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Recent Appellate Decision May Help To Defeat Real Estate Fraud Claims in Specific Cases

In Steven Hoffman v. 162 North Wolfe LLC (Santa Clara County), The California Court of Appeals, Sixth District, has recently ruled that a property owner has no duty to disclose the existence of a prescriptive easement to a prospective purchaser of an adjoining parcel. The decision significantly narrows the duty of a neighboring easement holder to disclose facts related to the easement and also provides support for future dispositive motions.

The Hoffman case arose out of a dispute between parties occupying two adjoining parcels in Sunnyvale, California. During the purchase of property located at 170 Wolfe, the buyer spoke with the owners of the adjoining property at 162 Wolfe (occupied by a law firm). The buyer (then a tenant at the 170 Wolfe property) complained that the law firm employees were using parking spaces belonging to the 170 Wolfe property. The law firm owners assured the buyer that they would cease using their parking spots, stating “no problem. We’ll take care of it.”

After escrow closed, the buyer noticed that the law firm’s vendors (couriers, document shredders, water delivery) were using the 170 Wolfe property to gain access to 162 Wolfe. The law firm employees were also still driving across 170 Wolfe periodically. After the escrow closed the law firm sent a letter to the buyer, claiming that they held a prescriptive easement to use the 170 Wolfe property [A prescriptive easement is the right to use another’s property for a specific use. A prescriptive easement may be acquired after one uses the property continuously, without permission, for five years]

The buyer filed a lawsuit against the law firm owner of 162 Wolfe, alleging that it had committed fraud for failing to disclose the claim and accrual of a prescriptive easement. The law firm filed a motion for summary judgment, asserting that, as a matter of law, it had no duty to disclose the existence of the prescriptive easement to the purchaser of an adjoining parcel. The trial court granted the motion and the ruling was affirmed on appeal.

The appellate court noted that failure to disclose a fact constitutes fraud in only four circumstances: “(1) when the defendant is in a fiduciary relationship with the plaintiff, (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff, (3) when the defendant actively conceals a material fact from the plaintiff and (4) when the defendant makes a partial representation, but also suppresses some material facts.” Here, the court found there could not be any liability for nondisclosure unless there was “some sort of transaction” or “relationship” between the buyer of 170 Wolfe and law firm owner of 162 Wolfe. The buyer argued that there was a relationship between the buyer of 170 Wolfe and law firm owner/neighbor by virtue of their “mutual interest in the 170 Wolfe property” but the court of appeal was not convinced.

It is not uncommon parties to become dissatisfied after a real estate purchase and to pursue litigation based on various aspects of the sale and escrow. Typically, the opposing parties have contradictory recollections of what occurred; the various factual disputes can result in lengthy and expensive trials. The Hoffman decision may help defeat fraud claims where the plaintiff cannot plead some “transaction” or “relationship” with the defendant; in such cases the complaint should be carefully scrutinized for a potential demurrer. It is possible that other appellate districts will decline to follow Hoffman, but at this point the Hoffman decision is a favorable precedent that will help counsel defend similar real estate non-disclosure fraud cases.

Gabriel Ullrich is an attorney in the Sacramento office. He can be reached at or 916.483.5181.