Hess v. Chase Manhattan Bank, Usa, N.A.

• Decision Date: 01 May 2007
• Docket Number: No. SC 87691.,SC 87691.
• Citation: 220 S.W.3d 758
• Parties: Dennis E. HESS, Appellant-Respondent, v. CHASE MANHATTAN BANK, USA, N.A., Respondent-Appellant.
• Court: Missouri Supreme Court

220 S.W.3d 758

Dennis E. HESS, Appellant-Respondent, v. CHASE MANHATTAN BANK, USA, N.A., Respondent-Appellant.

No. SC 87691.

Supreme Court of Missouri, En Banc.

May 1, 2007.

Alok Ahuja, Terry J. Satterlee, William G. Beck, Kurt U. Schaefer, Kansas City, MO, for Appellant-Respondent.

Elizabeth C. Carver, Ann K. Covington, St. Louis, Robert J. Hoffman, Jennifer Donnelli, Kansas City, MO, for Respondent-Appellant.

Jeremiah W. (Jay) Nixon, Atty. Gen., Anne E. Schneider, Asst. Atty. Gen., Mary S. Erickson, Asst. Atty. Gen., Jefferson City, Mo, for Amicus Curiae Missouri Attorney General.

LAURA DENVIR STITH, Judge.

Dennis Hess purchased property in Platte County, Missouri, from Chase Manhattan Bank ("Chase") for $52,000 in April 1999. At the time of the sale, Chase was aware that the property was being investigated by the United States Environmental Protection Agency ("EPA") in connection with illegal hazardous waste dumping on the property by its prior owner, on whose mortgage Chase had foreclosed. Chase did not disclose the EPA's investigation to Hess. When Hess learned of it after the purchase, he filed suit against Chase alleging common law fraud and a violation of the Missouri Merchandising Practices Act ("MPA").

The trial court granted Chase's motion to dismiss the MPA claim because the MPA was not amended to allow a private right of action for misrepresentation in the sale of real estate until after the date of the sale. Hess appeals that ruling. Hess' fraud claim proceeded to trial. The jury found in Hess' favor and awarded him actual but not punitive damages. Chase cross-appeals the submission of the fraud claim to the jury.

The trial court correctly denied Chase's motion for judgment notwithstanding the verdict on the fraud claim. Because Hess' claim was one for fraudulent inducement to contract, it is not precluded by the inclusion of disclaimers in the contract itself, and Hess presented evidence that the EPA investigation should have been disclosed despite the disclaimers. Further, the trial court erred in dismissing Hess' MPA claim. The MPA has long barred the kind of real estate representations alleged here. The fact that it was not amended until 2000 to permit a private right of action for such misrepresentations, in addition to suit by the attorney general, is no bar to suit by Hess for actual damages and attorneys' fees. The MPA did not, however, allow recovery of punitive damages at the time of Chase's misrepresentations; therefore, Hess may not recover them. The judgment is affirmed in part and reversed in part, and the case is remanded.¹

I. FACTUAL AND PROCEDURAL BACKGROUND

Chase held a mortgage on a four-acre property in southwestern Platte County ("the property") when it was owned by Billy Stevens (the "mortgagor"). The mortgagor also owned a paint company. Hess presented evidence at trial that, on several occasions, the mortgagor ordered his employees to load a trailer with ten or twelve 55-gallon paint drums and dump them at the property so that he could avoid the costs of proper storage and disposal. He also caused his employees to dump three or four pallets of old paint cans near the foundation of an old barn on the property. In June 1997, former employees of the paint company informed the EPA of this illegal dumping. The mortgagor thereafter filed for bankruptcy protection and defaulted on the mortgage.

In April 1998, the EPA obtained a search warrant and discovered numerous rusty, leaking containers of waste paint and paint-related products. A few months later, in December 1998, the mortgagor pled guilty to federal environmental crimes and was sentenced to serve one year and a day in prison. The next month, Chase, who earlier had initiated foreclosure proceedings purchased the property out of foreclosure. Shortly before doing so, on January 6, 1999, Chase's foreclosure counsel received a telephone call from an EPA attorney regarding the contamination investigation. Chase's foreclosure counsel represented that she would refer the matter to "someone at Chase that handles contaminated properties." On February 18, 1999, Chase informed its foreclosure counsel that it had the contact information for relevant EPA personnel and that Chase would be dealing directly with the EPA regarding the environmental issues. Chase subsequently commissioned an appraisal of the property that was completed on April 5, 1999. The appraisal noted that "the EPA is scheduled to inspect the site and possible [sic] requirements may be made."

Chase then listed the property for public sale. The property generated interest from a number of persons, three of whom, including Hess, ultimately made offers to buy it. At the time of their offers, the other two prospective purchasers had seen the paint cans the previous owner had dumped near the old barn, but Hess had not. None of the three individuals who offered to purchase the property undertook any environmental inspections of the property. The uncontradicted trial testimony of experienced real estate agents was that such inspections would have been extraordinary under the circumstances, as none of the potential purchasers knew the EPA was concerned about the property.

Chase knew that the EPA was investigating the property, but it did not disclose that fact to Hess or to other potential buyers prior to the sale. Hess offered to purchase the property for $52,000, and Chase accepted the offer. Chase asserted in the sale contract that it "had never seen nor occupied the property" and that it had "not inspected [the] property." The sale contract expressly required Chase to complete a "Seller's Disclosure — Statement of Condition of the Property," which Chase never completed.² Hess and the other potential buyers testified that they would not have offered to purchase the property had they known of the EPA investigation.

After the purchase, Hess was cleaning up the property and preparing for renovations when he discovered the paint cans. Not realizing the EPA was concerned about the cans, he hired a construction company to bury the paint cans along with other waste on the property. In January 2000, the EPA issued a unilateral administrative order for Hess to exhume and dispose of the buried paint cans within 10 days.

Hess sued Chase once he learned of the EPA's order and investigation, alleging that Chase had a duty to disclose the EPA investigation prior to the sale and that its failure to do so constituted common law fraud and violated the MPA. The trial court dismissed Hess' MPA claim. After a two-week trial, the jury returned a verdict for Hess on his fraud claim for $52,000 in actual damages but did not award punitive damages. As previously noted, Hess appeals from the dismissal of his MPA claim and Chase cross-appeals from the judgment for actual damages on the fraud claim. After opinion by the Missouri Court of Appeals, Western District, this Court granted transfer. Mo. Const. art. V. sec. 10.

II. FRAUD CLAIM

A. Standard of Review.

Chase claims that the trial court erroneously denied its motion for a directed verdict and its motion for judgment notwithstanding the verdict because Hess failed to make a submissible case. In evaluating this claim, this Court reviews the evidence "in the light most favorable to the result reached by the jury, giving the plaintiff the benefit of all reasonable inferences and disregarding evidence and inferences that conflict with that verdict." Dhyne v. State Farm Fire & Cas. Co., 188 S.W.3d 454, 456-57 (Mo. banc 2006); Jungerman v. City of Raytown, 925 S.W.2d 202, 204 (Mo. banc 1996).

B. Required Elements for a Submissible Case of Fraudulent Nondisclosure.

In order to make a submissible case of fraudulent misrepresentation, a plaintiff must prove nine essential elements: (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that it should be acted on by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of the falsity of the representation; (7) the hearer's reliance on the representation being true; (8) the hearer's right to rely thereon; and (9) the hearer's consequent and proximately caused injury. Heberer v. Shell Oil Co., 744 S.W.2d 441, 443 (Mo. banc 1988); see Trimble v. Pracna, 167 S.W.3d 706, 712-13 (Mo. banc 2005) (reversing denial of JNOV on fraud).

This Court has not recognized a separate tort of fraudulent nondisclosure, such as Hess asserts here. Instead, in such cases, a party's silence in the face of a legal duty to speak replaces the first element: the existence of a representation. Andes v. Albano, 853 S.W.2d 936, 943 (Mo. banc 1993). Chase claims that Hess failed to show that it had a duty to disclose and failed to show that Hess had a right to rely on it to make disclosures; thus, Hess failed to make a submissible case on the first and eighth elements of fraud set out above. In support, Chase points to the sale contract, which specified that Chase was making no representations, guaranties, or warranties regarding the property and sold it "as is." As Chase does not dispute the sufficiency of the evidence of the remaining elements of fraud, the Court limits its fraud inquiry to whether there was sufficient evidence of these two disputed elements.

C. Chase had a Duty to Disclose the EPA's Investigation.

In nondisclosure cases, a party's silence amounts to a representation where the law imposes a duty to speak. Andes, 853 S.W.2d at 943. "Whether or not a duty to disclose exists . . . must be determined on the facts of the particular case." Ringstreet Northcrest, Inc. v. Bisanz, 890 S.W.2d 713, 720 (Mo.App. W.D.1995). A duty to speak arises where one party has superior knowledge or information that is not reasonably available to the other. Andes, 853 S.W.2d at 943. "Silence can be an act of fraud where matters are not what they appear to be and the true state of affairs...