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Horvitz & Levy succeeded in overturning an adverse jury verdict in a commercial landlord-tenant dispute.

Washington 111 owns a large commercial shopping center in La Quinta, California. Dr. Aaron Kelsey leased space in the shopping center for his dental practice. When Dr. Kelsey’s lease was about to expire, he executed a new lease for a larger suite in the same shopping center. When he applied to the City of La Quinta for a permit to build out his new suite, the City imposed certain requirements on Washington 111 to modify the common areas of the shopping center. While Washington 111 was negotiating with the City over these requirements, Dr. Kelsey decided to purchase his own building and relocate his practice into that building instead of moving into the new suite as provided in his lease.

Washington 111 sued Dr. Kelsey for breaching the lease. He argued that the lease was invalid because it was based on a “mutual mistake,” namely, that the parties failed to anticipate the City’s permitting requirements. The case went to trial and, over Washington 111’s objection, the trial court instructed the jury on Dr. Kelsey’s theory of mutual mistake. The jury ruled in Dr. Kelsey’s favor, finding that the contract was invalid due to a mutual mistake.

Washington 111 retained Horvitz & Levy to prepare a new trial motion. The trial court granted the motion, finding insufficient evidence to support Dr. Kelsey’s theory of mutual mistake. Dr. Kelsey appealed from the new trial order and Horvitz & Levy represented Washington 111 on appeal.

The Court of Appeal affirmed the new trial order, holding that the trial court should never have instructed the jury on Dr. Kelsey’s theory of mutual mistake.  The court agreed with Horvitz & Levy’s argument that, under California law, the parties’ failure to anticipate the City’s permitting requirements was not a “mistake of fact” that can justify rescission of a contract. It was mistake in judgment regarding future events, not a mistake of fact. Accordingly, the Court of Appeal remanded the case to the trial court for a decision on the merits of Washington 111’s breach of contract claim against Dr. Kelsey.