Aranki v. RKP Investments, Inc.

• Court: Arizona Court of Appeals
• Writing for the Court: GERBER; MICHAEL D. RYAN, Presiding Judge, and THOMAS C. KLEINSCHMIDT
• Citation: Aranki v. RKP Investments, Inc., 979 P.2d 534, 194 Ariz. 206 (Ariz. App. 1999)
• Decision Date: 22 April 1999
• Docket Number: No. 1,CA-CV,1
• Parties: 293 Ariz. Adv. Rep. 37 Tarek ARANKI and Olivia Aranki, husband and wife, Plaintiffs-Appellants, v. RKP INVESTMENTS, INC., an Arizona corporation; Roy Powell and Kimberly Powell, husband and wife; Herb Glickston; Frank J. Ziskovsky dba Ridgecrest Realty; Realty Executives, Inc., an Arizona corporation; Roger Malcolm and Stacey Malcolm, husband and wife; Davis Olason and Lynn Olason, husband and wife; John Foltz and Marie Foltz, husband and wife, Defendants-Appellees. 98-0375.

Page 534

979 P.2d 534

293 Ariz. Adv. Rep. 37

Tarek ARANKI and Olivia Aranki, husband and wife, Plaintiffs-Appellants, v. RKP INVESTMENTS, INC., an Arizona corporation; Roy Powell and Kimberly Powell, husband and wife; Herb Glickston; Frank J. Ziskovsky dba Ridgecrest Realty; Realty Executives, Inc., an Arizona corporation; Roger Malcolm and Stacey Malcolm, husband and wife; Davis Olason and Lynn Olason, husband and wife; John Foltz and Marie Foltz, husband and wife, Defendants-Appellees.

No. 1 CA-CV 98-0375.

Court of Appeals of Arizona Division 1, Department D.

April 22, 1999.

As Corrected May 3, 1999.

Francis P. Smith, Phoenix, Attorney for Appellants

Snell & Wilmer, L.L.P. by Lisa M. Coulter and Martha E. Gibbs, Phoenix, Attorneys for Appellees Realty Executives, Inc., John Foltz, Roger Malcolm and David Olason

O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. by Patrick D. White and Christopher Robbins, Phoenix, Attorneys for Appellees Ridgecrest Realty, Inc., Herb Glickston and Frank J. Ziskovsk

Stoops & Kloberdanz, P.L.C. by Thomas A. Stoops and William A. Kozub, Phoenix, Attorneys for Appellee RKP Investments, Inc.

OPINION

GERBER, Judge

¶1 Tarek and Olivia Aranki (the "plaintiffs") appeal from the trial court's summary judgment in favor of the named defendants. We affirm the judgment as to some defendants and reverse as to others.

¶2 In their complaint filed in 1995, the plaintiffs sought damages in tort and contract and under various recovery statutes in connection with their purchase of a single family home in Cave Creek, Arizona. The complaint alleges that they discovered many latent defects and problems with the home after the sale closed.

¶3 Defendants Powell and RKP Investments, Inc., a corporation formed by the Powells, (collectively "the Powell defendants" or "the sellers") sold the property to plaintiffs. Ziskovsky, doing business as Ridgecrest Realty, was the buyers' broker, for whom Glickston acted as agent.

¶4 Defendant Realty Executives, Inc. is the real estate company that represented the Powells and for whom defendant Foltz served as the designated broker. Defendants Malcolm and Olason are real estate agents affiliated with Realty Executives. We refer to Realty Executives, Inc., Foltz, Malcolm and Olason collectively as "the Realty Executives defendants."

¶5 The Realty Executives defendants moved for summary judgment on two grounds: (1) lack of evidence that they knew or reasonably should have known of the problems with the home and a corresponding lack of duty to discover and disclose such problems, and (2) an exculpatory clause in the sales contract releasing brokers from liability for the condition of the premises. The Powell defendants joined in the motion without advancing any other theories. Ziskovsky and Glickston joined in the motion on the contractual ground only. The trial court granted the motion as to all defendants and entered final judgment against plaintiffs.

¶6 Our standard of review for a grant of summary judgment is de novo for both factual and legal determinations. See Kiley v. Jennings, Strouss & Salmon, 187 Ariz. 136, 139, 927 P.2d 796, 799 (App.1996). Summary judgment should be granted "if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme School v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). We view the evidence and reasonable inferences in the light most favorable to the non-moving party. See Thompson v. Better-Bilt Aluminum Products Co., Inc., 171 Ariz. 550, 558, 832 P.2d 203, 211 (1992).

The Realty Executives Defendants

¶7 The single count against the Realty Executives defendants appears to be a tort claim based on negligent misrepresentation. Arizona recognizes the tort of negligent misrepresentation as set forth in the Restatement (Second) of Torts:

One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Restatement (Second) of Torts § 552(1); see St. Joseph's Hosp. and Med. Ctr. v. Reserve Life Ins. Co., 154 Ariz. 307, 312, 742 P.2d 808, 813 (1987). The Realty Executives defendants argue that they owed no duty to investigate the representations provided by the Powell defendants and were unaware that the alleged problems existed in the house.

¶8 As agents of the sellers, the Realty Executives defendants owed a duty to the buyers different from the "full and frank disclosure" they owed to their principals, the sellers. See Haldiman v. Gosnell Dev. Corp., 155 Ariz. 585, 748 P.2d 1209 (App.1987). Their duty was to "deal fairly with all other parties to a transaction." Ariz. Admin. Code ("A.A.C.") R4-28-1101(A); Brown v. Arizona Dep't of Real Estate, 181 Ariz. 320, 328-29, 890 P.2d 615, 623-24 (App.1995). ¹

¶9 The duty of fair dealing does not include investigations to discover defects in the sellers' property. The law does not, for example, require escrow agents, who act as fiduciaries for buyers and sellers alike, to investigate on behalf of their principals; such agents are merely bound to disclose circumstances that a reasonable agent would perceive as evidence of fraud. See Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 353, 813 P.2d 710, 718 (1991); A.A.C. R4-28-1101(B)(3). Thus, the misrepresentation claim would be proved here only if plaintiffs could establish that the Realty Executives defendants knew or should have known of the defects giving rise to this litigation and failed to disclose such information. The sellers' real estate brokers and agents are not liable to the buyers for passing along such information without proof that they did so under circumstances suggesting that they knew or should have known that the information provided by the sellers might be false. See Lopata v. Miller, 122 Md.App. 76, 712 A.2d 24, 27-31 (1998); Mahler v. Keenan Real Estate, Inc., 255 Kan. 593, 876 P.2d 609, 618 (1994); see also Restatement (Second) of Torts § 552(1) (negligent misrepresentation).

¶10 Here, the plaintiffs identify nothing in the record to show that the Realty Executives defendants were unreasonable or incompetent in failing to discover defects. To the contrary, their only evidence calls their own reliance into question: plaintiffs hired a professional inspection service for the purpose of revealing defects, and this report identified at least some of the problems that form the basis of plaintiffs' damages claim.

¶11 In short, plaintiffs presented no evidence that these defendants knew or should have known of these problems. Plaintiffs concede that Realty Executives defendant Roger Malcolm, who personally dealt with them, did not make any representations concerning the condition of the property and that they had no evidence that Malcolm knew of or concealed any problems with the house.

¶12 To succeed on a motion for summary judgment, the Realty Executives defendants need only demonstrate an absence of evidence for an essential element of the complaint. See Orme School, 166 Ariz. at 310, 802 P.2d at 1009. They are not required to affirmatively establish the negative of a necessary element. See id. Since the plaintiffs did not respond to the summary judgment motion with any evidence that would create a genuine issue of fact, the Realty Executives defendants are not required to present any evidence that establishes they neither knew nor should have known about the misrepresentations. We therefore affirm the summary judgment as to the Realty Executives defendants.

Ziskovsky and Glickston

¶13 Ziskovsky and Glickston were acting as the plaintiffs' broker and agent respectively. Plaintiffs sought recovery against them on a negligent misrepresentation theory arising from (1) their failure to discover and disclose to plaintiffs the defective condition of the house, (2) permitting plaintiffs to waive the Powells' warranties and amend the purchase contract to buy the property "as is," (3) advising plaintiffs that the defects were "merely cosmetic," and (4) advising plaintiffs that $2,000 was adequate to correct any defects in the house.

¶14 Ziskovsky and Glickston moved for summary judgment on the ground that plaintiffs waived tort claims against them under the exculpatory clauses in the purchase contract. Specifically, they rely on a pre-printed provision under which plaintiffs expressly released "all brokers ... from any and all liability and responsibility regarding the condition" of the property, and another pre-printed provision under which plaintiffs represented that they would "conduct [ ] all desired independent investigations of any and all matters concerning this purchase" prior to closing. They argue that these clauses released them from any liability regarding the condition of the premises. The trial court granted the motion on this ground.

¶15 Plaintiffs now contend that these exculpatory clauses are unenforceable because they are part of a form contract rather than terms negotiated between the parties at arm's length. They rely primarily on Salt River Project Agriculture Improvement and Power District v. Westinghouse Electric Corporation, 143 Ariz. 368, 694 P.2d 198 (1984), and Morganteen v. Cowboy Adventures, Inc., 190 Ariz. 463, 949 P.2d 552 (App.1997). Plaintiffs appear to be correct:

The law disfavors contractual provisions by which one party seeks to immunize himself against the consequences of his own torts. Although there are exceptions to the principle disfavoring attempts to gain immunity, they are narrowly drawn and posit that...