Belen Loan Investors, LLC v. Bradley

• Decision Date: 21 December 2012
• Docket Number: No. 2 CA–CV 2011–0153.,2 CA–CV 2011–0153.
• Citation: 231 Ariz. 448,650 Ariz. Adv. Rep. 8,296 P.3d 984
• Parties: BELEN LOAN INVESTORS, LLC, an Arizona limited liability company, and LOS Lunas Investors, LLC, an Arizona limited liability company, Plaintiffs/Appellants, v. James S. BRADLEY and Karen Bradley, husband and wife, and KB Real Estate Appraisers, Inc., an Arizona corporation, Defendants/Appellees.
• Court: Arizona Court of Appeals

231 Ariz. 448

296 P.3d 984

650 Ariz. Adv. Rep. 8

BELEN LOAN INVESTORS, LLC, an Arizona limited liability company, and LOS Lunas Investors, LLC, an Arizona limited liability company, Plaintiffs/Appellants,

v.James S. BRADLEY and Karen Bradley, husband and wife, and KB Real Estate Appraisers, Inc., an Arizona corporation, Defendants/Appellees.

No. 2 CA–CV 2011–0153.

Court of Appeals of Arizona, Division 2, Department B.

Dec. 21, 2012.

Heurlin Sherlock Laird By Brian A. Laird, Tucson, Attorneys for Plaintiffs/Appellants.

O'Connor & Campbell, PC By J. Daniel Campbell, Susan Luse, and Mike Roberts, Phoenix, Attorneys for Defendants/Appellees Bradley and KB Real Estate Appraisers, Inc.

OPINION

ESPINOSA, Judge.

¶ 1 Belen Loan Investors, LLC and Los Lunas Investors, LLC (collectively, “BLI”) challenge the trial court's dismissal of their complaint for failure to state a claim against James and Karen Bradley and KB Real Estate Appraisers, Inc. (collectively, “Bradley”) for negligent misrepresentation and conspiring in or aiding the tortious conduct of others. BLI further challenges the court's denial of its motion to file a second amended complaint. For the reasons detailed in this opinion, we reverse and remand.

Factual Background and Procedural History

¶ 2 When reviewing a dismissal for failure to state a claim pursuant to Rule 12(b)(6), Ariz. R. Civ. P., we assume the truth of all well-pleaded factual allegations.¹Coleman v. City of Mesa, 230 Ariz. 352, ¶ 9, 284 P.3d 863, 867 (2012). Around September 2006, BLI loaned Los Lunas Highlands, LLC and Belen 368, LLC (collectively, “borrowers”) $2,600,000 and $2,950,000, respectively, for the purchase and development of various unimproved residential lots in Valencia County, New Mexico, in exchange for two promissory notes, security interest in the property, and the personal guarantee of Michael Myers, an officer of The Myers Group and agent affiliated with the borrowers. According to BLI, the borrowers made false representations of the property value to induce BLI to provide excess loan funds which then were transferred to the borrowers' personal profit sharing plans. The borrowers hired Bradley, an Arizona appraiser, to provide appraisals for Myers's use in obtaining the loans.²

¶ 3 When the borrowers defaulted on their loans, BLI initiated a judicial foreclosure action in New Mexico and sued Myers, the borrowers, and their associated entities, corporate officers, and trustees for various causes of action in the instant case.³ Joining in a motion filed by another defendant, Bradley moved to dismiss BLI's claims against him for conspiring in or aiding the tortious conduct of others and negligent misrepresentation, which were based on allegations that he intentionally or negligently had provided “falsely inflated appraisals” upon which BLI relied to fund “excessive loans.” ⁴ Bradley asserted BLI had failed to state a claim upon which relief could be granted. See Ariz. R. Civ. P. 12(b)(6).

¶ 4 The trial court dismissed both claims against Bradley on the ground he owed BLI no duty. The court determined that Sage v. Blagg Appraisal Co., 221 Ariz. 33, 209 P.3d 169 (App.2009), “specifically limited [an appraiser's duty to third parties] to the ‘traditional home-purchase transaction,’ ” see id. ¶ 14, and concluded that because the instant case involved “speculative large-tract real estate investments,” BLI was “not in the narrow class of persons entitled to rely on the appraisal[s],” citing Kuehn v. Stanley, 208 Ariz. 124, 91 P.3d 346 (App.2004), and Hoffman v. Greenberg, 159 Ariz. 377, 767 P.2d 725 (App.1988). The court denied BLI's motion for reconsideration on the same grounds, and denied its motion to amend the complaint because one amendment had been allowed previously and BLI's new proposal did not remedy the deficiency. We have jurisdiction over BLI's appeal pursuant to A.R.S. § 12–2101(A)(1).⁵See alsoAriz. R. Civ. P. 54(b) (allowing appeal of judgment disposing of fewer than all claims or defendants).

Standard of Review

¶ 5 Initially, we must determine the proper standard for our review. Rule 12(b) provides that if “matters outside the pleading” are presented to the court on a motion to dismiss for failure to state a claim, and are not excluded, the motion shall be treated as a motion for summary judgment. See Coleman, 230 Ariz. 352, ¶ 9, 284 P.3d at 867;see alsoAriz. R. Civ. P. 56(b). But, if extraneous matters neither add to nor subtract from the deficiency of the pleading, the motion need not be converted. Strategic Dev. & Constr., Inc. v. 7th & Roosevelt Partners, LLC, 224 Ariz. 60, ¶ 8, 226 P.3d 1046, 1049 (App.2010), citing Brosie v. Stockton, 105 Ariz. 574, 576, 468 P.2d 933, 935 (1970) (no conversion when extraneous material not necessary to final outcome). We note at the outset there is conflicting authority regarding when Rule 12(b) conversion is proper.

¶ 6 The parties submitted several documents in connection with the motions to dismiss, including, inter alia, Bradley's appraisals and draft appraisals, New Mexico litigation documents, loan instruments, an expert witness affidavit, correspondence between the parties, an historical account of Bradley's appraisal contracts with Myers, and Bradley's answers to interrogatories. All documents except Bradley's appraisals, the New Mexico judgment, and the loan documents were extrinsic to the complaint because they were not attached to it and did not qualify for any exception to the conversion rule. See Strategic Dev. & Constr., Inc., 224 Ariz. 60, ¶¶ 10, 13–14, 226 P.3d at 1049, 1050 (document central to complaint may be considered intrinsic to complaint if attached to complaint, sufficiently referenced in complaint, or official public record), citing Alt. Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001) (undisputedly authentic document central to complaint may be intrinsic to complaint). Bradley asserted at oral argument before this court that we have discretion to deem the motion converted based on the many extrinsic documents presented, although he conceded the trial court properly could have considered the terms of the appraisals alone, without treating the motion as one for summary judgment. See Cullen v. Koty–Leavitt Ins. Agency, Inc., 216 Ariz. 509, ¶¶ 8, 17, 168 P.3d 917, 921, 924 (App.2007)( Cullen I ) (court's consideration of contract intrinsic to complaint did not convert motion to dismiss into motion for summary judgment), vacated in part on other grounds sub nom. Cullen v. Auto–Owners Ins. Co., 218 Ariz. 417, 189 P.3d 344 (2008) (Cullen II).

¶ 7 The minute entry does not indicate the extrinsic documents were excluded, and, indeed, the trial court issued its in-chambers ruling “having considered arguments of counsel[ ] and having reviewed the file.” We are persuaded, however, that the extraneous materials were neither considered in the court's ruling nor necessary to support its rationale for dismissal. Compare Coleman, 230 Ariz. 352, ¶ 9, 284 P.3d at 867 (Rule 12(b)(6) motion not converted when court considers complaint's exhibits or public records regarding matters referenced in complaint because such documents not extrinsic to complaint), and Strategic Dev. & Constr., Inc., 224 Ariz. 60, ¶ 8, 226 P.3d at 1049 (Rule 56 treatment not required when court does not rely on proffered extraneous materials), with Smith v. CIGNA HealthPlan of Ariz., 203 Ariz. 173, ¶ 8, 52 P.3d 205, 208 (App.2002) (motion converted when extrinsic matters presented and considered in ruling).⁶ BLI's proffered exhibits were not admitted at the motions hearing, and the court did not refer to any extraneous materials in dismissing BLI's claims against Bradley. Because the court did not rely on the extrinsic documents in ruling on Bradley's Rule 12(b)(6) motion, instead basing its dismissal on the allegations in the complaint and the legal arguments of the parties, we conclude the motion was not converted.⁷See Strategic Dev. & Constr., Inc., 224 Ariz. 60, ¶ 8, 226 P.3d at 1049. Accordingly, we review de novo the grant of a dismissal under Rule 12(b)(6) and will not affirm the dismissal unless satisfied that “ ‘as a matter of law ... plaintiffs would not be entitled to relief under any interpretation of the facts susceptible of proof.’ ” Coleman, 230 Ariz. 352, ¶ 8, 284 P.3d at 867,quoting Fid. Sec. Life Ins. Co. v. State Dep't of Ins., 191 Ariz. 222, ¶ 4, 954, 954 P.2d 580 P.2d2V 580, 582 (1998).

Duty to Third Parties

¶ 8 To state a claim for relief for negligent misrepresentation, a plaintiff must allege, among other elements, that the defendant owed the plaintiff a duty of care. See Hoffman, 159 Ariz. at 380, 767 P.2d at 728. We address de novo the purely legal issue of whether the trial court correctly ruled that Bradley owed BLI no such duty as a matter of law. See Vasquez v. State, 220 Ariz. 304, ¶ 22, 206 P.3d 753, 760 (App.2008).

¶ 9 BLI argues the trial court misinterpreted our holding in Sage, 221 Ariz. 33, ¶ 1, 209 P.3d at 169, and consequently erred. BLI asserts that, contrary to the court's analysis, an appraiser owes a professional duty to any third party the appraiser “knows will receive the appraisal for purposes of influencing the specific transaction.” See id. ¶ 22. BLI acknowledges Bradley was hired by Myers to prepare appraisals for Myers's use but maintains that, because Bradley knew Myers would provide appraisals to BLI, Bradley could be held liable to BLI for negligent misrepresentation. See id. ¶ 8. Bradley counters that it owed no duty to BLI because the appraisals were intended specifically for Myers's use alone and that the Sage holding is inapplicable because that case is factually distinguishable from the situation at hand.

¶ 10 Section 552, Restatement (Second) of Torts (1977), outlines the extent of an appraiser's duty to a third party who justifiably relies on false information supplied by the professional. See Hoffman, 159 Ariz. at 379, 767 P.2d at 727 (...