Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: One-time seller of commercial real estate not engaged in “business act or practice” for purposes of UCL liability, (Apr 14, 2014)

By Edward L. Puzzo, J.D.

The purchaser of a commercial building that lost billboard advertising revenue, due to a change in a city land use ordinance, could not maintain a California Unfair Competition Law against the sellers because they were not engaged in the business or practice of selling commercial buildings, the California Court of Appeal has ruled (Sierra Industries West v. Hosseinioum, April 10, 2014, Ruvolo, I.).

Sierra Industries West purchased a commercial building with a large billboard on its roof facing an adjacent elevated freeway. The long-term lease of advertising rights generated significant income for the real-estate owner. Several years after the purchase, Sierra allegedly first learned that the city had been challenging the billboard’s legal status, which eventually resulted in the billboard having to be removed, eliminating that source of income to the building owners. Sierra filed a number of claims against prior owners Abol and Farrokh Hosseinioum. In this claim, Sierra alleged that, at the time of the sale of the real estate, sellers failed to disclose material facts regarding the legal status of the billboard, an unfair act that violated the California Unfair Competition Law (UCL). The trial court ruled for the sellers, and purchaser Sierra appealed.

During negotiations for the sale of the building, the sellers’ agent represented that the signage income was significant, up to ten percent of the building’s gross income. The sellers also showed the buyer recent leases referencing uncertainty as to the grandfathered status of the signage after passage of a land use ordinance regulating outdoor advertising. After a new 10-year lease was signed by the sign tenant, at a substantially increased rental rate over the prior lease, the purchaser stated that this fact led it to “reasonably believe that the sign tenant had successfully established the sign’s legality.”

Business act or practice. At trial, the sellers argued that their one-time sale of the building to “sophisticated real estate investors” did not qualify as a “business act or practice” for purposes of liability under the UCL, because they were not engaged in the regular business or practice of selling commercial buildings. The trial court found this argument persuasive, concluding that the sale of the building was not a business act performed pursuant to a business activity.

The appellate court agreed, ruling that the isolated private sale of commercial property by those not in the business of doing so, was not a ‘business act or practice” as that term is used in Section 17200 of the UCL. The UCL was enacted for the purpose of protecting the general public from unscrupulous business practices, not to protect sophisticated parties entering into a multi-million dollar commercial real estate transaction in which they each received professional advice.

In addition, a claim under Section 17200 of the UCL is not confined to anticompetitive business practices, but is also directed towards the public’s right to protection from fraud, deceit, and unlawful conduct. On purchaser’s other claims, the court found no unfair or fraudulent business practices on the part of sellers and no showing that any members of the public were likely to be deceived by any business practice of the sellers. For these reasons, purchaser Sierra was unable to state a claim under Section 17200 of the UCL, the court ruled.

The case is No. A135894.

Attorneys: Alexander Michael Weyand (Weyand Law Firm) for Sierra Industries West LP. Richard Thomas Bowles (Bowles & Verna) for Abol Hosseinioun.

Companies: Sierra Industries West LP; LLM Investments Inc.

Cases: StateUnfairTradePractices CaliforniaNews