Plaintiff Holders initiated non-judicial foreclosure proceedings pursuant to the deed of trust, and purchased the property at the foreclosure sale for a small fraction of the amount owed on the loan. A few months later, alleging in part that Defendants committed waste and impaired Plaintiff Holders' security by demolishing the building, Plaintiff Holders sued Developer as well as the project and construction directors (collectively, "Defendants") for "bad faith" waste and intentional and negligent impairment of the security.
Moving for summary judgment, Defendants argued that their conduct did not constitute "bad faith" waste, as they intended to add value to the property and, as such, lacked any improper intent. They also argued that a claim for intentional impairment was derivative of the waste cause of action, and thus could not survive without evidence of "bad faith." Defendants also asserted that the non-borrower project and construction directors were Developer's innocent agents and were therefore not liable for Developer's torts.
Accordingly, the Appellate Court ruled that even though the building demolition was the result of good intentions to redevelop and add value to the property, the dispositive question for the trier of fact was whether the demolition was caused by the economic pressures of a market depression or by something else.
The Court also ruled that Defendants may be held liable for intentional impairment of the security, because they had failed to show that "intent to harm" was a required element of the cause of action.
Similarly, reasoning that third-parties could be held liable for negligent impairment of security, the Court ruled that the negligent impairment claim could go forward against the non-borrower defendants partly in light of their participation in the demolition of the building.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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