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Creole Gardens, L.L.C. v. Schreiber

Court of Appeals of Louisiana, Fourth Circuit

September 25, 2019

CREOLE GARDENS, L.L.C.
v.
KLAUS-PETER F. SCHREIBER AND SARAH LEONARD SCHREIBER

          APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2002-03254, DIVISION "N-8" Honorable Ethel Simms Julien, Judge

          Louis R. Koerner, Jr. KOERNER LAW FIRM COUNSEL FOR PLAINTIFF/APPELLANT

          LEEFE GIBBS SULLIVAN & DUPRE, LLC George L. Gibbs THE KOEHLER LAW FIRM Steven John Koehler COUNSEL FOR DEFENDANTS/APPELLEES

          Court composed of Chief Judge James F. McKay, III, Judge Paula A. Brown, Judge Dale N. Atkins

          Paula A. Brown, Judge

         This appeal arises out of a redhibitory breach of warranty action. The Appellant/Buyer, Creole Gardens, L.L.C ("Creole Gardens"), brought suit against the Appellee/Sellers, Klaus-Peter F. Schreiber and Sarah Leonard Schreiber (collectively, the "Schreibers"), alleging the Schreibers breached the agreement to purchase a hotel (the "property"), which the Schreibers warranted there were no governmental liens, fines, or violations against the property. After trial on the merits, the district court dismissed Creole Gardens' petition for damages and quanti minoris with prejudice. Concluding there was no error in the district court's findings, we affirm the judgment.

         FACTUAL AND PROCEDURAL HISTORY

         In 1999, the Schreibers were the owners of the property, then known as the Prytania Inn 1. On July 29, 1999, the New Orleans Fire Department ("NOFD") cited the property for several fire code violations. The Inspection Report ordered the Schreibers to correct the following violations:

1. Provide Portable Fire Extinguishers, Min. Rating 2A10BC, That Are Available To Each Guest Room. NFPA10
2. Provide An Approve [sic] Range Hood Suppression System Over Stove When Cooking For Guest Or. Remove Stove. NFPA96
3. Provide An Approved Fire Alarm System. NFPA101.17-3.4
4. Maintain Emergency Lighting. SFPC. 603.2
5. Maintain Smoke Detectors in Guest Rooms. SFPC 603.2
6. Refer. To Main Building, Each Guest Room Door Shall Be Self Closing. NFPA101.7-3. 6.3
7. Refer. To (Slave Quarters Building), Provide An Approve [sic] 2nd Exit From 2nd Floor, Spiral Stairs Not Acceptable. NFPA101.17.2.2.3
8. Refer. To Main Building (One Stairway), Provide An [sic] 2nd Exit From Each Floor. NFPA101.17-2.4.

         The citation stated that a $50.00 re-inspection fee would be assessed and municipal charges filed if the violations were not corrected by August 30, 1999. The Schreibers retained Michael R. Laughlin, a Life Safety Code consultant, to address the violations. On August 25, 1999, Mr. Laughlin sent a "plan of corrections" for the eight violations to Thomas St. Germain, a NOFD inspector.

         Sometime later, the Schreibers and Creole Gardens through its individual owners, Karen Bacharach and Andrew Craig, entered discussions to sell the property. On July 10, 2000, the Schreibers and Creole Gardens executed an "Additional Terms and Conditions Agreement to Purchase or Sell the Property" (the "Purchase Agreement") for $850, 000.00. The Purchase Agreement required the Schreibers to warrant that there were no governmental liens against the property; identified a room that might require a second means of fire egress; permitted Creole Gardens to inspect the property; and stated that the property was being sold "as is."[1]

         The Schreibers and Creole Gardens executed the Cash Sale of Property ("Act of Sale") on February 28, 2001. The Act of Sale provided that the property would be sold without any warranties; that Creole Gardens waived any right of redhibition and/or quanti minoris; and that Creole Gardens had conducted a diligent inspection of the property.[2]

         The parties agreed that the Schreibers would continue to operate the hotel until late April. On April 6, 2001, the Department of Safety & Permits (the "Dept. of S&P") renewed the Schreibers' occupational license. Creole Gardens took possession of the property on April 29, 2001, and began renovations and repairs, including painting, tearing up, and replacing rotted, termite-infested flooring.

         Creole Gardens applied for an occupational license near the beginning of May, 2001. The Dept. of S&P denied Creole Gardens' application on May 10, 2001. Thereafter, on July 31, 2001, the Dept. of S&P issued a stop work order to Creole Gardens; and on August 22, 2001, NOFD cited the property for fire code violations similar to the Shreibers'1999 fire code violations.[3] From September 2001 until September 2002, Creole Gardens rented only four of the property's twenty-six rooms.

         In February 2002, Creole Gardens filed a petition for damages and quanti minoris (the "Petition"). The Petition alleged the Schreibers breached the Purchase Agreement's warranty against any existing governmental violations on the property, specifying the fire code violations. Creole Gardens sought to recover lost income and construction expenses allegedly sustained when it ceased operations to remedy the fire code violations and a reduction in the purchase price based on the property's purported depreciation.

         A bench trial was held on March 5-7, 2018. On May 17, 2018, the district court rendered judgment in favor of the Schreibers and dismissed Creole Gardens' Petition. On September 7, 2018, Creole Gardens moved for new trial, which the district court denied. Thereafter, the district court granted Creole Gardens' timely motion for a devolutive appeal.

         STANDARD OF REVIEW

         This case presents dual standards of review. In reviewing matters involving the proper application of legal principles or the interpretation of laws, appellate courts conduct a de novo review of the record to render an independent judgment. First Nat. Bank, USA v. DDS Const., LLC, 2011-1418, pp. 10-11 (La. 1/24/12), 91 So.3d 944, 952. In such cases, the district court's findings are not entitled to deference by the reviewing court. Id., 2001-1418, p. 11, 91 So.3d at 952.

         In contrast, appellate courts employ the manifest error or clearly wrong standard of review in reviewing questions of fact as determined by the factfinder, including its findings of liability. Gaines v. Wilson, 2017-0895, pp. 4-5 (La.App. 4 Cir. 3/21/18), 240 So.3d 1010, 1013-14 (citations omitted). In order to reverse the findings of the factfinder, the appellate court, upon a review of the record in its entirety, must determine that (1) no reasonable factual basis exists for the district court's factual findings and (2) the findings must be clearly wrong. Gaines, 2017-0895, p. 5, 240 So.3d at 1014.

         DISCUSSION

         Creole Gardens raises several assignments of error, which essentially fall within two categories: (1) the district court committed legal error in its failure to apply the doctrine of the "obligation of result" to assess the Schreibers' liability and evaluate the burden of proof; and (2) the district court erred in its failure to find that governmental violations existed on the property at the time of sale and the Schreibers knowingly made false statements concerning the existence of those violations. We will address each assignment of error in turn.

         Doctrine of Obligation of Result

         In reaching its decision, the district court determined that Creole Gardens' claims are governed by La. Civil Code Articles addressing redhibition-the remedies and rights available to a buyer against the seller for a breach of warranty against redhibitory defects.[4] The district court, in its reasons for judgment, wrote:

While plaintiff purchased the property "as is", under Louisiana law, the sellers [the defendants] must warrant that the property is free from redhibitory defects. [See La. C.C. article 2548.] However, a buyer is not bound by an otherwise effective exclusion or limitation of warranty when the seller declares that the property has a quality that he knew it did not have. [See La. C.C. article 2548.] This warranty does not apply to defects that were known to the buyer, or that should have been discovered by a reasonably prudent buyer. [See La. C.C. article 2548.] Therefore, a buyer must show that the seller knew of the redhibitory defect[s].
In the case at bar, the defendant/sellers specifically warranted that there were no violations of any kind on the property.
Plaintiff asserts that as there were pre-existing Life Safety Code violations, this statement was false. Plaintiff further asserts that defendants knew it was false because they had never remedied these Life Safety Code violations.
The burden of proof is on plaintiff to prove by a preponderance of the evidence that: the statements made by defendants were false; that defendants knew that the statements were false; that these statements induced plaintiff to purchase the property; that plaintiff suffered some damages due to the false statements; and that the defect ...

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