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Laguna Terrace Park, LLC v. Kenneth Cummins As Successor Trustee Etc


December 7, 2010


Appeal from a judgment of the Superior Court of Orange County, James J. Di Cesare, Judge. Reversed and remanded. (Super. Ct. No. 04CC10304)

The opinion of the court was delivered by: Rylaarsdam, Acting P. J.

Laguna Terrace Park v. Cummins CA4/3


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.


In Neary v. Regents of University of California (1992) 3 Cal.4th 273, 284 (Neary), a majority of the Supreme Court held that appellate courts should grant requests for stipulated reversals, unless there are "extraordinary circumstances."

But sometimes dissents carry the day. Justice Kennard, in her dissenting opinion in Neary, argued that stipulated reversals could encourage "parties to try cases rather than settle them," or otherwise erode "public confidence in the judiciary by fostering the perception that litigants having sufficient wealth may buy their way out of the ordinary collateral consequences of public adjudications." (Neary, supra, 3 Cal.4th at p. 294 (dis. opn. of Kennard, J.).)

In response to Justice Kennard's dissent, the Legislature enacted subdivision (a)(8) of section 128 of the Code of Civil Procedure. (All further statutory references are to this code.) The statute changed the Neary rule of presumptive approval of stipulated reversals into a new rule where the onus is on the parties to justify the reversal. Justice Anthony Kline, in Hardisty v. Hinton & Alfert (2004) 124 Cal.App.4th 999, 1005 (Hardisty), styles the statute as a "presumption against stipulated reversals."

Specifically, section 128 subdivision (a)(8) sets up two criteria that must be met before an appellate court may accept a stipulated reversal: There must be (A) "no reasonable possibility that the interests of nonparties or the public will be adversely affected by the reversal" and (B) the reasons for the reversal must "outweigh" whatever "erosion of public trust" that might result from nullification of the judgment and the "risk" that the "availability of stipulated reversal will reduce the incentive for pretrial settlement."

The present case arises out of a long term dispute over which of two sets of landowners bears responsibility for a drainage pipe that sticks out of a hillside, and, during heavy rains, pours runoff and sludge from upslope land onto a street in a downslope mobile home park. The trial court entered a judgment of about $750,000 in favor of the park owner against the prior owners of the upslope property. Now the parties have stipulated to the reversal of that judgment in return for the upslope owners paying $500,000 in settlement of all claims.

Since this stipulated reversal at first appeared to pose the problem of adverse effects on nonparties -- specifically the tenants of the mobile home park and the new owners of the upslope property -- we scheduled oral argument to consider the matter. After such consideration, we accept the stipulation and direct the reversal of the trial court's judgment. The mobile home tenants and new upslope owners are not nonparties whose interests will be "adversely" affected by the stipulated reversal.


In the 1960's, Paul H. Esslinger ("Grandfather") owned canyon land in Laguna Beach which included a relatively large upslope parcel of about 228 acres of raw land, and a comparatively smaller adjacent downslope parcel of about 33 acres. The land is on the inland side of Pacific Coast Highway across from what is now the Montage Hotel and Resort.

In the 1960's, Grandfather and son Paul Jr. (who we will sometimes also refer to as Dad) developed the downslope parcel into a mobile home park.

In the process of building the park, Grandfather and Dad created a two-to-three foot deep catch basin on the upslope parcel at the top of the slope overlooking the mobile home park. The idea was to prevent runoff from draining directly onto the park property. As originally constructed, when the catch basin was full (which does not happen often, only during heavy rains), the water would flow into a "chimney" in the middle of the catch basin and from that chimney into a 12-inch diameter pipe. The 12-inch diameter pipe was originally connected to a 30-inch diameter pipe that was intended to flow to the ocean.

(To jump ahead of ourselves for the moment, the upslope-downslope arrangement of these drainage pipes would lead to trouble in the mid-1990's, when it was discovered that the 30-inch diameter pipe had eroded, meaning that the water was essentially being pumped into the ground underneath the trailer park, thus causing sinkholes.)

In 1976, Grandfather had put the land into the "Esslinger Family Trust" (the Trust). Six years later, in 1982, Grandfather died. Under the terms of his estate plan his wife Marie received the land in trust.

In 1987, the Trust leased the downslope parcel and mobile home business to a corporation, Laguna Terrace Park, Inc. (the Park), which was owned by grandson Steve Esslinger, child of Paul Jr.

When Marie died in 1990, Grandfather's two children, Paul Jr. (Dad) and Marilyn Smith (Aunt Marilyn) received beneficial interests in the trust, with the trustees being Paul Jr.'s three children, Darren, Cheryl and Steve.

In 1995, it was discovered that the 30-inch diameter pipe had eroded, and the resulting water going into the ground was now causing sinkholes.

In 1996, the Trust severed the 12-inch from the 30-inch pipe, and simply stopped using the disintegrating 30-inch pipe. Rather -- and one must remember that at this time the Trust owned both the upslope and downslope parcels -- the Trust built a retaining wall to hold up a portion of the 12-inch pipe that juts out of the hill adjacent to a road used by park residents on the downslope parcel. Steve considered this to be a "temporary" fix. He thought he had an agreement with brother Darren that the pipe would eventually be tied into the sewer system in the park. In any event, during periods of heavy rain, water, sludge and debris would run off onto a road used by park residents.

As noted, up to 1997 the Trust owned both parcels, but that year the Trust sold the downslope parcel to the Park (i.e., Steve's corporation). The details by which the corporation came to own the parcel are not relevant for our narrative here, except to say that it was also agreed that grandchildren Darren and Cheryl would resign as trustees, and Kenneth Cummins would take over as successor trustee for the upslope property, which remained in the Trust. Steve and Dad agreed to release Darren and Cheryl, as prior trustees, for all acts done during the time of their tenure as trustees. (The upslope land would later be sold to Driftwood Properties, LLC, who is not named as a party in the complaint). The purchase agreement also contained an "as is" clause and a provision for a drainage easement.

Almost eight years later -- in 2004 -- the Park sued Cummins as successor trustee for trespass and private nuisance caused by the 12-inch drainage pipe because of the sludge coming out of the drain that was now emptying into the Park.

The Trust (i.e., Cummins) naturally asserted the statute of limitations as a defense. The Trust also relied on the "as is" provision in the purchase agreement and the easement.

The Trust soon sought summary judgment. The trial court ruled that although the statute of limitations had expired for a permanent nuisance, the Park could still continue to trial on a theory of continuing nuisance.

The case proceeded to trial on the issues of trespass and continuing nuisance and the jury returned a verdict in favor of Laguna Terrace Park of $747,500. The Trust's appeal from the ensuing judgment was docketed as G040662.

The court granted a directed verdict on the issue of punitive damages in favor of the Trust and denied the Park's motion for attorney's fees and costs. These later two issues are the basis for the Park's cross-appeal, separately docketed as G041089.


This court consolidated both appeals. In late December 2009, during the pendency of this appeal but after all briefing had been completed, the parties stipulated to a reversal of the judgment. (We may note here that this case thus contrasts with

Hardisty, supra, 124 Cal.App.4th 999, discussed below, where the stipulation came in before record and briefing were completed.)

Essentially, the Park agrees to a reduced judgment. In return for payment by the Trust of $500,000, all claims by the Park are satisfied.

This "stipulated reversal" comes to us by way of four separate documents.

The first is the stipulation as such, which makes no reference to the $500,000 payment. It simply provides for a reversal of the judgment and a dismissal of Steve's cross-appeal.

The second is a joint declaration of counsel. This document describes the parties and nature of the case (and even appends several pictures of the infamous drain pipe), plus details the litigation up to the jury trial in the Spring of 2008. It delineates the Park's claims that the "'ugly'" pipe had forced the Park to lower rents on some spaces, and that it was entitled to the recover the cost of removing the pipe and modifying the slope from which the pipe was protruding. The stipulation recounts the Trust's arguments, and notes the accompanying terms of the $500,000 settlement, including the Park's release of any claims for future drainage from the pipe. It winds up recounting the assertion that no nonparties are affected and noting that settlement discussions have been ongoing since the inception of the case in 2004.

The third document is a motion, supporting the stipulation, prepared by the Trust's attorneys. After reciting the basic facts of the case, the motion states that the main reason for the settlement is that "it is unclear" whether the judgment will have collateral estoppel effect on some future owner of the downslope property, and the upslope trust does not want to go through identical litigation all over again. Then, after citing case law calling for a "case by case" evaluation under section 128, subdivision (a)(8), the stipulation then addresses a series of points relevant to the statute seriatim: reversible error (and the Trust's counsel, of course, thinks there is plenty of that), effect on nonparties or public interests (the motion argues the case is solely a dispute between two adjacent landowners), erosion of public trust (the appeal merely involves a "garden variety private dispute") and incentives on pretrial settlement (and notes the parties have been trying to settle the case for a long time).

The fourth document is a declaration by one of the Trust's attorneys (Richard D. Keyes) elaborating on the motion. Here, we learn that the $500,000 will come from the Trust's CGL insurers who, though they have defended under a reservation of rights, have agreed, if the case is settled, not to seek reimbursement for their out-of-pocket expenses. In that regard, the declaration notes the settlement solves a "Hobson's choice" confronting the Trust. If it didn't agree to the settlement, the Trust not only faces the uncertainty of the litigation of the merits of its appeal, but the danger that the CGL insurers might also seek reimbursement costs under their reservation of rights.


1. Nonparties and the Public

Three published opinions to date have confronted the no-adverse-affects-on-non-parties requirement of section 128, subdivision (a)(8).

The first case to consider the problem was In re Rashad H. (2000) 78 Cal.App.4th 376. Rashad H. is typically cited for its comment that stipulated reversals must be analyzed on a "case-by-case basis." (Id. at p. 381.) As to what actually happened: In Rashad H., a father in a dependency case did not receive notice of a termination hearing, which resulted in a judgment terminating his parental rights to his two sons. The county counsel recognized the almost inevitable reversal that was coming, and simply stipulated to reversal of the termination of parental rights order. However, the stipulated reversal most certainly did affect two sets of nonparties: The foster parents with whom the boys were then living and a set of prospective adoptive parents who would receive the boys if the father had not complained. After noting that the "adverse effect on the prospective adoptive parents" was "mitigated somewhat" by the fact that the boys had never lived with them, the court looked at the realities of the situation, and noted that the stipulated reversal substantively promoted the interests of the nonparty prospective adoptive parents because it "materially" advanced "the pace of the decisionmaking process." (Id. at p. 380.)

Union Bank of California v. Braille Inst. of America, Inc. (2001) 92 Cal.App.4th 1324 (Union Bank) took a similarly realistic approach, though it did not arise, as Rashad H. did, out of a context of an almost inevitable reversal because of clear error.

Rather, Union Bank arose out of a complex testamentary trust arrangement benefitting a number of charities. The appellate opinion did not even attempt to identify all the parties, much less identify nonparties. For the Union Bank court, the absence of any apparent effects on nonparties was enough to lay the matter to rest: "There is no evidence of any interests on the part of nonparties." (Union Bank, supra, 92 Cal.App.4th at p. 1329.)

And that was practically all the opinion had to say in confronting the requirement. However, as in Rashad H., the court noted that the beneficiaries of the trust were charities who would be better off by "no longer" spending money by litigating "these three matters." (Union Bank, supra, 92 Cal.App.4th at p. 1329.) Thus the court accepted the stipulated reversal.

The third case, Muccianti v. Willow Creek Care Center (2003) 108 Cal.App.4th 13, went in the opposite direction, rejecting the stipulated reversal. Muccianti involved medical malpractice at a poorly run health care facility for elderly patients. A doctor at the facility had specifically determined that a 65-year-old lady suffering severe stomach pains did not have ischemic necrosis of the bowel, when in fact she did. The lady was released from the facility only to die hours later from ischemic necrosis. General conditions at the facility were, as the opinion recounted, pretty horrible. We need not elaborate on the conditions here except to say the facts were practically out of a documentary on poorly run nursing homes.

The ensuing judgment was against the facility's parent company for $5 million, of which $4.5 million was punitive damages. The stipulated reversal contemplated a settlement paid by insurers of about $1 million.

The Muccianti court rejected the stipulated reversal on both prongs. The appellate court readily identified an adversely affected public interest, which necessarily included "the public in deciding future placement for its citizens," plus "collateral licensing and insurance ramifications." (Muccianti, supra, 108 Cal.App.4th at p. 21.) The licensing ramifications -- letting the facility minimize the punitive judgment -- were obvious. The court also suggested that the judgment affected "the availability and cost of insurance" for the parent company, which was "of interest to insurers providing professional liability insurance to health care facilities." (Id. at p. 22.)

While, at the beginning of the opinion, the Muccianti court alluded to "nonparties" as "prospective patients and insurance carriers," it is clear from the context of the opinion that its consideration of prospective patients was more an aspect of the general public interest than any identifiable individuals. (Muccianti, supra, 108 Cal.App.4th at p. 15.) As to insurers: While the court did not explain how vacating the judgment would adversely affect nonparty insurers (indeed, those insurers would most likely benefit from the stipulated reversal), the implication from the courts discussion (see id. at p. 22) is that prospective nonparty insurers might one day, looking at only the vacated judgment, be duped into underwriting a facility because it did not seem as bad as it really was.

A fourth published opinion, Hardisty, supra, 124 Cal.App.4th 999, had no occasion to directly confront the nonparty prong, but, along with Muccianti, suggested that the public interest might be adversely affected in contexts where the stipulated reversal implicated licensing concerns. As alluded to above, the stipulated reversal in the Hardisty case came to the Court of Appeal on nonexistent briefing and an uncompleted record, so the court did not directly address the issue of nonparties. However, since, in broad outline that case arose out of what might have been unethical fee arrangements among attorneys, the public interest was sufficient to prompt the rejection of the stipulation. (See Hardisty, supra, 124 Cal.App.4th at p. 1011.)

Putting these cases together, several consistent ideas emerge.

First, a virtually dispositive factor is whether the judgment is likely to be reversed anyway. Both rejecting cases, Muccianti and Hardisty, stressed that, unlike Rashad H., they were not dealing with situations where the judgment was, as the Hardisty court put it, "manifestly erroneous." (See Muccianti, supra, 108 Cal.App.4th at p. 20 [noting that Rashed H. involved "identifiable reversible judicial error"]; Hardisty, supra, 124 Cal.App.4th at pp. 1011-1012 ["Nor, finally, do the parties attempt to persuade us that the findings are manifestly erroneous and judgment would be reversed anyway."].) Both case thus acknowledged that if, as in Rashad H., reversal were likely, there would be no realistic possibility that nonparties or the public would be adversely affected by a stipulation that only hastens the likely reversal.

Second, it is not enough to reject a stipulated reversal merely because nonparties or the public might be conceivably affected in some way. There must be a realistic prospect that the stipulated reversal will adversely affect the nonparties or the public.

Third, all else being equal, the end of litigation is itself a benefit for any affected nonparties.

With these factors in mind, it is clear that the stipulated reversal does not adversely affect the interests of nonparties or the public.

(1) Likelihood of reversal anyway: As recounted above, when the two parcels went to separate owners in 1996, Steve (i.e., Laguna Park Terrace) was fully aware of the pipe sticking out of the hill that dumped waste water from the upslope area onto a street in the Park. At most, there was an agreement that the arrangement was a "temporary" fix. But then Steve allowed eight years to expire before filing suit for nuisance and trespass.

The statute of limitations for permanent nuisance and trespass claims is three years. (§ 338.) The Park's only hope of prevailing in this action was to have any nuisance and trespass be considered "continuous." But the pipe was hardly a "continuous" phenomena. It had been fixed in the property since the mid-1990's.

As explained by Justice Gilbert in Bookout v. State of California ex rel. Dept. of Transportation (2010) 186 Cal.App.4th 1478 (Bookout): "The cases distinguish between permanent and continuous nuisance or trespass. Where a nuisance is of such a character that it will presumably continue indefinitely, it is considered permanent and the limitations period runs from the time the nuisance is created." (Id. at p. 1489, italics added, citing Phillips v. City of Pasadena (1945) 27 Cal.2d 104, 107.)

Here, in response to the Trust's motion for summary judgment, the trial court (correctly) held that the actual pipe was a permanent nuisance, but then parsed the runoff from the pipe as constituting a "continuing nuisance." That separation appears fundamentally unsound: You cannot separate the pipe from its runoff.

The test for continuous nuisance is whether it may be "discontinued at any time" (Bookout, supra, 186 Cal.App.4th at p. 1489) and the pipe hardly falls into that category. There was evidence at trial (indeed, the reason the damage award was so high) that it will take significant earth moving work to stop the runoff, either by a series of retaining walls or by rerouting the pipes. But rerouting the pipes would require entry onto the upslope property with its new owner, while any retaining wall fix had an estimated cost of half a million dollars and even then an expert for the Park testified that the retaining walls would not fix the runoff permanently, but only block the runoff until it built up too much. (See Baker v. Burbank-Glendale-Pasadena Airport Authority (1985) 39 Cal.3d 862, 874 (conc. & dis. opn. of Mosk, J.) ["classifying nuisance as either continuing or permanent turns on whether the nuisance is reasonably abatable"].)

While the error here is not quite as obvious as that in Rashad H. (where the error implicated the rudiments of due process), reversal here was still likely enough for that factor to count in favor of the stipulation.

(2) Practical effects of the settlement: The stipulated reversal, complete with its reduction in the payout from the Trust to the Park from about $750,000 to $500,000, now operates to the benefit of the Park residents, who presumably will have a bird-in-the-hand fund from which to ameliorate the runoff rather than, if the case proceeded to a full appeal, having no fund at all. Likewise, there are no adverse effects on the new owner of the upslope property, Driftwood, which is in no worse a position than it was with the full $750,000 judgment. (The same may be said in relation to any future claims that the Park might, arguendo, bring against Driftwood. The new owner is no worse off with the settlement than it was with the judgment, and might even be spared requests to come on to its property to reroute the pipes.)

(3) End of the litigation: Park residents benefit from the end of the litigation, if only because Park management will no longer be paying attorneys to litigate the case or have its attention diverted from more internal Park matters.

2. Erosion of Public Trust or Disincentives for Pretrial Settlement

The second set of requirements under section 128, subdivision (a)(8) are easily satisfied. The public trust in the courts is, if anything, increased by the knowledge that two private landowners can settle a case on appeal for about two-thirds of the amount of the judgment, particularly where there is a likelihood that the judgment will be completely reversed and the plaintiff might end up with nothing. And this stipulation presents no disincentives for pretrial settlement given that the key point of dispute -- whether the statute of limitations had run -- applies equally at all stages of the litigation.


The stipulated reversal is accepted. The judgment is reversed, as is the attorney fee and cost order. Each party shall bear its own costs.



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