Friday, May 27, 2011
When Good Friends Wind up in Court
This is a story about some people who were neighbors — more than that, really — for 16 years. They had dinner at each other’s homes, went on vacations together, and put on a huge spring party together every year. About ten years ago they became joint owners of a single piece of land on which they both had houses. They probably expected to be Best Friends Forever and live happily ever after. Instead they wound up on opposite sides of a courtroom in front of a jury.
It’s also a story of the housing crash of 2008, which infected that friendship like a virus sucking the life out of a computer’s hard drive. I was on the jury, and this is the broad outline of the facts as they were presented to us.
The Contractor, a youthful looking man in late middle age, had been living on the property in an illegal outbuilding for 20 years when the owners sold it to him in the early 1990s. It was a beautiful piece of land on the North Coast of Santa Cruz, CA — a secluded three quarters of an acre on a creek, with two modest size houses and a guest cottage.
The Couple rented one of the houses a few years later, became great friends with the Contractor, and at the dawn of the new millennium proposed to buy a half-interest in the land and buildings from him. They quickly struck a deal, and he carried 93 percent of their purchase price in the form of an 8 percent note.
Fast-forward to late 2007. The Couple had agreed to refinance the loan at this time, and they were looking to get additional money toward an office they wanted to buy and to do some home improvements. Given the sharp increase in their equity, Washington Mutual — which at that time was throwing money around indiscriminately — agreed to loan them more than twice as much as they had initially paid for their half of the property. The contractor was happy to co-sign the loan, which closed in early 2008; there was nothing he wouldn’t do for his friends.
Six months later, the real estate market went into the toilet.
At first there was no practical impact, but in late 2009, the Contractor decided to tap into his equity on the property. The appraisal found that the value of the property had dropped by a third, which meant that the Couple’s refinanced loan accounted for nearly 70 percent of the total , and banks were only loaning on 60 percent.
The Couple and the Contractor tried to figure out a way of refinancing the property to allow him to get back some equity, but a succession of misunderstandings and miscommunications led to growing bewilderment and suspicion. One night the Contractor went over to the Couple’s house to talk to the wife, who was there by herself. The conversation occurred in parallel dimensions. She came away from it claiming she feared for her safety, if not for her life. He came away claiming he had been agitated, upset, and frustrated and had raised his voice slightly, but no more.
On the following day the Contractor left on a two-week vacation. By the time he returned, the Couple had moved out altogether and instructed their attorney to notify the Contractor that all future communications from him to them should go through the attorney.
A few months later they agreed to a mediation to attempt to work out a plan for the Contractor to buy out the Couple’s interest in the property. The mediator came up with a one-page handwritten “settlement agreement” for that, but when the Couple’s attorney attempted to develop that into a more complete document, further misunderstanding and suspicion occurred and the Contractor backed out of the deal. The Couple sued him for Breach of Contract, Ouster, and Intentional Infliction of Emotional Distress.
That was the case we tried, and in the end we ruled in favor of the Contractor on the narrow grounds that the Couple hadn’t adequately proved their claim. In the privacy of the jury room, a number of us admitted that we really didn’t understand what had happened and were saddened by the whole proceeding.
One of the jurors said, “The way their friendship was described, I was envious. I’ve never had that kind of friendship, and I felt bad that it broke up over all this.” I agree with the sentiment. The loss of a good friendship is one of life’s greatest damages, and no legal system or jury can ever provide adequate compensation for that.