Paradise Hell or Paradise Hill?

A few weeks ago, I successfully completed an online class called Legal Aspects of Real Estate at Diablo Valley College. I also completed Real Estate Principles and Real Estate Practice, but I thought the real estate law class was the most interesting one. Fascinated by some of the some of the legal battles that have taken place since 1990, I did some research and found a few interesting cases such as the one described below.  

In March 1989, a homebuyer (Brenda Procel) who was not satisfied with the workmanship and materials in her new home distributed leaflets in front of the developer's model home and on two weekends, she spoke to prospective customers trying to discourage them from buying homes at Paradise Hills. She also posted signs on her house: "I bought a $200,000 fixer-upper," "My house leaks and no one gives a damn," and "We moved to Paradise Hills, but we live in hell." At various times, up to 20 other homeowners posted similar signs on their houses. Procel spoke with newspaper reporters about her house, and a local newspaper published an article about the situation. Based on these activities, the developer filed a complaint against Procel for declaratory relief, damages for interference with prospective economic advantage, and injunctive relief for interference and conspiracy. The developer did not allege that any of Procel's statements were false; however, the developer alleged that her statements were made with the intention to injure the developer in its business of selling houses. What is declaratory and injunctive relief? Declaratory relief is asking the court to state the rights of the parties without ordering any specific action or listing awards for damages. Injunctive relief would prohibit someone from doing something. Was the homeowner acting within her rights? What do you think happened and why? 

The developer, Paradise Hills Associates (PHA), sought and was granted a preliminary injunction. What is an injunction? An injunction is a court order to desist from some activity. The injunction was issued by the trial court as preliminary relief in a lawsuit for interference with business interests. 

However, after reviewing the traditional balancing factors, the Court of Appeal reversed the injunction on the ground the preliminary injunction unduly interfered with the defendant's First Amendment speech rights, which were not overridden by any other factors. (Paradise Hills Associates v. Procel, at pp. 1542-1547). What were the balancing factors? What was in question is the balance of hardships. A preliminary injunction is justified when the trial court determines that a greater injury will result to the moving party (the party who is making a motion -- in this case, the plaintiff, Paradise Hills Associates) if the injunction is denied than will result to the opposing party (Procel) if the injunction is granted. PHA's prospective hardship is economic: sales of the houses it constructs are allegedly deterred by Procel's activities. In contrast, the hardship to Procel from an injunction is the potential for interference with her first amendment right to freedom of speech. Procel expressed her views through picketing, leafleting and posting signs. Each of these forms of communications is entitled to First Amendment protection. 

Courts have recognized the importance of the public's access to consumer information. The growth of 'consumerism' in the United States is a matter of common knowledge. The Court of Appeal concluded that the content of Procel's speech, to the extent it provides truthful information and opinions about PHA's business, is entitled to First Amendment protection. The preliminary injunction was reversed. What are the key takeaways from this case?  

• If you're a real estate developer, focus on relationships. You need to have great relationships with your tenants, architects, bankers, attorneys, contractors, geologists, engineers, and more. Treat everyone around you as though they're the most important person in the room, as these relationships are going to go a long way. PHA denied Procel's claims, but agreed to perform substantial reconstruction, repairs and upgrading on her house. Customers do not appreciate being told they are wrong. Even if the customer is mistaken, as a developer, it's important to find a way to repair and restore the relationship and not accuse the customer of being wrong.  
• Solve problems. When something goes wrong, rather than ignoring the problem or denying that there is a problem, the developer needs to work with his or her team to make sure things get back on track and the problem is solved. PHA performed substantial reconstruction, repairs and upgrading on Procel's house, but it was too late. The damage had already been done when PHA denied her claims.
• Mitigate risk. Once it became clear that there were problems with the homes that were being built at Paradise Hills, the developer should have found ways to mitigate that risk. When Procel's claims were denied, she found 20 other homeowners who also posted signs on their houses complaining about the workmanship and materials in their homes. If PHA had not denied Procel's claims and agreed to repair and upgrade the homes of the dissatisfied homeowners, chances are Procel would not have distributed leaflets in front of the developer's model home and discouraged prospective customers from buying homes at Paradise Hills. Most likely, Procel's actions encouraged 20 other homeowners to post similar signs outside their homes and as a result, this situation attracted negative media attention. All of this could have been avoided if PHA had accepted full responsibility from the very beginning for the quality of their workmanship and made the necessary repairs and upgrades to the affected homes. 

Source: Paradise Hills Associates v. Procel (1991), 235 Cal. App. 3d 1528,