DeBry v. Valley Mortg. Co.

• Decision Date: 03 August 1992
• Docket Number: No. 910328-CA,910328-CA
• Citation: DeBry v. Valley Mortg. Co., 835 P.2d 1000 (Utah App. 1992)
• Parties: Robert J. DeBRY and Joan DeBry, Plaintiffs and Appellants, v. VALLEY MORTGAGE CO., et al., Defendant and Appellee.
• Court: Utah Court of Appeals

Page 1000

835 P.2d 1000

Robert J. DeBRY and Joan DeBry, Plaintiffs and Appellants, v. VALLEY MORTGAGE CO., et al., Defendant and Appellee.

No. 910328-CA.

Court of Appeals of Utah.

Aug. 3, 1992.

Rehearing Denied Aug. 31, 1992.

Edward T. Wells, Salt Lake City, for plaintiffs and appellants.

Thomas R. Grisley, Salt Lake City, for defendant and appellee.

Before GARFF, GREENWOOD and RUSSON, JJ.

GREENWOOD, Judge:

This is an appeal from an order granting Valley Mortgage Company's (Valley Mortgage) motion to dismiss appellants Robert J. and Joan DeBry's (the DeBrys) Fourth Amended Complaint pursuant to Utah Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted. We affirm.

When reviewing a motion to dismiss under Rule 12(b)(6), "we state the facts in a light most favorable to the party against which the rule 12(b)(6) motion was brought." St. Benedict's Dev. Co. v. St. Benedict's Hosp., 811 P.2d 194, 196 (Utah 1991). Further, we accept the facts alleged in the complaint as true, including reasonable inferences drawn from those facts. Id.

"A motion to dismiss is appropriate only where it clearly appears that the plaintiff or plaintiffs would not be entitled to relief under the facts alleged or under any state of facts they could prove to support their claim." Prows v. State, 822 P.2d 764, 766 (Utah 1991) (citing Colman v. Utah State Land Bd., 795 P.2d 622, 624 (Utah 1990)); see also, Olson v. Park-Craig-Olson, Inc., 815 P.2d 1356, 1360 (Utah App.1991) ("Dismissal of a claim under Rule 12(b)(6) is a severe measure given the liberality of notice pleading"). "Because the propriety of a 12(b)(6) dismissal is a question of law, we give the trial court's ruling no deference and review it under a correctness standard." St. Benedict's Dev. Co., 811 P.2d at 196.

BACKGROUND

The DeBrys purchased a newly constructed office building located at 4252 South 700 East in Salt Lake City, Utah, from Del Bartel and Dale Thurgood dba Cascade Enterprises (Cascade). Valley Mortgage provided construction financing for the building through a $300,000 loan to Cascade. Cascade constructed the building without obtaining a building permit or county approval of building plans. The building was not inspected by county inspectors, as required by applicable building codes, and contained numerous construction defects. As a result of building defects and code violations, the DeBrys could not legally occupy the building until approximately four years after their purchase.

The DeBrys sued Valley Mortgage and others in Third District Court in regard to the building and its deficiencies. The trial court granted Valley Mortgage's motion to dismiss and this court reversed in an unpublished opinion, holding that the trial court abused its discretion in denying the DeBrys' motion for leave to amend their complaint.

On remand, the DeBrys amended their complaint against Valley Mortgage. The amended complaint alleged concealment, negligent misrepresentation and negligence or lender liability by Valley Mortgage. On motion by Valley Mortgage, the trial court again dismissed the complaint with prejudice. This appeal followed.

The DeBrys allege the following facts which are relevant to our consideration: Pursuant to its contract with Cascade, Valley Mortgage undertook obligations to (1) assure that the builder had county approved plans, permits, and zoning; (2) inspect the building every three months to assure timely completion and acceptable workmanship; and (3) control disbursement of construction funds. Valley Mortgage sought and obtained a long term financing commitment from Beneficial Life Insurance Co. Cascade's construction loan was initially due on February 1, 1985. Valley Mortgage extended the loan several times, ultimately to December 12, 1985. The long term financing commitment from Beneficial Life expired prior to that date. During the last several months of Cascade's construction, Valley Mortgage paid contractors directly, thus effectively taking over the project, according to the DeBrys.

The DeBrys also allege Valley Mortgage knew that there were insufficient construction funds to complete the building and cure the building's defects and also knew of the DeBrys' purchase contract with Cascade. Valley Mortgage also knew that the only source of funds available to repay the construction loan as of December, 1985, was the proposed sale to the DeBrys. Valley Mortgage knew or should have known of the construction defects and code violations when the DeBrys purchased the building. The DeBrys relied on Valley Mortgage's reputation as a lender when they assumed that certain construction tasks had been completed, e.g., issuance of a building permit and approval of plans, adequate inspections throughout construction, and disbursement of funds after timely and satisfactory construction progress in conformance with building plans. Valley Mortgage failed to disclose this information to the DeBrys and the DeBrys suffered damages as a result.

ISSUES

The issues on appeal are the following: (1) Did the trial court commit reversible error when it refused to follow this court's instructions in the prior opinion in this case? (2) Did the trial court err in dismissing the DeBrys' causes of action for concealment, negligent misrepresentation and negligence? and (3) Did the trial court abuse its discretion by dismissing with prejudice rather than allowing further amendment of the complaint?

LAW OF THE CASE

The DeBrys argue that the trial court refused to follow the mandate of the Utah Court of Appeals in the prior appeal on Valley Mortgage's Rule 12(b)(6) motion. This court reversed the trial court's first dismissal with prejudice in Debry v. Valley Mortgage Co., No. 880255-CA (June 20, 1989), an unpublished decision. The opinion held that "the trial court abused its discretion in denying the motion to amend," and the matter was remanded in order for the DeBrys to amend their complaint. The opinion goes on to say:

Debrys should set forth with particularity each cause of action in which they seek redress i.e., lender liability under Connor v. Great W. Sav. & Loan Ass'n , 73 Cal.Rptr. 369, 447 P.2d 609 (1968), fraud, and negligent misrepresentation. These causes of action are fact sensitive, and therefore, proper disposition may not be determined until adequate discovery has fleshed out the relevant facts.

In a footnote, the court further stated [W]e do not suggest that Debry and their counsel are free to make Valley Mortgage a defendant and hope to turn up a claim against them in the course of discovery. On the contrary, each claim in the amended pleading must be "well grounded in fact," as revealed by "reasonable inquiry," as well as "warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law...." Utah R.Civ.P. 11.

The DeBrys now claim the opinion's citing of the Connor case constitutes the "law of the case" and is binding both on the trial court and this panel in the present appeal. They also argue that the opinion requires that a motion to dismiss be denied at least until "adequate discovery" is completed. After reviewing the prior opinion issued "not for publication," we disagree.

The purpose of the law of the case doctrine is "to avoid the delays and difficulties that arise when one judge is presented with an issue identical to one which has already been passed upon by a coordinate judge in the same case." Sittner v. Big Horn Tar Sands & Oil, Inc., 692 P.2d 735, 736 (Utah 1984). Ordinarily, a judge cannot overrule the decision of another judge of the same court. Richardson v. Grand Cent. Corp., 572 P.2d 395, 397 (Utah 1977). However, "the ruling of one judge as to the sufficiency or effect of pleadings, does not prevent another division of the court from considering the same question of law if it is properly involved on a subsequent motion which presents the case in a different light." Id.

This court's prior ruling addressed the appropriate standard of review when reviewing a motion to dismiss for failure to state a claim, and held the trial court had abused its discretion in denying the DeBrys' motion to amend their complaint against Valley Mortgage. The court suggested three causes of action which the DeBrys could plead with specificity in their amended complaint. These suggestions, however, as well as the reference to the Connor case, constituted dicta only. Connor was offered as an example of a case where lender liability or negligence was successfully plead, but was not thereby adopted as the law of this case. Utah Code of Judicial Administration Rule 4-508 provides that unpublished opinions have no precedential value and may not be cited or used except for certain enumerated exceptions, including application of law of the case. Use of Connor as law of this case would result in its having precedential effect, without benefit of full analysis or consideration, contrary to the rule's plain meaning and intent. We therefore conclude that the allusion to Connor in the earlier appeal was merely dicta and does not constitute the law of this case. We further hold that we may re-examine the appropriateness of further discovery after the second motion to dismiss was filed, because the case is now presented in a "different light." Richardson, 572 P.2d at 397.

SUFFICIENCY OF COMPLAINT

Duty

In each cause of action against Valley Mortgage, there is a threshold question of the duty a lender owes to a third party, absent a contractual or fiduciary relationship. The DeBrys ask this court to recognize a duty running from a construction lender to a third party purchaser who had no interest in the property prior to the purchase contract and who had no contractual relationship with the lender. Most courts in other jurisdictions have been unwilling to extend a duty in these instances absent lender involvement that goes beyond a traditional lender role or where the lender...