Kuehn v. Stanley

• Decision Date: 07 June 2004
• Docket Number: No. 2 CA-CV 2003-0136.,2 CA-CV 2003-0136.
• Citation: 91 P.3d 346,208 Ariz. 124
• Parties: Ernest W. KUEHN and Jo Ann C. Kuehn, Plaintiffs/Appellants, v. Theresa C. STANLEY and John Doe Stanley, First Magnus Financial Corporation, and Charter Funding, Defendants/Appellees.
• Court: Arizona Court of Appeals

91 P.3d 346

208 Ariz. 124

Ernest W. KUEHN and Jo Ann C. Kuehn, Plaintiffs/Appellants, v. Theresa C. STANLEY and John Doe Stanley, First Magnus Financial Corporation, and Charter Funding, Defendants/Appellees.

No. -0136.

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

June 7, 2004.

Albert H. Hartwell, Jr., Tucson, for Plaintiffs/Appellants.

Munger Chadwick, P.L.C., By John F. Munger and Laura P. Chiasson, Tucson, for Defendants/Appellees.

OPINION

HOWARD, J.

¶ 1 Appellants Ernest and Jo Ann Kuehn appeal the trial court's grant of summary judgment and award of attorney fees in favor of appellees Theresa Stanley and First Magnus Corporation on the Kuehns' claims of negligence, consumer fraud, negligent supervision, and breach of contract. The Kuehns contend that issues of law and material fact exist precluding summary judgment and that the trial court abused its discretion when it granted attorney fees to First Magnus as a prevailing party to a contract claim. Finding no error or abuse of discretion, we affirm.

¶ 2 Although the dispositive facts are not in dispute here, we view the facts in the light most favorable to the party opposing summary judgment. Link v. Pima County, 193 Ariz. 336, ¶ 12, 972 P.2d 669, ¶ 12 (App.1998). In July 2000, the Kuehns entered into a contract to purchase real property. The contract specified a purchase price of $282,000; the Kuehns offered $3,000 of this amount in earnest money and agreed to pay approximately $57,000 at the close of escrow. The contract was contingent on the Kuehns qualifying for sufficient financing for the remainder of the purchase price.

¶ 3 The Kuehns subsequently applied for a mortgage loan in the amount of $220,000 from Charter Funding Corporation, a division of First Magnus. As part of its loan-approval process, First Magnus asked Theresa Stanley to appraise the property. Stanley was employed by CRG Valuations, another division of First Magnus. After Stanley appraised the property at $282,000, First Magnus lent the Kuehns $220,000. Before the close of escrow, First Magnus provided a copy of the appraisal report to the Kuehns. After they purchased the property, the Kuehns showed the appraisal report to a family member who was also a licensed appraiser. This family member analyzed the report and concluded that Stanley had "deviated severely" from standard appraisal practices. The Kuehns then had another appraisal performed, which resulted in a value of $245,000, a difference of $37,000 from Stanley's appraisal.

¶ 4 The Kuehns sued Stanley and First Magnus, alleging claims of negligence, gross negligence, negligent supervision, fraud, consumer fraud, and breach of contract.¹ First Magnus moved for partial summary judgment on all claims of negligence or fraud, which the trial court granted. First Magnus then filed a second motion for summary judgment, seeking dismissal of the remaining breach of contract claim. The trial court also granted this motion and awarded First Magnus its attorney fees. The Kuehns now appeal to this court.

TORT CLAIMS

¶ 5 The Kuehns argue that the court erred when it granted summary judgment on the tort claims in favor of First Magnus. We review a grant of summary judgment de novo. Strojnik v. Gen. Ins. Co. of Am., 201 Ariz. 430, ¶ 10, 36 P.3d 1200, ¶ 10 (App.2001).

¶ 6 In its first motion for partial summary judgment, First Magnus sought dismissal of the Kuehns' negligence-related claims, arguing it had not owed the Kuehns any duty. First Magnus also asked the court to dismiss the fraud claims on the ground the Kuehns had had no right to rely, and had not relied, on the appraisal. The Kuehns responded, first arguing that the parties had been in privity of contract. The Kuehns then noted that "the issue here is not privity, but reliance," arguing that they had had a right to rely on the allegedly negligent appraisal. In support of this argument, the Kuehns quoted extensively from Restatement (Second) of Torts § 552 (1977), which states the law on negligent misrepresentation.

¶ 7 After oral argument, the trial court requested supplemental briefing addressing Hoffman v. Greenberg, 159 Ariz. 377, 767 P.2d 725 (App.1988), a case that analyzed a claim for damages resulting from a negligent appraisal under the law of negligent misrepresentation as stated in Restatement § 552. After reviewing these arguments, the court granted First Magnus's motion for summary judgment on the basis that the Kuehns had had no right to rely on the appraisal under Hoffman. The court further concluded the Kuehns had made no showing of reliance since they had been shown the appraisal only after they were already bound contractually to purchase the property.

A. Negligence/negligent misrepresentation

¶ 8 The Kuehns argue that the trial court erred in granting summary judgment on negligence by addressing the tort of negligent misrepresentation instead of simple negligence. The Kuehns contend the "court appear[ed] to have confused the requirements" of both negligence and negligent misrepresentation and, thus, misapplied the Arizona authorities on which it relied.²

¶ 9 When considering the duty of care in a negligence claim resulting from failure to exercise reasonable care in supplying professional information, Arizona courts follow the law of negligent misrepresentation set forth in Restatement § 552(1), which provides:

One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

See Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 188-89, 677 P.2d 1292, 1296-97 (1984); see also Hoffman, 159 Ariz. at 379-80, 767 P.2d at 727-28 (applying § 552 to a claim of damage from a negligent real estate appraisal). Under the Restatement, the liability resulting from a claim for negligent misrepresentation is limited to losses 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.

Restatement § 552(2). Comment h to § 552 further notes that a claim would succeed so long as

the maker of the representation intends it to reach and influence either a particular person or persons, known to him, or a group or class of persons, distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it.

The drafters of the Restatement justified this limited liability for negligent misrepresentation claims "because of the extent to which misinformation may be, and may be expected to be, circulated, and the magnitude of the losses which may follow from reliance upon it." Restatement § 552 cmt. a.

¶ 10 Based on this rationale, the court in Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 30, 945 P.2d 317, 341 (App.1996), held that the gravamen of a claim of negligence against a provider of professional information is negligent misrepresentation and that a party may not pursue a claim for negligence separate and distinct from a negligent misrepresentation claim. The court noted that the drafters of the Restatement did not narrow the range of liability for negligent misrepresentation "in the expectation that a plaintiff could escape such limitations merely by attacking the same conduct in an ordinary negligence count." Id. at 31, 945 P.2d at 342. Thus, the court said, to allow a plaintiff to pursue a negligence claim separate and distinct from negligent misrepresentation would "sanction an end-run around Restatement (Second) § 552." Id. at 30, 945 P.2d at 341. Based on the rule articulated in Standard Chartered, the trial court properly concluded that the duty in this situation is limited by Restatement § 552 and did not err when it analyzed the Kuehns' negligence claim as one of negligent misrepresentation.

¶ 11 The Kuehns, however, note that the supreme court in Donnelly allowed claims of negligence and negligent misrepresentation to proceed. But the allegedly negligent party in Donnelly was an architect—a design professional—and not an appraiser or auditor as were the defendants in Hoffman or Standard Chartered. Furthermore, the primary issue in Donnelly was whether a design professional's tort duty was limited by privity of contract, not whether any distinction existed between negligence and professional negligent misrepresentation. Donnelly, 139 Ariz. at 187, 677 P.2d at 1295; see also Standard Chartered, 190 Ariz. at 30, n. 10, 945 P.2d at 341, n. 10. Thus, Donnelly is not helpful to the Kuehns on this issue.

¶ 12 The Kuehns further contend that, even under a negligent misrepresentation analysis, the trial court erred in granting summary judgment in favor of First Magnus because they submitted adequate proof to raise an issue of fact about their reliance and right to rely. Because a plaintiff must show "justifiable reliance" to prevail on a claim for negligent misrepresentation, see Restatement § 552(1), we first determine whether the trial court erred in finding the Kuehns had no right to rely on Stanley's appraisal.

¶ 13 After the Kuehns executed the purchase contract and submitted their loan application, First Magnus directed Stanley to appraise the property. Based in part on Stanley's appraisal, First Magnus approved the loan to the Kuehns. But the Kuehns did not hire Stanley to conduct an appraisal on their intended purchase. In fact, Stanley stated in her affidavit that ...