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Southern California Lifestyle Center Developer Defeats Competition Twice

CP&DR Staff on
Jan 1, 2006

Southern California “lifestyle” center developer Rick Caruso won two recent rounds against the owners of traditional shopping malls. The rulings, one published and the other unpublished, both came from the Second District Court of Appeal.

In the published decision, the court effectively ruled that the owners of Santa Anita Park horse track own a 2.3-acre parcel, which is part of a site Caruso plans to develop. The owner of an adjacent shopping mall, which had taken ownership of the 2.3-acre plot by mistake, tried to keep the parcel.

The unpublished decision came in a lawsuit filed by General Growth over Caruso’s proposed Americana at Brand project in Glendale, adjacent to General Growth’s Glendale Galleria. The court upheld the contracts and environmental impact report for the project.

The Santa Anita fight pits Westfield Corporation — which owns the Westfield Shoppingtown Santa Anita mall in Arcadia — against the track owners and Caruso. The developer proposes a 800,000-square-foot lifestyle retail center, 300 apartments and a four-acre lake on some of the horse track’s massive parking lots. The project would be right next to Westfield’s mall, so Westfield, which has its own expansion plans, is using every angle to fight the project. In November, Westfield even nominated Santa Anita Park for the National Register of Historic Places.

The litigation stemmed from the purchase of the track from a real estate investment trust by the current owners, known as The Santa Anita Companies, as well as a purchase from the same trust of the shopping mall by Westfield. Both purchases were completed in December 1998. The race track deal, however, contained an erroneous title report that gave the 2.3-acre “Gate 1 parcel” to Westfield. The new track owners learned of the mistake seven months later when they sought financing. In May 2002, they filed a lawsuit against Westfield to clear up the parcel ownership.

According to the court, there is no dispute that the property in question was transferred to Westfield by mistake. Westfield did not even know it owned the property, as the company sought permission from the track owners to use the site for overflow parking in 1999, and mall redevelopment proposals submitted to the City of Arcadia in 2000 and 2002 did not include the parcel. The trial court ruled for the track owners. On appeal, the only question that Westfield raised concerned the statute of limitations.

Code of Civil Procedure § 338, subdivision (d), provides a three-year statute of limitations to seek relief because of fraud or mistake. The Santa Anita Companies filed its lawsuit three years and six months after completing the purchase. However, the company argued that it did not learn of the mistake until June 9, 1999 — two years and 50 weeks before it filed the lawsuit. Westfield argued that statute of limitations started to run from the date of purchase because the Santa Anita Companies should have known the terms of the contract it executed.

The Second District sided with the track owners, concluding that they did not have “constructive or inquiry notice” of the mistake until June 9, 1999.

“The ‘discovery rule’ is an exception to the general rule for ‘defining the accrual of a cause of action,’” Justice Richard Mosk wrote, citing Norgart v. Upjohn Co., (1999) 21 Cal.4th 383, 397. “Under the discovery rule the limitations period begins once a party ‘has notice or information of circumstances to put a reasonable person on inquiry,’” Mosk continued, this time citing Jolly v. Eli Lilly & Co., (1988) 44 Cal.3d 1103, 1110.

“Santa Anita did not have notice or information of circumstances that would have put a reasonable person on inquiry about the mistake nor, with reasonable diligence, should it have discovered the mistake,” Mosk wrote. The Santa Anita Companies relied on experienced attorneys’ reviews of two surveys and at least two appraisals, and the seller orally assured the company that the Gate 1 parcel was part of the deal, the court pointed out. Additionally, Westfield itself was unaware it owned the parcel.

The fight 15 miles west of Santa Anita Park has been, perhaps, even more intense. Caruso’s Americana at Brand project would replace 15.5 acres of buildings and parking lots in downtown Glendale with 475,000 square feet of new retail and entertainment uses, and up to 338 residential units. The project site is across the street from the Glendale Galleria, a 1.5-million-square-foot shopping mall owned by General Growth.

The Galleria owners fought the Caruso project during the administrative and environmental review processes, which concluded in 2004 with the city’s certification of an environmental impact report and approval of the project. Because Americana at Brand is a redevelopment project, the city also entered into a disposition and development agreement (DDA) with Caruso. General Growth forced a referendum onto the ballot, but voters in September 2004 narrowly upheld the project’s zoning change, specific plan and development agreement.

General Growth also sued, arguing the development agreement, DDA and EIR were flawed. A trial court judge and the Second District, in an unpublished opinion, rejected the arguments.

General Growth contended that the DDA did not adequately explain how much the project would cost the public as required by the Community Redevelopment Law. The company also argued that the development agreement was invalid because Caruso did not own an interest in the property at the time the agreement was signed. The court, however, found that the DDA met the letter of the law, and that the development agreement was acceptable because it was subject to Caruso’s acquisition of the site.

The EIR contentions concerned preservation of a fire station and a Pacific Bell building, traffic and the analysis of alternatives. The court ruled that the EIR adequately explained that the buildings were not of historical significance, that General Growth failed to show why the traffic analysis was inadequate, that the EIR did deal with traffic, and that the alternatives analysis was acceptable.

Meanwhile, Caruso has an antitrust and anticompetitive lawsuit against General Growth that is pending. Construction of Americana at Brand was scheduled to commence in late December.

First Case:
The Santa Anita Companies, Inc. v. Westfield Corporation, Inc., No. B175820, 05 C.D.O.S. 9852, 2005 DJDAR 13420. Filed November 17, 2005.

The Lawyers:
For Santa Anita: John Sturgeon, White & Case, (213) 620-7700.
For Westfield: Larry Feldman, Kaye Scholer, (310) 788-1000.

Second Case:
Glendale I Mall Associates v. City of Glendale, No. B181311. Filed November 17, 2005.

The Lawyers:
For Glendale I Mall: Jeffrey Dintzer, Gibson, Dunn & Crutcher, (213) 229-7000.
For the city: Gillian van Muyden, city attorney’s office, (818) 548-2080.
For Caruso Affiliated Holdings: Mark Dillon, Gatzke, Dillon & Balance (760) 431-9501, and Michael Zischke, Morrison & Foerster, (415) 268-7000.