Court of Appeal Finds Developer Indemnity Clause Unconscionable Against Buyer Of Home In Affirming Trial Court’s Granting Of Anti-SLAPP Motion

In Lennar Homes of California, Inc. v. Stephens, 232 Cal.App.4th 673 (2014), after a federal class action was brought and dismissed (with the case up on appeal), Lennar brought a lawsuit in state court against several of the home buyers, seeking to enforce an indemnity clause in a home purchase contract, and recover their attorneys’ fees and costs for both the federal class action, and their own state action.  The clause was drafted broadly and stated that the home buyer would indemnify Lennar for any claims the buyer brought against Lennar for nondisclosure of any items in the purchase contract.  The home buyers brought an anti-SLAPP motion that the trial court granted.  Lennar appealed and the Court of Appeal affirmed the trial court’s ruling.

In applying the first prong of the anti-SLAPP statute (establishing a prima facie case that the plaintiff’s cause of action arose from the defendant’s actions in the furtherance of the rights of petition or free speech), the Court of Appeal held that the wife of one of the defendants was covered by the statute even though she was not a named plaintiff in the federal class action.  The Court noted that the husband was effectively advocating for the wife in the class action, and that her declaration in the trial court stated that she was actively assisting her husband in the class action.

In applying the second prong of the anti-SLAPP statute (plaintiff must establish a probability that he or she will prevail on the merits), the Court of Appeal held that the indemnity clause that was standard in Lennar’s home purchase agreements was unconscionable because it was so broadly worded, that Lennar could apply it to any claim by the buyer, even if the buyer prevailed in a lawsuit against Lennar.

The take-away from this case is that a home seller must carefully review their purchase contracts, particularly the indemnity provisions, to make sure there are no unconscionable provisions.  For the home buyer, carefully scrutinize the contract provisions in case there are any unenforceable provisions.

If you have any questions regarding the impact of the Stephens case on your existing or pending contracts, please contact Greg Woodard at (949) 769-6602.

, ,