Hermansen v. Tasulis

• Decision Date: 17 May 2002
• Docket Number: No. 990851.,990851.
• Citation: 2002 UT 52,48 P.3d 235
• Court: Utah Supreme Court
• Parties: C. Dean and Carol N. HERMANSEN, Richard and Carol Abelhouzen, Plaintiffs and Appellants, v. George N. TASULIS, an individual dba Interchange Real Estate, Tarena McDougal, Stanley R. McDougal, an individual dba Stan McDougal Construction, McDougal-Shaw Developers, a Utah limited liability company, Duane Shaw, an individual, Scott Claffey, an individual, Mansell & Associates, a Utah corporation, and John Does 1-25, Defendants and Appellees.

48 P.3d 235

2002 UT 52

C. Dean and Carol N. HERMANSEN, Richard and Carol Abelhouzen, Plaintiffs and Appellants, v. George N. TASULIS, an individual dba Interchange Real Estate, Tarena McDougal, Stanley R. McDougal, an individual dba Stan McDougal Construction, McDougal-Shaw Developers, a Utah limited liability company, Duane Shaw, an individual, Scott Claffey, an individual, Mansell & Associates, a Utah corporation, and John Does 1-25, Defendants and Appellees.

No. 990851.

Supreme Court of Utah.

May 17, 2002.

Lincoln W. Hobbs, Akiko Kawamura, Salt Lake City, for appellants.

Roger R. Fairbanks, Salt Lake City, for appellees.

HOWE, Justice.

INTRODUCTION

¶ 1 Plaintiffs, home owners, appeal from an order granting a motion for summary judgment to defendants, a real estate broker and his agent, who were involved in the sale of real estate to plaintiffs.

BACKGROUND

¶ 2 On May 2, 1994, plaintiffs C. Dean and Carol N. Hermansen entered into an earnest money sales agreement with Stanley McDougal, a licensed contractor, to construct a home on lots located within the Wasatch Downs Subdivision which were owned by McDougal Shaw Development, LLC.

¶ 3 Stanley McDougal is a part owner of McDougal Shaw Development. Stanley's wife, Terena McDougal, is a licensed real estate agent who worked for George Tasulis, d.b.a. Interchange Real Estate, a licensed real estate broker. When the Hermansens executed the earnest money sales agreement, Tasulis and Terena were engaged by McDougal Shaw Development to act as listing broker and agent, respectively. The Hermansens assert that in their conversations with Tasulis, he implied to them that he was acting in their best interests and representing them in the real estate transaction.¹

¶ 4 The Hermansens are the only plaintiffs who are parties to this appeal. Their claims against Stanley and Terena McDougal, as individuals, have been resolved in a partial settlement agreement. In this appeal, the Hermansens seek reversal of a summary judgment dismissing their claims against Tasulis. Terena remains a party to the suit only by virtue of her agency relationship with Tasulis.

¶ 5 The Hermansens allege that at some point prior to April 30, 1994, Terena, Stanley, and Tasulis became aware, or through the exercise of reasonable diligence should have been aware, of significant problems with the stability of the soil and subsurface conditions at the subdivision. Surface water would accumulate in one area of the subdivision, and in preparing the property for development of residential construction, a backhoe was stuck for several days in a mud bog. They further assert that Stanley was also aware that the previous owner of the property kept livestock that occasionally would mire down in the mud and have to be pulled out by horses. Stanley installed a subdrainage system to prepare the property for construction. Despite the installation of the subdrainage system, the unstable soil conditions resulted in some parts of the Hermansens' home settling 3.75 inches, causing substantial structural damage.²

¶ 6 Terena was a guarantor on the purchase of the property which became Wasatch Downs Subdivision. The record indicates that Terena and Tasulis occupied a trailer office located within the subdivision and that Tasulis was in the trailer the day a backhoe got stuck in what was described as "chocolate pudding-like mud." Deposition testimony revealed that it took two to three days of work with three to four pieces of heavy machinery to extricate the backhoe. The Hermansens assert that Tasulis and Terena knew that the lots purchased by the Hermansens were unsuitable for residential construction, but neither of them disclosed this information to the Hermansens.

¶ 7 Stanley McDougal was questioned in deposition whether he had discussed his decision to purchase the subdivision property with his wife, Terena. He acknowledged that these conversations had taken place. However, on advice of counsel, Stanley asserted the spousal privilege and refused to answer questions about whether Terena and he discussed surface water that Stanley had observed on the property. Stanley's counsel indicated that he would advise Stanley not to answer any other questions respecting any conversation between Stanley and Terena relating to the existence or nonexistence of surface water within the subdivision. Stanley did, however, admit that Terena did not actively seek to sell real estate other than properties in which he had an ownership interest and that a significant portion of the real estate that Terena sold was real estate owned by him.

¶ 8 The Hermansens assert that under Utah law, because real estate professionals hired by a vendor are expected to be honest, ethical, and competent, and are answerable at law for their statutory duty to the public, Tasulis and Terena each breached that duty when they failed to disclose material defects in the property. The Hermansens further allege that Terena and Tasulis knew or should have known of the unstable condition of the soil at the subdivision upon which Stanley was building the Hermansens' future home and that Stanley, Terena, and Tasulis worked to fraudulently represent that the property was suitable for residential construction.

¶ 9 The trial court dismissed plaintiffs' negligence claim against Tasulis and Terena based on its interpretation of American Towers Owners Ass'n v. CCI Mechanical, Inc., 930 P.2d 1182 (Utah 1996), which the trial court concluded precluded claims for economic loss arising from nonintentional torts. The court also dismissed plaintiffs' claim of fraud, finding insufficient evidence to support that claim.

ANALYSIS

¶ 10 We review the trial court's summary judgment for correctness, considering only whether the trial court correctly applied the law and correctly concluded that no disputed issues of material fact existed. See, e.g., Surety Underwriters v. E & C Trucking, 2000 UT 71, ¶ 14, 10 P.3d 338. Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Id. When we review a grant of summary judgment, "we view the facts and all reasonable inferences drawn therefrom in the light most favorable to the non-moving party." Id. at ¶ 15.

I. APPLICABILITY OF AMERICAN TOWERS

¶ 11 The trial court relied heavily on American Towers in entering summary judgment for defendants on the Hermansens' claims of negligence and breach of fiduciary duty, applying the economic loss doctrine to bar these claims. 930 P.2d 1182, 1184 (Utah 1996). The plaintiff in American Towers sought damages for losses incurred as a result of alleged faulty design and construction in the plumbing and electrical systems of a large condominium complex. Id. The plaintiff, however, "was not a direct party to any of the construction contracts with defendants and . . . there was no express language in the contracts establishing an intent to confer a special benefit on the [plaintiff]." Id. at 1187. Thus the success of the plaintiff's action in that case was dependent upon whether it was an intended third-party beneficiary.

¶ 12 As we noted in Oxendine v. Overturf, "the predominant inquiry in any third-party beneficiary case is whether the contracting parties clearly intended the third party to receive a separate and distinct benefit from the contract." 1999 UT 4, ¶ 14, 973 P.2d 417 (citing Am. Towers, 930 P.2d at 1188). In the present case, we are not faced with a third-party beneficiary scenario. Rather, the two remaining parties to this suit, the Hermansens and the real estate broker and his agent, dealt directly with one another. Therefore, the issue becomes whether any duties or contractual relationship existed, the breach of which would entitle the Hermansens to a remedy.

II. ECONOMIC LOSS RULE

¶ 13 The trial judge determined that the economic loss rule articulated in American Towers precluded suit against Tasulis and Terena for nonintentional torts. In the recent case of SME Industries, Inc. v. Thompson, Ventulett & Associates, Inc., we traced the product liability roots of the economic loss rule articulated in American Towers, and reiterated its application to limit certain types of claims, stating:

The economic loss rule is a judicially created doctrine that marks the fundamental boundary between contract law, which protects expectancy interests created through agreement between the parties, and tort law, which protects individuals and their property from physical harm by imposing a duty of reasonable care.

SME Indus., Inc., 2001 UT 54, ¶ 32, 28 P.3d 669 (citing Am. Towers, 930 P.2d at 1190). We also noted that although the economic loss rule has its roots in limiting damages in products liability cases where there is no physical injury, "the rationales underlying the doctrine are particularly applicable in the construction setting." SME Indus., Inc., 2001 UT 54 at ¶ 35, 28 P.3d 669. While not solely limited to a construction setting, we wrote that "`[c]onstruction projects are characterized by detailed and comprehensive contracts that form the foundation of the industry's operations.'" Id. (quoting Am. Towers, 930 P.2d at 1190). We also noted:

[I]n American Towers ... relief for defeated economic expectations under a design or construction contract was to come from the contract itself, not from third parties. We reasoned that to conclude otherwise would essentially impose the plaintiffs' "economic expectations upon parties whom the [plaintiffs] did not know and with whom they did not deal and upon contracts to which they were not a party."

Id. (quoting Am. Towers, 930 P.2d at 1192) (alteration in the original) (citation omitted).

¶ 14 In the present case, the Hermansens assert that both Tasulis and Terena breached their duties to disclose potential...