Durbin v. Ross

• Decision Date: 14 May 1996
• Docket Number: No. 95-378,95-378
• Citation: 916 P.2d 758,276 Mont. 463
• Parties: Katharine Gail DURBIN and Phil F. Durbin, individuals, Plaintiffs and Appellants, v. Barbara ROSS an individual, d/b/a/ Ross Realty; Lynne Piazzola, an individual; Wayne A. Sherrill and Rachel Sherrill, individuals; and Michael J. Sherrill, an individual,, Defendants and Respondents.
• Court: Montana Supreme Court

Page 758

916 P.2d 758

276 Mont. 463

Katharine Gail DURBIN and Phil F. Durbin, individuals Plaintiffs and Appellants, v. Barbara ROSS an individual, d/b/a/ Ross Realty; Lynne Piazzola, an individual; Wayne A. Sherrill and Rachel Sherrill, individuals; and Michael J. Sherrill, an individual,, Defendants and Respondents.

No. 95-378.

Supreme Court of Montana.

Submitted Jan. 18, 1996.

Decided May 14, 1996.

[276 Mont. 465] Donald V. Snavely, Missoula, for appellants.

Tracy Axelberg and Gary D. Kalkstein, Axelberg & Kalkstein, Missoula, for respondents.

NELSON, Justice.

Katharine and Phil Durbin (the Durbins) appeal from the Montana Twentieth Judicial District Court, Sanders County, order granting summary judgment in favor of Barbara Ross, Ross Realty, Lynne Piazzola (the Realtors) and dismissing the Durbins' claims against the Realtors. We reverse and remand.

ISSUES

1. Did the District Court err in ruling that the Durbins failed to establish a standard of care through the expert testimony of a real estate broker?

2. Should this Court direct the District Court on the admissibility of expert standard of care testimony?

BACKGROUND

The parties agreed to the following facts in the pretrial order:

1. Plaintiffs Phil and Katharine "Gail" Durbin are husband and wife. On April 26, 1993 the Durbins purchased for the sum of $35,000.00 a piece of property consisting of 20 acres and a single-family residence located at 209 Upper River Road, Heron, Montana (the "Property") from Defendants Wayne, Rachel and Michael Sherrill, the sellers of the Property.

2. Defendants Wayne and Rachel Sherrill and their children resided on the Property from May of 1987 until they sold the Property to the Durbins. Defendant Michael Sherrill resided on the Property for part of that time.

3. Defendants Lynne Piazzola and Barbara Ross are real estate agents licensed by the State of Montana. Lynne Piazzola is a licensed sales agent and was the listing and sales agent for the sale of the Property to the Durbins. Barbara Ross was the supervising broker for Defendant Piazzola for this sale. Defendants Piazzola and Ross both worked for Ross Realty, a real estate office located in Noxon, Montana. Defendant Ross was the owner of Ross Realty at the time of this sale.

4. This case involves claims by Plaintiffs Durbin that the condition of the Property was misrepresented to them. The Durbins contend, among other things, that the septic system, household water system, and other aspects of the Property were not accurately represented by the Defendants. Defendants Ross and Piazzola deny these contentions. Defendants Ross and Piazzola contend, among other things, that they did not make any misrepresentations to the Durbins....

The Durbins contend that the Realtors told them that 1) the property had a legal septic system with a 750 gallon tank, when there was only a 200 gallon drywell with no drainfield; 2) that the household water was safe for normal household purposes when the water was contaminated with coliform bacteria and was not safe for any household purposes; and 3) that the access road was on the property when it was on the neighbor's property. The Durbins further contend that the Realtors failed to disclose other serious defects in the home such as the fact that there were no hot water pipes and thus no hot water, that the plumbing drain lines were not connected to the main sewer line and drained directly into the soil in the crawlspace under the home, and that the roof leaked. In summary, the Durbins argue that the Realtors misrepresented that the house was in good condition.

The Realtors dispute the Durbins' allegations of misrepresentation. The Realtors in fact claim that they performed a diligent inspection of the property and disclosed the The Durbins were not represented by an agent in the transaction. Therefore, the Durbins filed a complaint against the Realtors and the Sherrills claiming that they made material misrepresentations about the property, concealed material facts regarding the property, and that the Durbins relied on the information in agreeing to purchase the property. The Durbins disclosed their trial expert on January 31, 1995, but later withdrew that expert witness.

information gleaned from that inspection. They also claim that the Sherrills informed the Durbins of the property's shortcomings and that those shortcomings were reflected in the purchase price.

Defendants Wayne Sherrill, Rachel Sherrill, and Michael Sherrill did not appear in the action. Their defaults were entered on February 2, 1994. The Realtors moved for summary judgment on the ground that the Durbins could not prove any of their claims without expert testimony establishing the relevant standard of care. The District Court granted summary judgment in favor of the Realtors and pursuant to Rule 54(b), M.R.Civ. P., certified for immediate appeal its order dismissing all claims against the Realtors. The Durbins appeal the District Court's determination that for the Realtors to be found liable as individuals for their conduct toward the Durbins, the Durbins must first establish a duty owed by the seller's broker to the purchasers and that the standard of care relating to such duty and breach thereof must be established by expert testimony as a matter of law.

DISCUSSION

1. Did the District Court err in ruling that the Durbins failed to establish a standard of care through the expert testimony of a real estate broker?

The Durbins contend that the Realtors committed actual fraud and constructive fraud by misrepresenting the condition of the property or, in the alternative, committed negligent misrepresentation by failing to exercise reasonable care in investigating the truth of the information they passed on to the Durbins, violated the Montana Real Estate Licensing Act by misrepresenting facts about the property, and violated the Montana Consumer Protection Act by committing deceptive acts in the conduct of their real estate business. The Durbins argue that standard of care testimony is neither necessary nor relevant to these claims. Specifically, the Durbins argue that they do not have to present expert testimony to establish claims for fraud and claims of statutory violations in this case for two reasons. First, the Realtors did not represent the Durbins in this transaction and thus did not create a professional relationship. Second, the elements of the fraud claims focus on the knowledge and state of mind of the Realtors in this case and not on the standard of care by other professionals and the statutory violations involve the conduct of the Realtors in this case and whether that conduct conformed with statutorily mandated rules. In summary, the Durbins assert that the District Court erred in granting summary judgment because expert testimony is irrelevant to any factual issue required to establish the Durbins' claims.

In contrast, the Realtors assert that the District Court properly granted summary judgment finding that the gravamen of the Durbins' claims sounds in negligence and that these claims fail because the Durbins did not establish the appropriate standard of care and breach of that standard. The Realtors further assert that the Durbins had to provide expert testimony to prove duty and breach in a negligence claim against a professional.

We review a grant of summary judgment de novo using the same criteria initially used by the District Court under Rule 56, M.R.Civ.P. Mead v. M.S.B., Inc. (1994), 264 Mont. 465, 470, 872 P.2d 782, 785. Therefore, we determine whether there is an absence of genuine issues of material fact and whether the moving party is entitled to judgment as a matter of law. Mead, 872 P.2d at 785.

The Durbins do not dispute that, were they pursuing a professional negligence claim against their own broker, they would need to produce expert standard of care testimony. They do not assert a professional negligence claim because the Realtors did not represent the Durbins in a professional capacity. Instead, the Durbins assert common law and statutory fraud theories of recovery which do not require proof of the standard of conduct exercised by other brokers. The essence of the Durbins' claims sound in fraudulent misrepresentation and nondisclosure of material facts concerning the property.

A. Actual Fraud and Constructive Fraud

In Lee v. Armstrong (1990), 244 Mont. 289, 293, 798 P.2d 84, 87, we delineated the nine elements of actual fraud: (1) a representation; (2) falsity of the representation; (3) materiality of the representation; (4) speaker's knowledge of the falsity of the representation or ignorance of its truth; (5) speaker's intent it should be relied upon; (6) the hearer's ignorance of the falsity of the representation; (7) the hearer's reliance on the representation; (8) the hearer's right to rely on the representation; and (9) consequent and proximate injury caused by the reliance on the representation. These elements focus on the knowledge and intent of the broker involved in the transaction. The standard of care exercised by other brokers in similar transactions does not have bearing on what brokers in a specific case know or intend. See e.g., State v. Howard (1981), 195 Mont. 400, 404-05, 637 P.2d 15, 17. In Howard, we held that the jury was as qualified as the doctor to infer the defendant's intent from the nature of the injuries the defendant inflicted. Howard, 637 P.2d at 17; see also U.S. v. Clapp (8th Cir.1995), 46 F.3d 795.

In Clapp, the defendant offered expert testimony to show that he had acted without intent to defraud. In holding that expert testimony was not necessary to illuminate the defendant's intent, the court noted that expert testimony is appropriate when it "relates to issues that are beyond the ken of people of ordinary experience," but is superfluous where the subject matter is within the knowledge or experience of laypersons. Clapp, 46 F.3d at 802 (quoting United States v....