Real Estate Law Update re: Co-Tenant Lawsuit Judgements

September 30, 2014 – REAL ESTATE LAW UPDATE

Judgment Against One Co-Tenant Bars Separate Lawsuit Against the Other Co-Tenants.

In the case of DKN Holdings LLC v. Faerber 225 Cal.App.4th 1115, a commercial landlord who owned a shopping center was sued by one of the co-tenants claiming that the landlord misrepresented certain issues regarding the shopping center and/or withheld material information concerning the leasehold premises. The landlord then cross-complained against the tenant who sued him as well as the other two co-tenants. However, before trial, the landlord dismissed the other two co-tenants from the lawsuit. At trial the landlord was awarded 2.8 million against the one co-tenant for breaching the lease.

Obviously, the landlord had difficulty collecting the 2 8 million dollar judgment against the co-tenant who happened to be a physician. The landlord then filed a separate lawsuit against the 2 co-tenants whom he had previously dismissed. One of them was an orthopedic surgeon.

The 2 co-tenants that were sued in the second lawsuit challenged the lawsuit by Demurrer claiming that this was impermissible claim splitting of joint and several obligors. Due to the theory of res judicata, the landlord was bound by the original decision and could not sue a second time against the other co-tenants.

The landlord relied upon a California Supreme Court case that was decided in 1957 in Williams v. Reed 1957 Cal. 2′ 57. In that case the court made a statement that would allow for claim splitting such as this in a lawsuit against joint obligors on a lease. The Appellate Court in DKN Holings stated that the holding in the Williams case was wrong and incorrectly stated the law. The Appellate Court affirmed the Riverside Superior Court Judge and clarified that] oint and several obligors cannot be sued in separate actions where the claims against them are barred by the claim preclusion aspect of the res judicata doctrine. In other words, landlords, just like the rest of us, only get one bite at the apple. The landlord should have maintained the lawsuit against all the joint obligors/co-tenants on the lease and by dismissing the other 2 and taking a judgment against only one of the co-tenants, the landlord is precluded from filing a second lawsuit.

Comment: It appears that the Appellate Court has taken a stand correcting the California Supreme Court 1957 decision, which they claim incorrectly stated the law. The landlord’s attorney relied upon that statement of the law and now his client has a judgment with interest that is well over 3 million dollars that is uncollectable.

This information courtesy of Scott Souders. Mr. Sounders is a real estate attorney who has practiced real estate law in excess of 38 years in Southern California.

Disclaimer: The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.