In re Supplies

• Decision Date: 13 December 2010
• Docket Number: Bankruptcy No. 05–10601–PHX–RJH.,No. CV–10–00083–PHX–GMS.,Adversary No. 07–00145–PHX–RJH.,CV–10–00083–PHX–GMS.
• Citation: 442 B.R. 703
• Parties: In re JAKE'S GRANITE SUPPLIES, L.L.C., Debtor.Jake's Granite Supplies, L.L.C., an Arizona Limited Liability Company, Appellant,v.SNS Civil Design Consultants, Inc., an Arizona corporation dba SNS Civil Design Group; Kimball R. Siegfried and Eileen Siegfried, husband and wife, Appellees.
• Court: U.S. District Court — District of Arizona

442 B.R. 703

In re JAKE'S GRANITE SUPPLIES, L.L.C., Debtor.Jake's Granite Supplies, L.L.C., an Arizona Limited Liability Company, Appellant,

v.SNS Civil Design Consultants, Inc., an Arizona corporation dba SNS Civil Design Group; Kimball R. Siegfried and Eileen Siegfried, husband and wife, Appellees.

No. CV–10–00083–PHX–GMS.

Bankruptcy No. 05–10601–PHX–RJH.

Adversary No. 07–00145–PHX–RJH.

United States District Court, D. Arizona.

Dec. 13, 2010.

Michael R. Scheurich, Robert C. Brown, William L. Novotny, Mariscal Weeks McIntyre & Friedlander PA, Phoenix, AZ, for Debtor/Appellant.

Andrew Q. Everroad, Meredith Lynn Vivona, Bonnett Fairbourn Friedman & Balint PC, Phoenix, AZ, for Appellees.

ORDER

G. MURRAY SNOW, District Judge.

Currently pending before the Court is Debtor Jake's Granite Supplies, LLC (“Jake's”) Appeal from the Arizona Bankruptcy Court's grant of summary judgment, entered October 26, 2009, in favor of Appellees, dismissing Jake's claims for breach of contract, negligent misrepresentation, and promissory estoppel. (Doc. 19, Ex. N). Appellants also seek review of the Bankruptcy Court's Second Amended Final Judgment (Doc. 17, Ex. C), entered January 25, 2010, awarding Appellees attorneys' fees and costs. After reviewing the pleadings and record excerpts submitted for purposes of this appeal, and having determined that oral argument is unnecessary,¹ the Court affirms in part and denies in part the Bankruptcy Court's summary judgment order (Doc. 19), and vacates in part the Bankruptcy Court's Second Amended Final Judgment (Doc. 17).

BACKGROUND

Appellant Jake's is an Arizona limited liability company and former owner of a sand and gravel operation near Buckeye, Arizona. Jake's filed a voluntary petition under Chapter 11 of the Bankruptcy Code on June 13, 2005 (the “petition date”). (Doc. 17, Ex. D). In September and October 2003, Jake's entered into three separate contracts to purchase the Quackenbush, Stone, and Dycus parcels. (Doc. 19, Ex. A). Fidelity National Title Insurance Company (“Fidelity”) served as the escrow agent for the purchases and issued ALTA Extended Owner's Title Insurance Policies to Jake's for the parcels.² According to Jake's closing instructions, Fidelity was to close escrow only upon its unconditional agreement to issue an ALTA Extended Owner's Policy with a survey endorsement for each of the parcels.³ The extended coverage was required by Jake's lender as a condition of funding its loans. To obtain this extended coverage, Jake's was required to provide Fidelity a survey of the property that complied with ALTA/ACSM standards.

Clay Sourant, Jake's principal, asked General Engineering (“General”) to provide an ALTA survey. General contacted Appellees, SNS Civil Consultants, Inc. and Siegfried (collectively referred to as “SNS”), and provided them with a “Commitment for Title Insurance” (the “title commitments”) prepared by Fidelity for each of the parcels.⁴ Siegfried, a registered surveyor employed by SNS, prepared and signed a survey entitled “ALTA/ACSM Land Title Survey” (the “survey”) on July 23, 2004.⁵ The survey certified that it was “made in (i) accordance with “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,” ... and (ii) pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and in effect on the date of this certification).” (Doc. 19, Ex. B). The survey further stated that, “[t]he premises surveyed have no known discrepancies, boundary line conflicts, encroachments, overlapping of improvements, easements or right-of-ways except as shown, and has access to or from a dedicated roadway.” (Doc. 17, Ex. D). Fidelity issued the ALTA Extended Owner's Policies and closed escrow on the transactions on October 12, 2004.

Less than a year and a half later, Appellees John and Vicki Beaver (the “Beavers”) filed a claim in Jake's Chapter 11 case that they have title through adverse possession to certain portions of real property previously owned by Jake's. The ALTA/ACSM survey had not revealed the encroachments or visible appropriations that formed the basis of the Beavers' adverse possession claim. ⁶

DISCUSSION

I. Legal Standard

Under 29 U.S.C. § 158(a)(1), the Court has jurisdiction over appeals from “final judgments, orders, and decrees” of bankruptcy judges. The Court reviews a bankruptcy court's grants of summary judgment de novo. In re Raintree Healthcare Corp., 431 F.3d 685, 687 (9th Cir.2005). Summary judgment is to be granted if the pleading and supporting documents, viewed in the light most favorable to the non-moving party, show that there is no genuine issue as to a material fact and moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). Summary judgment is generally not appropriate in negligence actions. 16 A.R.S. R. Civ. P. 56(c).

II. AnalysisA. Negligent Misrepresentation

Jake's contends that SNS' failure to note the visible appropriations and encroachments on the property forms the basis of a negligent misrepresentation claim. Arizona follows the law of negligent misrepresentation set forth in the Restatement (Second) of Torts § 552(1). ⁷ See Haisch v. Allstate Ins. Co., 197 Ariz. 606, 610, 5 P.3d 940, 944 (Ct.App.2000); McAlister v. Citibank, 171 Ariz. 207, 215, 829 P.2d 1253, 1261 (Ct.App.1992). To prevail on a claim for negligent misrepresentation, Jake's must establish that SNS, in the course of its business, 1) supplied false information, 2) for Jake's guidance in its business transactions, 3) which Jake's justifiably relied on, and 4) suffered pecuniary loss as a result because 5) SNS failed to exercise reasonable care in obtaining or communicating the information. St. Joseph's Hosp. & Med. Ctr. v. Reserve Life Ins. Co., 154 Ariz. 307, 313, 742 P.2d 808, 814 (1987). Liability for negligent misrepresentation is narrow in scope because it is premised on the reasonable expectations of a foreseeable user of information supplied in connection with commercial transactions. Restatement (Second) of Torts § 552 cmt. a (1977). Specifically, liability for negligent misrepresentation is limited to loss suffered a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction. Id. at § 552(2).

Jake's avers that its “reliance on the Survey's false representations caused it to incur damages because, upon the close of the Escrows, Jake's became the title owner of the parcels subject to the Beavers' encroachments.” (Doc. 18). Applying the Restatement to the facts of the instant case, the evidence suggests that Jake's raises material issues of fact. The parties do not dispute that SNS, in the course of its land surveying business, supplied false information for the guidance of others in their business transactions. (Doc. 19, Ex. F). Siegfried, a registered land surveyor, concedes that the survey he sealed failed to comply with ALTA/ACSM standards and that the survey certification was inaccurate. ( Id.). Specifically, Siegfried appears to agree with expert Gary Stocker that the survey fails to comply with Paragraph 5f of the ALTA/ACSM standards.⁸ ( Id.). In his report, Stocker notes that evidence of possession, including fences, gates, cultivated farm field, irrigation ditches, and access roads was not shown nor noted on the survey. (Doc. 19, Ex. J). These concessions are a sufficient basis on which a jury might find that SNS failed to exercise reasonable care. The only remaining elements for a negligent misrepresentation claim are whether Jake's justifiably relied on the survey's false certification in its acquisition of the three parcels, and whether he suffered a pecuniary loss as a result.

To determine whether a party to a transaction justifiably relied on another party's representations depends on the complaining party's own information and intelligence. St. Joseph's Hosp. & Med. Ctr., 154 Ariz. at 316, 742 P.2d at 817. Jake's representative, Sourant, testified that he did not understand what an ALTA survey was, but recalled requiring an ALTA survey as a condition of the lender. (Doc. 22, Ex. 2). Specifically, when Sourant was asked whether Jake's relied on the survey, he answered in the affirmative and noted, “it was the ALTA survey that we needed in order to be able to close on the properties.” ( Id.). In its Memorandum Decision, the Bankruptcy Court held that Jake's did not satisfy the justifiable reliance element because as per Sourant's testimony, “Jake's relied on the survey certification only to the extent that an ALTA survey was a necessary condition to obtain the ALTA extended owner's policies its bank required to fund the loans and close escrow on the properties.” (Doc. 19, Ex. N). In reaching this conclusion, the Bankruptcy Court relied on the fact that Sourant testified to not knowing the difference between an ALTA survey and a boundary-line depiction, and that, in the end, Jake's obtained the extended policies with survey endorsements that it sought, thereby demonstrating that it did not rely on the survey certification to its detriment. ( Id.). The Bankruptcy Court states, “Jake's got everything it contracted for and needed—a survey sufficient for the bank to fund and to close escrow.” ( Id.).

Nevertheless, Jake's did not get everything it contracted for or needed. Jake's contracted for an ALTA survey. It did not get that. Although Sourant may not have understood what the lender and Fidelity understood—that such a survey was necessary, among other things, to sufficiently issue clear title to prevent the type of adverse possession claims that occurred here—because both the lender and Fidelity understood it, there arguably would have been no closing absent an ALTA survey. Jake's did not contract with General to be...