frost once penned, “Good fencesmake good neighbors.”46 However, fences arenot all beloved, and they can become sourcesof neighbors’ conflict. In theory, Californialaw compels abutting neighbors to cooperateconcerning the construction, maintenance,and replacement of division walls betweenproperties. Specifically, Civil Code Section 841provides 1) an obligation for neighbors tocooperate concerning such division walls orfences (their construction, maintenance, andreplacement), 2) a presumption that the neigh-bors are mutually benefitted and should equi-tably share the costs thereof, 3) the factorsthat could warrant an equitable departurefrom the equal sharing of costs, and 4) pre-scribed steps for obtaining one’s neighbor’sparticipation and contribution towards thecosts of such an improvement.

In practice, however, a number of factorsweigh against relying on the division wallstatute in typical residential situations. First,the litigation costs associated with enforcingone’s statutory rights would likely exceed thetotal cost of most division walls. Second, oneneighbor will typically want to dictate theaesthetics and cost of a wall or fence, war-ranting a departure from the statutory pre-sumption about the mutuality of benefits and

Los Angeles Lawyer January 2016 31

costs inherent in Section 841. Third, somelocal permitting authorities discourage or dis-allow the placement of very large, substantialwalls on property lines.47 Con sequently, whileSection 841 has excellent application aroundranchlands, most residential neighbors con-templating a division wall will agree on asolution—or not—without invoking thestatute.

Setting aside practical considerations andany effect of local permitting requirements,Section 841 implies that a property ownershould have a right to construct or replace adivision fence on the actual property line andrecover half the cost after given proper noticeand receiving no objection about the pro -posal.48 Notably, a wall or fence that is lo -cated near, but not actually on, one’s propertyline is not a division wall subject to Section841.49 Therefore, one who wishes to neitherinvoke the statute nor otherwise debate awall or fence (its height, width, aesthetics,and cost) can simply build on one’s ownproperty, off the property line, and be donewith it.

California law provides for the redressof so-called spite fences. Specifically, CivilCode 841.4 provides that “[a]ny fence orother structure in the nature of a fence unnec-essarily exceeding 10 feet in height maliciouslyerected or maintained for the purpose ofannoying the owner or occupant of adjoiningproperty is a private nuisance.” A row oftrees or hedge may constitute a spite fence.50

Although the spite fence statute specifies a10-foot height threshold, a shorter fence canbe found to be a remediable nuisance undercommon law.51

Retaining walls (i.e., walls that providelateral support for land where terrain is uneven)near property lines can cause substantial dis-putes, especially when they fail or need to bereplaced at major cost. The California legis-lature long ago modified the former commonlaw rule that provided that anyone who under-takes excavation is strictly liable for main-taining the lateral support of adjacent andnearby land.52 Civil Code Section 832 imposesa negligence standard on a person who exca-vates land related to both the original instal-lation and ongoing maintenance of lateralsupport.53

Where a retaining wall is also a divisionwall (that is, located on a property line),Section 832 could affect the presumptionconcerning mutuality of benefits which CivilCode Section 841(b) provides.54 If a retainingwall is located entirely on one’s propertyand provides lateral support for an uphillneighbor’s property (replacing the lateralsupport that would naturally exist but forthe excavation and leveling of the downhillowner’s land), it is likely that the one onwhose land the retaining wall is located 1)

is obligated to maintain and replace the re -taining wall as needed without contributionfrom the uphill neighbor, 2) may be foundliable for negligently failing to maintain theretaining wall, and 3) may not interpose asa defense the fact that prior owners of thesame parcel were negligent during their r e -spective ownership.55 On the other hand,uphill neighbors also have general respon-sibilities benefiting their downhill counter-parts. The former are held to the negligencestandard concerning the downhill impactsof their properties, even when they remainin a natural state.56

Trees, Light, and Views

Concerning trees, John Muir, California’s fa -mous naturalist, once wrote that he neversaw a discontented tree.57 Human beings,however, sometimes experience discontentconcerning their neighbors’ trees. In manycases, their discontent will persist, becauseCalifornia law is generally protective of trees.

One should never go onto one’s neighbor’sland and trim or cut any tree or bush growingthere. Not only is it a compensable trespass;but it also can result in an award of doubleor triple, or both actual and punitive, dam-ages—depending on whether the act is neg-ligent or willful, plus a plaintiff’s attorney’sfees.58 One may trim the branches that growfrom a neighbor’s land over one’s own land,however, and keep clear the airspace overone’s land to the property line.59 A similarright does not apply to cutting roots thatgrow across the property line into one’s land.One may cut roots back to one’s propertyline only if it is reasonable under the circum-stances, for example, if needed to preventproperty damage.60

While the law generally protects trees,planting one in one’s own yard too close tothe property line is not a particularly civilact in the layman’s sense. As noted, trees ora hedge planted near a property line mayconstitute a spite fence.61 The cross-boundarygrowth of roots can cause problems, andleaves, as well as perhaps other tree parts,will likely fall across the boundaries.

Perhaps worse than locating a tree tooclose to a property line is locating a treeexactly on a property line. Once it becomesestablished, such a tree is called a “line tree”and is owned in common by the two adjoin-ing neighbors.62 Neither neighbor may harma line tree without the permission of the otherunless willing to pay to the other multiplieddamages and attorney’s fees.63

Concerning light and views, Californialaw has not provided landowners with anycommon law right to enjoy a view or ongoingsunlight.64 Only a few such rights now existstatutorily. One such statute—the Solar ShadeControl Act—helps to ensure that homeown-

ers can use solar energy, and effectively pro-vides a limited easement vis-à-vis neighborsto collect sunlight on “solar collectors” thatare located on one’s property.65 Another setof statutes—the Solar Rights Act—limits localgovernments’ power to restrict the placementof unsightly solar collectors on rooftops, andrequires local governments to expedite appli-cations for permits related to the use of solarenergy.66

Although state law does not confer a rightto enjoy one’s scenic views, some localitieshave enacted ordinances that specifically pro-tect views. These ordinances grant rights sim-ilar to those arising from a private commit-ment such as an agreed-upon light-and-vieweasement or private rights and obligationsthat a homeowners association might enforce.An example of a local view ordinance is thatof the city of Rancho Palos Verdes, whichprotects neighbors’ views from growing treesand foliage.67

Typically, zoning ordinances provide set-back requirements, thus protecting neighbors’ability to get some sunlight. A growing num-ber of jurisdictions have enacted “mansion-ization” ordinances that limit the bulkinessof new construction or renovations (for exam-ple, requiring restrictive second-story set-backs).68 Little-known Government CodeSection 36900(a) provides a private right ofaction to enforce local ordinances, includingthose that impose limits on the height ofboundary fences or hedges and setbacks, sub-ject to variance processes.69

Nuisances

Concerning noise and similar nuisances,“Noth ing makes you more tolerant of aneigh bor’s noisy party than being there.”70

Neigh bors must often tolerate impositionslike a barking dog or very noisy party nextdoor. Concerning more serious matters (andsetting aside consideration of local ordi-nances), the law provides that landownersand tenants have a legal right to the “quietenjoyment and use” of their property, a vio-lation which can give rise to a cause of actionfor a private nuisance.71

A private nuisance is defined as a sub-stantial and unreasonable interference withthe quiet enjoyment and use of property.72

Cases tend to rise or fall based on proof ofthe degree of substantiality of the complain -ed about interference with the right to quietuse. The primary question—generally onefor a jury—is whether the interference withuse and enjoyment of land would be offensiveor inconvenient to the normal person.73

An “attractive nuisance” is a term of artconnoting a dangerous property conditionthat attracts children in particular.74 Prior to1970, California law recognized the attractivenuisance doctrine and provided that tres-

32 Los Angeles Lawyer January 2016

Los Angeles Lawyer January 2016 33

passing children—unlike trespassing adultsat the time—could sue a negligent propertyowner for harm caused by dangerous propertyconditions and prevail by proving a lack ofunderstanding of the risk (among the otherelements).75

In 1970, California abolished the attractivenuisance doctrine because evolving case lawheld that trespassers and invitees, regardlessof age, could sue for harm caused by negli-gently maintained dangerous conditions onone’s premises.76 Under current law, “one isresponsible…for an injury occasioned toanother by his or her want of ordinary careor skill in the management of his or her prop-erty or person, except so far as the latter has,willfully or by want of ordinary care, broughtthe injury upon himself or herself.”77 There -fore, one must manage one’s real propertyas a reasonable person would in light of theprobability of risk to others.78 The natureof a given risk will factor into the degree ofcare owed, for example, having a swimmingpool or a vicious guard dog will inform one’sduty of care to protect others.79

Thus, California law provides many an -swers concerning the mundane conflicts thatmay arise between neighbors. When coun-seling a client about any neighborly conflict,careful circumspection toward the law is war-ranted. Moreover, take note that neighbors’

conflicts are often more about emotions andegos than the law and objective facts. In thefinal analysis, the best advice is: Use commonsense, seek reasonable accommodation, andtry hard to be polite and friendly. n

1 John Donne, “Meditation XVII,” in DEVOTIONS UPON

EMERGENT OCCASIONS AND DEATH’S DUEL 63, 63 (2013).2 CODE CIV. PROC. §§760.010-.060; GOV’T CODE

§66412(d).3 CIV. CODE §1069; CODE CIV. PROC. §2077.4 The Subdivision Map Act is the primary regulatorycontrol governing the subdivision of California realproperty. Hill v. City of Clovis, 80 Cal. App. 4th 438,445 (2000). Code of Civil Procedure §2077(6) indicatesa preference for reference to the recorded map whereparcels are sold by lot number within a subdivision, asis typical.5 Mehdizadeh v. Mincer, 46 Cal. App. 4th 1296, 1302(1996).6 Higueras v. U.S., 72 United States, 827, 835 (1864).7 Armitage v. Decker, 218 Cal. App. 3d 887, 903(1990).8 Owners and tenants generally have the right to excludeothers from occupying their property. Allred v. Harris,14 Cal. App. 4th 1386, 1390 (1993).9 Blevin v. Bryant, 9 Cal. 4th 47, 54-55 (1994).10 Humphrey v. Futter, 169 Cal. App. 3d 333, 338(1985).11 Harrison v. Welch, 116 Cal. App. 4th 1084, 1088(2004); Christensen v. Tucker, 114 Cal. App. 2d 554,557 (1952).12 Polin v. Chung Cho, 8 Cal. App. 3d 673, 677-78(1970).13 Harrison, 116 Cal. App. 4th at 1196-98.

14 Kafka v. Bozio, 191 Cal. 746, 750-53 (1923).15 City of Berkeley v. Gordon, 264 Cal. App. 2d 461,469 (1968).16 Daluiso v. Boone, 71 Cal. 2d 484, 499-500 (1969).17 Gilardi v. Hallam, 30 Cal. 3d 317, 321 (1981);Warsaw v. Chicago Metallic Ceilings, Inc., 35 Cal. 3d564, 587 (1984).18 CODE CIV. PROC. §325(b); Gilardi v. Hallam, 30Cal. 3d at 321-22.19 Hirshfield v. Schwartz, 91 Cal. App. 4th 749, 758-61 (2001).20 Morgan v. Veach, 59 Cal. App. 2d 682, 690 (1943).21 Brown Derby Hollywood Corp. v. Hatton, 61 Cal.2d 855, 858, 860 (1964).22 Linthicum v. Butterfield, 175 Cal. App. 4th 259,267-68 (2009).23 Warsaw v. Chicago Metallic Ceilings, Inc., 35 Cal.3d 564, 574-75 (1984).24 Blackmore v. Powell, 150 Cal. App. 4th 1593, 1600-02 (2007).25 Mehdizadeh v. Mincer, 46 Cal. App. 4th 1296,1305-06 (1996).26 Harrison v. Welch, 116 Cal. App. 4th 1084, 1093(2004).27 CODE CIV. PROC. §325(b).28 REV. & TAX. CODE §2781.5 (permitting a landownerto instruct a county tax collector’s office to return anytax payments that are not made by the record owner).29 Gilardi v. Hallam, 30 Cal. 3d 317, 326-27 (1981).30 Winchell v. Lambert, 146 Cal. App. 2d 575, 582-83 (1956).31 Mesnick v. Caton, 183 Cal. App. 3d 1248, 1259-60 (1986).32 Gilardi, 30 Cal. 3d at 322.33 Brewer v. Murphy, 161 Cal. App. 4th 928, 939-40(2008).34 Jones v. Tierney-Sinclair, 71 Cal. App. 2d 366, 369-

34 Los Angeles Lawyer January 2016

70 (1945).35 Applegate v. Ota, 146 Cal. App. 3d 702, 708 (1983).36 Brewer, 161 Cal. App. 4th at 443-44.37 CIV. CODE §1213; In re Marriage of Cloney, 91Cal. App. 4th 429, 436-37 (2001) (constructive noticeregarding title).38 Noronha v. Stewart, 199 Cal. App. 2d 485, 487-91(1988).39 Mehdizadeh v. Mincer, 46 Cal. App. 4th 1296,1306 (1996).40 Blackmore v. Powell, 150 Cal. App. 4th 1593, 1602(2007).41 Main Street Plaza v. Cartwright and Main, LLC,194 Cal. App. 4th 1044, 1053-54 (2011).42 Murphy v. Burch, 48 Cal. 4th 157, 163-64 (2009).43 Id.44 Gerhard v. Stephens, 68 Cal. 2d 864, 889-92 (1968).45 CIV. CODE §811.46 Robert Frost, “Mending Wall,” in THE POETRY OF

ROBERT FROST: THE COLLECTED POEMS, COMPLETE AND

UNABRIDGED 33, 33 (1969).47 Pearson v. Baldwin, 125 Cal. App. 3d 670, 671(1954).48 CIV. CODE §841(b)(2).49 Ingwersen v. Barry, 118 Cal. 342, 343 (1897).50 Vanderpol v. Starr, 194 Cal. App. 4th 385, 393-94(2011).51 Griffin v. Northridge, 67 Cal. App. 2d 69, 75 (1944).52 Puckett v. Sullivan, 190 Cal. App. 2d 489, 493-95(1961).53 Id.54 CIV. CODE §§832, 841(b), 3521 (“He who takesthe benefit bears the burden.”).55 Sager v. O’Connell, 67 Cal. App. 2d 27, 32-33(1944).56 Sprecher v. Adamson Cos., 30 Cal. 3d 358, 362-72(1981).57 JOHN MUIR, JOHN OF THE MOUNTAINS: THE UN -PUBLISHED JOURNALS OF JOHN MUIR 313 (1938).58 CIV. CODE §3346.59 Grandona v. Lovdal, 70 Cal. 161, 162-63 (1886).60 Booska v. Patel, 24 Cal. App. 4th 1786, 1791-92(1994).61 Vanderpol v. Starr, 194 Cal. App. 4th 385, 393-94(2011).62 Kallis v. Sones, 208 Cal. App. 4th 1274, 1278(2012).63 Id.64 Kennedy v. Burnap, 120 Cal. 488 (1898); WesternGranite & Marble Co. v. Knickerbocker, 103 Cal.111 (1894).65 PUB. RES. CODE §§25980-25986.66 CIV. CODE §714; GOV’T CODE §65850.5.67 RANCHO PALOS VERDES, CAL. MUN. CODE §17.02.040(1989).68 The city of Los Angeles enacted temporary man-sionization limits applicable to 15 neighbors and ef -fective March 15, 2015. See http://zimas.lacity.org/documents/zoneinfo/ZI2443.pdfCity (last visited onApr. 26, 2015).69 Riley v. Hilton Hotels Corp., 100 Cal. App. 4th599, 607 (2002).70 Quote attributed to Franklin P. Jones, Americanjournalist (1908-1980).71 Centoni v. Ingalis, 113 Cal. App. 192, 194-95 (1931).72 Monks v. City of Rancho Palos Verdes, 167 Cal.App. 4th 267, 302-03 (2008).73 Id. at 303.74 Reynolds v. Willson, 51 Cal. 2d 94, 112 (1958).75 Smith v. Americania Motor Lodge, 39 Cal. App.3d 1, 7 (1974).76 Id.77 CIV. CODE §1714(a).78 Salinas v. Martin, 166 Cal. App. 4th 404, 411-12(2008).79 Id. at 415-16.

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36 Los Angeles Lawyer January 2016

MOST CALIFORNIANS come into contact with the legal system onlya few times in their lives. Typically, their cases are not high-profile,involving traffic tickets, family law matters, and small claims court.Despite the best efforts of attorneys and judges, justice still comes ata high price for many. People have to take time off from work (losingmuch-needed wages), pay for childcare, travel to the courthouse, andwait in long lines. To make justice more accessible to Californians, itis time to accelerate the use of streaming video technology. This tech-nology can serve as a practical alternative for ordinary people withroutine court matters who currently have to spend many hours toobtain a five-minute court appearance.

While courts grapple with severe budgetcuts, one cost-cutting solution is to implementvideo technology for ordinary court appear-ances. When scheduling a face-to-face appear-ance with a judge for straightforward issuessuch as contesting a speeding ticket, attendinga family law hearing, or disputing a smallclaims court issue, this technology can savetime, money, and energy. No longer will Californians need to take aday off work to wait for their matters to be called.

With courts having been deprived of more than a billion dollarsin funding in a few years, videoconferencing could be a game changer.Courts can see less overcrowding, particularly in criminal courts,where some hearings last less than five minutes. There will no longerbe a need for courtrooms packed with people waiting to be heard.Rather, the judge can have a queue of matters ready to call, and con-ference with each defendant in turn. Videoconferencing would bebeneficial over court calls and drastically reduce courtroom costs.

This technology can be implemented in other judicial matters inwhich parties typically appear pro per. Parents living in different juris-dictions can use video streaming for routine appearances in familylaw matters. Recently, in a high-profile custody case that involvesactress Kelly Rutherford, her ex-husband Daniel Giersch, who livesin Monaco, appeared by video streaming during a custody hearing inNew York. This technology is not just for the rich and famous.Working-class people should also be able to use it.

Employers would also benefit from video streaming for courtappearances. Since employees would no longer need to take days offwork to appear in court, it could take only an hour or two waitingfor their matters to finish, lessening the impact to productivity.Employees could use videoconference systems already in place at theirworkplace to make their court appearances and then return to work.

There are some matters to address. For example, during thehighly publicized criminal trial of George Zimmerman in 2013, wit-nesses using Skype were interrupted by phone calls made into theSkype account being used. This made it hard to hear over the ringsof the incoming calls and caused a delay in the proceedings. However,there is an easy fix—the individual making the call could change thesettings so that only parties on the individual’s contact lists could

make video calls and then create a contact list with only the witnesson the list. With practice, use of easily accessible videoconferencingtools such as Skype can improve.

Videoconferencing is already being used elsewhere. In Singapore,attorney use of videoconferencing is common. There are designatedSkype contacts for different chambers servicing different shorthearings. Attorneys message their respective chambers when theyare ready to proceed, state their name, law firm, and case number,and wait for the judge to initiate the video call. This works in amanner similar to CourtCall here in Los Angeles, which is currently

used by many attorneys making appearances for matters that donot require a presence in chambers. The same can be accomplishedfor litigants appearing pro per, with the added benefit of being face-to-face with the judge. Recently, the Fresno County Superior Court,in collaboration with the cities of Coalinga and Mendota, began atrial with Remote Video Proceedings (RVP). The program allowsthose who were issued citations outside the Fresno-Clovis area, andwho need to travel in excess of 15 miles to appear in traffic court indowntown Fresno, to appear via videoconference.

The Fresno program has been such a success that the JudicialCouncil of California has proposed an amendment to CaliforniaRules of Court Rule 4.220, which allows for RVP trial programs.The current rule, which is set to expire this month, authorizes trialcourts to establish remote video pilot projects by local rule. Theprogram is subject to the approval of the Judicial Council in casesinvolving traffic infractions. Essentially, the amendment would allowtrial courts to conduct RVP in eligible traffic cases so long as thecourts adopt a local rule permitting RVP, notify the Judicial Council,and comply with a semiannual reporting requirement. The passage ofthis amendment can only help strengthen the judicial system as awhole, while saving time and money for litigants, attorneys, employersand the court.

Ultimately, what we need is a massive expansion of the use ofvideo appearances for routine matters involving self-represented parties.These smaller matters are the bread and butter of our judicial system,and the better they work for ordinary Californians, the better ourjustice system is working for all of us. n

closing argument BY BRIAN S. KABATECK AND BENJI AZIZIAN

Videoconferencing Can Help Our Courts and Improve Access to Justice

No longer will Californians need to take a day off work to wait

for their matters to be called.

Brian S. Kabateck is founder of Kabateck Brown Kellner LLP in Los Angeles,where Benji Azizian is an associate. The firm’s practice includes personalinjury, mass torts litigation, and class actions.

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