Storek & Storek, Inc. v. Citicorp Real Estate, Inc.

This lawsuit arises out of a failed real estate development project. The disappointed investors sued the lender, who had refused to continue financing the project, alleging breach of the implied covenant of good faith and fair dealing and fraud in the inducement of the loan agreement. The jury awarded plaintiffs $900,001 on the contract claim and $40.92 million for fraud. We conclude that the judgment must be reversed.

I. Facts

Three limited partnerships formed and controlled by Glenn and Richard Storek (the Storeks) and collectively referred to as “Old Oakland” undertook a redevelopment project in downtown Oakland to restore and convert several 19th-century Victorian buildings into office and retail space. Storek & Storek, Inc., also owned by the Storeks, was the project architect, developer, and building manager.

To fund the project, Old Oakland borrowed $30 million in 1984 from the City of Oakland. The city, in turn, raised that money by issuing industrial development bonds backed by letters of credit from Citibank. As security for Old Oakland’s agreement to reimburse Citibank for any draws on the letters of credit, Citibank obtained a deed of trust on Old Oakland’s…