The state Court of Appeal in San Francisco on Monday overturned the award won in Alameda County Superior Court in 2000 by Glenn and Richard Storek, owners of the architecture and development firm of Storek & Storek Inc.
The award was assessed against Citicorp Real Estate Inc., a subsidiary of Citibank. The bank granted Storek & Storek a loan of $8.9 million to help pay for a project called Old Oakland, but declined to pay the last $900,001 after concluding the project was financially shaky and was not meeting the terms of the loan agreement.
The purpose of Old Oakland was to convert several 19th century Victorian buildings in downtown Oakland to offices and stores. In 1990, Citibank foreclosed on the property. An affiliate of the bank bought the property in a bankruptcy court sale for $6 million and resold it to another developer last year.
The Alameda County jury awarded the brothers $900,001 from Citicorp Real Estate for breach of good faith in the contract plus $40.9 million on their fraud claim.
In February, the state Court of Appeal struck down all but $900,001 of the award. Both sides then asked the court to reconsider.
In the new ruling issued on Monday, a three-judge panel set aside the entire award. The court said the trial jurors should not have been instructed to consider whether the bank acted in good faith and that the issue should have been whether Citicorp acted reasonably in deciding whether the contract was met.
Justice Lawrence Stevens wrote, "We conclude that Citicorp was required to make only an objectively reasonable determination that the project budget was not in balance; Citicorp had no duty to act in subjective good faith when making that determination.''
The court said the fraud part of the award should be set aside because it was also based on the claim of lack of good faith. Elliot Bien, a lawyer for the Storeks, says his clients are reviewing the opinion to decide whether to appeal. Bien says the next step in an appeal could be either a request to the appeals court for a second reconsideration of the case or a petition to the California Supreme Court.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
