Filed 2/24/15 Levin v. Intrawest Napa Development Co. CA4/3




                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE


JON LEVIN et al.,

     Plaintiffs and Appellants,                                        G049696

         v.                                                            (Super. Ct. No. 30-2009-00120021)

INTRAWEST NAPA DEVELOPMENT                                             OPINION
COMPANY, LLC,

     Defendant and Respondent.



                   Appeal from a judgment of the Superior Court of Orange County, Kirk H.
Nakamura, Judge. Affirmed.
                   Talisman Law and Donald E. Chomiak for Plaintiffs and Appellants.
                   Paul Hastings, Joshua G. Hamilton and Jenifer Q. Doan for Defendant and
Respondent.
                                          *                  *                  *
                                     I. INTRODUCTION
              The original complaint in this case alleged the plaintiffs bought a piece of
investment property under false pretenses. Three years later, the plaintiffs alleged a
different theory in an amended complaint. The new theory was that the contract itself
was in violation of a federal statute because it omitted a provision that any buyer would
have a right to cure a default during the escrow period. We agree with the trial court the
amended complaint did not relate back to the original. The original complaint was based
on one kind of damage – buying the property under false pretenses. The amended
complaint was based on another – entering into a contract technically deficient under
federal law. Accordingly, we affirm the ensuing judgment based on the running of a
three-year statute of limitations.
                                     II. BACKGROUND
              On June 13, 2007, Jon Levin and his wife Colleen signed a contract to buy
a condo unit in a Napa Valley resort complex known as Verasa for about $715,000 as an
investment property. The seller signed the contract on June 29, 2007, and the deal
actually closed on August 29, 2008. The way the investment was to work, the Levins
would be able to stay in their condo unit 29 nights a year, and the rest of the time the unit
would be available to be rented out by the seller-developer, Intrawest Napa Development
Company (Napa Development). The Levins would receive a portion of the rent on the
unit, and that income would, of course, help offset the price of the property.
              But the rents weren’t what the Levins had hoped for, so, in March 2009,
they sued Napa Development to rescind the contract based on Napa Development’s
alleged misrepresentation of one aspect of the transaction: Would units in the complex
that remained unsold to investors – that is, remained developer-owned – be in the pool of
units that would be rented out to paying guests? The Levins thought Napa Development
had promised them their unit would not have to compete with developer-owned units. As



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they saw the situation, Napa Development’s breaking that promise was the reason their
rental income was not as high as they had expected.
                  The original complaint spun two causes of action from Napa
Development’s inclusion of developer-owned units in the rental pool: Either Napa
Development committed (1) intentional fraud in misrepresenting that developer-owned
units would not be in the pool of competitors, or, more charitably (2) had made an
innocent mistake in making the misrepresentation. Either way, in the March 2009
complaint, the Levins declared the contract of sale rescinded, and demanded their money
back in two causes of action denominated “rescission.”1 About three months later, in
June 2009, the Levins added money-damage claims in a first amended complaint based
on Napa Development’s fraud in misrepresenting the nature of the pool of competitor
rentals.
                  A little more than a year went by. Then, on September 22, 2010, the
Levins filed a second amended complaint, with a new theory of wrongdoing by Napa
Development and a new way in which they had allegedly been injured: violation of a
federal law land sale law known as “IlSA” or the Interstate Land Sales Full Disclosure
Act, set out at 15 U.S.C. section 1703, passed by Congress back in 1968.2
                  In broad overview, ILSA’s main purpose might be informally described as
trying to prevent land developers from conning investors and buyers into thinking they
are buying into a beautiful resort when in reality all they are getting is some inaccessible
acreage in the middle of the desert, miles from the nearest utilities. ILSA was intended to
do for land sales what the Securities Act of 1933 did for stock sales – facilitate full
disclosure. (See Bodansky v. Fifth on Park Condo, LLC (2d Cir. 2011) 635 F.3d 75, 80


         1        The original complaint sought “Restitution After Rescission (Intentional Misrepresentation)” and
“Restitution After Rescission (Mistake or Innocent Misrepresentation).”
         2        All undesignated statutory references in this opinion are to Title 15 of the United States Code. All
undesignated references to sections and subdivisions are to 15 U.S.C. section 1703. All undesignated references to
any subdivision are to 15 U.S.C. section 1703, section (d).


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[“In 1968, Congress passed . . . the Interstate Land Sales Full Disclosure Act (‘ILSA’)
. . . . Its striking resemblance to the Securities Act of 1933 remained intact.”].)
                  Structurally, section 1703 is set up this way: Subdivision (a) contains a list
of duties and prohibitions on interstate land sale developers, including the duty to provide
buyers with a printed property report and the duty not to make any false statement in the
course of selling land, for example, that water, gas, sewers or golf courses will be
provided when they won’t be.3 Subdivision (b) provides an automatic seven-day
revocation period for new buyers no matter what,4 and then subdivision (c) provides for
an extra-long two-year revocation period for the particular sin of failing to furnish a




         3         Here is the complete text of section 1703, subdivision (a):
                   “(a) Prohibited activities
                   “It shall be unlawful for any developer or agent, directly or indirectly, to make use of any means
or instruments of transportation or communication in interstate commerce, or of the mails --
                             “(1) with respect to the sale or lease of any lot not exempt under section 1702 of this
title–
                             “(A) to sell or lease any lot unless a statement of record with respect to such lot is in
effect in accordance with section 1706 of this title;
                             “(B) to sell or lease any lot unless a printed property report, meeting the requirements of
section 1707 of this title, has been furnished to the purchaser or lessee in advance of the signing of any contract or
agreement by such purchaser or lessee;
                             “(C) to sell or lease any lot where any part of the statement of record or the property
report contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein
pursuant to sections 1704 through 1707 of this title or any regulations thereunder; or
                             “(D) to display or deliver to prospective purchasers or lessees advertising and
promotional material which is inconsistent with information required to be disclosed in the property report; or
                             “(2) with respect to the sale or lease, or offer to sell or lease, any lot not exempt under
section 1702(a) of this title –
                             “(A) to employ any device, scheme, or artifice to defraud;
                             “(B) to obtain money or property by means of any untrue statement of a material fact, or
any omission to state a material fact necessary in order to make the statements made (in light of the circumstances in
which they were made and within the context of the overall offer and sale or lease) not misleading, with respect to
any information pertinent to the lot or subdivision;
                             “(C) to engage in any transaction, practice, or course of business which operates or would
operate as a fraud or deceit upon a purchaser; or
                             “(D) to represent that roads, sewers, water, gas, or electric service, or recreational
amenities will be provided or completed by the developer without stipulating in the contract of sale or lease that
such services or amenities will be provided or completed.” (Italics added.)
          4        “Any contract or agreement for the sale or lease of a lot not exempt under section 1702 of this title
may be revoked at the option of the purchaser or lessee until midnight of the seventh day following the signing of
such contract or agreement or until such later time as may be required pursuant to applicable State laws, and such
contract or agreement shall clearly provide this right.”


                                                           4
property report.5 Subdivision (d) then identifies another three omissions which likewise
merit a two-year revocation period.6 These three omissions are (1) failure to have a
recordable land description,7 (2) failure to provide in the contract that if the buyer
defaults, the buyer will get notice of the default and then have twenty days to cure it,8 and
(3) failure to specify certain terms regarding what the buyer might be able to get back if
there is a default after the buyer has paid more than 15 percent of the price.9
                  All we know of the second amended complaint is that, as later described by
the referee, it raised “a claim for rescission under ILSA.” The second amended
complaint is not to be found in the fairly voluminous set of appendices provided by both

           5         “In the case of any contract or agreement for the sale or lease of a lot for which a property report
is required by this chapter and the property report has not been given to the purchaser or lessee in advance of his or
her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or
lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this
right.”
           6        “Any contract or agreement which is for the sale or lease of a lot not exempt under section 1702 of
this title and which does not provide– [for any one of three required provisions] [¶] may be revoked at the option of
the purchaser or lessee for two years from the date of the signing of such contract or agreement. This subsection
shall not apply to the sale of a lot for which, within one hundred and eighty days after the signing of the sales
contract, the purchaser receives a warranty deed (or, where such deed is not commonly used in the jurisdiction
where the lot is located, a deed or grant that warrants at least that the grantor has not conveyed the lot to another
person and that the lot is free from encumbrances made by the grantor or any other person claiming by, through, or
under him or her).”
           7         “Any contract or agreement which is for the sale or lease of a lot not exempt under section 1702
of this title and which does not provide– [¶] (1) a description of the lot which makes such lot clearly identifiable and
which is in a form acceptable for recording by the appropriate public official responsible for maintaining land
records in the jurisdiction in which the lot is located.”
           8        This is the subdivision on which the Levins ILSA rescission claim in this appeal revolves: Section
1703, subdivision (d)(3) provides: “Any contract or agreement which is for the sale or lease of a lot not exempt
under section 1702 of this title and which does not provide– [¶] (2) that, in the event of a default or breach of the
contract or agreement by the purchaser or lessee, the seller or lessor (or successor thereof) will provide the purchaser
or lessee with written notice of such default or breach and of the opportunity, which shall be given such purchaser or
lessee, to remedy such default or breach within twenty days after the date of the receipt of such notice; and”
           9        We would caution readers not to rely on our paraphrase of this, last, subdivision (d)(3) provision,
which is written in a fairly convoluted way: Section 1703, subdivision (d)(3) provides: “Any contract or agreement
which is for the sale or lease of a lot not exempt under section 1702 of this title and which does not provide– [¶] (3)
that, if the purchaser or lessee loses rights and interest in the lot as a result of a default or breach of the contract or
agreement which occurs after the purchaser or lessee has paid 15 per centum of the purchase price of the lot,
excluding any interest owed under the contract or agreement, the seller or lessor (or successor thereof) shall refund
to such purchaser or lessee any amount which remains after subtracting (A) 15 per centum of the purchase price of
the lot, excluding any interest owed under the contract or agreement, or the amount of damages incurred by the
seller or lessor (or successor thereof) as a result of such breach, whichever is greater, from (B) the amount paid by
the purchaser or lessee with respect to the purchase price of the lot, excluding any interest paid under the contract or
agreement,”


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parties. Apparently, though (based on Napa Development’s later characterization of it),
the second amended complaint made a “bare bones ILSA” claim based on the absence of
an amended public report at the time the September 2010 second amended complaint was
filed.
                   In October 2011, about 13 months after the filing of the second amended
complaint, the Levins sought and obtained leave to file a third amended complaint. The
third amended complaint alleged seven causes of action, consisting of one – no longer
“bare bones” – subdivision (d) claim, then three subdivision (a) claims, followed by a
state claim based on California’s own subdivided land act, and, finally, a state unfair
competition claim.
                   As set forth in the third amended complaint, the subdivision (d) claim was
based on the failure of the purchase contract to explicitly state that if the buyers
defaulted, they would have 20 days to cure the default. While there is no doubt the
Levins never defaulted, they asserted the failure to include such a provision in the sales
contract automatically gave them a two-year period within which to revoke the contract.
                   In the spring of 2013 Napa Development filed a summary judgment motion
challenging all the claims in the third amended complaint. One of the subdivision (a)
claims was voluntarily dismissed by the Levins at the hearing, and all of the remaining
claims survived the motion, except the subdivision (d) claim. Under ILSA (15 U.S.C.
§ 1711(b)), there is a three-year statute of limitations on subdivision (d) claims that
begins to run from the signing of the contract,10 and the referee reasoned the third
amended complaint did not relate back to the original complaint of March 2009. More
specifically, the referee wrote: “The original Complaint was based on alleged statements




           10       Section 1711, subdivision (b) provides: “No action shall be maintained under section 1709 of this
title to enforce a right created under subsection (b), (c), (d), or (e) of section 1703 of this title unless brought within
three years after the signing of the contract or lease, notwithstanding delivery of a deed to a purchaser.”


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of Kevin Porter [as the agent of Napa Development]. The TAC was in no way based on
Mr. Porter’s alleged misrepresentations, and did not rest on the same general set of facts.”
              The case would then go on to trial on the surviving causes of action,
resulting in a clean sweep for Napa Development. The Levins have timely appealed from
the ensuing defense judgment, but have confined the issues on appeal to asserting their
subdivision (d) claim is viable and not time-barred.
                                      III. DISCUSSION
              Napa Development invites us to discuss the merits of the Levins’
subdivision (d) claim first, and only reach the statute of limitations question if we first
conclude the subdivision (d) claim is meritorious. The invitation is understandable – the
language which prompted the Levins’ subdivision (d) claim is in a form contract which
appears, at the very least, to have been used by Napa Development in other sales of units
in the Verasa complex. Moreover, similar subdivision (d) claims made by other investors
may be pending in Napa Superior Court; in their motion to file their third amended
complaint, the Levins briefly alluded to “the same claims” pending there. The obvious
implication is that Napa Development would greatly welcome an appellate opinion
saying its form contract complies with ILSA.
              We decline the invitation. As the Supreme Court noted in Brodie v.
Workers’ Comp. Appeals Bd. (2007) 40 Cal.4th 1313, the principle of Occam’s Razor –
“‘that the simplest of competing theories should be preferred over more complex and
subtle ones’” is “‘as valid juridically as it is scientifically.’” (Id. at p. 1328, fn. 10.) The
question of whether the language in the form contract complies with ILSA is relatively
complex and subtle in comparison with the relation-back issue.
              The relation back issue is much more in tune with the maxim of William of
Occam. The referee was right, because the subdivision (d) cause of action in the third
amended complaint alleged a wholly different kind of injury than the one alleged in
original complaint.

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              The Levins point to the incorporation by reference of all the terms of the
sales contract in their original complaint, and assert that because the issue of compliance
with subdivision (d) is a pure issue of law, not dependent on surrounding facts, they
effectively alleged the same set of facts in the original complaint as the facts that gave
rise to their subdivision (d) cause of action in the third amended complaint. For the
Levins, the original complaint contained all the inchoate raw material from which a
subdivision (d) claim could be fashioned – it was just lying there in the raw words of the
contract – and therefore it satisfied the same general set of facts test used to ascertain
relation back. It did not.
              Relation back is a common law doctrine fashioned by the Supreme Court to
ascertain whether a pleading at Time 2 satisfies the statute of limitations based on when a
pleading at Time 1 was filed. Barrington v. A.H. Robins Co. (1985) 39 Cal.3d 146
remains, to this day, the latest definitive explication of the doctrine from the high court.
Barrington first recognized the origins of the doctrine in Austin v. Massachusetts
Bonding & Insurance Co. (1961) 56 Cal.2d 596 and its later development in Smeltzley v.
Nicholson Mfg. Co. (1977) 18 Cal.3d 932. Smeltzley announced a general rule, repeated
by the Barrington court: “We later traced the evolution of the relation back doctrine in
Smeltzley v. Nicholson Mfg. Co. [citation], and formulated a general rule: An amended
complaint relates back to the original complaint, and thus avoids the statute of limitations
as a bar against named parties substituted for fictitious defendants, if it: (1) rests on the
same general set of facts as the original complaint; and (2) refers to the same accident
and same injuries as the original complaint.” (Barrington, supra, 39 Cal.3d at p. 151,
italics added, citing Smeltzley, supra, 18 Cal.3d at pp. 936-937.) The need for both
prongs has been reiterated in the appellate courts in the post-Barrington period. (E.g.,
Goldman v. Wilsey Foods, Inc. (1989) 216 Cal.App.3d 1085, 1094; Boyle v. City of
Redondo Beach (1999) 70 Cal.App.4th 1109, 1119.)



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              The Levins mention only the first part of the Barrington test – the same
general set of facts – and, as to that test, assume that mere incorporation by reference of
the sales contract in their original complaint was enough to encapsulate all possible
reasons on which one might seek to rescind that contract. Even as to the first prong the
argument is suspect. Suppose, for example, that the Levins’ original complaint merely
alleged something to the effect of: “On June 29, 2007, plaintiffs entered into a contract to
buy a condo unit in a Napa Valley resort; the contract is attached and hereby incorporated
by reference. Plaintiffs now want out of the deal and hereby allege that they are entitled
to rescind the contract based on any reason extractable from the language of the contract
their lawyer can find prior to the close of trial.” Hyperbolic though it may be, this
hypothetical illustrates the flaw in the Levin argument. The theory that mere
incorporation by reference of a contract supports relation back of any claim pertaining to
the contract is simply way too broad a reading of the rule.
              But even if, for sake of argument, we were to assume incorporation by
reference of a contract might be enough to squeak by the “same general set of facts”
prong of Smeltzley and Barrington, it certainly would not satisfy the same injury prong.
What, we might ask, was the Levins’ “injury” – or, more precisely, damage – under
ILSA? By their own lights, it was the mere fact of entering into a contract that did not
clearly tell them that if they defaulted, they would have 20 days to cure that default.
Only if they were injured that way could they claim a two-year revocation period. But
that particular injury was no where mentioned in their original March 2009 complaint,
and apparently was not articulated until the third amended complaint in November 2011.
              In Lee v. Bank of America (1994) 27 Cal.App.4th 197, this court had
occasion to note that a demotion was not the same wrongful act as a future termination,
hence allegations surrounding a wrongful demotion did not state the same injury as the
future wrongful termination, hence there was no relation back. Likewise, in Kim v.
Regents of University of California (2000) 80 Cal.App.4th 160, 169, another district of

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the Court of Appeal held there was no relation back where later claims based on
discrimination did not relate back to original claims for overtime and contractual
violations. The kinds of damage were different.
              Here, we have distinctly different kinds of damage, and distinctly different
alleged causes of that damage. In the original complaint, the damage was buying the unit
caused by reliance on a false promise involving competing properties. In the subsequent
complaint, the damage is itself the mere absence of required language in the contract
involving the right-to-cure if there was a default, and that damage was also its own cause.
Given these differences in the nature of the alleged damage, the Levins cannot satisfy the
same injury test. Since the Levins do not argue for a state-law statute of limitations
longer than the three-years ILSA gives them, the statute of limitations under ILSA ran, at
the very latest, by August 2010. We therefore conclude the referee was correct in
dismissing the claim, and the trial judge correct in accepting the referee’s dismissal.
                                    IV. DISPOSITION
              The judgment is affirmed. Respondent Napa Development shall recover its
costs on appeal.




                                                  BEDSWORTH, J.

WE CONCUR:



RYLAARSDAM, ACTING P. J.



MOORE, J.



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