Mold Economic Injury Claim Rejected

The issue of mold-related litigation remains of interest to our readers, perhaps even more so in the aftermath of the widespread damage from Sandy.  Recently a federal judge rejected claims alleging that Welk Resort San Diego allowed mold to grow in its rooms causing plaintiffs' "Platinum Points" time share currency to lose value as a result.  See Martinez v. The Welk Group Inc. et al., No. 3:09-cv-02883 (S.D. Cal.).

Plaintiff alleged economic damages stemming from defendants alleged failure to abate and disclose the presence of mold at the Welk Resort San Diego. (Younger readers may not recall, but born in a German speaking town in North Dakota in 1903, Mr. Lawrence Welk didn’t learn to speak English until he was 21. This gave him the accent that marked his signature line: “Wunnerful, wunnerful.”  His Lawrence Welk Show was cheerful and wholesome with bubbles, the music that Welk called “champagne music,” and a parade of smiling dancers, singers and musicians that older audiences loved.)

 Plaintiff purchased "Platinum Points" from Welk Resort Group, Inc. in 2007, which provided him with the opportunity to stay at Welk resorts around the world or at any other time-share resort that accepts such Platinum Points for vacation stays. At some point during the sales process, plaintiff allegedly asked, and the sales agent assured him the Resort was clean, safe, and well maintained. Plaintiff said he purchased his Platinum Points solely for the purpose of staying at the Welk Resort San Diego, which is located in Escondido, California, and has more than 650 units in three subdivisions: the Lawrence Welk Resort Villas, the Villas on the Green, and the Mountain Villas. During a visit to the Resort in 2009, plaintiff notified the front desk that his room smelled musty. Later in a utility closet, he found something that may have been mold, but he could not be certain. A neighbor later told him him that there was mold at the Resort.

Subsequent to his 2009 stay at the Resort, Plaintiff decided he would never use his points again—either at Welk or any other timeshare resort. Additionally, Plaintiff did not attempt, nor was he willing to attempt, to sell his Platinum Points to another individual, as he did not believe it would be "ethical" given his knowledge of the alleged "mold issues" at the Resort. Consequently, plaintiff claimed his Platinum Points have diminished in value.

Plaintiff sued for breach of contract, breach of fiduciary duty, negligence, nuisance, breach of the implied warranty of habitability, and for violations of California’s Unfair Competition Law (“UCL”).  (Earlier plaintiff's motion for class certification was rejected as the court determined that the claims were too individualized; Martinez’s reluctance to use his points was not typical of the  proposed class.)  Defendants then moved for summary judgment, contending that plaintiff could not prove he was injured as a result of defendants’ conduct.

Specifically, defendants contended that plaintiff offered no proof to support his contention that his
Platinum Points had diminished in value. In fact, plaintiff admits that when his Platinum Points “lost
value,” he meant they lost value to him because he was not using them.  In actuality, Welk Resort San Diego has maintained its premier rating since 2006, evidencing that Platinum Point Owners have maintained the same trading power since that time. Under this system, owners of Welk Platinum Points can exchange points for stays at non-Welk properties through a timeshare exchange company.  Therefore, defendants asserted that plaintiff’s damages were either “self-inflicted,”as he was unwilling to use his Platinum Points; or speculative, as he failed to present evidence of diminution of value.  In response, plaintiff alleged that his damages were not self-inflicted because he purchased the points specifically for the purpose of staying at Welk Resorts San Diego, and purchased the points specifically because he wanted to stay at a place that was clean, safe and well maintained.

To satisfy the damages element of a claim, a plaintiff must show appreciable and actual damages, that are clearly ascertainable in both their nature and origin. Here, however, plaintiff offered no evidence to rebut defendants’ proof that his Platinum Points currently have the same value on the exchange market as they did when he first purchased his points.  Additionally, plaintiff failed to address the depositions of other Resort guests, which stated that they enjoy the Resort facilities and believe that the Resort is well maintained.  Indeed, although more than 130,000 guests stay at the Resort each year, defendants were aware of fewer then 15 complaints regarding mold in the last 8 years.  Thus, the only evidence plaintiff produced in support of his claim that his points decreased in value was his own self-serving testimony as to his personal reasons for refusing to stay at the Resort, even though defendants did nothing to prevent plaintiff from using his points.
 

Plaintiff’s negligence claim alleged defendants breached their duty by selling time-share ownership points for dwellings that suffered from dangerous leaks, water intrusion, mold, mildew and/or fungus, and for failing to maintain and repair those units. The negligence claim  sought solely economic damages, so plaintiff was precluded because he sought recovery in tort for purely economic loss, and was thus barred by California’s economic loss doctrine. See KB Home  v. Super. Ct., 112 Cal.App.4th 1076, 1079, 5 Cal.Rptr.3d 587 (2004).  Under California law, the economic loss doctrine bars tort claims based on the same facts and damages as breach of contract  claims. The doctrine precludes recovery for purely economic loss due to disappointed expectations, unless the plaintiff can demonstrate harm above and beyond a broken contractual promise. The rule seeks to prevent the law of contract and the law of tort from dissolving one into the other.  Thus, conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law and exposes a plaintiff to liability for personal damages independent of the plaintiff's economic loss.

Under the UCL claim, defendants argued plaintiff lacked standing to sue because plaintiff (1) had not suffered “injury in fact” because he had not experienced any physical injuries and the value of his Platinum Points had not diminished in value; (2) had not suffered a legally cognizable injury because he was still able to use his Points; and (3) even if plaintiff had evidence that his Platinum Points had diminished in value, there was no casual connection between the alleged wrongdoing and plaintiff’s speculation as to the value of his Platinum Points.

The court noted that to have standing under the UCL, a plaintiff must establish that he has (1) suffered an injury in fact; and (2) lost money or property as a result of the unfair competition. Walker v. Geico Gen. Ins. Co., 558 F.3d 1025, 1027 (9th Cir.2009). The “as a result of”  language requires the plaintiff to show a causal connection between the defendant’s alleged UCL violation and  plaintiff’s injury. Thus, to plead a UCL claim, a plaintiff must show he has suffered distinct and palpable injury as a result of the alleged unlawful or unfair conduct.  Here, the court found plaintiff’s claim failed as a matter of law because he failed to meet the standing requirement under the  UCL. Although plaintiff alleged that an employee of Welk stated that the Resort was “clean, safe, and well-maintained,” he offered no credible evidence to support the assertion that these statements were in fact false, other than his own self-serving declaration. Plaintiff’s own evidence supported the argument that when Welk was made aware of mold issues at the Resort,
it dealt with such issues in a timely fashion. As plaintiff was not barred from using his Platinum Points at the Resort or any other non-Welk facility, he had not shown that he has “lost money or profits” within the meaning of the statute.

The other claims had the same basic defect.  Motion granted.

 

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