M/I Schottenstein Homes, Inc. v. Azam

• Decision Date: 07 March 2002
• Docket Number: No. SC00-1582.,SC00-1582.
• Citation: 813 So.2d 91
• Parties: M/I SCHOTTENSTEIN HOMES, INC., etc., Petitioner, v. Nasad AZAM, et al., Respondents.
• Court: Florida Supreme Court

813 So.2d 91

M/I SCHOTTENSTEIN HOMES, INC., etc., Petitioner, v. Nasad AZAM, et al., Respondents.

No. SC00-1582.

Supreme Court of Florida.

March 7, 2002.

Diran V. Seropian of Peterson, Bernard, Vandenberg, Zei, Geisler & Martin, West Palm Beach, FL, for Petitioner. S. Tracy Long of Barry G. Roderman & Associates, P.A., Fort Lauderdale, FL, for Respondents.

LEWIS, J.

We have for review Azam v. M/I Schottenstein Homes, Inc., 761 So.2d 1195 (Fla. 4th DCA 2000), which expressly and directly conflicts with a portion of the decision in Pressman v. Wolf, 732 So.2d 356 (Fla. 3d DCA), review denied, 744 So.2d 459 (Fla.1999). We have jurisdiction. See art. V, § 3(b)(3), Fla. Const.

Facts and Procedural History

On May 28, 1999, Nasad and Safeeia Azam, along with seven other plaintiff co-owners or individual landowners ("respondents" or "the purchasers"), filed an action against M/I Schottenstein Homes, Inc. ("petitioner" or "the seller"), an Ohio corporation qualified to do business in Florida. The complaint contained three counts and asserted that in 1989, Palm Beach County prepared or had prepared a site plan to build a school on a parcel of land approximately five hundred feet from the location of property purchased by the respondents. It was alleged that such plan was on file at the offices of Palm Beach County and that the seller actually knew of this plan.¹ The purchasers further asserted that

the Defendant, its employees, agents and/or representatives, despite actual knowledge of the Palm Beach County Site Plan, represented to the Plaintiffs, for the purpose of inducing them to purchase the real estate ... that the parcel of land that was located approximately 500 feet from the location of the Brindlewood Development in Wellington, Palm Beach County, Florida, was a natural preserve, and that it would be left permanently in that state.

Finally, the purchasers alleged that they purchased their homes in reliance upon the false representations of Schottenstein. When the purchasers discovered that the parcel was not to be a "natural preserve," they filed this action for fraud in the inducement of their real estate contracts, recision of the contracts, and negligent misrepresentation with respect to the contracts.

Petitioner filed a motion to dismiss the complaint with prejudice based in part upon the existence of the school site plan in the public records of Palm Beach County. While the site plan drawing may have been clearly contained within the public record,² the pleadings are entirely unclear as to where this site plan was physically located. The motion asserted that "[e]ach of the plaintiffs are charged with constructive notice of this site plan," and thus any representations regarding the school parcel could not be relied upon. The circuit court granted the motion and dismissed the action on the basis of the following statement contained in the text of Pressman v. Wolf: "Statements concerning public record cannot form the basis for a claim of actionable fraud." 732 So.2d at 361. Respondents sought review in the district court of appeal.

On appeal, the Fourth District affirmed the circuit court's dismissal in part and reversed it in part. See Azam, 761 So.2d at 1196

. The district court affirmed the trial court's dismissal of the negligence and recision counts; however, it disagreed with the trial court's determination with regard to the fraud claim. Id. The court held that respondents had alleged sufficient facts to support a cause of action for fraud in the inducement against Schottenstein, notwithstanding the presence of the site plan in the Palm Beach County public records. Id. Specifically stating, "We disagree with the broad prohibition in Pressman," the court held that whether a fraud claim is properly asserted with respect to matters contained in the public record is a factual question that should be determined on a case-by-case basis. Id. Petitioner seeks review of the holding of the Fourth District Court of Appeal, which requires a case-by-case analysis under such circumstances.

Analysis

There are at least three decisions of this Court which impact the instant case.³ As the result reached here is derived directly from these three cases, a brief review of each reveals the principals which guide our decision today.

In Besett v. Basnett, 389 So.2d 995 (Fla. 1980), this Court adopted sections 540 and 541 of the Restatement (Second) of Torts (1977). In so doing, we held that "[t]he recipient of a fraudulent misrepresentation of fact is justified in relying upon its truth, although he might have ascertained the falsity of the representation had he made an investigation." Id. at 997 (quoting Restatement § 540). Upon cursory inspection, one would assume that this statement of section 540 of the Restatement resolves the instant case. Also important here, however, is the text of comment a to section 540, which contains an important exception. It provides, "On the other hand, if a mere cursory glance would have disclosed the falsity of the representation, its falsity is regarded as obvious under the rule stated in section 541." Id. (quoting Restatement § 540 cmt. a). Section 541 of the Restatement goes further to state: "The recipient of a fraudulent misrepresentation is not justified in relying upon its truth if he knows that it is false or its falsity is obvious to him." Id. (quoting Restatement § 540). Thus, where one has an opportunity to make a cursory examination or investigation and does not do so, he cannot recover. See id.

In addition to adopting sections 540 and 541 of the Restatement and explaining their proper application, this Court held that the plaintiffs there had stated a viable cause of action for fraudulent misrepresentation. See id. Poignantly, the purchasers alleged as part of the fraud claims that the seller had misrepresented the size of the purchased parcel during the parties' negotiations. See id. at 996. Clearly, the size of a parcel of land would have been contained in the public record. The court then proceeded to make clear that when faced with a choice between a fraudulently misrepresenting seller and a negligently inattentive purchaser, it would prefer to favor the negligent conduct as less objectionable than fraud. See id. at 998.

In Johnson v. Davis, this Court extended the Besett reasoning from affirmative misrepresentations to the arena of nondisclosure of material facts. The court very clearly stated that "where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer." Johnson v. Davis, 480 So.2d 625, 629 (Fla.1985).

Finally, in Gilchrist Timber Co. v. ITT Rayonier, this Court held that one may be held liable for negligent misrepresentation when the recipient of the misstatement is able to establish the cause of action as set forth in section 552 of the Restatement (Second) of Torts (1977). In addition, the court held that the doctrine of comparative negligence was applicable to the action. See Gilchrist Timber Co. v. ITT Rayonier, 696 So.2d 334, 337-38 (Fla.1997)

.

The significant impact of the decision in Gilchrist for the instant case, however, is the reaffirmation of both Besett and Johnson. The court initiated its analysis by stating "the policy behind our holding in Besett is to prohibit one who purposely uses false information to induce another into a transaction from profiting from such wrongdoing." Gilchrist, 696 So.2d 334 at 336-37. In addition, it is important to note that the information that was negligently misrepresented in Gilchrist was the zoning designation for a large parcel, a matter that was within the public records. Id. at 335. Again, when given the opportunity, this Court refused to preclude an action for negligent misrepresentation based exclusively upon the presence of the information allegedly misrepresented in the public record.

Against the backdrop of Besett, Johnson, and Gilchrist, in 1999 the Third District Court of Appeal reached its decision in Pressman v. Wolf, 732 So.2d 356 (Fla. 3d DCA 1999). Within its opinion, the Pressman court stated the following rule: "Statements concerning public record cannot form the basis for a claim of actionable fraud." 732 So.2d at 361. When faced with a trial court ruling based upon the text of the Pressman decision, the Fourth District below stated succinctly,

We disagree with the broad prohibition in Pressman. Rather, whether a fraud claim may lie with respect to statements about matters outside the property sold, the status of which matters can be determined from a public record, is a factual question.

761 So.2d at 1196. There is no question that a conflict exists between these two decisions of the district courts of appeal.

When due consideration is given to the previous decisions of this Court, as well as to practical realities in real estate transactions, we must approve the decision of the Fourth District below and disapprove the broad blanket statement of the Third District in Pressman. Clearly, the question of whether a cause of action for fraudulent misrepresentation exists in the instant case is one of fact that cannot be resolved based exclusively upon the parties' pleadings. The complaint states a cause of action which is not negated by the attached exhibit. While there may be some unanswered questions, such as some uncertainty as to all aspects of the matters in the public information regarding the Palm Beach County parcel, what the exact statements of Schottenstein's agents were, and whether the purchasers' reliance was justifiable under the totality of the circumstances, a cause of action has been stated. For these reasons, we hold that the question of whether a cause of action for fraudulent misrepresentation exists where the putatively misrepresented information is contained in the public record is one of fact that should not...