Filed 2/27/18 JHS Family Limited Partnetship v. County of Fresno CA5




NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT

JHS FAMILY LIMITED PARTNERSHIP et al.,

Plaintiffs and Appellants,

v.

COUNTY OF FRESNO,

Defendant and Respondent.

F073369

(Super. Ct. No. 15CECG02007)


OPINION

APPEAL from a judgment of the Superior Court of Fresno County. Donald S. Black, Judge.
Wilkins, Drolshagen & Czeshinski, James H. Wilkins and Quentin Cedar for Plaintiffs and Appellants.
Daniel C. Cederborg, County Counsel, and Scott C. Hawkins, Deputy County Counsel, for Defendant and Respondent.
-ooOoo-
This action arises out of appellants’ purchase of commercial property at a tax sale auction conducted by respondent, County of Fresno (County). After the purchase, appellants discovered the property was contaminated. They filed the underlying complaint for breach of written contract alleging the County breached a provision in the binding terms of the auction promising to give notice of contaminated or possibly contaminated properties of which it was aware.
The trial court sustained the County’s demurrer without leave to amend. The trial court concluded appellants could not state a cause of action because purchasers at tax sales take the property “as is” and the County is immune from liability for any patent or latent conditions of property sold at a tax sale, whether known or unknown. Further, tax sale purchasers are limited to statutory remedies.
Appellants contend the County is not immune from liability for breaching an express term of the sale requiring disclosure of known or possible contamination. Therefore, appellants argue, they have stated a cause of action for breach of contract.
Appellants are correct. Accordingly, the judgment is reversed.
BACKGROUND
Since the appeal is from the sustaining of a demurrer without leave to amend, we derive the facts from the complaint. This court must give the complaint a reasonable interpretation and assume the truth of all facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) However, we will not accept contentions, deductions or conclusions of law as true. (Id. at p. 967.)
Appellants purchased the subject property, a 14-acre parcel with a 130,000 square foot industrial building, at a Fresno County tax sale auction in March 2014. Appellants agreed to pay the entire tax lien of approximately $460,000.
The County published binding terms of sale that formed the contract between any successful bidder and the County. These terms generally encouraged prospective purchasers to “inspect the property before investing” and “examine the title, location and desirability of the properties available to their own satisfaction prior to the sale.” The terms further warned that “[t]he burden is on the purchaser to thoroughly research, before the sale, any matters relevant to his or her decision to purchase, rather than on the county, whose sole interest is the recovery of back taxes.” The terms of sale emphasized “ALL PROPERTIES ARE SOLD AS IS.”
Regarding possible contamination, the terms of sale stated:
“NOTICE OF CONTAMINATED/POSSIBLE CONTAMINATED PROPERTIES
“When we become aware of properties on our sales list that are known or suspected to be contaminated, the Asset Page will identify these properties and the Lead Agency’s name and address where all available information may be reviewed.…”
According to appellants, the County was aware of claims regarding known or suspected contaminants located on the subject property. Nevertheless, the County did not give notice of this contamination.
In December 2014, appellants received notice that the subject property was contaminated and that the estimated cost to remediate the contamination was in excess of $500,000.
Thereafter, appellants filed the underlying action against the County for breach of contract. According to appellants, the County failed to honor its express and specific promise to potential bidders to disclose any possibly contaminated properties. Appellants allege they relied on the County’s written obligation to disclose known or suspected contaminants and, as a proximate result of this breach, suffered damages.
The trial court sustained the County’s demurrer to appellants’ second amended complaint without leave to amend. The trial court noted that “purchasers at a tax sale engage in a highly speculative and risky purchase, taking the property ‘as is,’ and subjecting themselves to the doctrine of caveat emptor.” The court further opined that the County is immune from liability for any patent or latent conditions of property sold at a tax sale, whether known or unknown, under Revenue and Taxation Code section 3692.3. Therefore, the trial court concluded, there is no basis for a damages award pursuant to a breach of contract theory in the context of a tax sale.
DISCUSSION
1. Standard of review.
In reviewing a ruling on a demurrer, the appellate court’s only task is to determine whether the complaint states a cause of action. (Gentry v. eBay, Inc. (2002) 99 Cal.App.4th 816, 824.) In doing so, the court treats the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Further, the court must give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Ibid.) The complaint’s allegations must be liberally construed with a view to attaining substantial justice among the parties. (Semole v. Sansoucie (1972) 28 Cal.App.3d 714, 719.)
2. The trial court erred in sustaining the demurrer.
Appellants argue the County is not immune from liability because it specifically and unambiguously promised to disclose known or suspected contaminations to prospective buyers. Appellants speculate that the County voluntarily undertook this obligation because it expected and received an economic benefit by expanding the pool of potential buyers. According to appellants, the County’s specific representation that it would disclose known or suspected contamination is inconsistent with the general “as is” provision and therefore this disclosure provision governs and controls.
a. Tax sale proceedings.
“A tax sale proceeding is wholly a creature of statute.” (Craland, Inc. v. State of California (1989) 214 Cal.App.3d 1400, 1403 (Craland).) The procedure begins when the owner of a parcel of real property defaults on the assessed taxes. (Rev. & Tax. Code, § 3436.) The tax collector then declares the taxes to be in default and the property becomes “‘tax defaulted.’” (§ 3439.) Following the expiration of a redemption period, the tax defaulted property becomes subject to sale in the manner set forth in section 3691 et seq.
“‘Property sold by public auction … goes to the highest bidder. [Citation.] The minimum purchase price is the “total amount necessary to redeem [the property],” which is defined as the sum of the defaulted taxes, delinquent penalties and costs, redemption penalties and a redemption fee.’” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 40.)
b. Purchaser’s remedies.
It is settled law that the County is immune from tort liability arising from any misrepresentations made in conjunction with the tax sale. (Craland, supra, 214 Cal.App.3d at p. 1405.) However, the tort immunity statutes have no effect on the contractual liabilities of public entities. Nevertheless, with the exception of Schultz v. County of Contra Costa (1984) 157 Cal.App.3d 242, a case that has been widely disagreed with, California courts have not applied ordinary contract law to determine the rights of the purchaser against the seller. (Ibid.)
Further, a purchaser of property at a tax sale takes the property “as is” and assumes the risk of any defect in the proceedings in the taxation process. (§ 3692.3, subd. (a); Routh v. Quinn (1942) 20 Cal.2d 488, 490 (Routh).) “[I]n tax sales the doctrine of caveat emptor applies in all its vigor.” (Routh, supra, 20 Cal.2d at p. 490.)
Thus, in general, purchasers of property at a tax sale are limited to statutory remedies. (Van Petten v. County of San Diego (1995) 38 Cal.App.4th 43, 51 (Van Petten).) Under the Revenue and Taxation Code, a purchaser is entitled to a refund when a court determines the tax deed is void (§ 3729) or may be entitled to rescission if the property should not have been sold (§ 3731).
Accordingly, a tax sale purchaser may not recover damages for lost profits on the ground the state or county did not disclose all known, hidden defects as would be required of an ordinary seller. Neither the state nor the county owes any nonstatutory duty of care to the purchaser. (Craland, supra, 214 Cal.App.3d at pp. 1405, 1407-1408.) In so ruling, the Craland court observed that, the “overwhelming body of decisional law governing tax sales establishes that the State and County, absent a representation to the contrary, do not warrant the validity or regularity of tax sale proceedings.” (Craland, supra, 214 Cal.App.3d at p. 1405, italics added.)
Similarly, a tax sale purchaser is not entitled to rescind the sale because the sales brochure inaccurately listed the parcels’ assessed values. (Van Petten, supra, 38 Cal.App.4th at p. 51.) The statutory scheme does not provide a warranty of the validity or regularity of tax sale proceedings. (Id. at p. 50.) The Van Petten court reasoned that the brochure explicitly stated the property would be sold “as is” and warned bidders to research before investing. (Van Petten, supra, 38 Cal.App.4th at pp. 50-51.) Further, the purchaser could have easily compared the “assessed” values listed in the brochure with the assessed values listed in the assessor’s office before the sale. (Id. at p. 51.)
Additionally, a dissatisfied tax sale purchaser cannot invoke the remedy of rescission due to mistake. (Ribeiro v. County of El Dorado (2011) 195 Cal.App.4th 354, 361 (Ribeiro).) In Ribeiro, the purchaser based his cause of action for rescission upon his claim that he had no notice of bond arrearages and that he was “a ‘bona fide’ purchaser with ‘every assurance that the tax sale bid price included all amounts owing.’” (Id. at p. 362.) The court rejected this claim finding that the purchaser was aware of the bond arrearages and knew he did not know the amount. The court noted that no county employee gave the purchaser incorrect information and thus it was not a case where the purchaser was misled by the County’s conduct. (Ribeiro, supra, 195 Cal.App.4th at p. 363.)
c. Appellants can state a cause of action for breach of contract.
While caveat emptor applies to tax sales and generally precludes a purchaser from relying on general contract principles, there is an additional element in this case. Unlike Craland, Van Petten, and Ribeiro, the County made a specific express promise to identify possibly contaminated properties that it was aware of. The County was not statutorily required to include this disclosure provision in the terms of sale. Rather, the County voluntarily made this representation.
Appellants’ complaint alleges the County was aware of claims regarding known or suspected contaminants located on the subject property but did not give notice of this contamination. Appellants further allege that they relied on this disclosure provision in making their bid. Since we are reviewing the sustaining of a demurrer, we must accept this allegation as true. Thus, the County failed to fulfill its specific promise to identify contaminated properties.
As noted above, the statutory scheme provides no warranty of the validity or regularity of the proceedings. (Routh, supra, 20 Cal.2d at p. 490.) However, by promising to disclose contamination as part of the bid process, the County undertook a separate contractual obligation beyond the tax sale procedure. The County is not immune from liability for breach of contract. (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 740-741.) Because this obligation was in addition to the standard terms and conditions of a tax sale, it falls outside the tax sale immunities. Therefore, the County subjected itself to liability for breach based on contract principles.
Craland and Ribeiro provide some support for this conclusion. Although dicta, those courts indicated that contract principles could apply if the public entity gave warranties or representations that misled the purchaser. As discussed above, the Craland court qualified the general rule that the state and county do not warrant the validity or regularity of tax sale proceedings with the phrase “absent a representation to the contrary.” (Craland, supra, 214 Cal.App.3d at p. 1405.) In Ribeiro, the court supported its conclusion that the purchaser was not entitled to relief with the observation that the county did not engage in conduct that misled him. (Ribeiro, supra, 195 Cal.App.4th at p. 363.)
The County argues that the terms of sale adequately informed appellants that they were bidding on the property at their own risk. The County notes appellants were warned that the County “cannot guarantee the condition of the property” and that the burden was on appellants “to thoroughly research” any matters relevant to the decision to purchase the property. The terms of sale further emphasized that “all properties are sold as is” and that the County “makes no guarantee, expressed or implied, relative to the title, location or condition of the properties for sale.”
However, the terms of sale also included the County’s specific promise to inform purchasers of known or suspected contamination. This specific representation conflicts with the general “sold as is” provision. In such a situation, the specific provision controls. (Continental Cas. Co. v. Zurich Ins. Co. (1961) 57 Cal.2d 27, 35.)
The County further asserts that it is immune from liability under section 3692.3. That section provides, in part:
“(a) All property sold under this chapter is offered and sold as is.
“(b) The state, the county, and an employee of these entities acting in the employee’s official capacity in preparing, conducting, and executing a sale of property under this chapter, are not liable for any of the following:
“(1) Known or unknown conditions of this property, including, but not limited to, errors in the assessor’s records pertaining to improvement of the property.”
However, appellants have not based their breach of contract cause of action on the existence of “known or unknown conditions” of the subject property. Rather, appellants claim the County breached its voluntarily assumed contractual obligation to disclose known or suspected contaminations in those limited instances where the County was aware of the situation. Accordingly, section 3692.3 is inapplicable.
Finally, the County contends that California Constitution, article XIII, section 32 prohibits appellants’ cause of action. That section “bars a court from issuing any ‘legal or equitable process … against this State or any officer thereof to prevent or enjoin the collection of any tax.’” (State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638.) The policy behind this provision “‘is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted.’” (Ibid.)
According to the County, appellants are violating this section in that, if successful on their claim for damages, they would be effectively preventing the collection of the tax owed on the subject property. In other words, appellants would deprive the County of the revenue generated by the tax sale.
Contrary to the County’s position, appellants are not seeking to prevent or enjoin the collection of any tax. The tax has been fully collected. Appellants are not challenging the tax sale auction nor seeking declaratory relief. Rather, they are claiming that the County breached its specific promise to disclose known or suspected contaminations. Therefore, article XIII, section 32 is inapplicable.
In sum, the County undertook a separate specific contractual obligation beyond the tax sale procedure. Accordingly, the County subjected itself to liability for breach based on contract principles.
DISPOSITION
The judgment is reversed and the matter is remanded for further proceedings. Appellants are awarded costs on appeal.


LEVY, Acting P.J.
WE CONCUR:



GOMES, J.



FRANSON, J.